BT Global Services Q1

BT has released its Q1 (to 30th June 08) results which sent their shares diving (down 11% at 175p as I write). This was because a straight 4th consecutive quarterly profit decrease and a warning of profit margin pressure at BT Global Services. See BT slumps most in eight years from Bloomberg.

Revenues from BT Global Services increased by 13% year on year (or around 8% in constant currency) to £2.05b; the highest quarterly growth for over two years. This was driven by strong performance outside the UK, where revenue growth accelerated to 33%. However, these figures include acquisitions (of which BT GS has made quite a few). I'll try to get the organic results for you if possible. Of BT GS's £2.05b Q1 revenues, 46% or £952m relates to Networked IT Services - the closest BT Global Services gets in its breakdown to what we would call IT Services (the rest is line and circuit charges etc.) This segment grew 15% (c10% in constant currency - less organically). Total orders increased by 12% to £1.9b which included a seven-year outsourcing deal with Nationwide Building Society to manage its networked IT services and a five-year contract worth $650m with Procter & Gamble (P&G) to provide and manage P&G's local and wide area network infrastructure across more than 1,100 locations in more than 82 countries.

BT says it "expects to see continued strong revenue growth in BT Global Services but EBITDA margins may fall slightly in 2008/9 in part due to currency movements. However, we remain committed to achieving the 15% EBITDA margin target".

Capgemini H1 - not so good in UK

Capgemini has also come up with some pretty 'solid' results for H1 and Q2. Organic growth at constant currency was 5.3% in H1 (Euro4.37b). Of course, unlike its US competitors, the results at current exchange rates are rather different - minus 0.5%. Capgemini UK produced the lowest growth (+1.5%) "to compensate for the programmed drop in revenues from HMRC".

Interestingly it was Local Professional Services via Sogeti (what was called 'body-shopping' for most of my time and was the original bedrock of Capgemini) which recorded the highest growth rate (+11.5%) . conversely, outsourcing was the worst performer - up just 3.2% (although HMRC had an adverse affect here). This rather goes against Holway's gut feelings that the ITSA-type revenues are being hard hit but outsourcing is benefitting from the econimic environment.

Capgemini is now forecasting overall revenue growth between 4% and 5% for 2008.

'Solid' results from IT Services players in Europe but worse in UK

We have now got the latest results from all the major IT Services players in Europe and they look pretty good ('solid' is the word most often used!) I've done a quick-and-dirty analysis of the European IT Services revenues announced by the biggies - IBM Global Services, EDS, Accenture, CSC, Capgemini, BT Global Services, Capita, Logica, Atos Origin. (Note - Fujitsu Services makes up the remaining company in the Top Ten. They are due to release results today but have indicated "strong growth in the IT services business" in the press statement put out a few minutes ago)

European IT Services organic growth, in constant currency, averaged 5.5% in the most recent quarter. Accenture was the undoubted 'star' with European revenues up 11% but IBM Global Services did pretty well too with an 7% increase. In real terms (ie excluding the effects of inflation) overall that equates to a real growth of c2.5%.

Overall UK growth was lower at around 3.5% with companies like Capgemini, BT Global Services, IBM and Logica (no growth at all) all reporting lower growth in the UK than in Europe (and RoW). In real terms (ie excluding the effects of inflation) that equates to no growth at all. Although, on the surface, that looks to be in line with my revised forecasts for 2008 (see repeat post of my chart above), I had expected better performance in H1 than in H2. If I was going to revise this chart now based on H1 actuals and outlook, I'd take it down by 0.5% -1% - ie I'd see real IT services growth in the UK going slightly negative for the year.

Correction

As several readers pointed out, Detica's preferred new name in 2002 was idetica not identica. Indeed, it was the similarities with identica which caused all the problems! I've corrected the original post.

Atos Origin back in business

Considering the activist shareholder fighting at Atos Origin earlier this year, the management could be excused if the results were dire. Afterall peace broke out only in May 08. But Atos Origin’s H1 results are really quite good. Atos described them as ‘solid’ – the same word used by EDS to describe their results yesterday. Atos Origin recorded an organic growth of 6.3% to Euro2.745b with profits doubled to Euro125m.

The UK, under CEO Keith Wilman, did even better with a 12% revenue increase to £376 for the first 6 months of 2008. The outlook looks pretty encouraging too with the sales pipeline up 50%. The recipe for the turnaround (as always) was simple. Focus. Central Government (eg Ministry of Justice, Police), Transport (Alstom, National Express), Healthcare (NHS Scotland, DWP, MoD) as well as private sector work in Enterprise (Britvic, Theshers, Warburtons) and Financial Services (Capita, Liverpool & Victoria).

