MCN Direct Newswire

Vol. 3 No. 20, 24 May 2004

This issue is sponsored by:

McGuffie Brunton, The UK Consulting Industry 2003/4 and Wonderweb

This issue news

1. EDS venture with Abbey under threat
2. Capgemini secures $3.5bn outsourcing deal
3. CSC closes year on all-time high
4. LogicaCMG held back by wireless business
5. ITNet claims record order book
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. EDS VENTURE WITH ABBEY UNDER THREAT

Global services supplier EDS faces another setback after confirming its £270 million business process outsourcing joint venture with mortgage bank Abbey is under review.

The joint operation, called EDS Credit Services, was set up in 2001 and marked EDS' entry into the UK mortgage processing market. As well as serving Abbey under the BPO contract, EDS Credit Services was set up to attract other mortgage processing business, but no further clients have been signed.

Reports suggest that the joint venture has not been successful for Abbey and that it could be a problem for a potential bidder for the bank. For EDS, an end to the venture would be another blow after a string of UK contract failures.

Abbey is currently seeking to cut costs by transferring work from smaller centres to larger sites and offshoring some operations.

Neither Abbey nor EDS would give further details, except to say: "Abbey and its joint venture partner EDS are reviewing existing mortgage operations. The review is looking at a range of options and Abbey and EDS are working closely together to find the best way to meet the needs and expectations of Abbey's customers. Once Abbey and EDS have concluded their joint review, both organisations are committed to telling employees before communicating anything to the outside world."

2. CAPGEMINI SECURES $3.5bn OUTSOURCING DEAL

Capgemini has struck a $3.5 billion (£2 billion), 10-year outsourcing deal with TXU to provide business process services and IT solutions to the Dallas-based energy group, and to set up an IT services company geared to the US utilities market.

The new business, Capgemini Energy, will initially comprise 2,700 TXU employees who will transfer allegiance on 1 July. TXU will own less than 3% of Capgemini Energy and will be able to sell this interest to Capgemini at the end of the contract.

The deal marks Capgemini's second major venture in the North American utilities market. In February 2002, it signed a $730 million contract with Hydro One to provide business process services to the Canadian company and build a base to offer similar services to other energy companies. The operation now supports Hydro One, Ontario Power Generation and Bruce Power with an aggregate contract value of $1.7 billion.

Capgemini hopes to repeat this pattern on the back of the TXU deal, prompting Americas CEO Chell Smith to comment: "The creation of this scalable, cost-effective platform clearly represents a defining moment for the US utility industry."

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3. CSC CLOSES YEAR ON ALL-TIME HIGH

CSC has ended fiscal 2004 with record profits and new contract awards 51% higher than its previous best achieved in 2002.

CSC's net profit for the year to 2 April rose 18% to $519.4 million (£293 million), on revenues climbing 30% to $14.8 billion.

The fourth quarter showed a similar pattern, with net profit rising 17% and revenues 30%.

CSC attributed the gains to its US federal government activities - which benefited from its March 2003 acquisition of DynCorp - and global commercial outsourcing. Currency exchange rates were also in its favour in global commercial markets.

The company's chairman and CEO Van Honeycutt said: "We have delivered strong performance and gained market share during another challenging year for the IT services market. The performance of our US federal government sector and our commercial outsourcing activities resulted in 83% of our annual revenue coming from long-term agreements."

CSC said its European operations continued to benefit from outsourcing strength in the fourth quarter, offsetting soft demand for shorter-term consulting and systems integration services.

European revenues broke the $1 billion barrier for the first time in the period, rising 29% to $1.1 billion.

Looking forward to fiscal 2005, CSC said revenue for the year is expected to be up between 8% and 10%. Its UK operations got off to a flying start, announcing extended and new contracts worth £62.2 million.

Extending their contracts with CSC are Whitbread, Allders Department Stores, Homebase and Gallagher, with new work coming from "a major company in the leisure industry" requiring an outsourced data centre.

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4. LOGICACMG HELD BACK BY WIRELESS BUSINESS

LogicaCMG has issued a financial warning saying that its IT services business is improving gradually but overall growth is being held back by declining revenue in its wireless networks division. LogicaCMG said IT services made solid progress in the UK in the first four months of 2004, spurred on by public sector and telecoms spending. Its IT services operations in Benelux and France also continued to develop, but its German arm continued to struggle.

Revenue is expected to fall slightly between the second half of 2003 and the first half of 2004, primarily due to the problems in Germany, lower materials revenues in France and the adverse impact of the euro.

LogicaCMG's wireless networks business is in worse shape. First-half revenues are forecast to be 10% down on last year's comparable period and the division is likely to move back into the red after a brief flirtation with profitability.

LogicaCMG attributed the revenue fall to longer delivery schedules, reduced margins from orders containing more hardware components, and an expected decline in the SMS market.

Despite the setback, wireless networks - and LogicaCMG as a whole - is expected to be profitable in 2004 after two years of losses.

The company has also been selected by the Ministry of Defence (MoD), along with IBM, for the demonstration stage of the Defence Medical Information Capability Programme (DMICP).

This contract is valued at £1 million with the ultimate project winner providing a central electronic health record system for the UK's 200,000 military personnel, worth about £80 million over 10 years.

5. ITNet CLAIMS RECORD ORDER BOOK

IT services supplier ITNet built up record orders worth £361 million in the first four months of this year, helping to fulfil its year-end 2003 promise of "a step change in revenue growth" (MCN Direct 3-8).

Speaking at the company's annual general meeting, ITNet chairman Lord Crickhowell highlighted continued growth in its public sector business, commenting: "Our long-term pipeline in the public sector remains healthy and we are currently bidding for a number of large contracts to secure our market position beyond the 2005 modernising government deadline."

Business process outsourcing and SAP services are also in growing demand, but Crickhowell warned: "Commercial sector business remains challenging in a highly competitive market, although we have seen good growth."

The commercial business's latest win is an £8.8 million contract with National Air Traffic Services (Nats). The contract covers the implementation of a new desktop and server infrastructure for over 3,000 users. This follows a £17.3 million, five-year award by Nats to ITNet last September for the management of non-core IT systems.

Looking forward, Crickhowell concluded: "Overall, 2003 was a year of good progress for ITNet with more long-term, high-value contracts signed than in previous years. Our current expectation is for a good performance in 2004."

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