June 2003
Volume ☁4 Numbet 8
Available by Subscription Dniy
ISSN 09672583
OVUIIl HOLWAY
SYSTEMHOUSEThe monthly review of the financial performance of the UK software and IT services industry
MORE FOR LESSIt's official. We're In the doldrums and we're
going to remain becalmed, certainly for the
foreseeable future.
Last year we think we captured the real mood of the UK
S/lTS market with our theme, "make do and mend☝. The
message from the customers was clear. Rather than invest in
grand new lT projects with questionable return customers
were far more inclined to make do with what they already had.
Any money being earmarked for lT was primarily to make
existing systems (both hardware and software) work better
together and last longer. Any business case to spend ☁new☂
money on IT had to be able to demonstrate a sound return in
the same nancial year, also itwould never get past rst base.
The effect that
this had on IT
spending was more
dramatic than even
we had predicted.
During last year we
were expecting
growth in the UK 5/
ITS market to be
about flat♥ but even
this would have
meant a decline of
some 2% in real
[emsaaexduding 1997 use 1999 am 2001 2002
[I SIITS market growth I srns growth excludlng Inuaiionin ation).
But now that all
the numbers are in
we have to admit that we called it too high! What actually
happened was that the UK S/ITS market shrunk by just over
4% in real terms, to around £21.7bn. This makes 2002
the worst year on record for UK S/ITS marketgrowth.
The reasons for the downturn are by now only too well
known and we won☂t risk boring you by listing them all yet
again. But one factor does bear repeating, and that is the lack
of visibility of the ☁next big thing'.
The new CIO agenda
And now we have to tell you we believe the mood of the
market has changed again, and not for the better. All the
signals we have been getting from the industry (i.e. the
suppliers) and the market (i.e. the ClOs) point to a desire on
the part of business to cut spending on IT. But this doesn't
mean cutting back on what you might call ☁IT delivery☁. The
message is simply that customers now want more for less
from their IT investment.
We hear this from the CEOs of the suppliers who tell us
that customers are driving even tougher deals, Indeed, they
are even renegotiating existing long»term contracts to get
keener pricing in the sure knowledge that the supplier can do
little other than ght their corner hard ♥ then comply.
And we have heard it directly from the ClOs of some of
the world's largest commercial and government organisations
whom we interviewed early in 2003. As we told you last
month, today's CIO is
working off the excesses
of the late 1990s. Their
new agendas are
dominated by cost
reduction. ☁Do more with
less☁ is today's
drumbeat.
Cutting costs
remains ☁de rigeur'. But
despite the general
mood of cutbacks and
rationalisation. ClOs are
pushing ahead with e-
business projects. Most
of these projects are in
the CRM, portals and
business intelligence areas. But these are all well-established
application areas. 80 you have to ask: where are the new
applications that will encourage future investment? We're afraid
the answer is, 'there aren☂t anyl'.
Looking past the nadir
We've taken these messages to heart. As a result, we
have further trimmed our forecasts in almost every facet of
the UK S/lTS market ♥ even outsourcing (which remains the
engine of whatever growth there is in the UK S/ITS market).
We☁ve totted it all up and we predict that the market will
shrink again this year. by 3% in real terms, marking the nadir
(we hope) for the market. At current course and speed we
think the market will stop shrinking in 2004 and that growth
zoo: 20M 2005 zone
[continued on page two]
2 SVSTEMHOUSE
JUNE 2003
[continued from page one]
beyond will be in very low single
digits. Even so, this means that
we will see five consecutive
years where S/ITS market
growth will be less than the
forecast growth in GDP.
Postscript: The first rule
for IT management
In his excellent article in Harvard
Business Review in May 03,
business strategist Nicholas G Carr
puts forward the view that the
commoditisation of IT means that it
is generally speaking no longer
☁strategic☂, in the sense of being able
to deliver a distinct competitive
advantage to an individual
company. Rather, IT is ☁essential' as
in, ☜we can't run the company
without it☝, like electricity and
phones, He goes a stage further,
"The only meaningful advantage
most companies can hope to gain
from an infrastructural (sic)
INDEX
IN THIS ISSUE3| 13/14
Anite 8
Atos Origin 12
Aveva 14
8T 6
080 13Comino 12Detoca 7Dimension Data 10EDS 15Experian 5Intelligent Environments 6RM 9
GA 11MMT 12Sage 5
OTHER ARTICLES
Results 16/17S/ITS Index analysis 20Share Prices 18/19
Mergers 8. Acquisitions 15
INDICES (changes in May 03)
Holway S/ITS +27.1% 3430
Holway Internet +20.5% 2294
FTSE IT (808) +12.8% 384
techMARK 100
Nasdaq Comp
+10.8% 747
+ 9.0% 1596
technology (Le. like ID .,. is a cost advantage ♥ and even that tends to be very
hard to sustain☝,
On the basis of this premise (which he amply illustrates in his article), Carr
devised three ☁new rules' forIT management.
May be you canguess his rst rule.
It's simply, 'spend less☝.
THE LEADERS CHANGE SHAPE
It has been a real challenge to derive the rankings for 2002 because some
of the biggest players have changed shape dramatically over the past year or
so. In particular:
- HP ☁merged' with Compaq (effective May 02)
- IBM acquired PwC Consulting (effective Oct. 02)
- Atos Origin acquired KPMG Consulting UK & Netherlands (effective
Sep.02)
- Logica ☁merged' with CMG (effective Dec.02)
In addition, in Apr.03 BT reorganised its services businesses (yet again) to
form BT Global Services. We have used this as a timely opportunity to unite all
of BT's S/ITS revenues (basically, SI arm, Syntegra, and network management
arm, Syncordia, as was) under the single brand.
Therefore, this year we have decided wherever possible to base our core
rankings on the merged companies as they looked at the end of 2002, based
on proforma results (i.e. as if the two companies had been merged since the
beginning of the year). This allows us to gain a more accurate measure of
revenue growth on a ☁like-for♥like' basis during 2002.
However, in the interests of ☁falr play', we have also estimated the results
for the Top Ten players based on pro rata revenues for the merged companies
(for example, just including four months revenue from PwC Consulting in IBM's
gures). As a result, we are pleased to present our ☁Twin Top Tens☂ representing
the leading suppliers of software and IT services to the UK market in 2002,
both proforma and pro rata.
Pralarma Fro rat:Rank Company UK SIITS Rank Com pany UK S/ITS
I'CV. flVi
1 IBM £2,518m 1 EDS £2,385m
2 EDS £2,385m 2 IBM £2,173m
3 Accenture £1,178m 3 Accenture £1,17am4 Fujitsu Services 21,101 m 4 Fujitsu Services £1,101m
5 080 £995m 5 C50 £995m
6 HP 2800'" 6 CGE8IY £749m
7 CGE&Y £749m 7 BT £590m
a BT £690m a Microsoft £549m
9 LogicaC MG £675m 9 Capita £645m
10 Microsoft £649m 10 SchlumbergerSema £640m
So, depending on which way you want to look at it:
» IBM became the leading supplier of software and IT services to the UK
market in 2002, beating EDS into second spot, or
v EDS retained the top spot as the leading supplier of software and IT
services to the UK market in 2002.
This is a great performance by EDS as, unlike IBM. they grew reVenues in2002 (by 2%) whereas IBM saw its UK software and ☁T sewlces ravenuesdecline, both on a proforma basis (by 17%) and On a Pro ram baSiS (by 2%).
However, whichever way you choose to look at it, IBM Certainly exited2002 as the largest supplier of software and IT services to the UK market, andwe would be surprised if it didn't retain this lead ☁in ☜5 own right' in 2003.
SVSTEMHOUSE
JUNE 2003
HOLWAY COMMENT
WHITHER IT NOW?The nalisation of the Ovum Holway Market Trends report this month (see
page 1) con rms that. whichever way you look at it. 2002 was the worst year
on record for the UK S/ITS sector. Our forecasts anticipate no relief in 2003.