Very good review by my (ex) colleague Phil Codling at Ovum Atos Origin fires on more cylinders.

Another bid for Informa?

My old friends still at Ovum must be getting a bit confused about who their ultimate owners are or might be. Earlier this month I reported on Informa getting a bid from a private equity consortium headed by Providence. There are now reports that Blackstone has teamed up with a Dubai sovereign wealth fund to make a rival bid – after Hellman & Friedman ‘allegedly’ walked away from the Providence consortia.

Intriguingly, the FT says that the new Blackstone bid will breakup the group “seeking trade buyers for such elements as Datamonitor” (which owns Ovum). See Blackstone swoops on Informa in today’s FT. Perhaps I should prepare a bid for take out Ovum? Put into perspective though, the ‘old’ Ovum is currently less than 2% of Informa’s revenues. A mere irrelevance!

Earlier this week Informa reported a 32% fall in PBT; mainly attributed to the high amortisation costs related to the purchase of Datamonitor in 2007. Informa shares had halved (from c600p at the time of the Datamonitor deal to c300p in March 2008) before the bid speculation started. They closed yesterday at 437p.

BT and Ribbit

I see my friend, JP Rangaswami, managing director of service design at BT, is behind their acquisition of Ribbit for $105m. See the FT’s Ribbit’s smart switch to BT. "Ribbit’s key technology is a “SmartSwitch” that handles the complexities of mobile, fixed and internet telephony, allowing developers to master just a few simple commands to bring voice to any web page or web application". BT says Ribbit helps in its strategy to become ‘a next-generation, platform-based, software-driven, services company’. (Ed - This contains far too many hyphens to make much sense to me!)

If the aim in this is for BT to build an ‘open systems’ development environment to rival Apple’s or Google’s (or Microsoft’s or Symbian’s) mobile operating environments, I think they have a really tough task ahead.

Idetica

In my article Detica and BAE Systems yesterday I might have given the impression that CEO Tom Black had been at the firm since the very start in 1977. He joined in 1984 – but 24 years is a pretty good innings anyway. Indeed, to me as an analyst, Tom Black has always been synonymous with Detica.

But, actually, that’s not quite true either! Detica was known as the Smith Group until 2001. I well remember the fanfare of them changing their name to idetica (very good name for a security company!) but had to pull the name change at the last minute as there was another company with a similar name (identica). That was all ahead of the 2002 IPO at 80p. Monday’s bid from BAE Systems was at 440p – a 400% increase. Pretty good in anyone’s books. Tom Black will make £24.5m on the sale of his stake and will, I understand, stay on post the deal.

EDS posts 'solid' Q2

The interesting thing about EDS' Q2 results was not what was contained in the headlines of the EDS press release or the many reviews of their results in the media. From those you would guess that a 22% rise in EPS and a 27% rise in contracts signed (at $5.4b) signalled a company in a high growth sector. Ron Rittenmeyer, EDS chairman, president and CEO described this as “a very solid performance". I suppose that is one way to describe the mere 3% revenue growth which reduces to a 2% decline if you strip out acquisitions and currency fluctuations. In EMEA, the growth was 3% - although I suspect that too would have been negative too if currency fluctuations were excluded.

Given the distractions of the impending HP takeover - which got EU approval today - actually standing still is probably quite an achievement. So I don't really complain about the 'solid' description.

I was discussing 'revised forecasts' with the EMEA head of one of the largest tech research companies last Friday. He told me they were about to issue revised 2008 and 2009 IT forecasts (for US and Europe) which would show no real growth in 2008 and a negative position in 2009. This pretty much accords with my view - except I started to say that back at the beginning of 2008. For my latest forecast for the UK SITS market, see chart above from my recent Breakfast Briefing for Grant Thornton which some HotViews readers attended. I know it sounds a bit silly, but I worry when other forecasters catch up with me. Always makes me feel that I am probably wrong! Maybe I'm now being too optimistic again?

Detica and BAE Systems

BAE Systems has confirmed its bid for Detica. See BAE Systems identified as Detica bidder. It's at 440p which values Detica at £531m. That equates to a 57% premium to the closing price before the possibility of a bid was announced on 17th July. That's a 26 P/E to current year expectations.

I guess nobody can say 'done deal' before it is but it looks a very good price. The share price has risen to 437p today so the market isn't factoring in any higher competing bid. The directors have accepted the bid but have probably negotiated the usual break clauses should a significantly higher offer emerge.

