MCN Direct Newswire

Vol. 2 No. 8, 24 February 2003

This issue is sponsored by:

OpenAccounts, IBM (Server Consolidation) and IBM (IBM briefing)

This issue news

1. Capita proves strength in BPO
2. Diagonal buys Partners for Change
3. Atos Origin integrates with UK consulting arm
4. Divine in financial crisis
5. ITNet builds on government business
6. Further information - feedback/forward to a colleague/unsubscribe

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1. CAPITA PROVES STRENGTH IN BPO

Capita, the company behind London's congestion charging scheme, has reported exceptional financial results for 2002.

Proving its position as a leading player in the UK business process outsourcing (BPO) market, Capita announced a 36% rise in pre-tax profit to $156.8 million, on revenue up 30% at $1.4 billion.

Margins increased from 11.2% in 2001 to 12%, with new contracts signed in the year up from $1.2 billion to $1.8 billion.

Among the highlights of the year, Capita implemented to specification and on time the Transport for London congestion charging scheme, which was introduced in the capital on 17 February.

It also pointed to the formidable position it has established in the UK BPO market through both organic and acquired growth, but said spending on acquisitions will fall as it focuses on organic growth. In 2002, Capita made six small acquisitions at a total price of $99 million.

Executive chairman Rod Aldridge said: "The results demonstrate the strength of our business model. The long-term nature of our contracts underpins future revenues. The extent of our customer base provides diversity of income. The market demand for outsourced services remains buoyant. We remain confident of achieving the same healthy growth in 2003."

2. DIAGONAL BUYS PARTNERS FOR CHANGE

SAP implementation specialist Diagonal has bought management consultants Partners for Change for $4.3 million in cash.

Set up in 1994, Partners for Change made a pre-tax profit of $479,000 in the year to 30 June 2001, the latest period for which audited accounts have been filed.

Diagonal chairman Mark Samuels said: "I believe that Partners for Change will enhance and broaden the service we are able to provide to both existing and potential multinational clients."

The acquisition was announced as Diagonal reported financial results for the year to 29 November 2002 showing a net loss of $9 million - compared to a $629,000 profit the previous year. Revenues in 2002 fell 23% to $101.6 million.

Diagonal's revenues from SAP and enterprise application integration consulting fell 21% to $77 million, with gross profit down 14% at $21.9 million. Revenue from Diagonal Secure Networks dropped 28% to $24.6 million, with profit down 38% at $2.1 million.

Despite these declines, Diagonal held its overall operating margins at 8.6%, down from 8.7% in 2001, leading Samuels to comment: "There are few signs of any improvement in market conditions and as a result the current year is likely to prove equally challenging. We will continue to focus on maintaining margins and robust cash generation."

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3. ATOS ORIGIN INTEGRATES WITH UK CONSULTING ARM

Atos Origin has reorganised its relationship with Atos KPMG Consulting in a bid to strengthen the consultancy business and create a single client-facing organisation.

Atos KPMG Consulting was set up after Atos Origin acquired KPMG's consulting operations in the UK and The Netherlands, but it has failed to generate the 3-5% growth in total revenues that Atos Origin initially anticipated (MCN Direct 36, 57).

The latest reorganisation will put Atos KPMG Consulting in charge in the UK, with some 400 former Atos Origin employees being transferred to the consultancy's technology and enterprise solutions businesses, giving Atos KPMG Consulting a total of 1,450 staff. 500 staff will remain at Atos Origin to support the business through the provision of managed services and outsourcing.

Atos KPMG Consulting said no jobs would be lost as a result of the reorganisation and claimed the integration would simplify its client management structure and improve delivery capabilities.

Ahead of full-year results on 12 March, Atos Origin said total revenues for 2002 were flat at $3.3 billion. Of this, $3.1 billion resulted from organic growth, with $163.1 million generated by acquisitions, predominantly KPMG Consulting.

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4. DIVINE IN FINANCIAL CRISIS

Divine, the Chicago-based IT solutions and services provider which last year acquired e-consultancy Viant, is considering Chapter 11 protection from bankruptcy.

In a brief statement, the Nasdaq-quoted company said: "Despite efforts over the past several months to minimise operating expenses and various liabilities, the board of directors has determined that the company must seek alternatives to protect the value and viability of its operations. As a result, Divine has engaged Broadview International as advisors to assist in exploring strategic options, which may include asset divestitures, comparable transactions, and/or the filing of a voluntary petition under Chapter 11 of the US bankruptcy code."

Divine's troubles follow an acquisitive year in which it bought Viant (MCN Direct 28), marketing software and consultancy supplier Delano Technology, managed services firm Data Return, content management company Northern Light Technology and network tools supplier NetUnlimited.

Divine is now in discussions about the sale of several businesses and strategic assets, with merger and acquisition specialist Broadview believed to have been brought in to assist in breaking up the company.

At the end of its third quarter in September 2002, Divine had $61 million cash and liabilities of $447.8 million. The company is expected to take a $300 million non-cash impairment charge when it reports fourth-quarter and full-year results this week.

5. ITNET BUILDS ON GOVERNMENT BUSINESS

ITNet has reported pre-tax profits for 2002 up 29% to $26.2 million, with revenues rising 1.4% to $285.5 million.

Chief executive Bridget Blow commented: "The confidence that we expressed a year ago that we would see another good performance in 2002 has been fully justified with the delivery of excellent profit growth against a backdrop of continuing economic uncertainty."

By line of business, ITNet reported a 17% gain in public sector revenues to $160.5 million, a 13% drop in commercial sales to $125.1 million, and a 28% gain to $20.3 million at change management consultancy French Thornton. It attributed French Thornton's success to its ability to capitalise on opportunities in central government to provide strategic business transformation services.

The company's profit figure was reduced to £11.6 million after accounting for amortisation and impairment of goodwill.

Coupling the financial statement with the announcement of a $57 million, 20-year contract win at the London Borough of Richmond, Bridget Blow said: "We enter 2003 with no debt, a healthy order book and a leading position in the growing local government market. We continue to have a strong sales pipeline in our local and central government markets.

"During 2003, we intend to increase investment in our sales and marketing, and in the development of new services, both to consolidate our strong market position in local government and increase our market share, particularly in central government and our vertical commercial markets. Overall, the board anticipates another good performance in 2003."

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