MCN Direct Newswire

Vol. 4 No. 11, 25 April 2005

This issue is sponsored by:

TeleWare

This issue news

1. Parity regroups after 'dismal' three years
2. Capgemini sells slice of US business
3. Citisoft falls to Satyam
4. Computacenter warns on profits
5. Asian players suffer year-end slowdown
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. PARITY REGROUPS AFTER 'DISMAL' THREE YEARS

Parity is in the throes of a major reorganisation as it struggles to reduce financial losses and debt built up over the past three years.

The company has reported a pre-tax loss of £6.3 million for 2004 - reduced from a loss of £18.1 million in 2003 - on turnover up 7% at £169.9 million.

Philip Swinstead, the original founder of IT services firm Parity who was recalled from retirement to guide the floundering company, said: "This was another disappointing financial year for Parity, which resulted in my being asked to rejoin the board and take over as chairman last November. Since then, we have cut costs, established a new strategic direction, planned a group reorganisation including further cost savings, started a debt reduction process and begun to create a management team for the future.

"After a dismal three years and a year of restructuring in 2005, I expect to see this company back in shape for 2006."

The reorganisation will focus Parity on the UK market, leading to the sale of its European Resourcing Solutions business and a strategic review of its US resourcing operation. The company's three independent divisions - training, business solutions and resourcing solutions - will be brought together under one marketing umbrella, simplifying structure and generating cost savings.

"We will ensure that each division's services are made available to all our clients in a co-ordinated manner. We will be a full service, integrated UK IT services business selling the complete range of IT services individually or together as required," said Swinstead.

Noting Parity's failure to profit from an attempted move upmarket into large managed services contracts, he added: "We will carefully evolve into larger projects as we progress, when we can make sensible margins. Our approach to change is evolution not revolution."

As well as setting out the company's strategy, Swinstead named a new chairman and said he would step back to become deputy chairman this year and a non-executive director next year. The incoming chairman is John Hughes, until recently chief operating officer of Thales Group, where he was responsible for the company's IT and services, and aerospace businesses. "

2. CAPGEMINI SELLS SLICE OF US BUSINESS

Capgemini has agreed to sell its North American private healthcare practice to Accenture as it attempts to complete a €400 million (£274 million) asset disposal programme and turn around its troubled US and Canadian business (MCN Direct 3-31, 4-3).

Accenture will pay $175 million (£91.6 million) cash for the private healthcare project and consulting practice, and will take on 600 Capgemini professionals.

Capgemini will retain its outsourcing contracts with US healthcare clients as well as its public-sector health consulting capabilities, which it describes as global strategic focus areas for the group. In Europe, Capgemini claims to be a market leader in the provision of national public healthcare systems.

Pierre Danon, executive chairman of Capgemini's North American business, said: "We are strengthening our operations in North America by resizing and refocusing our project and consulting business as a result of this transaction and will be in position to invest in key strategic areas." Danon plans to outline a recovery plan for North America as part of a 2005 first-quarter revenue statement early next month.

Following the Capgemini acquisition, Accenture will have a total of 4,600 professionals serving health and life sciences clients in North America.

Lewis Rudd, president of Capgemini's health consulting practice in North America, who is expected to move to Accenture, said: "Joining Accenture is a superb fit for us. Together we will be able to offer healthcare clients unparalleled industry knowledge and resources."

3. CITISOFT FALLS TO SATYAM

Citisoft, a London-based business and IT consultancy focused exclusively on the investment management industry, is to be acquired by Indian IT services provider Satyam Computer Services.

The match was made at the behest of investment management firms that work with both companies and will see Satyam pay a total of $38.7 million (£20.2 million) for the privately owned consultancy. This is split between a guaranteed $23.2 million payable over three years and a performance-related payment of up to $15.5 million, payable over the same time span.

Satyam, India's fourth largest IT services and software firm, will operate Citisoft as a subsidiary within its financial services group, adding specialist consulting services to its outsourcing base.

Matchmaker Steve Buckridge, chief development officer for investment banking and asset management at Bear Stearns, said: "As a common client of both companies we introduced the two organisations to each other as we see immense value in the combined synergy that they will provide to leading global asset management firms like Bear Stearns."

Citisoft has been working in the City since 1986 and also has operating bases in New York and Boston. It has 60 staff and claims a client base of more than 75% of the top 50 global asset managers. .

4. COMPUTACENTER WARNS ON PROFITS

Computacenter has issued a profit warning for fiscal 2005, just a month after announcing healthy 2004 results. The European IT infrastructure services provider said: "Unless market conditions change, Computacenter's profits for the year will be substantially below last year."

In 2004, the company made a 3.2% gain in pre-tax profit to £67.3 million, on revenue unchanged at £2.5 billion (MCN Direct 4-6). But it said it has been experiencing difficult trading conditions since the start of the current financial year and that sales are down 10% compared to the same time a year ago.

However, Computacenter also stated that it has seen "an improving trend as the quarter progressed" and that service revenues, except in France, increased in the quarter.

Computacenter's downfall is the result of lower product sales, coupled with a change towards lower-margin product. This had a material impact on margins in the first quarter.

The company is projecting product revenues for the rest of the year broadly in line with those of last year - but expects margins to be lower, though not as bad as those of the first quarter.

Difficulties in the product market are not unique to Computacenter, with product and IT services supplier Morse recently reporting continuing losses as it struggles to turn around its loss-making hardware business in the face of further market deterioration (MCN Direct 4-10).

5. ASIAN PLAYERS SUFFER YEAR-END SLOWDOWN

Tata Consultancy Services (TCS) and Wipro, India's largest IT services firms, achieved significant financial gains in the year to 31 March 2005, but both noted a slowdown in growth during the final quarter.

TCS turned in full-year net profit 44% higher at 23.6 billion rupees (£281.8 million), with revenue up 37% at 97.3 billion rupees.

Wipro achieved a 58% gain in full-year net profit to 15.8 billion rupees, on revenues up 39% at 81.4 billion rupees.

But growth at both companies slowed in the final quarter, suggesting that TCS and Wipro are likely to follow Infosys with forecasts of more conservative prospects for the early quarters of fiscal 2006 (MCN Direct 4-10). Infosys is predicting 4.5% revenue growth in its global IT services business in the first fiscal quarter to the end of June, compared to the previous quarter.

Despite the slowdown in growth, both TCS and Infosys pushed up employee numbers during fiscal 2005 and will continue to recruit. TCS added just over 9,000 employees for a total of 45,714 at year end, while Infosys added 13,300 for a total of 41,857.

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