CSC held a conference call on 11 April to update the analyst community on expectations for its results for the quarter to 31 March 2012 (its Q4 FY12). CEO Mike Lawrie also talked about his assessment of CSC’s situation and his plans to turn the company round.
CSC’s expected Q4 FY12 results will be very poor and significantly below analysts’ expectations. Once again CSC did its routine of saying what the results would have been “excluding this item and without that impact”.
The earnings “excluding this item and excluding that impact” will be between $0.19c and $0.21c per share compared to Wall Street expectations of around $0.97c per share. The $0.19c to $0.21c earnings numbers exclude the previously announced NHS charge, goodwill impairments, the US claims settlement, iSOFT dilution, and a fourth quarter restructuring charge.
All these “excluded” items are a direct result of prior CSC management actions, decisions and incompetence. So excluding them is just an excuse. The full picture is that CSC expects a loss of $0.92c to $0.94c per share for Q4 FY12 which means a loss of about $27.30 per share for the whole of FY12. Revenue for Q4 FY12 will be around $4.1 billion, down about 3 % from the same quarter of FY11. As a comparison, Accenture last month announced revenue growth of 13%.
The extent of the damage ex-CEO Mike Laphen has inflicted on CSC in his 5 years of mismanagement is hard to believe. It is equally unbelievable that CSC’s Board of Directors, meaning its non-executive directors, just sat back, kept quiet, collected their directors’ fees, paid Laphen massive amounts and then allowed him to come close to destroying the company.
So where is the good news in all this?
The first good sign was that while CSC shares dropped almost 9% immediately when the markets saw the numbers, they recovered 6% during the day as they reflected on what Mike Lawrie had said. The shares closed only 2.4% down at the end of the day. Mike Lawrie’s message was vastly different from the wild unfounded optimism and promises that Laphen consistently delivered. It was also different from the content-free waffle CSC served up earlier in the week when updating the analysts on the NHS (lack of) progress.
“We have profitability issues driven mostly by underperforming projects, NHS, which has been well-chronicled over the last several quarters, and we have some business units that are not performing at the level that they need to perform at,” said Lawrie. “There will be some restructuring as we begin to align our costs to our revenue. We’re going to implement a leaner, more efficient operating model with clear lines of accountability so that we can get more lined up to deliver shareholder value and needless to say, there will be some leadership changes as we move forward as well,”
The company said it had booked all costs from the U.K. health contract write-down and had posted “substantial” restructuring charges for job cuts mainly in its Nordic and U.K. regions. Mike Lawrie added that there may be further incremental restructuring costs as contracts are adjusted and renegotiated and that the company places more emphasis on profitability than revenue growth. This shows that Mike Lawrie recognizes that Laphen’s promised revenue growth was nothing more than smoke and that today’s CSC is incapable of revenue growth.
Fuller details of the call transcript are given on:
Substantial restructuring in UK and Nordic is regrettable but unavoidable given CSC’s situation. But hopefully the employees will not be alone is bearing the pain this time round. Finally it appears that the top executives will not escape the consequences of their mismanagement this time. Mike Lawrie has said he will introduce senior management accountability into CSC, something lacking over the past 5 years. Let’s hope this is accompanied by an end to the practice of granting massive termination pay-outs to failed executives who leave. These failed executives should be given just the legal minimum pay-out as a message that there are no more rewards for management failure.
We urge Mike Lawrie to restructure CSC intelligently by cutting out activities and identifying tasks that will be stopped, rather than just cutting heads once again and expecting the remaining employees to do ever more and more. There is tremendous scope for work and management reduction when one looks at the mass of red tape, bureaucracy, internal arguments about who gets the revenue, review packs, duplication of work and pointless administration that CSC has built up over the years. The irony is that CSC offers “business transformation services” to its customers while it has proved incapable of transforming itself.
Mike Lawrie has made a good start in the eyes of most CSC employees. His message to them may be tough, but he is telling it like it is, a welcome change from the bullshit and management silence that employees have been given over the past years. Lawrie must put his words about senior executive accountability into action, including accountability of executives still with CSC for the years of mismanagement that has led to the sorry mess the company has become in UK and Nordic.
Mike Lawrie needs to ensure CSC keeps its real leaders, its good people who are making a genuine contribution and those who had the courage to speak out and try to address CSC’s real problems in the past. He needs to terminate the management non-performers, the content-free self-publicists, petty bureaucrats, sycophants and bullies, some of whom are in HQ, who thrived during Mike Laphen’s reign while avoiding accountability for their non-performance.
Mike Lawrie told it straight on this conference call. His challenge is to show that his actions to address the shortcomings and his pruning of non-performing senior executives will be equally straight. If he can demonstrate this, he has a good chance of re-establishing CSC’s credibility with the analyst community and of ensuring the support of the employees. Time will tell if his actions are as good as his words.