Detica also announced their IMS. It showed Q1 revenue up 14% - all organic. Both UK and US Government business is clearly doing well with descriptions like "healthy", "good progress" and "very well" peppering the statement. Telecoms, Media and Technology also demonstrated "positive trends". But Detica's Financial Services business was "operating in a difficult global environment" and Q1 revenues were lower than in the previous quarter. The outlook statement was equally bullish in all but the financial services arena.

If I was Tom Black I'd have mixed feelings today. It's a good deal and, timing-wise, who knows what economic difficulties lie ahead. Black has delivered 39% compound revenue growth and 25% compound EPS growth over the last 5 years. That's pretty good! Black can hold his head high. On the other hand, it is must be a sad day after 30 years of building a very fine company. Tom, I really do know how you feel on both counts!

Generation Gap

In September, I am giving my major annual 'State of the ICT Nation' speech for the Prince's Trust (and atop BT Tower as before). It's entitled Revolution and one of the themes is what I perceive as a growing Generation Gap as evidenced by those that 'get' social networking (ie Facebook) and those that don't. Indeed I've given you many examples of the corporate use of social networking on HotViews on many occasions in the last few years.

Last month I wrote What won it for Obama where I detailed how the 40 year old Barack Obama had harnessed the power of social networking in his campaign and had built the largest ever Facebook Group. By the way, it had 900,000 members when I wrote in early June. It now has over 1.1m.

This Generation gap appeared again on Saturday when Obama visited the UK. Gordon Brown (aged 57) gave Obama books on Winston Churchill by Martin Gilbert. In contrast, David Cameron (aged 42) gave Barack Obama (aged 40) CDs of the UK artists he most liked on his iPod - Radiohead, the Smiths, Gorillaz. It seemed to illustrate the Generation Gap very well. Mind you, if you don't understand the significance of this (or know the groups) you probably don't 'get' social networking either!

OoH…Vin is back!

My involvement with Vin Murria came about through Elderstreet where she is a Director and I am an adviser to one of their funds. Indeed, our investment in Computer Software Group (CSG) – where Michael Jackson served as Chairman and Vin Murria as CEO - was the most successful for the fund when it was sold to HG Capital in March 2007 for c£100m. CSG was a consolidation play in the legal, not-for-profit, membership arena – and it worked very well for shareholders. Jackson and Murria stayed with the new entity which merged with Iris and was then sold to Helman & Friedman for c£500m – in hindsight, probably at the top of the market!

Well, now the duo are at it again. This time in the UK primary care arena. Via an AIM ‘shell’ called Drury Lane Capital plc, they have acquired (actually it’s a reverse takeover) Adastra for £12.2m (£4.8m in cash, rest in shares). Drury Lane (which I understand will change its name to Advanced Computer Software plc when the deal is consummated) is raising £14.6m by way of a placing of 86m shares at 17p.

Adastra was setup in 1994 by Lynn Woods and James Berry (both of whom will continue post the acquisition). In 2002 they acquired their main competitor, Owl Software. In the year to 29th Feb 08 Adastra had revenues of £10.6m, PBT of £1.7m and 150 staff. A significant majority (>70%) of revenues comes from recurring support revenue and from software sales to existing clients. Adastra’s main product is a specialist call management, data distribution and clinical recording systems for GP out-of-hours or urgent care. Adastra has more than doubled its revenues in the last five years.

Adastra has an almost clean sweep of out-of-hours systems in the UK with no direct competition.
What next?

If ever there was a UK market ripe for consolidation it is the Out of Hospital Care area (which goes under the acronym OoH)

Firstly, there are a whole array of relatively small companies who service the area. For example, EMIS (revenues c£50m) is one of the main suppliers of primary care/GP systems but partners with Adastra on out-of-hours. There has been speculation in the past that EMIS might itself purchase Adastra – maybe it will be the other way around now!

Secondly, the benefits of ‘cross-selling’, which would accrue if the group was enlarged, are obvious. Don’t just think doctors – think dentists, opticians, pharmacists, walk-in-centres, polyclinics (the latest DoH buzzword) etc

Thirdly, the current disarray in the NHS IT Programme might play well with a consolidation exercise. The NHS has recently given greater flexibility for local trusts to work with local suppliers of their choice. This can only benefit the smaller established suppliers over the last remaining LSPs (BT and CSC).

Lastly, users of such systems are very loyal. Training and implementation costs are high so users only change as a last resort. That means that recurring revenues are both secure and significant – exactly the kind of model of businesses that work in a consolidation play.