Rather than a ☜bottoming out" we see a continued decline. Our revised forecasts
♥ now through to 2006 ~ give little cause for cheer either.
So where are we now heading?
If Ovum Holway has established a reputation for anything in the last few
years it has been for being the "gloomiest" of all the forecasters. But since
we rst forecast the post 2000 downturn in 1998. our trend lines
have been remarkably and consistently accurate Indeed. as we have
also often admitted. our major failing has been not being gloomy enough.
Since 1998. every forecast we have made in May for the current year has
turned out to be too optimistic by the time we have added up the actual results
in the following May.
Even so. each forecast we make has been initially greeted with criticism ♥
even derision. These reached a crescendo last Novemberwhen we presented
our rst long term view of the industry in the 'lT's all over now' presentation
for the Prince's Trust Technology Leadership Group. We suggested that IT
(which comprises S/ITS plus hardware) had entered a long period of maturity
where average growth over any signi cant period (say a 10 year cycle) would
be closely aligned to GDP.
☜Gloomy☝ ♥ The Times
☜Glum☝ ♥ The Daily Telegraph
"In a minority ofcynics" ♥ Financial Times
"Downbeat" ♥ Computer Weekly
"Stop sneering and start recovering" ♥ Computing.
...are just a selection of the press comments we got at the time.
But, when we produced that view. we believed that the bottom was already
upon us and that GDP-type growth was likely from 2003 onwards.The latest actuals + forecasts. however. show that by 2006, IT will have
experienced six consecutive years of growth lower than GDP.
A RETURN TO DOUBLE-DIGIT GROWTH?
In 2000. IT had become equal to around 4% of the UK's GDP. By 2006 it
will have reduced to just 3.4% of GDP. It IT were to nish the decade where it
started ♥ at 4% of GDP ♥ we would have to see real growth rates in double
digits returning in the later years of the decade.
We have often said that we believe we will never see double~digit growth in
our sector again.
Every consistent doubledigit growth rate period in the history of IT hasbeen on the back of TWO major things
1 ♥ atechnological ☜Next Big Thing" (PCs. the internet etc.)
2 ♥ an event (decimalisation, Big Bang. Y2K)
At this point:
1 ♥ We cannot identify the NET. We have never had a NET which has takenless than ve years from our identi cation of it to when it starts to make asigni cant impact on the revenue growth rates of the IT sector. So, if we
identify a
NET this
year. it's
2 0 O 9
before it starts to impact growth of
our market.
2 ♥The only "event" in the wings
is the introduction of the Euro. Even
if it happens. we doubt if its effect
on the sector will be anything like
that of Y2K and other "events".
So. bluntly. we wouldn't give you
any odds on double-digit growth
returning this side of 201 0.
Rather. it's the opposite.
MORE FOR LESS
All of the inputs reaching us at
the moment, BOTH from the
supplier side and the client (CIO) side,
indicate that we are in for a
prolonged period where IT users will
expect MORE but will be prepared
to pay LESS.
Michael Dell wrote a very
interesting letter to BusinessWeek
(26"☁ May 03) this month. He made
the point that "the continuing shift in
customer preference to standards-
based technology ♥and away from
expensive proprietary systems ♥
is further reducing the total cost of
computing". He believed that
customer demand for and from their
computer systems would increase
♥ but theamount they would spend
on IT would not.
As we have said in previous
articles. a few years back the major
reasons for outsourcing in the
private sector were things like
transformation to new systems.
access to expertise. improving
quality of service. tighter cost control
etc. Now everyone we interview puts
cost savings at the top of their
"that☂s why I'm outsourcing☝ list.
Where the private sector goes
today the public sector follows
tomorrow,
[continued on page tour]
SYSTEMHOUSE
JUNE 2003
[continued (ram page three]
201 0
So. let☂s postulate a decade;
- without a NET. But of course
with HUGE and constant
technological innovation and
evolution. For example, we see
RFIDs (Radio Frequency
Identi cation Devices) as a major
opportunity, Without such
opportunities, growth rates would
be even worse!
- where there is continued
pressure on S/ITS costs. ln
particular on staff costs. This in turn
plays into the hands of the offshore
players ♥ or those who partner or
acquire them. Either way, revenues
will be adversely affected.
♥ where users demand MORE
for LESS. Indeed, where they want
to see their companies spend lei
4.50%
4 00%
3.50%
Eg
Birth 0! IT
...and
decimalisatian
/'
ITll
5☁GDP
§ 3☁g
1.00% '
0,50%
0.00%
eaaeaasteaaaaaaeaasesess
(as a % of revenues) on IT than they did in the 1990s but want a greater return
on their investment.
- where there is far less customisation and far more use of standardised
offerings.
- where users turn to ☜consumerstrength☝ IT products because they are
not only much, much cheaper but also easier to use and more reliable (a real
win-win!).
Let's feed a pretty benign set of forecasts for the last four years of this
decade into our model. Let's say that IT just remains where it is in 2006 until
2010. Le. growth = in ation (currently let☁s estimate that at 2.5% p.a.) Before
you explode again. let☂s also put that into context. That growth would be
much, much better than in the firstha/fof this decade!
But that means that a sector which started the decade at 4% of GDP ends
it representing just 3.1 % of GDP. By the way, that only takes us back to where
we were in 1997.
GIVE US YOUR VIEWS
We would, as usual, welcome your feedback on this. Actually, if past
experience is anything to go by, we will get it anyway!
mailto:[email protected]
Birth 0' NextInternet, mobileh alg Thingp ones,Windows etal wand EWV
...and V2K
Birth of PC
...and Big Bang I i
/
.
,. lrr: I:
o
r- We ._M_A, ,.
l The Ovum Holway Market Trends report isavailable as part ofthe Holway@Ovum research
service. Please contact Andrew Handles for furtherl details (email: [email protected], ortelephone 01252
740908
[continued on page «vol
13%
160»
SAGE: HAPPY TO BE BORING5399Sage has announced its interim results for the six months to 31st Mar. 03.
At the Sage "headline" level. revenues were up 4% at £282.1m, PBT up 14%
at £74.3m and EPS up 14% at 4.02)). But that's only when you strip out
currency movements The ☜bottom line" is that revenues were uponly 1% if
you take currency movements into account and an actual decline in organic
growth of about 2% if you also strip out the minor acquisitions in the period.
lndeed. it was Sage☂s "boring" annuity revenues which really saved the day
Services revenues were up 6% to 俉168.8m and now represent 60% of
revenues. Whereas software licences only grew by 2% (and probably not at all
if you strip out currency movement). On the other hand Sage added 115,000
new customers making the base a credible 3.1 m customers at the present.
- The UK did surprisingly well with revenues up a real 5% - again it was
services and add-ons which held the day.
- Mainland Europe was a mixed story with revenues down 1% overall.
France was down 6% but the Germany and Swiss businesses were up10%.
♥ The US was the ☜star☝ with revenues up 8% and operating pro ts up
30%. The CHM/interact business grew 21% to £28.4m.
Comment: When we spoke with Paul Walker (CEO of Sage), he said how
pleased he was to be Boring as ever! But these results really do show how
reliable an asset 3.1m SMEs can be in ☜tough times". Walker sees "no
improvement in market conditions in 2003☝ and agrees with us that even in
2004. conditions will only improve in his market if general economic conditions
drive it toward. To answer some of our critics who say that SME spend will
more than compensate for the decline in large corporate IT budgets. Walker
(and he should know!) sees no improvement in SME spend in 2003. So expect
N Turnover Em Opera'llng☁Pro t Em V) V
Saga 7 ) . MWSI'IL. ..Six months Mar. (:3 H103) H102 Change M103 ) H102 lcnange☁ H
UK 7 ☂ 250.2) 76.7 71.6% 31.7☜ ☁ é ) 15.7%)3 "73/.France 453) 49.7 6.6% 11.5☁ 14.4149.4%) 24.7% 29.0%
GsrmanyESwitzerland 193) 17.4 10.9%. 3.3) 2.91☂13.B%117.1% 16.7%,us . 107.3) 102.7 4.5% 25.2) 21.6) 21.3%) 24.4% 21.0%Interact ☁ 23,4) 23.5120.☜ 4.3% 1.931263% 14.0% 5.1%
TOTAL. 232.1l 210.0) 4.5% 11.1? se.3:1s.a% 27.3% 24.6%
SYSTEMHOUSEJUNE 2003
little revenue growth. BUT. Sage is
pretty good at driving the earnings
♥ and the cash (operating profit of
£77,1m in the period generated
cash of £100.6m). Indeed its
operating margins of around 27.3%
are among the highest in the UK.
