MCN Direct Newswire

Vol. 2 No. 6, 10 February 2003

This issue is sponsored by:

Sage, OpenAccounts and B2B Sales Consulting

This issue news

1. EDS profit falls 18% in 2002
2. SchlumbergerSema scoops top consulting award
3. PwC seeks to clear its name
4. CSC buoyed by government contracts
5. LogicaCMG claims post-merger integration is on track
6. Further information - feedback/forward to a colleague/unsubscribe

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1. EDS PROFIT FALLS 18% IN 2002

IT services giant EDS has reported 2002 net profits down 18% at $1.12 billion, on turnover up 2% at $21.5 billion - and is forecasting another tough year ahead. EDS' fourth-quarter net profit fell 11% to $360 million, on turnover down 5% at $5.5 billion.

CEO Dick Brown commented: "Market conditions in the IT services sector remained challenging in the fourth quarter as companies continued to limit discretionary spending."

No doubt referring to lost 'mega deals' at Procter & Gamble and JP Morgan Chase, as well as delays to major contracts with the US Navy and UK government, Brown added: "We completed 2002 more selective in the business we take on and more mindful of market conditions."

Prospects for 2003 also remain poor. EDS suggested a single-digit percentage increase in turnover excluding work for former parent GM - and a mid-teens to low-twenties percentage drop in turnover from GM. In 2002, GM contributed 12% of total turnover.

Fourth-quarter contract signings were $8.1 billion, down from $10.1 billion a year ago, with full-year signings of $24.4 billion down from $31.4 billion in 2001.

2. SCHLUMBERGERSEMA SCOOPS TOP CONSULTING AWARD

SchlumbergerSema has been named overall winner in the 2003 Management Consultancies Association (MCA) Best Management Practice awards.

It won the top prize for its work on the 2002 Olympic winter games in Salt Lake City. Leading a consortium of 15 technology partners in a three-year project, SchlumbergerSema managed the strategy, project management, software development, information security and systems integration to support the entire IT infrastructure for the games.

Jacques Rogge, president of the International Olympic Committee, said: "The success of the 2002 Olympic games was largely due to the commitment from SchlumbergerSema as the lead systems integrator. The work was achieved with significant cost and operational savings over previous games, without increasing the risk of the technology operations."

Category winners in this year's awards included: CM Insight for its work with Virgin Money on customer relationship management; IBM Business Consulting Services for its work with the All England Lawn Tennis Club on e-business; Impact Plus for its IT work at Aon; Billetts for a marketing project at RHM; Ashridge Consulting for its organisational development work at Halfords; and Cap Gemini Ernst & Young for an outsourcing arrangement with The Coal Authority.

Last year's overall winner, PA Consulting, also took a number of trophies, winning the HR category for its work with Barclays Bank, the production and services management category for a project with Siemens VDO Automotive, and the strategy and business transformation category for its work with the Youth Justice Board.

* Troika has been added to the roster of consultancy members within the MCA. Set up in 1998 and with 50 staff based in central London, Troika focuses on the financial services market.

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3. PwC SEEKS TO CLEAR ITS NAME

PricewaterhouseCoopers (PwC) has trumpeted how little money it earns from consultancy, following the sale of PwC Consulting, as a means of proving its independence as an auditor.

PwC said that before the July sale of PwC Consulting to IBM, its UK operation earned $3.30 in non-audit fees for every $1 spent on audit work by FTSE 100 clients. After the sale, this dropped to $1.40 in non-audit fees for every $1 spent on audit.

The lower ratio is believed to be broadly consistent across PwC's global practices and is attributed to the loss of high-value management and IT consulting contracts.

In 2001, PwC Consulting contributed about 30% of overall turnover, but PwC said this is being replaced by rising audit fees and non-audit work such as tax services, corporate finance and HR consulting.

According to the accounting firm, its UK business has achieved an average 10% rise in audit fees, with the US business gaining at least 20% and as much as 40%.

UK managing partner Rodger Hughes said PwC had announced its declining ratio to overturn the suggestion that it is dependent on non-audit work. "It is important that people realise the impact of the sale of our consultancy practice on the firm's non-audit fees. Many of the large non-audit fees that people have pointed to as a potential independence issue were related to large IT consultancy projects," he said.

* KPMG's 600 UK partners received average payments of $665,000 last year, boosted by the sale of the firm's consulting business to Atos Origin (MCN Direct 36). Without the windfall, partners' average profits from continuing operations in 2002 would have been $580,000, down on 2001 following a 21% drop in operating profits to $349 million.

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4. CSC BUOYED BY GOVERNMENT CONTRACTS

Computer Sciences Corporation (CSC) has been helped by US government contracts to lift its third-quarter net profit 21% to $105.7 million, on turnover down 3.5% to $2.8 billion.

CSC said the growth in its US federal government business was partially offset by softness in global demand for commercial IT services. Turnover from its US government activities rose 7.2% to $789.6 million in the quarter to 27 December 2002. But global commercial turnover fell 7.1% to $2 billion, with Europe flat at $761.3 million.

With US government spending on IT services set to increase, CSC believes it is well-placed to take further advantage and claims a 26-month federal pipeline worth $24 billion.

Its recent $950 million acquisition of DynCorp, a US supplier of IT services to the defence and security sectors, is expected to further stimulate sales, with CSC suggesting 2004 turnover growth of 25%.

Commenting on the results, CSC chairman and CEO Van Honeycutt said: "We continue to see indications of stabilisation of demand for consulting and systems integration services in North America and we are encouraged by a slight sequential increase in revenue during the quarter. Markets outside North America continue to be under pressure from soft demand for IT services.".

5. LOGICACMG CLAIMS POST-MERGER INTEGRATION IS ON TRACK

LogicaCMG says its post-merger integration process is progressing according to plan, with overall performance in line with expectations and a first tranche of 315 redundancies identified.

After one month trading as a combined entity (MCN Direct 62), LogicaCMG said it is confident of achieving planned annual cost savings of $98 million, with at least half this sum being realised in calendar 2003 and the full amount being saved in 2004.

Noting a "difficult industry background", LogicaCMG said margins in its IT services business during the second half of 2002 were similar to those of the first half, despite a 7% reduction in turnover. It attributed this to the start of stabilisation in its key markets, less pronounced pricing pressure, cost management and staff attrition.

But LogicaCMG said demand for IT services remains weak in the financial services sector as well as in the French and German markets.

Its combined wireless telecoms business traded just ahead of breakeven in the six months to 31 December 2002, generating a combined turnover of $261 million. It is in this division that the first 315 of 1,500 planned job cuts have been identified, at the company's wireless operations in Ireland.

Further rationalisation will follow in other countries in both the wireless and IT services businesses.

* Separately LogicaCMG has secured a $31 million, five-year contract to design, implement and manage the IT infrastructure of water services and infrastructure management group AWG.

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