• Capgemini To Acquire Getronics PinkRoccade Business Application Services from KPN

  Jul 25, 2008 | Mergers and Acquisitions by Dominique Raviart
  

  KPN has announced that Getronics has reached an agreement in principle to sell Getronics PinkRoccade Business Application Services (BAS) to Capgemini.

  Capgemini is expected to pay an equity value of €255m in cash.

  BAS provides application development, maintenance and management services in the Netherlands. It had 2007 revenue of €297m coming from consulting and application services and an operating margin of 9.8%. More than 50% of revenues come from application management and another 10% to 20% is repeatable business. BAs has a headcount of 2,200 and an attrition level of circa 18%.

  Breakdown of BAS revenues by activity is:

  • Application development and management for public sector and financial institutions in the Netherlands 37%
  • Application services of custom and packaged applications (development, testing, management, BPO): 34%
  • Consulting, project management and process redefinition invoiced on T&M basis 25%
  • Other 4%.

  Breakdown of revenues per vertical markets is:

  • Public sector (central governement only) 38%
  • Financial services (mostly insurance firms) 23%
  • Others (manufacturing and transportation) 39%.

  When finalized, this acquisition will bring Capgemini's headcount in the Benelux region to c. 10,000 personnel, revenues to €1,465m, of which an estimated €1,250m from the Netherlands and an operating margin of 14.0%. Capgemini is aiming to increase the operating margin of BAS to circa 14% -15% in the next 24 months.

  Subject to approval by the European Commission and consultation with the Workers' Council, the acquisition is expected to finalize before the end of 2008. Capgemini will consolidate BAS from July 1 2008

  Separately, IT services company Ordina confirmed to Dutch media that it had also made an offer to acquire BAS.

  Analyst comments:

  The acquisition of BAS strengthens Capgemini's operations in the Netherlands in:

  • The insurance and public sectors
  • Application management
  • Its core Dutch activities (consulting and application services) .

  In the past 2 years Capgemini has had mixed results with outsourcing in the region: the company has enjoyed some success in IT infrastructure management (Maxeda and Rijkswaterstaat) and BPO (NXP Semiconductors) but has beeen less effective in winning major application management deals. Outsourcing represents c. 10% of Capemini total revenues in the Netherlands:

  • Capgemini is keen to gain market share in a country where it has traditionally enjoyed solid margins (+15.1% in 2007; +13.5% in 2006 in Benelux) and revenue growth (+11.7% in 2007; +9.4% in 2006 in Benelux)
  • Its Dutch operations have been instrumental in bringing new offerings such as software testing to the whole company and to Sogeti.
  • Dutch organizations have opened up to Indian service delivery and Capgemini is looking to cross-sell India-delivered services to the installed base of BAS. Currently BAS is using 150 Indian personnel from MindTree and Capgemini will replace them, targeting 500 to 800 Indian personnel serving this business within the next 3 years.

  This now leaves two business units of Getronics for sale: Business Solutions and Document Services. Business Solutions specializes in software for local governments and healthcare. KPN intends to divest both businesses before the end of 2008.

• Capita Announces H1 2008 Revenues Up 20% to L1182.5m

  Jul 24, 2008 | Financial Results by Rachael Stormonth
  

  Capita has announced H1 2008 revenues, for the period ending 30 June 2008, of £1,182.5m, an increase of 20.1% compared to H1 2007. Organic revenue growth was 4%. Including major new contracts signings total organic growth was 14%

  H1 2008 operating income was £140.6, representing an operating margin of 11.9% compared with a margin of 12.1% in H1 2007

  H1 2008 revenues (and year-over-year revenue growth) by segment were:

  • Life and pensions £229.4m (+116.8%)
  • Insurance and specialist services £155.9m (+4.4%)
  • Integrated services £142.2m (-6.7%)
  • ICT and multi- service centers £169.8m (+36.6%)
  • Professional services £150.80m (+5.7%)
  • HR solutions £127.9m (+3.6%)
  • Property consultancy £126.2m (+12.4%)
  • Financial services £80.3m (+7.4%).