Clearly, this is a development I will watch with great interest. If anyone can pull off a consolidation play in the primary care area, Vin can.

Parity sells Training arm to Xpertise

Xpertise has bought Parity Training Ltd for £4.8m cash. Xpertise has placed 3.25m shares at 70p to raise £2.3m. Parity Training had revenues of £18.6m and operating profits of £570K in the year to 30th Dec 07. Parity's house brokers Arbuthnot Securities - commented "We believe that this is an excellent price, given its relatively low profitability".

Parity will be focused on its two main divisions, Resources and Solutions. “These businesses have traded in line with management's expectations. Resources has continued to see strong demand with gross margin rates continuing to improve over the same period in the prior year. In addition, Resources has performed strongly in the public sector through the Catalist framework, having grown its public sector revenue by over 10%. in the year to date, driven by 28 new public client wins this year including the Land Registry and the Ministry of Defence”
Solutions, has seen some delays in the first quarter of 2008 but has recently seen some improvement as illustrated by the five year extension to the framework agreement with the Charity Commission.

Parity shares have rebounded (they had halved YTD) – up 13% as I write – as the long anticipated sale was a relief. Arbuthnot commented "Given the low market cap and the significant reduction in net debt, we believe that Parity looks extremely undervalued. The revised earnings are now derived from a higher quality and more focused group".

Not only did I recently give you my views on this sector in IT resourcing – What’s up? But Parity’s CEO – Alwyn Welch – gave us the benefit of his views on the market. Well worth reading in the context of today’s announcement.

As I have oft said, it isn’t 2008 results from the ITSAs that really worry me – it’s 2009.

Vodafone woes

I won't burden you with a repeat of Vodafone's results announced yesterday which sent their share price down 14%. You can read it all in the FT - Sarin bows out from Vodafone with a warning.

I will add, because it is not reported in the FT, that one of the really bright spots was the 50.6% increase in revenues from data services - from £441m in the 3 months to 30th June 07 to £664m in the latest period. It was Dongles whot done it - they showed an 84% rise. Although, before you get carried away, I will point out that even this is a mere 7% of Vodafone's total revenues.

It's interesting how the world moves on. Five years ago I was both an early adopter and fanatic for my Vodafone datacard in my laptop. Expensive as it was, I really don't know how I could have coped without it. But I've given it up now for several years. Mainly because I find my Blackberry much more convenient and secondly, when I do need to use my laptop, I've always been able to find a (usually free) WiFi Hotspot. Given part experience, I suspect that will be the trend for the 'mass adopters' that are now fuelling Vodafone's revenues. As they move onto smartphones (like the Apple iPhone) they too will abandon their dongles. The amount I paid to Vodafone for a Phone+Datacard was lot more than I now pay for my Blackberry - fuelling the problem that is behind the Vodafone warning.

To grow, any company has two choices - increase volume or increase ARPU. The best do both. Vodafone has hit saturation in volume (in the 'developed world' at least) and the current economic conditions means that everyone is looking at ways of reducing expenditure - not increasing it. This is quite well expounded in Tales of woe as consumers tighten their belts - again from today's FT.

I have expounded my Beer Syndrome theory many times on HotViews. If consumers stayed at home and consoled themselves with the equivalent of comfort eating or retail therapy on tech gadgets, then the worst fears of the economic downturn might be avoided. If Boys (and girls!) give up their Toys - God help us.

SThree defies gloom...for now

ITSA SThree's results for the half year were pretty good...considering. Revenues grew 23% to £295.4 with a 14% increase in PBT. The main part of the growth came from outside the UK. The UK represents over 60% of SThree's revenues but grew by a more modesr 8%. CEO Russell Clements said he was nervious about the mid term prospects for the sector but that the banking recruitment sector was the only area currently suffering significantly from the UK's economic downturn.

This kind of result and outlook statement is pretty much as anticipated in my earlier post IT resourcing - So what's up. My theme is taken up by the Questor column in today's Telegraph - A tough job making money as downturn threatens recruitment sector. As I said before, I have few doubts that the ITSAs will make 2008 forecasts - but it's what the ITSA Barometer is telling me for 2009 that scares me.

Apple shares slump 11% in after hours trading

Last night, Apple announced its Q2 results. See Apple sets off a share slide in Businessweek or Apple hit by concerns over margins in the FT.

