MCN Direct Newswire

Vol. 3 No. 41, 22 November 2004

This issue is sponsored by:

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This issue news

1. ITNet in acquisition talks
2. EDS fails at Child Support Agency
3. IT work leads consultancy growth
4. Dimension Data returns to operating profit
5. Accenture scoops HR outsourcing award
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. ITNET IN ACQUISITION TALKS

ITNet has confirmed it is in talks with a potential buyer, though it is refusing to name its suitor. The company would only say that it is in preliminary discussions that "may or may not lead to an offer for the whole of the issued share capital of the company".

As a second-tier IT services player, ITNet has long been an acquisition target. Recent problems - like the termination of an £83 million contract at the Cabinet Office (MCN Direct 3-26) and a subsequent interim pre-tax loss of £16.6 million - have made it even more attractive.

Speculation about ITNet's potential buyer is rife. Among tier-one IT services companies, IBM may be in the running in pursuit of the local government market where ITNet is a top performer and recently won an outsourcing deal partnering IBM at Bradford Council. Alternatively, HP could be in the frame as it tries to build a global IT services business to rival those of the big league players.

ITNet could also be a good fit for Capita which has stormed ahead on the basis of IT and business process outsourcing contracts with both public and private sector organisations. Capita has a stated strategy of "acquiring small businesses which complement or extend the current service offering" - but it does not say how small.

In fiscal 2003, ITNet reported pre-tax profit more than doubling to £17.9 million on turnover up 5% at £188.5 million. Despite being pushed into losses in the first half of 2004, the company grew turnover 15% on last year's first half to £104.6 million and closed the period with an order book worth £296 million.

2. EDS FAILS AT CHILD SUPPORT AGENCY

EDS is in the eye of the storm again, this time as the IT culprit behind the Child Support Agency's failure to pay 88% of claimants seeking payments.

A £456 million system provided by EDS was lambasted by MPs in the House of Commons last week and was central to the resignation of Doug Smith from the chief executive's role at the agency.

Since its introduction in March 2003, the system has failed to meet demand from claimants seeking money to support their families. The CSA had no contingency plans to deal with the problem, nor a programme of compensation payable by EDS. Recently appointed pensions secretary Alan Johnson said he might even take the "nuclear option" of completely scrapping the technology.

Ministers suggested that the departure of Smith could be a fresh opportunity for a new chief executive to hold EDS to account and shake up the agency.

The CSA debacle came to a head as EDS reported a $153 million (£82.5 million) third-quarter net loss caused by a $375 million asset impairment charge relating to its US Navy Marine Corps contract.

Revenue in the three months was down 1% at $4.95 billion, the decrease reflecting EDS' loss of the UK Inland Revenue contract to Capgemini and a continuing decline in GM revenue.

Having twice postponed its third-quarter report because of failure to reach agreements with its auditors (MCN Direct 3-38, 39), EDS said the audit committee had agreed to the timing and amount of the Navy asset impairment and had found no improper activity after investigating the company's bonus plan accruals. EDS chairman and CEO Mike Jordan said: "We moved quickly to deal with our auditor's questions and believe these issues are behind us. Now we can focus on building our business."

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3. IT WORK LEADS CONSULTANCY GROWTH

IT consulting revenue has grown 59% over the past two years and now accounts for 55% of total consulting industry revenue, according to the Management Consultancies Association.

This growth in IT-related work drove an increase across the industry of 32% over the past two years.

In the last 12 months, revenue across the consultancy sector increased by 11.2%, with MCA member firms recording a total of £1.5 billion in the third quarter. Again, this was driven by IT and outsourcing, with IT consultancy up 6.2% compared to last year's third-quarter at £310 million and outsourcing up 27.7% at £502 million. Management consultancy services gained 3.3% to reach £652 million.

Lynton Barker, MCA president and chairman of Hedra, said: "The past two years have seen the consulting industry return to a sustained period of growth. Although there is the expectation of slower volume sales growth towards the end of this year, there is confidence that growth will continue for the consulting sector. Financial services, transport and communications, as well as the public sector, are offering the best prospects for consultancy work in the next quarter."

Growth in the overall market is a positive sign for individual consultancies, but it has regenerated the war for talent with 54% of MCA members reporting trouble filling the positions of senior consultant, consultant and managing consultant.

4. DIMENSION DATA RETURNS TO OPERATING PROFIT

Dimension Data is on the road to financial recovery as it moves away from network product sales towards the provision of IT infrastructure services and solutions.

The company showed an operating profit of $33 million (£17.8 million) in the year to 30 September, reversing an operating loss of $9 million in fiscal 2003. On the bottom line, however, the company recorded a net loss of $37.8 million, reducing its 2003 net loss of $420.4 million. Revenue in the year rose 18% to $2.5 billion.

Dimension Data CEO Brett Dawson said: "We have achieved good progress in turning around under-performing geographies and an excellent performance from our solutions lines of business where revenues increased by 28%."

Dimension Data's UK revenue rose 6% to $218 million during the year, but managed services were down on 2003 - with products and professional services driving the upward movement.

Detailing plans for the UK in the coming financial year, the company stated: "We have a clear strategy in place to deliver another year of growth. We will continue to invest in high-growth solutions areas and are taking on new skills to drive growth in professional services revenues. Where possible, we will continue to streamline our operations to be more cost-effective."

5. ACCENTURE SCOOPS HR OUTSOURCING AWARD

Accenture has won a 10-year human resources outsourcing contract from Swedish engineering group Sandvik. Financial terms were not disclosed.

Accenture HR Services will initially outsource a large portion of Sandvik's HR operations in Sweden, Finland and the US - with the UK, France, Germany, South Africa, India and Australia pencilled in for coverage at a later stage.

Sandvik group HR vice president Carina Malmgren-Heander said: "We are teaming with Accenture because it presented the best solution to fully support our new way of working and its global structure is best suited to serve all of our major locations. Our ability to achieve economies of scale and critical mass on our own has its limitations. With Accenture's expertise and service centre solutions, we will be able to provide a common global standard for our HR services and ensure their cost effectiveness."

Sandvik employees will be offered employment at Accenture, which will open a service centre in Sandviken. The centre will become part of the delivery mechanism for services in the areas of resourcing, customer services, competence development, performance management, reward and recognition, and workforce administration.

Sandvik, which has 37,000 employees in 130 countries, will retain a central HR team to focus on its core business activities.

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