Tuesday, 30 July 2013

What is going on with New Business at CSC?

It is well known that CSC needs to remove unprofitable old business, and restructure the entire company, while growing good new profitable business. These tasks are daunting and complex requiring a top notch management team to make them happen. A new management team is now in place, top notch or not only time will tell, yet as can be seen from recent posts and comments the restructuring seems to have to hit the buffers, while removal of some old businesses seems to be moving ahead (we will comment on this in another post). But new business seems to be a mystery. Where is the growth going to come from? Why is there not more information about it?

Looking at the company press releases over the last year, where you would expect to find significant new deals publicized, one is left with the impression of a few small deals, two medium sized deals, and several largish deals shared with many other suppliers with the revenue unquantified or only hinted at.  There are of course small scale application and consulting deals only with contract renewals that would not necessarily be announced at the global level. But even so in the 9 pages of some 90 press releases there are as far as we can tell only 11 new deals announced. Note new means not associated with current contracts. 

The quoted revenues from 6 of the deals is a life time total of $405mln or $151.5 annually. (note; 5 deals have no revenue given – Why?) For a $13bln or is it $15bln a year turnover company these results do not bode well as they represent just 1% of that turnover. Where is the growth and replacement for old business to come from?
We assume the industry analysts will have a lot of questions about CSC’s new business during the call next week.

Details of the deals analysed follow. The title line of each deal has a hot link to the press release web page for more information.

News Release -- June 19, 2013
Reduction in Medication Errors after Implementation
New Zealand, June 19, 2013 – The New Zealand Ministry of Health has awarded CSC a five-year, $17 million contract for the provision of its in-hospital prescribing and administration solution, MedChart, to all 20 District Health Boards (DHBs) across the country.

News Release -- January 21, 2013
FALLS CHURCH, Va., Jan. 21 – The U.S. Navy awarded CSC (NYSE: CSC) and six other companies an indefinite delivery/indefinite quantity (IDIQ) contract to provide acquisition and support services to the Space and Naval Warfare Systems Center (SSC) Atlantic. Awarded in the third quarter of CSC’s fiscal year 2013, the contract has a one-year base period and four one-year options, for an estimated total value of $900 million for all companies if all options are exercised.

News Release -- February 15, 2013
FALLS CHURCH, Va., Feb. 15 – The U.S. Coast Guard awarded CSC (NYSE: CSC) and 11 other companies a portion of its $11 billion contract to provide support services for the U.S. Department of Homeland Security (DHS).

News Release -- January 08, 2013
a Défense, Paris, France, January 8, 2013 - Crédit  Agricole Group has signed an industrial and commercial agreement with CSC to provide a new service to the bank’s corporate clients that will enable them to manage their SEPA (Single Euro Payments Area) direct debits (SDD). This new service, MandateWAY, will be available in all the bank’s subsidiaries, including the networks of Caisses Régionales, LCL and Crédit Agricole CIB.

News Release -- December 20, 2012
FALLS CHURCH, Va., Dec. 20 – CSC (NYSE: CSC) announced today that it is one of 17 companies awarded blanket purchase agreements (BPA) to provide email as a service (EaaS) from the U.S. General Services Administration (GSA). The estimated total value of this contract is $2.5 billion for all companies.
CSC was awarded two GSA EaaS BPAs: one based on a Microsoft Exchange solution and the other employing a Google solution. These BPAs, awarded during CSC’s second quarter of fiscal year 2013, have a two-year base period and three option years. The BPAs were awarded under the GSA Schedule 70 contract.

News Release -- October 26, 2012
FALLS CHURCH, Va., Oct. 26 – CSC (NYSE: CSC) announced today that the U.S. Immigration and Customs Enforcement (ICE) Office of Professional Responsibility has awarded the company a task order to conduct employee and contractor background investigations. The task order, signed in the second quarter of CSC fiscal year 2013, has a one-year base period and four option years, bringing the estimated total value to $54 million. This task order was awarded under the U.S. General Services Administration Schedule 738X contract that CSC won in 2002.

News Release -- November 12, 2012
FALLS CHURCH, Va., Nov. 12 – The United States Army has awarded CSC (NYSE: CSC) a firm fixed price (FFP) contract modification to upgrade a simulator-based flight and related aviation training device for the U.S. Army Aviation Center of Excellence at Ft. Rucker, Ala. Awarded in the second quarter of CSC’s 2013 fiscal year, the contract modification has a six-month base period and ten one-year options, for a total value of $34 million. The contract modifications were awarded under the Flight School XXI indefinite-delivery requirements contract, which CSC won in 2003.

News Release -- September 12, 2012
FALLS CHURCH, Va., Sept. 12 – The U.S. Army Communications-Electronics Command (CECOM) has awarded CSC (NYSE: CSC) a task order to provide worldwide logistics support. Awarded in the fourth quarter of CSC’s fiscal year 2012, the task order has an estimated two-year total value of $220 million and falls under the Strategic Services Sourcing (S3) contract vehicle, originally awarded to CSC in 2006.

News Release -- August 16, 2012
FALLS CHURCH, Va., Aug. 16 – CSC (NYSE: CSC) announced today that U.S. Southern Command (USSOUTHCOM) has awarded the company a task order to provide information management support. Awarded as part of the Information Technology Enterprise Solutions Services (ITES-2S) indefinite delivery/indefinite quantity (ID/IQ) contract in the first quarter of CSC’s fiscal year 2013, the task order has a one-year base period and two one-year options for a total value of $74 million.