Basically Apple did thumpingly well in Q2; exceeding all expectations. The problem was that they warned, not on forward sales, but on forward margins. They would fall from 34.5% in Q2 to 30% in 2009. Apple never gives details on future products but gave strong hints that they would reduce prices in order to take advantage of their stellar increase in market share. According to Gartner, Apple now has a 8.5% of the US PC market putting them in the Number 3 position after HP and Dell. Separately I read that sales of laptops would exceed desktop sales for the first time in 2008. So the Apple product to focus on for price cuts is the Macbook.

The other subject which is spooking investors is God Steve Jobs’ health. You may remember that he had pancreatic cancer in 2004 and has been looking pretty pale and gaunt recently. At the moment I can’t think of any major tech company which is so identified with one single person. Microsoft seems pretty successfully to have transitioned away from Bill Gates. Google, IBM and the other majors really don’t have that “this company is dependent on one guy” tag. There is clearly a great team at Apple but it sort of feels like Freddie Mercury and Queen. Whether it’s a Queen concert at Wembley or a new Apple launch, we all know who we are really going to see, who will be the main showman. I hesitate to contemplate what would happen to Apple’s prospects – and its share price – if something serious happened to Steve.

Kashflow and Prince’s Trust

I do commend you to read Kashflow turns down approach from former Sage Chairman on AccountingWeb. I’ve been involved in this in a number of ways and could have written this story myself several months ago but I don’t breach confidences in that way!

Kashflow is a super little company founded with financial help and mentoring from the Prince’s Trust. Duane Jackson, its founder, has had a pretty troubled background – exactly the kind of person that the Prince’s Trust attempts to help. Think Sage on SaaS on very small businesses and you get Kashflow. Duane and Kashflow have been featured at a number of Prince’s Trust Technology Leadership Group (where I was one of the founders and now its Chairman) events. Lord Young, who has done so much to help our group, became a mentor and investor in Kashflow. Alistair Darling suggested that he sells a copy to the Treasury as they clearly needed to get cashflow under control (Yep, this was as close as Darling got to a joke – except it turned out to be true and therefore wasn’t very funny). Jackson got several name checks by Prince Charles at the Windsor Castle bash on 2nd July. Duane managed to get his product under the nose of Bill Gates (see Bill Gates praises Kashflow founder) at another Prince’s Trust event where we’d invited Michael Jackson (ex-Chairman of Sage and Chairman of Elderstreet) . How many small startups get that kind of exposure?

Anyway, as a direct result of this, it looks as if Michael Jackson offered to buy Kashflow for £1m to act as the heart of a new SaaS venture he was planning. Jackson turned him down.

I’m sure that this will not be the last time I report on Kashflow. Jackson has become a great ambassador for what the Prince’s Trust can do. Maybe he’ll share some of the gains when he eventually sells?

Autonomy continues to exceed expectations

Couldn’t ignore Autonomy’s results yesterday. It just keeps exceeding expectations and its Q2 results were no exception. But even Mike Lynch is now warning about the future. See Autonomy prepares for smaller deals and ‘harsh conditions’ in today’s FT. Having said that Lynch hasn’t so far seen any downturn in his business and expects smaller deals to make up for a forecast downturn in the larger deals that Autonomy has seemed to announce almost daily in the last year.

Autonomy shares are up 15% this YTD against a falling market. They are now on some pretty heady forward multiples which might start to worry investors.

Best week for a long time for SITS stocks

After all the gloom I’ve brought you this year to date, last week was (amazingly) the best this year. The FTSE SCS Index was up 11% which, and this is the really interesting bit, almost eradicates the losses YTD. The FTSE SCS Index is down ‘just’ 3.7% YTD compared with a massive 16.8% fall for the FTSE100.

Because of the way the FTSE SCS Index works, it’s share price moves in the larger stocks that makes the biggest difference. Bids had a great effect – so nCipher and Detica (see below) were major contributors. But also share price increases this week from the likes of Autonomy, Computacenter, Logica, Misys – which were due to performance (or rather outlook) - also played a big part.

BAE Systems identified as Detica bidder?

After the markets closed on Friday, Detica put out an RNS statement saying that it had received a bid approach. This was occasioned by a 22p rise in Detica’s share price on Friday; valuing them at £351m. Indeed they are up 16% on the week which rather infers that someone must have known about this bid situation.

On Saturday, the FT identified BAE Systems as the bidder- BAE’s informal offer for Detica could spark bids. It was also suggested that this would flush out other bidders with Finmeccanica named as one. I can think of a few other majors who would be interested in this rare example of a successful, independent, mid-sized UK SCS player.

