MCN Direct Newswire

Vol. 2 No. 18, 12 May 2003

This issue is sponsored by:

Mindjet, Microsoft Business Solutions, OpenAccounts and The UK Consulting Industry 2002/3

This issue news

1. Parity admits financial irregularities
2. EDS tumbles into the red
3. CSC posts $2.4bn win at Royal Mail
4. McKinsey chooses UK managing partner
5. Xansa issues full-year update
6. Further information - feedback/forward to a colleague/unsubscribe

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1. PARITY ADMITS FINANCIAL IRREGULARITIES

IT services firm Parity has contacted the police and put a British management and financial team in charge of its Dutch operation, following the revelation of financial irregularities at one of its subsidiaries in The Netherlands.

Parity admitted it had identified "certain irregularities" in the financial services unit of its Dutch Business Solutions division that are "likely to affect the recoverability of a number of debtor balances up to a maximum of $2.6 million relating to the year ended 31 December 2002". The irregularities relate to "possible overstatement of revenue through the invoicing of work not done for external parties".

Parity said it had referred the matter to the Dutch police and that it expected a significant proportion of the $2.6 million shortfall to be covered by insurance, with any excess being reported as a charge against income in the current financial year.

The discrepancies were found by Parity after auditor PricewaterhouseCoopers had reportedly raised concerns about the company's 2002 results but concluded, along with the Parity board, that the transactions were genuine and the accounts could be signed off.

Parity closed 2002 with a pre-tax loss of $38.4 million, including charges of $22.2 million, on revenues down 26% at $285.9 million (MCN Direct Vol. 2 No. 12). Parity's Dutch operation reported a loss of $161,000 on revenues of $9.2 million in 2002.

2. EDS TUMBLES INTO THE RED

EDS has fallen into the red, dragged down by a $334 million loss on a key US Navy contract and $48 million in severance pay for ex-CEO Dick Brown.

Reporting its first-quarter results later than planned - to give its new management team "extra time to thoroughly review the business financials" (MCN Direct Vol. 2 No. 16) - EDS conceded a net loss of $126 million, against net profit of $354 million in last year's comparable quarter.

Revenues for the quarter to 31 March rose 2% to $5.37 billion but contract signings collapsed from $7.2 billion a year ago, to $3 billion. EDS management said the fall reflected "a decision not to pursue certain business and an increasingly competitive sales environment".

Noting the need to take a $334 million cumulative loss on its US Navy Marine Corps intranet contract, EDS chairman and CEO Michael Jordan said: "While no-one likes reporting a loss, we believe we have addressed our major exposures. Now we can focus on growing our core outsourcing business in a long-term growth industry where we are one of the two global players."

Chief financial officer Robert Swan added: "We recognise we have a lot of work to do. EDS's priorities remain cashflow, earnings and growth in that order. We will remain disciplined in pursuing the right business opportunities and not sacrificing the bottom line for top-line growth."

Q1 revenue from operating solutions - including outsourcing - was flat, with growth in large IT outsourcing contracts signed late in 2002 offset by a fall in revenues from former parent General Motors.

Solutions consulting was down 7% at $1.3 billion, AT Kearney down 14% at $239 million and product lifecycle management solutions down 11% at $201 million.

EDS declined to give an outlook for the full year pending a strategy review that is due to be detailed next month.

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3. CSC POSTS $2.4BN WIN AT ROYAL MAIL

CSC has signed a major $2.4 billion, 10-year IT outsourcing contract with Royal Mail Group, having been selected as preferred bidder over IBM and a joint EDS/Accenture team late last year (MCN Direct 54).

CSC will lead the Prism alliance, which also includes Xansa and BT, taking responsibility for the Royal Mail's data centres, data networks, 600 business applications and 1,735 staff who will transfer to the alliance members.

CSC itself will manage the Royal Mail's mainframes, IT processes and 42,000 desktop computers, taking on 1,470 of the client's IT staff.

In a 10-year contract worth $289 million, Xansa has been subcontracted to support applications management and software development, and take on 220 Royal Mail employees. BT has been subcontracted in a $722 million, 10-year deal to provide a new network and services including local and wide area voice, data, mobile, internet and firewall technologies. It will employ 45 Royal Mail staff.

CSC chairman and CEO Van Honeycutt said: "Royal Mail's selection of CSC for one of the largest IT outsourcing contracts ever signed in the UK underscores our experience and history of providing operational and financial results for clients through managing highly complex, large-scale outsourcing programmes."

Royal Mail chief executive Adam Crozier said that using the Prism alliance would give the company "access to the levels of advanced technology needed to compete successfully and improve services to customers".

Royal Mail, formerly Consignia, expects the outsourcing arrangement to generate savings of $400 million as it executes a renewal plan to return to profitability. The contract represents around 50% of Royal Mail's annual IT spend, with the rest being outsourced to a number of IT services suppliers - suggesting that the Prism alliance could make further ground in future.

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4. McKINSEY CHOOSES UK MANAGING PARTNER

McKinsey & Company has named Dominic Casserley as managing partner of its UK office. He succeeds Ian Davis, who was recently elected global managing director of the firm (MCN Direct 71).

A British national, Casserley joined McKinsey in New York in 1983, having spent three years with financial house Morgan Grenfell. After 12 years in the US, he moved to Hong Kong to lead McKinsey's Greater China office, before returning to London in 1999 to run the consultancy's European banking and securities practice. He takes over the London office immediately, while Davis becomes global MD on 1 July.

Moving out is Humphrey Cobbold, a London-based McKinsey partner who has been hired to the new role of strategic development director at Trinity Mirror, publisher of the ailing Daily Mirror. Cobbold will report to recently appointed Trinity Mirror chief executive Sly Bailey as she struggles to stem the tide of falling sales at the newspaper.

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5. XANSA ISSUES FULL-YEAR UPDATE

Outsourcing and IT services firm Xansa has issued a financial update confirming that its results for the year to 30 April are in line with management expectations.

After reporting a significant fall in its first-half financials and detailing a streamlining programme that cut 400 jobs from its 5,900-strong workforce last December (MCN Direct 60), Xansa said significant progress has been made and a reorganisation along geographic lines successfully implemented (MCN Direct 55). "As a result, we believe that we have created a sharper organisation, fitter to deal with the market challenges and well positioned for growth," said chief executive Alistair Cox.

The company said that it continued to grow its business process outsourcing (BPO) division through the second half, with recent successes being a $34 million contract with mobile operator mm02 covering accounting and finance processes, and its part in the Prism alliance delivering outsourced services to the Royal Mail (see above).

Cox commented: "We are not expecting any marked upturn in demand during our financial year 2003/4. We are addressing this environment through our streamlining programme, while continuing to position the company for future growth by investing in such areas as India and BPO."

Xansa will announce its preliminary annual results on 25 June.

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