News Release -- July 19, 2012
FALLS CHURCH, Va., July 19 – CSC (NYSE: CSC) has signed a contract with the Health and Social Care Information Centre (HSCIC) to deliver SystmOne data extracts as part of the General Practice Extraction Service (GPES).
The six-year contract, which is worth up to £4.6 million and was signed in the first quarter of CSC fiscal year 2013, will allow specific data about patients, such as the prevalence of disease and treatment given, to be extracted from patient records, to help

News Release -- July 16, 2012
Company Adopts Proven As-a-Service Offerings for Global IT Transformation Program

FALLS CHURCH, Va., July 16 – CSC (NYSE: CSC), a global leader in technology solutions and services, announced today that it has signed a contract with Alstom (Euronext: ALO), a world leader in power generation, electricity transmission and rail transport infrastructures, to provide information technology (IT) infrastructure managed services. The contract, signed in the first quarter of CSC fiscal year 2013, has a five-year base term with services expected to commence in Fall 2012. The agreement is subject to regulatory and other approvals.
CSC is tasked with transforming Alstom’s global datacenter operations to increase innovation, enhance service quality and reduce ongoing costs. By leveraging its BizCloud® and Storage as a Service infrastructure solutions, CSC will provide Alstom with datacenter services, including server and storage consolidation and centralization using a mix of existing Alstom and CSC datacenters. 

If any readers know of deals in the last year that have been missed from this list please add them as a comment and we will insert in the body of this post to ensure completeness.

Wednesday, 24 July 2013

Has Mike Lawrie miscalculated?

CSC will announce its Q1 FY14 earnings in a couple of weeks. Wall St analysts may once more focus on earnings per share, cash flow, gross margin, and achievements in cost reduction.  That is to say the usual spread-sheet-able window-dressing that makes life easy for pundits. We at Cassandra will not follow that approach. We will be looking at the business fundamentals of revenue and the New Business bookings to see the real story. Meanwhile..........

In spite of our highest hopes, like many observers we now reluctantly believe that Mike Lawrie is not aiming to rebuild a strong independent CSC. Rather, we believe he is trying to make CSC as attractive as possible to potential acquirers at the highest sale price to sell as soon as possible.  We said in our 6 February 2013 blog entry that we thought he would be seeking to peak CSC’s financial performance within 12 months and maintain it at that level for a further 6 months to get a sale completed.

 Thus his approach has been concentrated on “quick wins”, short-term profit improvement by slashing obvious costs and fixing the obvious big problems he inherited such as bad projects and incompetent senior management.

But while that has been going on, it looks like other problems have been allowed to build up unnoticed or ignored by CSC top management.

Our readers’ comments paint a consistent picture of the problems CSC has allowed to arise. These include a lack of direction and strategy, increasing confusion, organizational chaos, all resulting in employee anger and frustration. The much-publicized reorganization and operating model design launched over a year ago seems to have just come to a halt in mid-air – see multiple comments from employees about this.  Add to this the reputational damage CSC has suffered (the “rotten company” episode in the UK Parliament) and one has the impression the company is heading for another crisis.  

We wonder how much business is CSC winning.  The CSC website suggests the answer is that CSC is winning almost nothing. There was a time when the website’s “Newsroom” and “Press Releases” were full of announcements of major business wins. Today they contain a series of internal organizational announcements, with just two wins reported for the entire globe in the last 5 months. Here is one of those two:

The New Zealand Ministry of Health has awarded CSC a five-year, $17 million contract for the provision of its in-hospital prescribing and administration solution, MedChart, to all 20 District Health Boards (DHBs) across the country.

It adds just $3.4million in revenue each year. We find it incredible that such a small deal has been given such prominence. Just to rub salt in the wound of say-nothing press releases, CSC announces that the company doctor is elected to a health board in the USA. Does the rest of the world care? Do USA customers and employees care?

CSC management seems to be in a desperate race to improve profit by making people redundant to eliminate their cost faster than the company’s revenue is declining. Actually that is the same problem that the governments of Greece, Spain, Italy, Portugal and Ireland are faced with, namely “Macho Austerity” imposed by an over-bearing executive and to hell with the individual consequences. In the case of these countries it is the EU Executive doing the damage.

We wonder if Mike Lawrie has ‘peaked’ CSC’s performance too quickly and that his failure to address revenue generation is going to create another crash for CSC as he races too hard to play catch up with falling revenue by taking out yet more cost. But it will be harder or maybe impossible to rebuild CSC a second time, because so many of its most talented people will have left the company. 

This is why we are anxious to see what the upcoming earnings release tells us.

But irrespective of whatever happens to the company, we have no concerns for the personal financial well-being of Mike Lawrie. The company’s FY2013 Proxy Statement, now available on its website, confirms what one of our readers commented; namely that he earned US $ 21.3million in FY13. This in his first full year in the job, thus making him one of the top six highest paid executives in Washington area.

Further, the Proxy Statement discloses that in case of change of control, meaning CSC being acquired, Mr Lawrie would be entitled to an additional payoff of almost US$15million.  And if CSC’s Board of Directors decided to terminate Mr Lawrie’s employment, (except for “cause”, which is highly unlikely) he could collect a termination payoff of almost US $17million.  These look like Golden Parachute, and Supersize Yacht Lifeboat all in one.

Just as they did with Mike Laphen, CSC’s non-executive directors have given Mike Lawrie a pay package which has massively rewarded a short-term increase in CSC stock price; he will be further massively rewarded if he manages to sell CSC and will get even more if he fails and is terminated by the company.  Maybe Mike Lawrie has miscalculated the optimal ramp up of company profits in view of a sale of CSC, but he has certainly not miscalculated in the negotiation of his personal compensation package.

Let’s see what the earnings call tells us.