Sage has also started to exploit
industry♥speci c areas ♥ starting in
the US They have launched
industry-speci c offerings based
around their standard Peachtree
products. for Not-for-Profit
companies. small manufacturers.
accountants and the construction
industry. As Walker says. ☜we would
normallysell a Peachtree product for
$200$300. We can sell an industry-
speci c version for$500 single user
or$1000 multiuser". We expect this
to be rolled out in Europe and the
UK, We also expect to see the
continuation of modest acquisitions
of small industry-speci c companies
to facilitate this.
So this is a credible performance
at the earnings level in a tough
market. The "problem" is how to
drive the top/revenue line. But that
is a problem facing nearly everyone
at the moment. in the meanwhile.
Sage and Walker are happy to
continue to be Boring.
/ EXPERIAN PLAYS KEY ROLE FOR GUSexperlan'
Retail and business services group GUS reported full year results a day after disposing
of its home shopping businesses and its logistics and customer care business. Reality. to
the Barclay brothers. Our locus is on GUS☁ credit information and services business. Expat-ion,
which plays on the fringes of 'our' BPO world. Sales at Experian grew by 8% (12% at
constant currency) to 俉1.2bn and Operating profits rose by 14% (20% at constant currency)
to £256m. l☂ ting margins from 20.1% to 21.4%. Experian's UK business saw sales rise by
13% to £298m.
AsGUS disposes ofits underperforming bits. Experian becomes more and more 'mportant.
It currently generates 17% of GUS' total sales but 37% of operating pro ts. almost as much
as from GUS☁ catalogue reta business. Argos. with revenues over 俉5bn.
lnthe UK. Experian isthemarket leader
in consumer credit inlonnation and has a
substantial business in credit risk
management and credit card solutions and
services. This latter is an area that
LogicaCMG seems keen to play in. given
their partnership with Intelligent
Environments, although it looks as
though Experian would have to be the
main player to beat.
SYSTEMHOUSE
JUNE 2003
BT63 OUTSOURCING OPPORTUNITIES IGNITE BT GLOBAL
SERVICESBT's results for the full year to
315☁ Mar. 03 look pretty good at the
earnings level ♥ not so good at the
top line. EPS was up 61% at 14.2p,
PET was up 44% at 俉1l8bn but
revenue increased by only 2% to
£18.7bn. These results were at the
high end of expectations and sent
BT shares up 4pto 188p on the
morning of theirannouncernent.
Our readers will be interested in
the performance of the newly named
BT Global Services. This used to
be BT ignite and comprises
Syntegra (which used to be run by
Bill Halbert until he was replaced by
Tim Smart a few months ago) and
BT ignite Solutions (still run by Neil
Rogers, and now renamed BT
Global Solutions) Syntegra is
mainly Systems Integration. Global
Solutions is mainly Network
Management and associated
outsourcing.
Overall BT Global Services grew
revenues by 17.5% to £5.3bn in the
year to 315☁ Mar. 03. However, it
was NOT profitable ♥ group
operating losses increased from
£353m to £427m.
In Q4, what was BT Ignite
Solutions ♥ now BT Global Solutions ♥ grew by 14%. This division, which is
essentially BT☂s outsourcing out t, looks to be on something of a roll propelled
by some big signings (most impressive among which was the 1bn Euro deal
with Unilever back in Nov. 02): ☜Nearly all of the full year orders of£3.6 billion
have come in the second halfof the year and provide a solid base ofcontracted
revenue for the future."
In the SI space, meanwhile, Syntegra "performed strongly in the quarter
bene ting from the phasing of delivery against speci c contracts in the
governmentsector, achieving growth of 10 per cent/n whatremains a dif cult
market☝.
We had reckoned BT☂s total UK S/lTS revenues to be £690m in the year
to 315' Mar. 02. Rough calculations would indicate a c6% growth to c2735m
in UK S/ITS revenues in year to 315☁ Mar 03. If so, BT's S/ITS operations have
clearly bucked the negative trend experienced in the market as awhole and its
similarly sized ☜competitors☝ in particular.
We have given you our views on BT's S/ITS operations - and our proposed
strategy for them - several times in the past Basically we believe they should
stick to what they are good at and partner with others who have the skill-set
that BT lacks in the larger deals. This strategy has already seen rewards
Indeed, the coming year could have some major headline wins for BT if their
proposals at, say, Inland Revenue and MOD were to be successful. What BT
must NOT do is try to be a ☜onesourcer☝. Hence. our "problem" with thename
change to BT Global Services. Anyway, both Pierre Danon and Andy Green
(the CEOs of BT Retail and BT Global Services respectively) have assured us
that it is NOT their intention to competehead on with EDS and IBM Global
Services.
Assuming that BT sticks with the"Best of Breed"/Partnering strategy,
there could be many opportunities for readers to "partner" with BT - if they
have the complimentary skills that BT needs. Opportunities are few and far
between in today's ☜challenging☝ market. This might just be one of the better
ones around.
° LOSSES DOWN AT INTELLIGENTe1 ENVIRONMENTS
Intelligent Environments, provider of online software for financial
services, announced its preliminary results for the year to 315☁ Dec. 02☁
Group revenues were 14% down on the previous year at £2.7m due to
its withdrawal from the US market. Revenues from continuing operations
rose 1 1% to £2.6m. Losses also reduced. The Group reported a LBT for
2002 of £2.9m compared to 027m the year before. Similarly, loss per
share eased to 2.1p from 135p.
Comment: Intelligent Environments has failed to report a profit since
its flotation in 1996. There are signs of improvement, however. It has
worked hard to cut costs in 2002, reducing operating expenses by 45%
and the headcount by 41%. As a result, operating losses at the UK
operations decreased by 52% to 俉2.7m.
At the same time, the Group☁s two large-scale projects have increased
ongoing support and
maintenance revenues by 46%,IE's relationship withLogicaCMG, which hasdeveloped a hosted servicearound its software. could also belucrative in the future. However, in
the short-term IE remains
dependent on its shareholders
and a sustained flow of new
orders. Conserving cash and
controlling costs are of paramount
importance.
|%
«up
SVSTEMHOUSE
JUNE 2003
\ DETIOA OUTPERFORMS THE PROJECT SERVICESde es
MARKET
Detica, the IT services
company providing consultancy
and systems implementation
services in the two markets of
Customer Management and UKNational Security. announced ahighly commendable set of full yearresults (to 315' Mar. 03) this month_
Against what we believe to havebeen a double~digit decline in the UK
project services market in 2002,Detica☂s 19% increase in tumovar
to {seem and more importantly its25% increase in pre~tax profits(before exceptional flotation
expenses) is remarkable. Diluted
EPS was up from 13.5p in 2002
(before otation expenses) to 24.1 p.The bulk of the growth came
from Datica's sweet spot. (heGovernment sector. whiCh saw
turnover increase by 40% to
£19.5m (50% of turnover) including
turnover from National Secumy☁
which was up 37% to SteamNonetheless, turnover from the
commercial sector still managed to
rise by 4% (although the second half
experienced a 4% decline).