In my view, Detica is a fine company and I’ve always had a healthy respect for its CEO and founder – Tom Black. Indeed he came within a whisker of getting the Holway Boring Award he so clearly coveted, just a couple of years back. You can re-read my 2nd June 08 report – Detica – a game of two halves. My views have not changed in the intervening weeks

The Indians suffer IT services slowdown too

It looks as if the great Indian IT offshoring machine is starting to suffer from the economic downturn. Both Wipro and Satyam last week put out warnings. See The Times 18th July 08 – Wipro and Satyam warn on sales. Growth seems to have slumped to the ‘low single-digit’ level. Now most IT services companies have learned to live with such growth for years now. But it must come as quite a shock to companies used to 30%+ pa growth.

Indian IT services companies are particularly dependent on the US (and to a smaller extent the UK) markets – both of which are suffering. In addition, off-shoring has been embraced particularly by the financial services sector – again badly effect by the downturn.

Google UK suffers first quarterly revenue decline

The Times on Saturday carried a report – Google UK not immune to economic downturn. Google's UK Q2 revenues suffered its first decline since its 2004 IPO – down from £405.9m in Q1 to £392.4m. The problems in the property market were blamed as estate agents cut advertising spending.

But, put into context, advertising in the UK has fallen across the board and Google has probably improved its position. Indeed it is set to overtake ITV in the next year. Just to show what a dominant position Google has, it attracted a massive 87% of the internet search market in may according to Hitwise.

HCL buys Liberata’s Life & Pensions BPO operations

The slowdown in the Indian IT services marketplace (see above) didn’t seem to affect HCL M&A activities. Last week the bought Liberata’s financial services (Life & Pensions) operations. My ex-colleague at Ovum – Peter Clarke – wrote a good piece on this - Liberata sells financial services business to HCL – so I won’t repeat his points.

HCL will get four delivery centres in the U.K in Romford, Preston, Croydon, Welwyn Garden City. with 800 staff. No financial details were disclose but several Indian newswires quoted a consideration of just $2m - which seemed ridiculously low to me. According to a report in CBR the division claims to manage over four million policies and records for its clients including AXA, Barclays and JPMorgan. LFS has annual revenue of about £30m and contracts worth about £270m.

Bob Gogel, Liberata’s CEO, said that the sale will enable Liberata to concentrate on its public sector BPO activites. “Our Local and Central Government sector business and other Private sector business continues to flourish with a number of recent contract wins and fresh opportunities”.

Liberata reported revenues of c£207m in the year to 31st Aug 07 – which would put their continuing non Financial Services revenues on around £180m. In the BPO world that is pretty small. The sale to HCL probably increases the chances of a sale of the rest of Liberata. Failing that they will need to ‘bulk up’ pretty quickly – which not be the easiest of things to do right now.

Busy doing nothing

Most of you are aware of my interest in disadvantaged young people and, because of that, my Chairmanship of the Prince’s Trust Technology Leadership Group. Today, research from the LSE shows that the proportion of 16-17 year-olds in the UK not in education, employment or training (commonly called NEETs) is not the 7% HM Govt reckons, but 18%. Put another way, one-in-five 16-17 year-olds is busy doing nothing all day. See BBC News report.

Given that the number is even higher for young white males and even higher still in the very worst areas, we could be facing NEET ratios of over 30% in some areas. This really is a really shocking situation. On top of that I’ve just been listening to an employer saying that he would far prefer to take on a Polish youngster than an indigenous youngster as “they are better educated and have a much better work attitude”.

In my experience, the NEET situation is getting worse and worse. The consequences are to be seen on many of our High Streets – not just late at night but throughout the day. It is also an appalling waste of our resources.

By providing mentors, the Prince’s Trust is one of the most effective charities in the UK at getting NEETs back into worthwhile occupations or training. Problem is that the limits on its funds means it can only scratch the surface of the problem. One of the reasons why we all work so hard for the Trust.

News from global tech bellwethers

Last night several of the important global tech bellwethers reported quarterly results to 30th June 08.

Rather than repeating these results you can read the FT or Businessweek reports here:

- Nokia’s sales buck fears of slowdown
- IBM shrugs off global concerns
- Microsoft dips 5% despite sales increase
- Google Weathering the economy?

Essentially, so far as reported quarterly results are concerned, all the companies are roughly meeting expectations and all showed double-digit sales growth (albeit that a goodly proportion of this revenue growth came from the ‘positive’ effects of currency conversion because of a declining dollar).

It was the outlook statements which were studied even more closely than the actual results. Here there was more variation.

