MCN Direct Newswire

Vol. 2 No. 24, 23 June 2003

This issue is sponsored by:

Project Kickstart, Alcatel and B2B

This issue news

1. EDS cuts 2,700 jobs in strategy shift
2. Parity winds down Dutch subsidiary
3. CSC changes UK chief
4. BearingPoint lands EADS contract
5. Finance fit for outsourcing
6. Further information - feedback/forward to a colleague/unsubscribe

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1. EDS CUTS 2,700 JOBS IN STRATEGY SHIFT

EDS has laid out a strategic plan that will result in 2,700 job losses - 2% of its global workforce - as it focuses on its core IT outsourcing business, pushes further into business process outsourcing (BPO) and strengthens its balance sheet.

EDS chairman and CEO Mike Jordan said the company will recast itself as a unified IT outsourcing business, bringing together its multiple lines of business. It will continue to operate consultancy AT Kearney and its product lifecycle management solutions unit as complementary businesses.

"We have begun a process focused on our clients - a process that provides each client with a single point of contact in EDS and ensures that point of contact is supported by the full resources of the enterprise," Jordan said.

"Operating under one global outsourcing umbrella, service delivery will be managed far more efficiently. Beyond IT outsourcing, our new product and R&D initiatives will broaden EDS's footprint through selective investments in high-growth BPO and transformation services."

EDS is forecasting pre-tax restructuring costs and asset write-downs of $425-475 million in 2003, with annualised cost savings of $230 million resulting from the job cuts. CFO Bob Swan said: "In the remainder of 2003 we are stabilising and beginning to restructure our core business. We expect to finalise that work next year and have EDS positioned for sustained growth thereafter."

After reporting a financial loss in the first quarter (MCN Direct 2-18), EDS maintained its guidance for the second quarter, suggesting revenues will be between $5.4 billion and $5.6 billion. It expects earnings of 33-38 cents a share, excluding restructuring charges and write-downs.

The company's forecast for the second half shows earnings of 70-80 cents a share on revenue of $11 billion. Revenues for full-year 2004 are expected to come in between $20 billion and $21 billion, with free cashflow of between $800 million and $1 billion.

* In the UK, EDS is under fire after the Inland Revenue failed to meet deadlines for the payment of tax credits. The Revenue said the delays were caused by "serious problems with the computer system" developed by EDS. Once the payment of tax credits is back on course, it is expected that the Revenue will take EDS to task over non-performance on the contract.

2. PARITY WINDS DOWN DUTCH SUBSIDIARY

IT services group Parity has secured a court order to put its Dutch subsidiary, Parity Solutions BV, into the equivalent of US Chapter 11 bankruptcy protection while it awaits the outcome of a police investigation into financial irregularities at the company (MCN Direct 2-18).

Chief executive Ian Miller explained: "This has proved the only realistic option available to the group in order to best protect the interests of all concerned. The issues arising at Parity Solutions BV are limited to this one small part of the group and no other parts of the business have been implicated. We await the outcome of the police investigation."

Parity said it considered a number of options for Parity Solutions BV, but discounted keeping the company within the group because the cost of achieving substantial savings through staff and benefits cuts was too high. Closing the business would also have incurred costs considered prohibitive by the Parity board.

The lack of any foreseeable recovery in the Dutch IT services market also suggests it will not be possible to sell the business as a going concern in the short term.

The financial irregularities at Parity Solutions BV are believed to have caused 2002 revenues to be overstated by $2.6 million. An adjustment will be made to the 2003 interim accounts to reflect the impact of the irregularities, while an insurance claim for a substantial proportion of the financial loss has been lodged.

Before the irregularities, Parity Solutions BV showed 2002 revenues of $9.5 million, 3% of group revenues. Parity retains a presence in The Netherlands through its staffing business Parity Eurosoft BV.

Separately, the company has issued a trading update which states: "Parity sees little overall improvement in the markets in which we operate in the UK, mainland Europe or the US, and conditions remain challenging. Group trading, although flat in the first half, is expected to improve in the second half."

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3. CSC CHANGES UK CHIEF

Guy Hains, UK president and CEO of CSC, has moved internally to become president of the company's $2.4 billion project with Royal Mail Group (MCN Direct 2-18).

Hains will manage the Royal Mail mega-contract and take responsibility for the development of CSC's business in the public sector. He hands over the role of UK chief as well as presidency of the company's Northern Region European operations - including the UK, Ireland and The Netherlands - to Keith Wilman, previously chief operating officer of the region.

Wilman joined CSC in 1997 from Easams, where he was managing director of the GEC-owned software and computer services business. His career at GEC included a number of senior management positions and he founded the company's global software business.

CSC European operations president George Bell said: "Keith Wilman has played a pivotal role in securing the financial and operational achievements of CSC's Northern Region operations over the past three years as chief operating officer. He is well equipped for this position based on more than 20 years of experience in the IT industry."

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4. BEARINGPOINT LANDS EADS CONTRACT

BearingPoint has been chosen by EADS, the world's second largest aerospace company, as a global 'referenced' consulting firm to provide strategy, management and IT consulting services.

EADS is active in the civil and military aircraft markets, as well as in space and defence systems and services.

BearingPoint was chosen for the frame consultancy services contract after a six-month sourcing process aimed at determining preferred providers.

EADS vice president of procurement and services Karl Horst said: "We look forward to leveraging BearingPoint's experience in business consulting and IT services, having access to its network and benefiting from its expertise and best practices in the aerospace and defence industry."

The contract is the result of a long relationship between BearingPoint and EADS, which is a key account for the consultancy.

5. FINANCE FIT FOR OUTSOURCING

The outsourcing of finance and accounting functions is primed for growth, with 70% of senior executives predicting that demand for such services will increase significantly over the next three years, according to a study by Accenture and the Economist Intelligence Unit.

The research found that 30% of companies are outsourcing finance and accounting functions - most commonly payroll - with 65% of these arrangements viewed as successful or very successful.

The survey of 280 companies across Europe, the Americas and Asia showed that while cost savings and increased productivity are key motivators for outsourcing, finance and accounting outsourcing is increasingly being used as a catalyst for business transformation.

Stewart Clements, global managing partner for Accenture Finance Solutions, said: "It's clear that some companies see outsourcing as a strategic weapon for change. Outsourcing brings an outsider's discipline to reviewing and reshaping entire business processes, helping companies execute ambitious improvement plans."

If these are the advantages, companies also noted the drawbacks of outsourcing, with 52% citing the risk of valuable data falling into competitors' hands, 48% concerned that the cost of outsourcing would exceed expectations and 45% worried about the erosion of inhouse knowledge. 82% of the respondents who outsourced finance and accounting functions admitted they had no formal metrics to measure the success of the outsourcing arrangement.

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