Across the commercial Sectonin nancial services and travel that
put in the worst performances _
down 4% and 17% respectiVely'
The other two commercial Sectors
increased revenues ♥ TMT by 19%
off the back of intensive work for 3'
Beth: . 2003 Turnover by vertical
☜3' = 239.2". (2002: 9321"☜)
Traval102% (117%)
Energy
15 6% (is 3%)
TMT17 9% (rec-x.)
Financial Services5.9% (73%)
Government (Other)
Detica Group Plc
10 year Revenue and PET Record
Relative to 1994
7.4
D Revenue (Em) I PET (Em)
u4 4
3.639.2
2☁ 32.526.6
17 66 20.9I .
☁0☁ n 124 12,4 ☁35 i ☜☁5
1994 1995 1956 1997 1993 1599 2000 20m 2002 2003
v-u-mmvomuu
and energy by 1 1% mainly through the strengthening of its long♥term relationship
with Centricat
Much of Detica's success can be attributed to its long-term client
relationships but the Group also acquired 20 new clients over the year ♥ 13of
which were in the commercial sector. CE, Torn Black commented that last
year's oat has "undoubtedly" raised Detica☁s pro le in the marketplace.
However, closing deals is still taking longer than in the past, particularly in the
nance sector, so Detica has had to be ruthless in pulling out of opportunities
with a low probability of closing.
This tight control of the business is one of the characteristics that de ne
Detica. It is now very close to winning a Holway BaringAward The Group
has had an unbroken record of pro t and EPS growth since 1995 so only two
more years to go!
We congratulated Tom Black and Andrew Alcock, FD, on the day of the
results and asked Black his view of current market conditions. Detica still has
plenty of opportunities in the government market with a strong order book.
but he believes the commercial market is still basically at. He also believes the
☜make do and mend☂ mentality is still prevalent: "Clients have spent a lot on
expensive software in the past and are now spending more on services to
make the software work harder☝ - good news for Deticat
Black is happy with consensus forecasts which specify an increase of 1 3.2%
in turnover to E43m and a double-digit increase in pro ts and stated, ☜We
remain competitive, continue to win new assignments and to secure high levels
ofrepeat revenue from existing clients, The
Board anticipates another good yeaf't
Black☂s con dence is evident in the fact that
Detica continues to recruit with employee
numbers up 16% compared to the end of
FY02, Acquisitions could be on the cards
but currently the valuation expectations of
potential targets are still ☜very high".
The share price ended the month up
1% to 334p, Possibly a bit disappointing
given theoverall rise in this month's S/lTS
index.
Government(National Security)42 5% (37 0%)
7,996 (6 1%)
8
20%
319
SYSTEMHOUSE
JUNE 2003
ANITE: DEPARTURE OF CE OVERSHADOWS
Anlte TRADING UPDATEWe were expecting a full year trading update but got more than we bargained
for when Anite announced the resignation of long time CEO John Hawkins this
month. He will be temporarily replaced by non-exec David Thorpe (ex-EDS)
while they search for a permanent candidate.
John Hawkins has had a big effect on Anite since he joined the Group in
1997. Following a mass of disposals, acquisitions and restructuring, Anite is a
much more streamlined organisation than the complex network of subsidiaries
that existed prior to his arrival. Only 10% of the business that existed three
years ago (travel and telecoms) still remains today.
The party line was that Hawkin☂s skill-set didn't t with the future strategy of
the Group, Alec Daly, Chairman. and Thorpe commented mat Hawkins' strength
was in acquisitions but that Anite☂s focus now would be on driving ef ciencies
out of the existing business. Reading between the lines, it sounds like shareholder
pressure over the earn-out problems last year, coupled with the poor
performance in the public sector business, forced the change. We were assured
by Thorpe that he hasn't found any ☜black holes" in the nances.
Anite is now looking for an ☜experienced executive with a track record of
driving business forward through organic growth. Vertical market expertise
would be an advantage",
Trading Update
The announcement of Hawkins' departure was accompanied by a
comprehensive trading update (for the year to 30'" Apr. 03).
Performance over FY03 was as follows:
- Revenues are said to have grown "in line with expectations". Consensus
forecasts at mid May 03 were for an increase of 1 1 5% to £200m.
♥ PBT for the continuing businesses before exceptional items, restructuring
costs. and amortisation of goodwill) was ☜at the lower end of expectations☝.
The most pessimistic broker☁s forecast at mid May 03 was for a decrease in
pro ts of 34% to £18,6m.
- R&D costs for the year were up 61% from £6.2m to £10m,
♥ The bottom line will be affected by goodwill amortisation and impairment
of £100m plus exceptional items and restructuring costs of £10m (mainly
related to the public sector business) but with ☜no future cash impact". in
addition. Anite will report a £16m net loss on disposal/closure of business
including a 俉14m net loss incurred on the disposal of the loss-making German
subsidiary GMO.
- At the year-end, Anite had net debt of £1 6m (2002: E1 1 .5m) after paying
out £27.6m in earnouts. 100% of the Group's potential earnout liabilities have
now been renegotiated and capped.
» ln the public sector business, ☜the integration of thirteen acquisitions
made in the division in recentyears and the requirement to continue investment
in our products has proved a greater task than was anticipated". The majority
of the c100 redundancies were in this business. Performance in the travel
business was ☜satisfactory however market conditions have worsened leading
to a deferral in major customer projects. The core telecoms testing business
continued to grow revenues but pro tability suffered in H2 due to pricing
pressure. In the international business (overseas consultancy and AM and
support operations), the performance was ☜creditable☝ with margins retained
in the double-digits.
On the outlook for the current year, Chairman Alec Daly, commented,
☜Markets remain tough with no
immediate signs of improvement.
The focus will be on organic growth,
tightly managed continuing
businesses and working to position
the Group for recovery".
- A ☜similar trading pattern" is
expected, but H1 pro ts will be less
than H1 pro ts in the previous year
due to further restructuring and
continued RED.
- The opening order book at the
start of the year was £91m. The
public sector order book was up
23% at £48m.
Anite commented that
underlying margins targeted for the
public sector would only be
realisable once the investment in new
products has finished and Fl&D
begins to reduce.
Comment: Alec Daly,Chairman, and David Thorpe.
Interim CE, made it clear in the
conference call that they were veryhappy with the performance of the
travel. telecoms and consultancybusinesses in tough marketplaces.All these businesses are said to beproducing ☜extremely goodmargins".
Their disappointment clearly
relates to the performance of the
public sector business. Whilst thedivision experienced revenue growth,
it has an "unacceptably high☝ level ofoverheads. This is going to beaddressed in the next couple ofweeks and will result in H1 earningsbeing depressed by about 俉2.5m.
The Group will now look to grow
organically. Daly commented that
their positioning as a "niche vertical
solutions provider extending into
managed services and BPO☝ is one
of the best places to be at the
moment. Wewould agree. Thetan
now will be to exploit the opportunity
whilst increasing productivity and
pro tability.
13% ☜A☝ FOR EFFORTRM
SYSTEMHOUSE
JUNE 2003
RM. the UK-based FlM Strata to Contract Wins
supplier of software and |T Contract
services to the education Quali cations & glrriculumi uthgity
South [grks'hjgeLga iing Programmesector, has announced interim
results for the six months
ended 31st Mar. 03. The
results, which were ahead of market expectations, show a much leaner.
more focused RM working hard to get back to profitability.
Headline revenue for the six months was down 4% to £85.4m, but
underlying turnover (i.e, excluding the contribution from Learning Schools
Programme, a one-off lottery funded teacher training project which has
now finished), grew 12% to 俉84.6m, from what was ☜a relatively weak
comparative period☝. Even allowing for the fact that H1 02 was not RM☂s
finest hour, the company's performance has certainly outpaced growth in
the S/ITS education sector as a whole. Indeed, we believe the market for
S/lTS in the education sector actually contracted in 2002 and is likely to
grow only marginally in 2008 (see our latest report ♥ UK Public Sector
Market 2003 ♥ The Market for Software and IT Services).