  H1 2008 operating income and margin (with margin for H1 2007) by segment was:

  • Life and pensions £23.8m, 10.4% (11.3%)
  • Insurance and specialist services £15.5m, 9.9% (9.1%)
  • Integrated services £19.5m, 13.7% (13.6%)
  • ICT and multi- service centers £19.2m, 11.3% (12.3%)
  • Professional services £22.6m, 15.0% (13.9%)
  • HR solutions £12.1m, 9.5% (9.7%)
  • Property consultancy £10.1m, 8.0% (7.9%)
  • Financial services £17.8m, 22.2% (22.1%).

  Analyst comments:

  In what is an uncertain market this is a strong half year result for Capita, who experienced growth in every segment apart from "Integrated Services" (for cental government sector), which now contibutes 12% of total revenues.

  Nearly 55% (£11.8m) of the £21.7m decline in operating income came from the expanded Life & Pensions business, where Capita is in the ramp up stage with a number of contracts. L&P BPO, where Capita dominates the U.K. market, now accounts for nearly 20% of the firm's total revenues. Although a number of Indian services vendors are now attacking the market, they are not likely to pose a threat to this dominance within the next few years. NelsonHall has recently published a market report on L&P BPO. For details, contact paul.connolly@nelson-hall.com.

  The other contributor to the margin decline stems from the recent acquisition for £27.8m of Computerland, which Capita intends to leverage to win deals requiring managed IT services.

  While H1 2008 major contract bookings of £626m were nearly half of the £1.15Bn secured in H1 2007, Capita secured a further £187m of new and extended major contracts in July 2008 and estimates its current bid pipeline is £3Bn (up from £2.5Bn in February 2008).

  The company continues with its highly effective approach of small acquisitions: eight have been completed in 2008 to date at a total cost of £128.8m.

  Capita also continues to expand its capabilities in India and is currently setting up a new site in Pune. The first client to be served from this site will be Marsh U.K. From October 2008 Capita will have 3 sites in Mumbai following the transfer of PPMS to Capita as part of the Prudential contract. By the end of 2008, Capita will have over 3,000 personnel based in India, with a lot of offshoring occurring in its L&P BPO business. Although this is still under 10% of the total workforce, Capita has accelerated its offshoring initiative, also much of Capita's public sector business requires onshore delivery.

• Ariba Announces Fiscal Q3 2008 Revenues Up 12.4% to $85m

  Jul 23, 2008 | Financial Results by Rachael Stormonth
  

  Ariba has announced revenues for fiscal Q3 2008, the period ended June 30th 2008, of $85m, up 12.4% year-over-year.

  Revenues (and year-over-year revenue growth) by activity were:

  • Subscription and maintenance $49.3m (+34.7%)
  • - Subscription software $30.3m (+68.3%)
  • Services and other $35.7m (-8.5%).

  During fiscal Q3 2008, Ariba secured 151 hosted software deals (up from 100 in the prior year period).

  Ariba added 34 new clients and closed 17 transactions over $1m including 4 software deals over $1m. Companies purchasing Ariba solutions during Q3 included: H. J. Heinz Company, ABN Amro, The Travelers Company, Sanofi-Aventis, Unilever N.V., Telefonica S.A., Dana Corporation, Enel SpA, and Mobistar.

  Analyst comments:

  Ariba's focus on hosted software is seeing results, and market demand for hosted procurement software is likely to strengthen as more organizations look for procurement cost savings.

  However, in focusing on "on-demand" software Ariba has de-emphasized its procurement BPO offering and is no longer a significant player in what is also a growing market.

  Ariba is still a long way short of becoming a profitable business.

  • Operating loss for fiscal Q3 2008 was $7m, representing an 8.2% negative margin, compared with a 6.8% negative margin in the prior year quarter.
  • For fiscal year-to-date, the operating margin is negative 17.7%, compared with a negative 9.9% margin in the prior year period.

• Convergys Announces Q2 2008 Revenues Down 2% To $689.5m

  Jul 23, 2008 | Financial Results by Katharina Grimme
  

  Convergys has announced Q2 2008 revenues, for the period ending 30 June 2008, of $689.5m, down 1.5% compared to Q2 2007. Operating income was $47.4m compared to $58.1m in the same quarter in 2007.

  Revenues (and revenue growth) by business unit were:

  • Customer Care $469.0m (+2%)
  • Information Management Group $161.1m (-14%)
  • HR Management $59.4m (-6%).