Nokia was decidedly upbeat; estimating an overall 10% increase in mobile devices in 2008 to c1.25billion and for Nokia to increase its share of this market from its current 40%.

IBM too was upbeat with strong sales in Europe and emerging markets like India. IBM has really moved to position itself well for any economic downturn with 50% of its revenues now coming from long-term services contracts. (Still short of Capita – but nobody’s perfect)

Microsoft, however, forecast Q1 revenues (to end Sept 08) of $14.7-$14.9 billion – somewhat short of analyst expectations. They also recorded costs rising somewhat faster than expected. This all spooked the market with Microsoft shares falling 6.5% in after-market trading.

Google also fell short of analyst expectations which caused an 8% drop in their share price. Readers might find that amazing given that Google reported a 42% increase in net revenues to $3.87billion! Analysts seemed spooked that Google had slowed its hirings. Was this because of fears of a consumer advertising slowdown?

So, as I said at the start of this piece, companies are really still reporting some rather fine results right now. It’s the future that is spooking people. As my friend George O’Connor at Panmure Gordon said in his note this morning “Although tech is a cyclical and ‘beta’ sector in the real economy it is late cycle. In the main, tech spending is sticky –with c80% being geared to keeping the existing fabric of companies intact (a flowery way for saying maintenance and support) as a consequence investors should prepare for bad news next year not this year – yes we will be downgrading earnings estimates – but not yet.”

This is a theme I have expounded before – for example in my IT resourcing – What’s up? article last week. 2008 expectations are probably pretty sound for most of the majors – it’s 2009 that worries the daylights out of me.

IT resourcing - so what's up?

Many years ago, I introduced the “ITSAs are the Barometer of the IT market” concept. Through every previous IT cycle, ITSAs had behaved roughly as follows:

- IT market is great. IT contractors and permanent recruitment in great demand. ITSAs thrive.

- IT market turns down. IT contractors are the first to get ‘let go’. Contractors reduce rates and many apply for permanent roles. Permanent staff turnover falls. ITSAs the first to suffer.

- IT markets get really rough. Permanent jobs go. ITSAs find life really tough.

- First signs of recovery. Firms take on IT contractors first – fearful that the recovery will not last.

- Recovery strengthens. Permanent jobs are in demand not least because churn increases as confidence returns.

I think I’ve been through this cycle at least three times in my time as an analyst. The ‘problem’ is that each time the ITSAs tell me that it’s ‘different this time…”.

So far this year, if you take stock prices as an indicator, you would conclude that the ITSAs are having a tough time. Although fully recognising that all these companies are different and, indeed, engage in the IT bit of resourcing to varying degrees, Michael Page, Hays and SThree have declined by 23%, 30% and 36% respectively this year. Parity and Harvey Nash have both slumped by over 50%.

The ‘problem’ is that these companies have actually performed according to expectations so far this year and there haven’t been any revisions for 2008 as a whole. The share price falls are therefore mainly based on the outlook for 2009. Basically, the market just doesn’t believe the current 2009 earnings estimates and companies don’t have to issue warnings that far in advance!

So what is happening?

There is no question that overall the recruitment market is tightening. Latest data (Source – KPMG) shows that demand in permanent placements (all sectors) fell in June for the first time in 5 years, whilst demand for temporary placements, whilst still growing, was at the lowest level of growth for 2 years. In IT, strangely and against the cycle I outlined above, permanent recruitment is still growing whilst temp recruitment is shrinking a little.

I am also told that it is getting more difficult to pull people out of existing employers (nervousness about being somewhere new when times get tough) and that senior level headhunts are scarce at present (cautiousness about changes in senior management – that will probably change as companies hit problems)!

In IT, I still believe there is good demand in some technologies and in the more senior roles (driven by offshoring and technology changes for systems development and maintenance/support). Recruitment in some areas (project and programme managers, service managers, analysts, system architects etc.) is still doing fine. Clients are trying to apply pressure on prices and margins, but with mixed results. Public sector still seems very strong.

So I invited the CEOs of two of the resourcing companies, whose shares have been the worst affected, to give me their views.

Alwyn Welch, CEO Parity

I wouldn’t want to be a generalist (in anything) in a downturn: likely to be selling on wafer-thin margins and with a high exposure to low level (offshorable, automatable) skills.

Why is the whole recruitment sector getting hammered by the analysts/investor?

- the big market caps are generalists – and tar the whole sector with the risk they carry.

- it’s a sector renowned for “salesy”, over-optimistic, management – not necessarily true today but people have been badly burnt in the past

- many recruitment companies are small caps – and low liquidity is driving away investors.