Operating costs were reduced by 8%, but RM remained loss making
at the operating and pre tax levels, albeit with a much improved
performance than in H1 02 ♥ operating loss was £2.4m (compared to
£14.6m) and pre tax loss was £1.8m (£14.1m). Diluted loss per share
was1.8p(11.2p).
Commenting on the outlook, Tim Pearson, Chief Executive, said: ☜As
always RM '5 core business is highly seasonal, and the rst half is not a
good indicator of full-year performance, Whilst it is dif cult this year to
predict the impact of the school budget settlement, lbe/ieve that RM will
see good progress for the year as a whole☝.
Comment: We believe that Tim Pearson, and his management team,
deserve a pat on the back (or a house merit!) for getting RM back in
shape. OK, so the company is not yet making a profit, but H2 is traditionally
RM☁S strongest half, contributing the majority of revenue and an even
greater proportion of gross profit. so things are heading in the right
direction,
All three of RM's activitiescreased revenues in H1 :
♥ infrastructure software and services rose 6%
~ PC & third party products increased 14%
- And education software and services grew 15%.
A Year ago, RM put in place a strategic projects team, and here the
Company has scored some significant successes, winning £110m of
South Lanarkshire Council
Turnover Em
RM picSix months to 315! March
Infrastructure software 8. services
Education software 8. services
PC & 3rd party products
S UBTOTAL
Learning Schools Programme
business since the year-end.
These projects added 091m to
turnover in H1, and whilst they are
not going to contribute
significantly to profits during
2003, they help improve revenue
visibility.
They also demonstrate that
RM can put together (or be a
subcontractor in) winning
consortia. On the Classroom
2000 project, RM is
subcontractor to SXS, whilst on
the QCA contract it is prime with
Indian lT services company Tata
|nfotech,educational
assessment services supplier
ICAA and RM's own subsidiary 3T
Productions working as
subcontractors. The South Yorks
contract will be delivered in
partnership with FD Learning (a
subsidiary of Tribal Group) and
a number of local education
providers,
The focus for H2 is about
"digesting" these wins, and (quite
rightly) delivering » indeed we
were told not to expect many
more wins in the next six months.
The bid pipeline includes threePFl
projects (worth cESOm), but none
of these are going to be awarded
in this financial year.
Simply being in the public
sector is no guarantee of
success, and with school budgets
under pressure from competing
priorities. growth in the education
sector is likely to remain modest
in the year ahead. But RM has got
its house in order. and we will be
disappointed not to see it back
in the black at the year♥end.
9
10
60%
SYSTEMHOUSE
JUNE 2003
ADimension Data. which highlights its
key differentiator in these tough times as
☜the ability to provide cost-effective
application network solutions to a global
client base". has announced results for the 550'"
UK IS BEST OF MIXED BUNCH AT DIDATA
DiData: Operating profit/loss by
geography (H1 02 vs H103)
38.1
six months to Gist Mar 03. Total turnover 540'☜
for the period was down 8.1% to $1bn 530'☜
compared to the same six months in 2002, 520m 13 910.9120 .15
whilst an operating pro t before goodwill sum 55 u ☁h☁ ☜45
and exceptionals in H102 was converted sum [♥ no _i 1 U"
to a loss of $7.0m. The loss was attributed 510,☜ l L] M
to pressure in the US and Asian markets. 5mm "☁ 5 41.475
Pre-tax losses were $194.6m (H102: $30".
$693.3m) after exceptional costs of K00, vi)» (as 692 bus 1g, ☁3} cos
$22.9m (H102: $850.8m). which Included ☁r vs☜ (a {55☂ be
severance costs, write-off of capital assets 1,3,5? (30" ge☁e
and investment write-down and impairment (9☁? Q
of goodwill. The loss per share for the
period was 14.50 compared to 53.6c in
H102.
All regions other than the US were pro table at the operating level. in the
UK, turnover increased by 10.6% to $114.1m compared to the same six
months in 2002 (and up 24% compared to the previous six months) re ecting
a "good performance in the Network Integration business". Operating pro t
was up 10.7% to $4.6m (H102: $4.2m) with operating margin unchanged at
4.1 %.
Across the service offerings in the UK (and compared to the previous six
months), product revenues were up 02% at $87.4m. managed services
revenues (☜process driven revenues of a recurring nature☝) were up 26% at
$52.9m and professional services revenues doubled to $23.7m.
Chairman, Jeremy Ord, commented, ☜Going forward, our challenge is to
continue to work harder and smarter to return loss-making operations to
pro tability increase client penetration, grow sales and margins and enhance
the value of our proprietary technology and brands".
Comment: DiData must have been disappointed to report an operating
loss (BEFORE exceptionals and goodwill), but the headline gures mask a very
mixed bag of regional results. The UK was one of the bright spots reporting a
27% increase in constant currency revenues. This achievement was in no small
part due to the efforts of the new management team, led by UK CE Russell
Bolan, which has focused on enhancing the sale of services and solutions and
improving the contribution from recurring revenues and managed services.
We are pleased to see that in the UK, and across the Group as a whole, the
revenue contribution from services is growing, Total services revenue now
represents some 67% of total UK revenues (43% of Group revenues), up from
59% (35%) in H2 02. And this isn't because product revenues have fallen ♥ the
Group's services revenues also grew in absolute terms, from $370m to $422m.
Despite the growth of services. gross margins at the UK business have
fallen in from c23% to 019% on a like-for♥Iike basis, the result of an accounting
anomaly (moving certain personnel costs from xed overheads to the cost of
sales line) and the growing contribution from the lower margin FMT business ♥
a mobile switching technology
offering. Revenue levels from the
FMT business are capped. however,
and 0rd assures us that the UK's
gross margins are not expected to
deteriorate any further.
Going forward, we expect the
UK business to continue to focus
on managed and professional
services and to work on growing
its customer base♥which may well
mean trying to tap into the public
sector, one of the few growth areas
at the moment. The UK call centre
business, The Merchant's Group,
also has potential for growth
following a number of recent
contract wins.
At the Group level. the picture is
much less rosy. in fact, the UK was
the only region to grow operating
pro t relative to the same period last
year. And if the UK was the bright
spot, then the US was a black hole,
turning a $116K pro t in H1 02 into
a $11.5m loss. The network
integration business, which is heavily
reliant on the nancial services sector
in New York, was particularly badly
affected, reporting a 24% drop in
revenues. Ord claims he is
[continued on page eleven]
1%
97p
[continued from page ten]
monitoring the performance of the US division on a month-by-month
basis and ☜will act accordingly". DiData is reluctant to give up its US
business. which it sees as key to its global offering. But. unless there
are signs of improvement in the next few months.we believe the
management team will have to make some tough decisions about its
US (and possibly Asian) businesses - and sooner rather than later if
they are to conserve cash.
The good news. however. is that the management team now seems
prepared to make those tough decisions and is under no illusions about
SYSTEMHOUSE
JUNE 2003
the state of the lT market and its prospects.
0rd acknowledged the fact that the market
has shrunk and changed. "/Tinvestment will
be subdued for quite some time to come."
he said. adding: ☜we do notsee a change in
the foreseeable future". But having ☜cut its
cloth☜. DiData is determined to make the
best of it going forward.
We wish them well.
REASONS TO BE CHEERFULmmt
MMT Computing has released its interim results for the six
months to 28☁☜ Feb. 03. Turnover fell 14% on the same period last
year to 俉12.5m. Last year's £93K PBT became an LBT of £266K
♥ exceptional items and goodwill amortisation contributed £155K
to this figure. Loss per share worsened to 1.9p, compared to last
year's loss of 0.3p (after exceptional items and goodwill).
Commenting on the outlook. Chairman Tom Hall said: ☜There is
a strong pipeline of current key prospects and we are confident
that the product will become the international market leader within
the field of utility pricing, In the short to medium term. there
does not appear to be any major recovery within the lT services
sector. although / remain con dent that we will continue the recovery
when more normal business conditions resume".
