Thursday, 6 October 2011
“The comically misnamed Connecting for Health will continue to honour its contracts with big companies and to swallow taxpayers’ money for some time to come: up to £11bn on current estimates. The figure demonstrates the truly egregious scale of the previous Government’s incompetence on this issue: this vast sum seems to have been committed irrevocably, even though the project has never achieved its objectives.
“The story is a dismal catalogue of naivity, ambition and spinelessness. NHS managers and officials …were [not] brave enough to question the direction of travel at crucial moments when IBM and Lockheed pulled out of the project early on. Whitehall was sold a grand vision by consultants, software and technology companies charging grandiose fees. It signed contracts that appear to have been impossible to break when the promised land did not appear. Yet no one seems responsible. No one has been sacked. Most of the officials involved have long moved on…
“There have been spectacular failures in the private sector too. But businesses, with tighter controls on spending, tend to halt things earlier if they are going wrong. Many prefer off-the-shelf systems such as SAP or Oracle, which are tried and tested. They know that it is cheaper to adapt their processes, not the software.
“This newspaper is in favour of serious investment in technology, which could play an important part in economic growth. The NHS debacle has done enormous damage to this country’s reputation for expertise in IT systems. The lessons for the future are clear. Governments must hire people who can make informed and responsible procurement decisions. Patients, in every way, are going to end up paying the price.”
Sunday, 2 October 2011
CSC is facing a (or is it another?) class action lawsuit which alleges that its Board fraudulently concealed from investors the true situation of the NHS contract.According to an article in The Guardian, a respected UK broadsheet newspaper, CSC knew as early as May 2008, through reports and testing, that the Lorenzo package was "dysfunctional and undeliverable". It states that a member of the CSC project review team wrote directly to CEO Michael W Laphen telling him that the project was on a "death march".Full details onWill CSC tell us exactly what action Mr Laphen took when he received this news?
Sunday, 18 September 2011
As has been well established CSC has been mismanaged for years, with services being criticised across the globe, with significant figures like the Prime Minister of the United Kingdom, Mr. David Cameron, saying they will not do business with the company. As profitability is in decline, the share price collapses, and staff complain about lack of training and investment, see WikiCSCleaks blog, it is all looking rather like Stalin and his Politburo has taken over CSC. But Stalin never had to worry about investors and shareholders. However, they seem to be rallying and are about to make their presence felt. Watch the news on 22nd September for latest developments when the Class Action suit is filed.
Saturday, 17 September 2011
If Mr Owen was removed solely because of the Q1 (June 30) results,but the rest of the financial year's outlook is acceptable, why wait two months then act in September?. His removal in September suggests he has been unable to get the fiscal year outlook back on track.
Interestingly Mr Owen 'stood down' on September 16, just when CSC buiness units submit their last Q2 (Sept 30) financial forecast to Corporate headquarters. Could his fate have been sealed by his submitting a profit forecast below what Mike Laphen wanted?.
These factors suggest that CSC's Q2 (to September 30) results for the MSS sector could well be poor, as they were in Q1. Will there be any tax credits or other one-off financial accounting credits to recover the situation this time?
The whole Outsourcing/MSS industry sector has been experiencing profitability pressure for some years now as it matures and commoditizes. CSC has consistently cut and/or deferred planned and needed service delivery and technology investments to protect "this quarter's profit", but each time at the cost of mortgaging its future a bit more. Perhaps CSC's disappointing results are now reflecting the consequences of this approach. Maybe this is where the rubber hits the road, or where something more unpleasant hits the fan.
Friday, 16 September 2011
|From:||Mike Laphen - Chairman President and CEO|
|Subject:||Leadership Change in Managed Services Sector|
Today we announced that Russ Owen, who has led our Managed Services Sector (MSS), will step down as President of MSS, and assume the role of President, Strategic Account Development, effective immediately. In this capacity, Russ will focus on strengthening service performance and quality in specific accounts.
