Tuesday, 27 December 2011

CSC warns of a $1.5bn write-off and withdraws its EPS guidance

Yet more bad news for CSC shareholders!

We recently wrote about CSC’s “failing fundamentals” and it has not taken long to get another of these shocks which are becoming the norm for CSC.

Today,  CSC disclosed in a regulatory filing that it may have to write off all of its $1.5bn investment in the troubled NHS contract. It also withdrew its earnings guidance to Wall Street and saw its share price immediately fall by 8% .  

Details are given in the Wall St Journal:

and also in PC World:

and in PCAdvisor : which highlights the arrogance of CSC management who are quoted as stating that  "government has no right to cancel the contract".


Recently CSC’s Q2 FY12 earnings call and its 10Q SEC filing of November 9 referenced risks relating to the NHS report, but did not the impression there could be a massive write-off in just a few weeks time. Was this why Messrs Laphen and Mancuso’s answers and comments during the earnings call seemed so evasive?

Will CSC now tell us :

1.       Why has the NHS situation seemingly deteriorated so significantly since CSC gave an update on November 9?  Were Messrs Laphen and Mancuso overly optimistic in their assessment of the situation at the earnings call? Or were they out of touch with the reality of the situation?   Or were they  misleading investors and the government of the UK?

2.      In view of this collapse of the NHS contract, what is the real value of the iSoft acquisition and of the Lorenzo software today?  Can we expect further goodwill write-offs due to reductions in their underlying value?

3.      The many people and journalists who over the past 3 years warned that NHS was doomed to failure are being proved correct. Why were the warnings ignored for so long by CSC management?

4.      Why is no CSC executive being held accountable for the NHS failure? Why is the European President who was personally responsible for the NHS still in place?

Earlier this month, we said that

The major financial uncertainties surrounding CSC (shareholder lawsuits, SEC investigations, customer disputes, NHS etc) would scare off any buyer.

Today’s announcement by CSC just underlined this point.


Anonymous said...

How did this happen?

Has Laphen known about it for months, but kicked it into the long grass until he had negotiated his obscene pay-off package.

If they had known about this, even CSC's useless spineless Board may have been reluctant to give him such a rich payoff package for total failure.

In just 6 months Laphen will have written off more than the total market value of the company.

Anonymous said...

The NHS write-off, plus the goodwill write-off in Q1 Fy2011 exceed the company's total Income before Tax for the whole time Laphen has been CEO. In other words in 3 months since Septemebre 2011 he has wiped out all the profits that CSC earned since May 2007.

Is there any chance he might decide to reimburse the bonuses he collected for those years on the basis that he has wiped out all the profits on which the bonuses were based? I'm not holding my breath!

Anonymous said...

Gosh, you guys are misinformed ;) Guy Hains states in the December issue of Shaping Up that he is 'extremely positive' about the iSOFT integration. The major successes in CE region illustrate that: iSOFT and CSC participated in a major industry event and had two joint presentations. Please stop all this negativity. Guy Hains told us that we were acquired by CSC because of our product portfolio and not because of some problems in the UK with Lorenzo. Start listening to our expert management.

CSC Sceptic said...

To Anon of January 25th,

I hope your optimism is well founded, but I have stopped believing anything CSC's "expert management" tell us.

Up to February 2011, they were telling us how confident they were of the future, that CSC had everything needed to be successful, that the NHS projects was going well and that, by implication, doubters were ill-informed.

Since then we have had:

1. A collapse of CSC's results.
2. Disclosure of major accounting irregularities that went unnoticed for a long time.
3. Class action lawsuits against directors for allegedly misleading shareholders.
4. Write-offs totalling $4.2billion.
5. The disclosure that major projects, including NHS, are indeed failing.

All of this has caused my investment in CSC shares to lose over 50% of its value in a year.

At best, Guy Hains, Mike Laphen and CSC top management do not know what they are doing.

So until I see CSC begin to deliver against what its management promises, I'll remain very sceptical about anything they say and just hope I am wrong.