Comment: We were slightly disconcerted to read the phrase
☜when more normal business conditions improve" in Hall☂s
statement. Regular readers will know our views on the ☁when
market conditions improve☂ sentiment. However. we believe Hall is
right to expect no short to medium term recovery in the market.
MMT does have some reasons to be positive. however. For a
start. it benefits from a healthy balance sheet. with a net cash
position of 俉6.1m (2002: £6.0m). And its Systems Solutions
Division has managed to double profits to 俉0.28m (before tax and
exceptionals) despite fewer sales opportunities and
continued pressure on fee rates. all of which pushed
turnover for the division down 6% to £8.9m. This
division is also expanding into the public seetor. oneof the few growth areas.
MMT's other two divisions ♥ Packaged Solutions
and Management Consultancy ♥ faired less well:
» Packaged Solutions returned to an operating
loss of £0.37m (before tax. exceptionals etc.). having :aTk☁aged. 0 U Ions
made a small (£0.08m) profit last year. The high cost 23% (27%) \☁\
of developing PowerQuote Universal coupled with
reduced demand for enhancement work. are putting
pressure on the division and future success will depend
on converting its "strong and sizeable prospect
pipeline" into sales.
- Similarly. Management Consultancy suffered from
its exposure to the insurance market and
made a small (俉0.02m) operating loss.
BREAK AND SELL
OPPORTUNITY
We☂ve said before that MMT's three
divisions look like a good break-and-sell
opportunity and this view hasn't changed.
The Packaged Solutions division might
appeal to a number of candidates. includng
LogicaCMG (a services partner of MMT in
the energy sector). And the Management
Consultancy operation might suit an lndian
offshore player looking for a front~end into
the UK insurance and banking sector. We
think these sorts of decisions need to be
made sooner rather than later.
MMT Computing - H1 03 business mix by activity
Total: £12_5m (2001 :214.6M)
M anagement
Consuliacy
6% (9%)
Systems Solutions71 % (64%|
11
1
(9%
SYSTEMHOUSE
JUNE 2003
Comino, provider of software solutions for social housing, local
government and occupational pensions administration. has reported a
promising set of results for the year ended 31" Mar. 03. Revenues are up 19%
on FY02 to £24.5m and last year's £576K pre-tax loss was converted into a
PET of £1,2m. As a result, EPS came in at 8.913, compared to FY02☂s 3.5p
loss.
Comino's Social Housing and Local Government divisions bring in the
majority of its revenues (accounting for 42% of turnover each) and between
them account for nearly all of the operating pro t. The pro t split between the
two is currently weighted towards Social Housing, but Comino expects Local
Government☂s share to increase as its recurring revenues grow and operating
margins improve.
The Occupational Pensions division is still struggling, however, returning an
operating loss as a result of ☜the much publicised problems with the pension
industry☁ and extensive product development in the period.
Network services provider Comino Connect, reported revenues of £1 .3m
and made a small pro t of £50K. Similarly, Comino Tech ow, the business that
is now largely based on providing consultancy and management reporting to
Comino's customer base, is ☜aimed at early breakeven and pro tability't
Commenting on the results. David Quysner, Chairman, said: ☜The results
COMINO FINDS ITS NICHE
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n Routine (Em) I PET (any,
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Atos
Orlg☁☜ MODERATEDAtos Origin has reported results for the rst quarter, including the contribution
from KPMG Consulting's UK and Netherlands☁ operations. Revenues for the
three months to 31 st Mar. 03 totalled Eur781 m, a proforma increase of 4.2%.
However, excluding KPMGC. revenues fell 6.5% on a like-ior~like basis ☜re ecting
declines of 70% and 4% in SI and Managed Operations respectively", UK
accounted for 11.5% of group revenues. Atos Origin is still projecting ☜modest
reported revenue growth" this year, mainly from the consolidation ofAtos KPMGC
"offset by some revenue erosion in Si and the adverse impact of exchange rate
movements". Managed Operations revenues have "stabilised",
Comment: Atos Origin☂s SI business includes application management (which
were achieved in an uncertain
economic climate and in a dif cult
period generally for the software
and computer services' sector.
Against this backdrop, the results
are very positive and demonstrate
the potential for sustainable
pro tability and growt
Comment: Comino seems to
have found its niche in Social Housing
and Local Government. Both
divisions are doing well with order
books that are up by 102% and
1 17% respectively on the same time
last year, It is also good to see the
Local Government division return to
pro tability. Comino is partnering
with facilities management players,
such as BT and Steria, in local
government (as well as winning
contracts in its own right), in other
words. it has stuck to what it's good
at and not tried to provide its own
FM facilities. This sensible move is
beginning to pay off ♥ Comino has
already signed contracts with Luton.
Bexley and Rotherham as a result.
The Group's next challenge will be
to "manage [Occupational Pensions]
back to profit". This will not be an
easy task in the current market -
perhaps Comino would be better
to focus all its efforts on social
housing and local government.
ATOS ORIGIN: OUTSOURCING GROWTH HAS
we treat as outsourcing) so we would
expect the ☁true' consulting & SI
perfOrmance was even worse than
the 10% decline reported. Even so,
growth in outsourcing has clearly
moderated, and this is pretty well the
case for most of the other major
players. indeed, we will be re ecting
this in our new market forecasts due
out in mid-June.
SVSTEMHOUSE 1 3JUNEZODS
080: RESULTS AND DEALS BRING CHEER
080 was the last of the
☁majors' to announce full year
results. Worldwide revenues for
the year ended 31st Mar. 03 were
down fractionally (-0.3%) to
$11.35bn although in constantcurrency the drop was more like
8.3%. But on the very bright side,pre-tax income rose 23% to
$612m. lifting margins from 4.4%to 5.4%.
080 chairman and CEO Van
Honeycutt reported signs of
☜stabilisation☝ in consulting and
system integration (C&Sl) in North
America ♥ butnot so in Europe
and Asia. However. European
outsourcing gave a "solid
performance☝ and as a result.
European revenues grew 1.6% to
$2.98bn.
As for the UK, we've been
speaking to CSC UK COO Keith
Wilman and at first blush it looks
like the company grew its UK
revenues about 1% last year. This
still leaves them a few pounds
short of the ☁magic billion' (we
reckon £995m).
The UK business grew profit
around 20%. but Wilman was at
pains to point out that this was
not due to "slash and burn☜.
Indeed, headcount if anything is a
little up onthe year. mainly as a
result of new business signed at
the likes of Dept. Health. Belron.
Dun 8. Bradstreet andBombardier.
CSC UK
10 year Revenue growth
Esasm Esssm
£54m£755.☜
£63m
£50mEllim
E284"!:nsm
tum
1994 1995 1596 ☁997 1998 1999 2mmYou-nanny autu-
20m 2002 2003
As expected, outsourcing drove 080 in the UK ~ we estimate their
outsourcing revenue grew around 3% to cESQSm. mitigating a c15%
drop in C&Sl revenue to around £100m. Of course. revenues will receive
a considerable boost this FY from the Royal Mail mega-deal. as announced
this month. It☁s worth aboutE900m over ten years to the company. with
the other Prism Alliance partners BT and Xansa picking up £450m and
ElBOm respectively,
CSC also unveiled a E450m/10 year outsourcing contract with troubled
telecoms supplier Marconi. covering IT help desk. desktop computing.
networking and midrange operations. CSC will also develop and maintain
software applications and provide telecommunications services (via BT.
subcontracting to 080).
In other news this month. 080 also featured in the Radii Consortium.
along with BT. CGE&Y and Thales UK, This alliance announced it will be
bidding for UK MoD Defence Information Infrastructure (Dll) managed
services work.
It☁s clear CEO is already benefiting from the shift towards ☁multisourcing'
in the UK outsourcing market. While ☁onesource' deals ♥ such as CSC's
own new Marconi contract ♥ will remain a feature of the lT services
landscape. Ovum Holway believes more and more business is set to be
granted to consortia. With its record in partnering to win deals in the UK
so far, not to mention its stakes in Radii and the Fusion alliance (which we
reckon has a chance of winning the Inland Revenue Aspire deal). 080
looks as well placed as any of the majors to remain a key bene ciary of the
multisource trend.