Peter Allen, in addition to leading Global Sales and Marketing, will assume the role of acting President of MSS, responsible for CSC’s Managed Services practices, including World Sourcing, Applications, Global Infrastructure and Enterprise Services, Market and Product Strategy, and Cloud and Software Services. As we advance CSC’s position in the global IT services market, MSS will play an important role by growing our applications business and ensuring service and delivery commitments and excellence.
Peter, who has also formerly served as group President of Strategy and Business Development for MSS, brings extensive expertise across the full spectrum of IT services. His intimate knowledge of our clients and the IT marketplace is a valuable asset as we bring greater innovation and competitive advantage to our accounts, and deliver on our profitability and growth goals.
Thursday, 1 September 2011
1. May 2010 - FY09 Q4 announcements include tax credit that improves earnings by $36m. No growth in most businesses, some growth in US.Note this is the year that includes $90mln of 'mistated' earnings in Nordics and is also when the two expat leaders of Nordic business are removed from their posts.2. November 2010 - Mike Mancuso CSC Finance President announces Nordics accounting problems total $40million, are now fixed.3. 9th Feb 2011 - Associated Press "CSC shares tumble after company cuts forecast. In that forecast Mike Laphen CEO and Chairman says "... Due to sluggish pace of new business won".4. 12th Feb 2011 - accounting irregularities of $80mln announced.5. 2nd May 2011 - CSC gives profits warning and restates results.6. 11th May 2011 - David Cameron, Prime Minister of UK says in Parliament "... There no plans to sign any new contract (for NHS IT) with CSC."7. 16th June 2011- CSC reports Nordic accounting irregularities of $91mln. CSC had previously reported these irregularities were $40 mln, then $80mln.8. 10th August 2011 - Mike Laphen says "CSC......is a very solid business with excellent prospects", and announces Q1 FY2012 EPS of $1.18 compared to Analyst consensus of 70 cents. Without that one-time tax credit the EPS would have been only about 43 cents per share, some 27cents below expectations.
9. 10th August 2011 - Form 10-Q states that recovery of CSC balance sheet position is "probable" on settlement of dispute with US Govt10. 24 th August 2011 - CSC reports special charge of $250mln in FY2012 on settlement of dispute with US Govt
How many more changes in financial results are likely? Given the above there are probably more to come. Only time, and investors patience will tell.
Friday, 26 August 2011
On August 10 2011, CSC said in its Q1 FY2012 Form 10-Q SEC filing that it was "committed to vigorous pursuit of its claimed entitements (in this dispute) and believed that recovery of at least its net balance sheet value is probable". CSC also stated that its position had been supported by outside counsel and reiterated as recently as May 20, 2011.
CSC did give a caveat that they could not be sure of the outcome and that its position "is subject to the ongoing evaluation of new facts and information which may come to the Company's attention". This seems a normal and prudent proviso, but nothing alarming.
(Full details of this 10-Q filing can be found on the CSC website or on http://quote.morningstar.com/stock-filing/Quarterly-Report/2011/7/1/t.aspx?t=XNYS:CSC&ft=10-Q&d=04897c6169f6d037f5f041735459ba6d )
So on August 10 2011 CSC gave the impression of being reasonably confident that there would be no significant write off arising from this dispute. Then just two weeks later, CSC announces a settlement which entails a $250million write-off, probably turning a Q2 FY2012 profit into a significant loss. And they announce it as if it is some kind of achievement for the company!!
James Schaeffer, CSC President, North American Public Sector said in announcing the settlement. "We are pleased to be able to reach an equitable agreement with the Government while preserving our important role in a critical government program".
We have to ask
what happened in the final two weeks of a 5 year old dispute to turn "vigorous pursuit of entitlements" into something which looks like capitulation or being out-negotiated? What new facts and information came to light? What new evaluation was made? On August 10, we are led to believe that the balance sheet position was probably safe. Just two weeks later, we have an "equitable agreement". which creates a write-off of $250million.
Am I the only person perplexed by these events? Or is it just another in the long series of unpleasant surprises CSC shareholders have been getting recently?
