Key Vendor Assessments

NelsonHall's Key Vendor Assessment for Tata Consultancy Services consists of 104 pages.

In its fiscal year 2012 (ending March 31, 2012), Tata Consultancy Services (TCS) is likely to surpass $10bn in revenue while maintaining a margin of around 27%.

The company has a long term goal of reaching $20bn in revenues, while maintaining margins. To support this ambition, TCS is:

• Continuing to enhance its offerings portfolio, investing in high growth areas where it can re-use software assets
• Promoting its ability to provide bundled integrated services and to help clients with innovation
• Targeting opportunities in growth markets: IberoAmerica, India, Asia Pacific and MEA combined contributed 21.3% of global revenues in FY 2011, ~$1.7bn
• Investing on expanding its footprint in Continental Europe: progress to date is significant and revenues from the region are now ~$1bn, but TCS may well acquire for scale
• Hiring >1,200 local personal in the U.S. this fiscal year
• Continuing to expand its delivery network in other low cost regions as well as india, notably China
• Increasing its focus on expanding its presence in sectors such as utilities and the public sector.

The recently signed BPO contract with Friends Life in the U.K., with service delivery due to start in March 2012, is the largest L&P BPO contract ever awarded, and by some margin.

This comprehensive NelsonHall Key Vendor Assessment for T-Systems consists of 54 pages.

T-Systems is included in the Deutsche Telekom AG group-wide 'Fix, Transform and Innovate' three-year strategy for 2010 to 2013.

T-Systems' priorities and financial targets in each phase include:

• Fix: sorting out execution problems on some major contracts, increasing profitability and defending the base business. Target: 7% EBIT margin
• Transform: winning additional contracts in cloud computing, mobility, collaboration, security & governance, and sustainability. Target: €2bn in new revenues
• Innovate: develop offerings around Deutsche Telekom's 'Intelligent Network Solutions' or "speed boat" areas in energy, health, 'connected car', and media & distribution. Target: €1bn in additional revenues by 2015

T-Systems' financial performance in 2011 indicates that, two years on, the company has made little progress:

• The company has yet to increase its profitability. Q1-Q3 2011 adjusted EBIT margin, was 1.9%, compared with 3.0% in the prior year period. In early 2010, T-Systems had guided on increasing its adjusted EBIT margin to 6.5% in 2011
• Revenue growth in Q1-Q3 2011 was 3.3%
• Guidance for 2012 includes marginal revenue growth and a stable EBITDA margin.
• The "speed boat" offerings represent <€100m in revenues, or ~1% of total revenue.

The failure of Deutsche Telekom to sell T-Mobile USA to AT&T (the intended sale, announced in January 2011, was expected to bring in $25bn in cash means that acquisitions are now unlikely.

Issues that T-Systems is looking to address by end 2013 include:

• Service quality
• Asset utilization
• Productivity
• Cost structure.

This NelsonHall Key Vendor Assessment for Steria consists of 74 pages.

By size, Steria is a second tier European IT services provider, However, following a number of large outsourcing wins in different service lines and geographies (Cleveland Police Authority, BPO; Chorus project, AM; SFR, IT IM), Steria started 2011 increasingly confident in its ambitions, positioning as a significant European IT services vendor deemed to be eligible to compete for international framework agreements and taking the prime contractor position in large deals that involve transformation. After years of slow and steady margin improvement, there is now an explicit focus on revenue growth and gaining market share in the European market. However, market conditions in 2011 were not ideal for Steria, given its reliance on project based services.

In its attempt to position as a transformation partner, Steria emphasizes its following attributes:

• Local proximity to its clients in Western Europe
• Industry-specific knowledge in its targeted verticals, and expanding business solutions portfolio
• Sizeable offshore (and growing nearshore) capabilities, with a track record in integrated service delivery
• Flexibility, and a collaborative approach, focused on clients' business outcomes
• The range of its services portfolio, from IT and process consulting, through its BI and SAP and Oracle capabilities, to its operational capabilities
• Its technology independence.

NelsonHall's key vendor assessment for CSC consists of 101 pages.

Project Accelerate, CSC's last three-year strategic plan to hit double-digit revenue growth and operating margin, failed to deliver the original financial targets, due in part to CSC's exposure to the ailing U.S. and U.K. government sectors. The plan did, however, succeed in kick-starting some initiatives which will assist CSC's efforts to become a more resilient player. The most important of these, all of which are ongoing, are:

• Substantial portfolio development:
  - Work on developing industry-specific offerings: CSC defined six priority target vertical markets and began developing "business solutions" with IP-based offerings for each of these target verticals. After NAPS, the highest priorities have been the financial services and healthcare verticals
  - Concurrent development of a cloud services portfolio
  - 'As-a-service' is the overarching mantra in a portfolio that CSC positions as containing "integrated families of transformational services"
• Setting up of a global sales and marketing function (CSC had not previously prioritized marketing), with the launch of client relationship executives (CREs) for key accounts and an increasing focus on more proactive consulting-led approach to new business (a shift from CSC's traditional RFP-led sales)
• Work on expanding its global footprint, while standardizing tools and processes across its delivery centers
• An increased focus on mid-sized deals.

CSC's new multi-year plan continues many of these themes, with:

• Continued work on portfolio development, with a strong focus on verticals in BSS, on Cloud and cyber security, also on developing an application transformation services portfolio under the 'FutureEdge' banner
• Making $1bn in revenue gains through acquisition by 2014
• Further additions to its sales force
• Targets for margin improvement.

CSC NPS is dealing with a challenging federal market by focusing on growth segments such as cyber security. In the U.K, a MoU with the government should at last be signed in early 2012.

This NelsonHall Key Vendor Assessment for Logica consists of 104 pages.

Logica describes itself as "Performing well. Well positioned" when discussing the investments it is making in order to deliver longer term topline growth and margin progression.

Progress to date is mixed with an improving topline but no improvement in profitability in the last few years. In Q1-Q3 2011 the company achieved pro forma revenue growth of 4% but operating margin slipped and guidance for full year 2011 was revised downwards to:

• Pro forma revenue growth of >3% (prior guidance was for ~5%)
• Adjusted operating margin of 6.5% to 7%.

There has been clear progress in the drive to integrate the various acquired operations into a "one Logica", and to increase sales capabilities. A positive indicator of the level of success of the overarching 'client intimacy' focus is a 10% increase in new orders from the top 50 clients in 2011 nine months year-to-date. However, given the efforts since to reduce overhead costs, the lack of margin improvement is a disappointment.

In 2010 Logica repositioned its brand as part of a broader drive to shift from its heritage as primarily a technology company with strong capabilities in space & defense and telecoms to what it describes as a "business and technology service" company. Logica is looking to differentiate as a major European IT services player with global delivery capabilities that focuses on helping clients with their specific business needs.