@ NO RELIEF FOR IT INVESTMENT COMPANIES
return over the year.Full year results from 3i (to 315☁ Mar. 03) clearly demonstrate the
strain that investment companies are currently under. particularly in
relation to early stage technology investment. The substantial fall in
the value of 3i☂s early-stage technology portfolio (a negative return of
2671 m) was a principal factor resulting in the Group's negative total
A key element of 3i's
strategy is to maintain a
business balance with 40% of
assets in buyvouts, 40% in
[continued on page fourteen]
1
SYSTEMHOUSE
JUNE 2003
VIVA AVEVA!
Engineering design software company
Aveva Group (nee Cadcentre) has
announced record revenues and pro ts with Aveva G roup Plc
10-year Revenue and PET Record
its latest full year results. Revenues for the
year ended 31st Mar, 03 grew by 13% to
Est-3m, operating pro ts rose 14% to £5.62m
(a 15.6% margin), pre-tax pro ts grew by 13%
to £5.58m (a 15.5% margin) and EPS
increased by 9% to 21 .24pi What is more. all
the growth was organic.
Aveva's UK business was the star,
growing revenues by 36% to £6.3m,
mitigating a 5% drop in revenue to £11m in
the rest of EMEA. The Americas revenue
jumped 23% to 910.1 m and Asia/Paci c
turnover grew 17% to £8,5m,
It is little wonder that Chairman Richard King has "con dence in being able
to sustain satisfactory progress in the coming year☝,
Aveva has also done a pretty good job of moving towards a licence rental
model. Recurring licence fees increased 13% to £20.9m, with initial licence
fees growing 14% to £9.2m. Services revenues increased by 12% to £5.9m,
helped along by its new managed service business, which got off to a good
start with a $13m/3 year contract with DuPont signed in Jun. 02,
However, the company☁s edgling consulting business has sailed into the
doldrums, so it has cut back staff in that area ☜to the point where any
engagements can be handled with resources drawn from elsewhere in the
group☂t
Comment: Excellent results from a company that has increased pro ts
steadily since 1996, just a couple of years after its MBO. To achieve double-
digit revenue and pro t growth organically in a tough year like 2002 is pretty
amazing. They seem to have the formula right. A good geographical spread of
business. a decreasing dependence on lumpy initial licence fees. and a modest
D Revenue (Em) I PBT (Em)
«in ms nu Iva
[continued from page minaan]
Relative to 1994
ma
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but growing services business.
In fact, their new managed
services (i.e. application
management) business may well
turn out to be a nice little annuity
earner (though not at software
products margins, of course) as
most of the ☁usual suspect☂ AM
players like Xansa et al would not
have the technical ability to handle
highly complex engineering design
systems,
Aveva's shares rose 12% during
the month .not bad considering they
launched on AIM back in Nov 96 at
just 200p!
growth capital and 20% in
early-stage technology
companies, However, this
balance increased significantly
during 2000 and 2001 and
resulted in the Group's short-
term performance being
damaged.
3i has sought to rebalance
its portfolio and at the end of
Mart 03 had just 15% of its
assets in early stage
technology, investment in early
stage technology over the period was just £176m (compared to
☜mm in 2002 and £923m in 2001), representing just 19% of total
investment.
Interestingly, 78% of this investment was in 3i☂s existing portfolio
as opposed to completely new opportunities This mirrors the trends
highlighted by data provided to us by Cobalt Corporate Finance on
the UK market,
3i has now restructured its early stage technology business so
that it is more narrowly focused on the sectors ☜believed to offer the
best investment opportunities". It is also continuing to develop and
nurture relationships with the larger technology companies as they
are potential customers, partners or ultimate buyers of the individual
portfolio companies.
SVSTEMHOUSE
JUNE 2003
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au☁ r v 3" A Jug♥h☜ q!!! ☜☁3☁. ☜n 2'☜ "A 3.:Wylie «scam-m ☁ t,Aspect lnlerner _Nenec Solulions lrorn Nenec Designs. builds a suppens 100% cotton Nenees disposal pills soiuoons businessis oondlrlonal uponHoldings le pic contenhmanagnd corporale shareholder approval This is me only uaoing company wimin me
ponais Group. so assuming approval is given. Nana: will be lanes a cash. 'shall.
Aspect Glaup feluewave Lid (subsidiary nl Web-based business ' 1007p nia Following on irom me aoouislllon olNeltei: SolutionsopseclDanish Maelsk Dale Group) applications and managed announced the merger with me online ac vities niaiuewave,
* services ioriarge cprppraies ,Consolidauen In lne e-ouslness space oonlinues.
Euiovestucll pic rKSSL (principal subsidiary Price managemenland loo-r. ☁Elm Following me sale oiils prinopai operallng suoslolary. KSS proposes'oiknowieogo Supppn optimisation systems lorltle ' le place llseilin voluntary liquidation and reium ils cash ioSystems Group pic) pepeieurn.cnnvenieneerelali snarenoipersiriiornniris isegulvaienllo 135}: per snare-aiar cry
'and leico Industries irorn KSS's noalprice olzzop in Mar. 00. A|M~ilsteo Eulovesisch rst'ceneral Aliaan saan irorn lnvensys EHP sollwaie provider ☁iuu-rs :asnr us privale aqully ilrm. GA. is pelieved lo be pulling lne iinisrllngPartners lpucnes in a deal lo buy saan. GA already owns a numbaroiERP
' piayersln lne rnanuiaccluring sector(SSA Global Technologies andMaples). so Baan will be a good addition in me ponioiio ash is
I reported in have!oslc俉18.3m on c俉155m revenuesln Fvozr
:Marinpreuprr surilng Oller Risk Solunpns Providerolmlid party 74% com Oller is a reoenlly established company. Marlborough mining isunderwrlling and claims risk acquiring aminimum 74% stake (atno cost) hutexnens lo lnveslmanagemenl services lo >20.5m in Otter in now share capital and Inter-company leans They☁insurers. re-insurers and also have the opllon lo buy me minoer snarenoidinps live in ten yearsinlermediaries In me me e. airer the initial InvestmenL
r _ protection markets ' .Noni Anglia ,Vorksnire PosITialnlng Leeds-based sirllis lralning loo-x. nIa Eoucalion and reiaied services provider, Nord Anglia pickeo up VPT,a
1 provider skills and workiorce training company. ipr an undlsdusad sum. YPT' has liBDOK lurnovsrr and delivers lraining or me public and privalo
. ☁ clots. ilw leg d wlttl N ' aclivllies.Tolex pic 'Pwtos Ltd ☁Maiernily |T syslerns 'ioov. ex paid on oompieuon. es. wi orso im
payaple depending on rne level olcash in the business. ier Nonlngnarn.based Prolos, The purchase ills wim Toiax' avalegy or increasing its
- , ☁clinical seilware penipiia organically and by aoqulsilionr:Tauchslnna Group Micreseil GwalPlains Acoounlancy sonware reseller loov. max USDK Touchstone picks up a ciierulisl and a number oiernployees iron. me2 ☁dlvlslon olTanon Group - oeai. II also 'velnlolcas'me company's ppsilion within me Microsoft
Business Solutions market place. 2325K ol me mall. whs☁dsiatfon isy __ , , , V _ _ g I y y I H 'daierrad. payable depenplng on prelilapiliry overmp years
Voivere pic Amey Vacua Ltd (suoslolary Provider oi wnsuliancy r. 100% [Eur 'Troubled support services player Amey. signalled its inlenlion looMmay pic)
defense a other nlgnlyrepulaled sectors
technical services ip lireprocess,
dispose oimls subsidiary back al its inlerims (Sepoz). Volvere.an~eclr☁yisr invoslorarrd rurnareuno speoalrsl- paid [am In cash. Amayhas the option to subscribe ior 57. In Veopa atdli 5K. car 3 yearsieilpwlng the sale.
nuclear. transport.