  For H2 2008, Convergys lowered its guidance due to due to the effects of adverse economic conditions including a slowdown in call volumes.

  For FY 2008, Convergys expects the following results (including the anticipated acquisition closing in Q3):

  • Consolidated revenues at the lower end of the previously provided range of $2.85bn to $3.0bn
  • Customer Management revenues of approximately $2.0bn , with operating income and margin improving in the fourth quarter
  • Information Management revenues above $600m with an operating margin >17%
  • HR Management revenues of $260m to $270m and an operating loss of approximately $20m.

  Analyst comments:

  Q2 2008 revenues have declined in 2 out of 3 service lines i.e. Information Management and HR Management while Customer Management revenue has seen a slight increase.

  Revenue decline in the Information Management business has been the most substantial and indicative of a long-term decline with last quarterly revenue increase registered back in Q3 2006 despite a large license sell to a North American telecom operator and an Infinys contract with BSNL,India this quarter. Information Management business has two main revenue streams: license fees and service revenues. While decline in Convergys revenue from license fees is reflecting the general market conditions with key telecom operators struggling with failing ARPUs and margins and less willing to invest in new billing systems, service revenues of other major competitors such as Amdocs has continued to see double digit increase with strong growth from Asia Pacific where Convergys has limited market presence.

  Revenue decline in HR Management were explained by Convergys as they've decided to move on from serving a particularly large client contract with small operating margin. Convergys expects to see an increase in the revenue from HR Management business in Q3 2008 as it has signed a new HR BPO contract, due to start in August 2008, with a client in U.S. and Puerto Rico.

  Convergys is apparently more concerned about their Customer Management business which has seen a slight increase in Q2 revenue. Main areas of concerns are:

  • Lower call volume overall as a result of difficult economic conditions in North America as well as increasing use of automation and call deflection methods
  • Decline in key verticals such as telecom and credit cards in particular.

  In response, Convergys is looking to take advantage of supplier consolidation resulting from nervousness concerning vendor financial stability and increase its customer management services revenues by Q4 2008 by:

  • Putting capacity into more appropriate locations: rationalizing its Canadian operations while enhancing its bi-lingual capability in Latin America and its operations in the Philippines
  • Defragmenting its blocks of capability to offer larger blocks of capacity designed to more attractive to major clients and more profitable for Convergys
  • Meeting the increasing demand for increased customer service automation: offering blended services strengthened by acquisition of intervoice.

• Unisys Announces Q2 Revenues Down 2.6% to $1,340m

  Jul 23, 2008 | Financial Results by Rachael Stormonth
  

  Unisys has announced Q2 2008 revenues, for the period ending 30 June 2007, of $1,340m, down 2.6% year-over-year. This includes a 4% positive impact of foreign exchange rates (so down 7% in contsant currency).

  Q2 2008 revenue (and revenue growth) by activity was:

  • Services $1,197m (-1%)
  • Technology $143m (-14.4%).

  Q2 2008 revenue (and revenue growth) by activity within the services business was:

  • Consulting and systems integration $389m (+5%)
  • Outsourcing $520m (+3%)
  • Infrastructure services $192m (-14%)
  • Core maintenance $96m (-12%)

  Q2 2008 revenue breakdown by region was:

  • U.S. $572m (-3%)
  • International $768m (-2%).

  Q2 2008 revenue share by region was:

  • U.S. 43%
  • EMEA 35%
  • APAC 11%
  • Americas 11%.

  Operating income in Q2 2008 was $22.6m, representing an operating margin of 1.7%, compared with a margin of 0.2% in Q2 2008. SG&A costs have increased, partly due to higher pre-sales activity in the public/federal sector.

  Q2 2008 operating margin by activity (compared with operating margin in Q2 2007) was:

  • Services 3.5% (2.5%)
  • Technology -3.7% (-0.6%).

  Analyst comments:

  In the current market environment Unisys is finding its turnaround in transitioning to higher margin activities in growth areas particularly challenging, experiencing softness in the financial services sector (which accounts for c. 30% of overall revenues) and in areas such as infrastructure optimization projects.

