MCN Direct Newswire

Vol. 2 No. 48, 22 December 2003

This issue is sponsored by:

IBM

This issue news

1. CGEY profit warning shocks market
2. CSC wins $470m UK energy contract
3. Deloitte consulting drops 8%
4. Accenture closes in on Barclays contract
5. Getronics banks $50m at the Abbey
6. Further information - feedback/forward to a colleague/unsubscribe

Sponsor

IBM

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1. CGEY PROFIT WARNING SHOCKS MARKET

Cap Gemini Ernst & Young (CGEY) has shocked analysts by issuing its second profit warning in four months, further cutting its expectation of second-half revenue and margins.

The company said its fourth-quarter revenue will be below expectations because contracts worth around $616 million - mainly in the US - have been pushed into 2004. Second-half revenue is now expected to come in at $3.3 billion, down from market expectations of $3.4 billion, but matching first-half revenue.

The sales shortfall will crucify margins, which CGEY set at 5% early in the year. In September it reduced its full-year operating margin forecast to 4% (MCN Direct 2-33), and it has now cut margin expectations again, this time to between 2% and 3% of revenue. The company reported a margin of 2.7% for the first half of the year.

While CGEY said it was sticking to its existing growth targets for 2004 and 2005 (although it declined to detail them), analysts were shocked by the company's inability to forecast correctly and said management credibility would be damaged by the issue of two profit warnings in such a short period of time.

The profit warning and resulting collapse in investor confidence in CGEY follow a surge of enthusiasm after the company was awarded the Inland Revenue's $5.2 billion Aspire contract ahead of incumbents EDS and Accenture (MCN Direct 2-47).

2. CSC WINS $470M UK ENERGY CONTRACT

CSC has beaten competitors to a $470 million, seven-year IT infrastructure outsourcing deal with energy delivery company National Grid Transco.

Around 330 National Grid Transco employees will transfer to CSC in January, while CSC will also assume management responsibility for 170 contractors.

CSC will manage and support the energy company's mainframe, application server, desktop, helpdesk and telecoms services for 18,000 users at locations across the UK. It will also undertake an infrastructure transformation programme.

National Grid Transco will retain an information systems organisation that will develop and deliver new IT capabilities.

* Separately, CSC announced a $1.5 billion IT outsourcing agreement with Scandinavian airline SAS Group. The five-year contract has optional extensions covering a further four years and includes the sale of SAS subsidiary Scandinavian IT Group, with 1,200 employees moving to CSC.

3. DELOITTE CONSULTING DROPS 8%

Deloitte & Touche has reported an 8.2% fall in consulting revenue to $256 million for the six months to November.

But overall the professional services firm more than doubled its pre-tax profit to $304 million, in part due to a $124 million charge in last year's comparable period related to buying Andersen's UK operations and bringing in over 3,000 staff from Andersen. Its overall revenue in the half-year rose 3.9% to $1 billion.

Deloitte said its results were held down by low merger and acquisition volumes and by a soft consulting market with fewer large-scale technology and transformation opportunities. Consulting is recovering, however, with the latest quarter showing an upturn after a run of declining revenues and the order book at its highest for 18 months.

Deloitte also noted a good flow of multi-service line advisory engagements, combining specialists from technology, tax, risk consulting, human capital and corporate finance to help clients with complex business problems.

As head of the only remaining audit firm housing a consulting business, Deloitte CEO John Connolly said: "The unique Deloitte business model embracing audit, tax, consulting and corporate finance has enabled our firm to be successful across a broad range of services and industries. No other professional services firm offers the range and depth of skills now in Deloitte and we anticipate benefiting considerably from general economic and market improvement in the year ahead."

4. ACCENTURE CLOSES IN ON BARCLAYS CONTRACT

Accenture is in final negotiations with Barclays Bank for an outsourcing contract reported to be worth $795 million over six years.

Barclays has completed a competitive bidding process for the project, but pointed out that the contract has not yet been signed and that the deal is unlikely to be sealed until the first quarter of next year. Barclays refused to name Accenture's competitors, but IBM is believed to have been among them.

The contract will include the transfer of an unspecified number of Barclays' IT development staff in its Build Services division to Accenture. Build Services handles the construction of IT systems for operations across the bank and is part of a shared service providing IT and business processing.

Barclays described the contract as similar to the $350 million, seven-year desktop outsourcing contract it awarded to EDS earlier this year (MCN Direct 2-22). Barclays had previously been negotiating a single 'mega' outsourcing deal with IBM, but scrapped the plan in favour of an outsourcing strategy using multiple suppliers.

5. GETRONICS BANKS $50M AT THE ABBEY

Getronics has won a $50 million contract to refit the UK branch infrastructure of Abbey National.

The contract builds on a 20-year relationship between Getronics and the building society, and is a fillip for Getronics as it struggles to regain its financial footing and secure a position in the IT services market.

The contract calls for Getronics to source and deploy hardware and infrastructure across Abbey's network of 741 branches and office buildings. The supplier will also install a Windows XP platform that will run Abbey's own software and replace an existing Windows 98 platform.

Pilot projects are taking place this month, with full implementation expected to start early next year and take about four months to complete.

Bill Gibbons, director of technology services and support at Abbey, said: "We needed an experienced supplier that understood the Abbey environment and had experience of helping us deliver similar scale changes to help us meet the challenges of a major systems upgrade."

*MCN Direct will be back on January 5. In signing off for 2003, we would like to wish all our readers a merry Christmas and happy New Year.

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