GusEDS tumed in a pretty gruesome
- but notunexpected - set of results
for Q1 this month. Although total
revenues for the 3 months to Sist
Mar. 08 grew 2% to $5.37bn. thecompany recorded an operating loss
of $104m compared to a $591mpro t for Q1 02. As a result last year'spre-tax income of $527m tumed intoa pro-tax loss of $164m and netincome of $354m in Q1 02 becamea $126m net loss.
It was EDS' megadeal with theUS Navy that caused most of the grief.with the company taking a $334m
cumulative pro-tax loss EDS does
not expect this contract to turn cash
ow positive until mid♥2004. EDS also
took a $48m pre-tax hit for ex-CEO
Dick Brown's severance deal.
Business performance was also
pretty grim. Contract signings were
down nearly 60% to $Sbn. although
NAW ADDS TO EDS☂S BLUES
we should bear in mind that EDS is being a bit more selective aboutwhich deals
it pursues these days.
The core outsourcing business (Operations Solutions) saw at revenues of
$3.58bn (at constant currency) as growth from major deals signed in 2002 was
offset by adecline in business from ex-parent GM, EDS' Solutions Consulting
revenues dropped 7% to $1 .33bn because of ☜the weak economy and the
associatedslowdown in corporate discretionary spending". AT Kearney revenue
fell 14% to $239m for much the same reason. and their edgling software arm,
PLM Solutions. also saw revenue drop 11% to $201 rn (all gures at constant
currency).
New CEO Michael Jordan believes ☜we have now addressed our major
exposures and can focus on growing our core outsourcing business". EDS
gave no guidance for full year outlook. but CFO Robert Swan says that the
company will ☜remain disciplined in pursuing the right business opportunities and
not sacrificing the bottom line to top-line growth",
The good news in all of this is that there were no hidden skeletons that fell out
ofthe cupboard in the wake of Brown☁s departure. But these results paint a bleak
picture for the outlook of the S/ITS sector in 2003. with absolutely no sign of any
upturn in demand. coupled with increasing pressure on margins. Even EDS'
outsourcing revenue growth has essentially stalled, though ♥ asoutlined in our
new Market Trends 2003 research - we are still forecasting that this part of the
UK market will grow overall in 2003, albeit more slowly than in previous years
EDS is dead right to focus on the bottom line and generating cash.
15
16SYSTEMHOUSE
JUNE 2003
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Note: The companies listed on pages 18-21 are those companies in our S/lTS index with revenue oi >£2m. Also included In our index are: Allaniic Global,BSo B. Eanhpen, Fiast l. Intercede Group, Internal Business Gmup, Knowledge Technulogy Solutions. Netcall, PC Me ' 3 Group. Stile International,Superscape, Systems lntegraxed. Uluasis Gmup, Vlanet Group
SYSTEMHOUSE
JUNE 2003
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Note: The companies listed on pages 18-21 are those companies in our S/lTS index wilh revenue of >221☜. Also included in our index are: Atlantic Global.
BSoftB, Eanhpon, Flast l. Intemede Group, lntemel Business Group. Knowledge Technology Solutions, Netoall. PC Medics Group, Stile International.
Supamcape, Systems Integrated, Uliresls Group. \ anet Group
17
18 SYSTEMHOUSE
JUNE 2003
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Note: Main SYSTEMHOUSE S/ITS Index set at 1000 on 15th April 1989. Any new entrants to me Stock Exchange are allocated an index 01 1000 based on theissue price. The 508 Index is not weighted: a change in the share price 01 the largest company has the same e ect asa similar change for the smallest company.Category Codes: GS = Computer Services SP = Sottware Product R = Reseller A = IT Agency 0 = Other
20.90111.
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SVSTEMHOUSE 1 9JUN22003
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MERANT SP 21.30 2133.4m Lass 1.70 625 7.02% 53.25% 26 25111 244.6011.Mil-409511 { CS £0.51 £30.71☜ Loss 1.21 218 27.50% 155.00% £5.22m £19.00!!!
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N016: Main SYSTEMHOUSE S/ITS Index set at 1000 on 15m April 1989. Any new entrants to the Stock Exchange are allocated an index 01 1000 based on the
issue price. The 805 Index is not weighted: a change in tha share price oi the largest company has the same slfect as a similar change for the smallest company.
Categary Codes: GS = Computer Services SP = sohwam Produd H = Reseller A = IT Agency 0 = Other
20SYSTEMHOUSE
JUNE 2003
GAlNS 31-May-03 sms Index 3430.04FTSE IT (scst Index nun
lechMARK J 741.31
THE BOARD Frsstou 406570. FTSE AIM 615.30
May has seen further gains across the . SE 5,☜ mm,
' ☁ ' mnnu In (adieu . 俉Iifs'1iidox FIB♥EHETMARTY☁T mboard forthe key Indices, With the markets IL ☜☂4 n é 1 , I 1 0. I! V ,3 Q:
building on the upswing that began in April. Mann (☜t/"5H1! no snow n2) +27.05% .3 53% Mossy. «2.55% any. «0.75%I . From 15m AprBS 443.00% warm
The FISE 100 gamed 350/!» bUt ☜1'5 was From llean so +272.79% amen/aeclipsed by the performance of Ovum 3:; :2:
Hotvvays S/ITS index, which posted a27% From tstJan 93 o115,24% ☜294% «6.31%I From 1lean 94 ☜05.44% 019.02% *8.63%
"59 to 3471- The tGChMARK 100 also From mJan 95 425.79% «42.73% 462m' _ ' ' D me1stJan 96 o51.87% ☜0.25% 6.31% 45.46% '4.55%
performed In May Cllr☁nblrjg /a From 1sthn 97 ☜18.11% 4.21% 4830?: 46.95% 4.02%
during the month ♥ continnIng It was the From IsIJansa «any. 40.77% 41.57% cranes 457.97% 4225*2 From 15! Jan 99 42.93% ~30 34% 43.67% 43.44% 03.24% 4.98%
mm SAOCKS mat lad me Cl'mb' From IstJanOO 40.10% 41.29% 430.23% 433.67% 458.16% 434.479.The 128% improvememfor me FTSE me Isr Jan 01 59.03% 44.61% 40.97% 410.30% 57.21% (56.23%
V From Isuanoz -za 51% 42.02% 49.26% 54.52% 441.47% 21.30%IT (808) Index suggests the smaller S/ITS From lst Jan 03 926.44% 4.23% «5,19% «2.37% 4,05% .1 1.50%
companies have outperformed their larger Ervj yymnw' ☁. were. ☜mmc, A,qu me. am1;.gqugrivals this month. Indeed, May☂s leading . ☜'-~ I, {I☁me ~ ramps .
. . . SysIem Houses 46.4% 41.3% 61.5% (40.5% g 38.4% ☁ 32.6%
risers INCIUded NT Group. Wthh IT srarr Agencia: -7o.5% .75 2% -65.2% 447.2% 6.6% 14.5%Resellers 12.7% 33.8% 1478☜; 21.9%
recorded a 201 % gain and Sopheon, up
110%. Many larger cap companies didn't
do badly either, however. Gresham
Computing, for example, was a star performer climbing 201% while DiData was up 60%.
But not everyone could sharein the good fortune. Xpettise Group was the gloomiest of the SMS pack with a 63% fall to just
1p. Argonaut Games (down 37%) and Knowledge Support SVstsms (down 21%) fared little better. Systems houses were
the best perlormers this month. posting an average 33% gan. Software companies, resellers and ITSAs also managed double digit
increases. As a result, lTSAs are the only group in negative territory for the year so far. at 5.6% below Jan 1st levels.
424%Snitware Products _ y,.Honcy |_nt_smet Indexmoiwcy Vsn'rs Index V I
☁9.0% H.196
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