  Unisys' CEO describes this as a "mixed" quarter, with

  • Improvements in services orders, in particular for outsourcing. Services order backlog at end June 2008 was $7.17Bn, up 3% from $6.97Bn at end March 2008
  • Cash flow from operations improved to $52m, up from $23m in Q2 2007
  • Revenue growth in SI/consulting, outsourcing, strategic programs, also in the federal/public sector

  However:

  • The revenue decline in infrastructure services was greater than expected
  • In spite of the drive to improve the bottom line, Unisys' margins are being impacted by the slowdown in financial services, and the ending of the NUL royalty stream at end March 2008 ($19m in Q1 2008), also higher SG&A expenses related to pre-sales activity in the federal sector

  Furthermore,

  • Revenue growth in outsourcing has decelerated, and is below market levels
  • Unisys' BPO business continues to be dominated by check processing operations in the U.K., a sunset business
  • Unisys didn't make the downselect for the TSA contract as expected: although a challenge to the decision has been made
  • Revenue from the five strategic programs (Outsourcing, Enterprise Security, Open Source Solutions, Microsoft Solutions and Real-Time Infrastructure) acciunted for nearly 60% of total revenue in H1 2008, up from 55% in 2007 and c. 50% in 2006. This is somewhat behind Unisys' earlier target for revenue from these 5 areas to contribute c. 70% of total revenue in 2008
  • The level of R&D activity (reduced to a great extent by the partnership with NEC) is down to just $30m in Q1 2008, halved from the prior year period): further cost reductions in this area are unlikely
  • The company has had to deal with another series of senior exec departures in H1 2008.

  Unisys is pursuing 3 priorities in H2 2008:

  • Adjusting its solutions portfolio, focusing on projects with a shorter term payback, also refreshing its portfolio in financial services
  • Addressing weakness in its infrastructure services and core maintrenance businesses by reducing the cost base and lowering the break-even level by decreasing the number of FTEs by c. 800 (including contractors) in the U.S., U.K. and Germany
  • Further refinement of its business model: the company is in the final stages of evaluating portfolio rationalization alternatives: a decision is likely to be announced within the month.

  The overall strategy of further cost reductions and portfolio rationalization clearly illustrates a company still contending with major difficulties.

  Unisys is pursuing 35 bids each with a total potential lifetime value of at least $100m and needs to show some significant wins in the next quarter.

• Fiserv Awarded Hosted Core Banking Solution Contract By Banco do Brasil

  Jul 22, 2008 | Contracts by Andy Efstathiou
  industry: Retail Banks

  Fiserv has been awarded a hosted core banking solution contract by Banco do Brasil. The bank is opening a U.S. Federal Savings bank subsidiary to serve the needs of Brazilian immigrants to the U.S. The savings bank subsidiary intends to open 5 branches in the next year.

  Services provided include:

  • Solution hosting from Glastonbury, CT. data center
  • Core banking solution (Premier)

  Analyst comments:

  This application hosting contract is an example of a developing trend where emerging market banks are entering developed markets to serve the needs of their home country expats.

  Over time this will change the market dynamics in developed countries from one where small local banks compete for low end consumers to one where large international banks compete for immigrant consumers.

• CGI Sells Property & Casualty BPO Unit to Shumka Group

  Jul 21, 2008 | Mergers and Acquisitions by Rachael Stormonth
  industry: Property & Casualty

  CGI has announced the divestiture of its Canadian property & casualty BPO unit to the Shumka Group, a privately-held company with c. 600 employees.

  CGI's unit provides claims adjusting and risk processing services.

  The transaction is expected to close in August 2008.

  Analyst comments:

  CGI's Canadian P&C BPO operations were based on its acquisition in January 2003 of the Underwriters Adjustment Bureau Ltd. (UAB) for $33.5m (CDN$53m). The business at that time was reported to have an annualized revenue run rate of c. CDN$100m (c. US$63m).

  The unit currently has c. 750 personnel working out of centers in the Montreal metropolitan and Toronto metropolitan areas. Clients include Groupement des Assurers Automobiles (GAA).

  The business has not expanded (current revenue run rate is c. CDN$70m per annum).

  In addition, these operations are manually intensive. Having conducted a review of its BPO operations, CGI, who has a proprietary platform CGI Edge (see separate article dated May 13th 2008), is looking to focus on P&C BPO opportunities involving more automated processing.

  NelsonHall has recently published a global market assessment on P&C BPO. For details, contact paul.connolly@nelson-hall.com

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