Thursday, 25 August 2011
CSC will take a Q2 FY2012 charge of approx $250Million for dispute settlementCSC announced on August 24th 2011 a settlement of a contract dispute with the US Government.Details are given in CSC's Form 8K filing with the SEC:http://marketbrief.com/csc/8k/events-or-changes-between-quar/2011/8/24/8992697/filing
The company currently estimates the financial impact of the settlement as a $250million or $1.15 EPS. Before this announcement, the Analyst consensus estimate of CSC for Q2 was a profit of $0.69 per share(source: Google Finance). So is it now a loss of $0.46 per share?.CSC are "pleased" by the settlement. As a shareholder, I am not. It is yet another piece of bad news falling out of the sky. Can CSC tell us when the good news they keep promising will actually start??
It would also be useful to know what charges CSC will have to make in the contract dispute/renegotiation, with the UK Government over the NHS contract, and what likely charges are due for the failing services in Nordic countries following the strikes and lock outs, which hit the services from mthe Copenhagen data centres.
Monday, 15 August 2011
This was Mike Laphen's description of CSC at its Q1 FY2012 earnings call of August 10th 2011. It shows that nothing much has changed. The company still tells shareholders that it is on the verge of success, there are just a few issues to sort out, and the future will be bright. Just the same as always.How many times have we heard this message in the past? Unfortunately, each time an outstanding issue is sorted out, a new and sometimes bigger issue seems to appear. We knew about the NHS situation, the Nordic accounting irregularities, the SEC investigation, the Audit Committee investigation, the lack of revenue growth, the Class Action lawsuit and the Long-term Investor Investigations. We can now add MSS (outsourcing) segment business performance to the list of issues.The business highlight of the Q1 results release was the collapse of the MSS segment profitability from 10% ($175million) in Q4 FY2011, to just $9million in Q1 FY2012. In constant currency, Q1 FY2012 MSS revenue was 6% down on the same quarter of the previous year, which is a possible cause for concern given the annuity nature of MSS. The explanations given for this profitability collapse seem plausible, workforce rationalization, impact of the strike in Denmark, higher than planned project costs (again), and so on. But maybe we are beginning to see the impact of the lack of service delivery investment over the years? Read the comments from this blog to see how CSC has over years; curtailed travelling so that senior managers cannot visit the widely scattered workplaces to review work and acutally 'manage', and cut out training which must have inevitably reduced the skills of its work force.It seems that what the business performance failed to deliver was compensated by the accounting performance. Tax planning initiatives created an exceptional one-time credit of $85million in Q1 FY2012, which turned a poor pre-tax profit of $101million into a healthy profit after tax of $186million. One would normally expect a tax charge of about 25% or about $26million for the quarter, so the delta impact of this credit was some $110million or almost 60% of the net profit.
Readers may recall that in FY2009, CSC similarly benefitted from a one-time tax credit of $166million. Just how many of these tax credits are there and where are they coming from? Is CSC now a finance house instead of IT Services provider?The CSC balance sheet shows the book value of the company as $7,500million, while its market capitalization is only $4,600million. So why is the market value of CSC so much lower than its historical book value? One indicator is CSC's poor P/E ratio, (its share price expressed as a multiple of the annual earnings per share), which reflects the market's view of the company's future prospects. CSC's P/E ratio is only 6.20, while competitor Accenture, for example, is 17.20, almost 3 times more. This means the market has much more confidence in Accenture's future performance than it does in CSC`s. This is corroborated by historical performance. Today, a CSC share is worth about 40% less than it was 5 years ago, while an Accenture share is worth over 95% more.According to Michael Laphen, CSC is "a very solid business with excellent prospects", Its share price has suffered because of a "severe overreaction in the market....which is so volatile that if you pop up with a surprise you'll get severely penalized for it" This reassurance will no doubt come as a relief to worried shareholders.Back in 2006, the then CSC Board of Directors reportedly turned down a takeover bid in the "low $60's" as they felt it undervalued the company. Since then, the CEO has changed, but most of the non-executive directors are still in place. Do they ever reflect on the wisdom of that decision? With CSC stock now below $30, what would the shareholders rather have? Mike Laphen's reassurances of a rosy future or the chance to accept a $60 takeover bid?