MCN Direct Newswire

Vol. 3 No. 6, 9 February 2004

This issue is sponsored by:

Oracle

This issue news

1. EDS finances collapse
2. Diagonal down but not out
3. Avail prepares for public sector push
4. Xansa wins major support contract
5. LogicaCMG orbits Barnsley and the European Space Agency
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. EDS FINANCES COLLAPSE

EDS has reported a 2003 net loss of $1.7 billion - reversing 2002 profits of $460 million - on revenues rising 7% to $21.5 billion.

The profits collapse is partly the result of adopting new accounting rules, but also reflects a disastrous fourth quarter in which EDS made a net loss of $354 million after writing down $559 million in costs relating to its troubled US Navy Marine Corps intranet programme.

Its revenue in the fourth quarter rose 8% to $5.8 billion, driven by growth in IT outsourcing and favourable exchange rates, but new contracts signed in the quarter halved to $4.3 billion.

Despite the financial fall - and EDS' recent exclusion from major contracts including the UK's Aspire Inland Revenue project and the National Programme for IT - the company remains remarkably bullish about its prospects.

Chairman and CEO Mike Jordan said: "We are continuing to put EDS' house in order. Our fourth-quarter results, excluding the Navy contract, met expectations. Operationally, we completed our management team and solidified our technology and marketing strategies. We now have the resources, leadership and sales capabilities in place to re-establish EDS in the market. Our 2004 focus is squarely on growing the business."

However, breaking down fourth-quarter revenues, the base for growth does not look strong. Regionally, total fourth-quarter revenue from the Americas was down 4% on last year's comparable period at $2.4 billion, with Europe, the Middle East and Africa down 1% at $1.5 billion, and Asia up 8% at $298 million. EDS' consulting subsidiary, AT Kearney, dropped 8% in the quarter to $214 million, noting "continued market pricing pressures in high-value management consulting".

Looking forward, EDS forecast first-quarter 2004 revenue of $5-5.2 billion, and full-year revenues of $21-22 billion.

* More mixed messages came from EDS in the UK, with a $295 million business process and IT outsourcing win at Liverpool Victoria Friendly Society, but withdrawal from the bidding for a broadband network for the National Health Service. The NHS contract is expected to generate revenues of about $184 million a year and EDS is believed to have pulled out because of a change in the specification to include voice as well as data transmission. BT and Cable & Wireless remain in contention.

2. DIAGONAL DOWN BUT NOT OUT

Diagonal has reported an annual pre-tax loss of £2.8 million on revenues down 11% at £56.3 million, but said it is confident that it has "turned the corner".

The financial results for the year to 28 November 2003 show a larger loss than the £2.3 million recorded in 2001/2, though they include £5.2 million in exceptional costs.

Diagonal chief executive Colin Burnside said: "After the upheavals of the past year, Diagonal is starting to build for the future. With an essentially new management team, I believe we have both the management and financial strength to take the business forward both organically and by acquisition. With these changes, I am confident that Diagonal has turned the corner."

Revenue from Diagonal Consulting fell 13% in the year to £30.2 million, with operating profit down from £5.4 million in 2002 to £3.3 million. Partners for Change, the management consultancy acquired in February 2003, contributed revenues of £5.3 million and an operating profit of £37,000.

Diagonal's enterprise application integration business dropped 20% to revenue of £4.7 million, while its security division - adversely affected by a failed management buyout last summer - fell 28% to £11.1 million.

Diagonal is attempting to counter last year's damage with a host of management appointments and has strengthened its ability in the retail sector through the £2.5 million acquisition of Egility Solutions, an SAP consultancy specialising in retail.

Diagonal chairman Mark Samuels said that "with the business now beginning to move forward again" he would retire from the board at the forthcoming AGM on 25 March. He will be replaced as chairman by non-executive director Malcolm Gloak.

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3. AVAIL PREPARES FOR PUBLIC SECTOR PUSH

Two former managing directors at Atos KPMG Consulting have joined forces to launch Avail Consulting.

Martin Wilson and Robert Garner have set up the venture as a subsidiary of public sector support services provider Tribal Group, in response to growing demand for high-level specialist support across central government.

The consultancy began trading early this month and specialises in strategy, business planning, performance improvement, decision support, change management, procurement and supply chain for central government.

While it starts with a team of two, Avail is recruiting and plans to build an organisation with up to 100 specialist client-side consultants.

Explaining the rationale behind Avail, Martin Wilson, former industry leader for Atos KPMG Consulting's UK public service practice, said: "We have come together against a background of rapid consolidation of consulting businesses and IT service companies, which has created a void for independent management consulting services. Apart from the danger of a loss of focus on client advisory services, the recent mergers can create real or perceived conflicts of interest. There is clearly a requirement for the UK public sector to have access to top-quality independent client-side advice and our aim is to help fill that void."

The creation of Avail will strengthen Tribal's profile in central government as it offers consultancy, IT and HR services across education, health, housing and government. Tribal has 1,600 employees and operates from a nationwide network of 50 offices.

4. XANSA WINS MAJOR SUPPORT CONTRACT

Xansa has beaten 17 competitors to a multi-million pound software product maintenance contract with US ERP solution supplier Lawson Software.

Under the terms of the contract - which will come as a welcome relief to Xansa after a stream of bad news (MDN Direct 3-5) - Xansa will set up an offshore development centre at its facilities in Chennai, India to manage Lawson's product maintenance services. Xansa said the contract could require up to 70 additional staff over its three-year life.

Lawson senior vice president of development Brad Benson said: "Our comprehensive selection process took place over a six-month period and we selected Xansa from 18 potential candidates because of its technical fit, financial strength, experience, strong customer references and a commitment to quality."

Xansa chief executive Alistair Cox said: "This further strengthens Xansa's strategy of leveraging its significant offshore operations in India to service its customers globally, without the need for extensive local infrastructure."

Separately, Cox told the Nasscom 2004 India Leadership Forum that Xansa has increased its headcount in India by over 50% since the start of its financial year in May and expects to have doubled resources by the end of the financial year.

Recently opened facilities at Noida and Chennai are fully functioning, with the next phase of construction at Pune due to be completed this summer, giving Xansa a total capacity in India of 10,000 seats on a single-shift basis.

5. LOGICACMG ORBITS BARNSLEY AND THE EUROPEAN SPACE AGENCY

LogicaCMG has secured contracts with Barnsley Metropolitan Borough Council (BMBC) for a business transformation programme, and with the European Space Agency for systems to support the Galileo global navigation satellite programme.

The company's £3.5 million win at BMBC covers the consolidation of finance, HR, payroll, works management, procurement and purchasing, plus the implementation of a mySAP platform to share information across the organisation. The so-called Pro-Change programme is designed to help the council provide more efficient service as it works to meet the 2005 e-government deadline.

LogicaCMG's £5.2 million contract with the European Space Agency was won in an international competitive tender. It requires the company to build two ground facilities for the European navigation system, which will provide a civilian global positioning service inter-operating with similar US and Russian satellite systems.

LogicaCMG will work on the Galileo contract with a group of specialist companies from across Europe.

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