- the perm recruitment business is more short term than management consulting – so forecasting even 2 months out is much more an art than science

… and finally, people in the City are nervous about their own jobs (being in a recession sector today) – and that emotion colours their views….

So the golden rules for a recruitment company today, in IT (and maybe other areas) are:

- get into higher level, more senior, skills … but you must deliver strong service to clients and candidates to succeed there

- focus on sectors where the downturn has not hit yet (Public, Energy, etc.) and be ready to get back into ones emerging from the “rolling recession” in due course (eg Banking)

- get lucky with your client base – even in hard hit sectors there are clients doing very nicely and still investing!

- create a company culture that combines a high quality service ethos and a sales obsession, with disciplined and results-oriented management.

Albert Ellis, CEO Harvey Nash

There’s been a lot of speculation over when the downturn will affect recruitment companies. It’s fascinating to watch analysts cut this year’s earnings forecasts only to be wrong-footed by better than expected performances from the quality players.

In the USA, notwithstanding the slowdown over the last twelve months, the impact on quality recruitment groups with global exposure has not been as severe as most feared, in fact our own experience in that market has positively surprised investors as they were fearing the worst.

Some time ago I wrote on my blog http://journal.harveynash.com/ceo/ that inflation and the economic climate would increase turnover of staff and make it more difficult to retain top talent. I put forward my personal view that low unemployment, growth in emerging markets (in other words, globalization) and the increased mobility of professional skills and talent will continue to feed the employment market. Baby boomers are retiring or starting to take it easy, portfolio careers are in fashion and travelling the world on a fifty-something career break is all the rage right now. 50 is the new 40. Politicians are waking up to the challenge of attracting highly skilled people from around the globe. Australia led the way in the last decade and Europe is introducing a similar system.

The impact on remuneration and wages cannot be underestimated. Experienced management is getting scarcer, see how many young professionals are being recruited as CEOs for FTSE 100 companies. A generational change is occurring in every area of professional life. BT, Glaxo and BP are recent examples. Barack Obama represents the new generation of politicians, very Generation X and almost Generation Y. Then there is the inflation issue which is also putting pressure on disposable income, another driver of wage inflation and employee churn.

So it comes as no surprise that despite the economic downturn, UK employers are still experiencing difficulties in recruiting and retaining staff. A recent survey reported that workers are shunning company loyalty in favor of high pay. Apparently less than 60% of employees had been in their job less then two years and 68% were planning to move jobs in the next six months.
The most common reasons for changing jobs were cited as pay, employer’s culture and ethics, and lack of training. Staff turnover rates in organizations had escalated from 30% per annum in 2007 to 42%. I took some comfort that at Harvey Nash our training and leadership development budget has doubled and our emphasis on core values, culture and ethical trading has never been stronger.

Recruitment companies generally prosper in markets with strong demand for talent and high churn rates. It seems obvious to me that while unemployment is such a low risk in our core markets, talent will still be hard to find and even harder to retain.

Whether Wall Street and the City of London can adjust their pessimistic forecasts and doomsday scenarios to reflect this, remains to be seen

Buying Apple - Rule 2 - Never buy an Apple Product on Day One

Last week, in my post Holway in a quandary over the iPhone, I introduced you to Holway's Apple Rule 1 Never Buy a Version 1 of any Apple Product.

Can I now add my Apple Rule 2 - Never buy an Apple Product on Day One. I've had several emails from readers who have been exasperated by Apple, Carphone Warehouse or O2 (or all of them!) and have cancelled their iPhone orders as a result. I must admit I was 'late on parade' at the O2 shop in Farnham last Friday. It was unexpectedly closed when I arrived at noon. I guess I was fortunate! Many people who managed to get one of the scarce iPhones have had great problems in getting them to work - even today. Even then they had to settle for the 8gb version. Why would anyone settle for that knowing that they have to keep it for the duration of the O2 18 month contract?

Anyway, none of this seems to have spoilt the Apple party. They reported selling 1m over the last weekend. God Steve Jobs said “iPhone 3G had a stunning opening weekend. It took 74 days to sell the first 1 million original iPhones, so the iPhone 3G is off to a great start.” However, many seem to question this figure. It all depends on what you mean by "sell". Looks as if Apple counts a sale as "shipped". Last weekend, many of the iPhones shipped had not been activated. The activited figure could well be under 500,000.

It's all a bit academic. Apple and its partners will fix the problems. As Nintendo found with the Wii, a bit of a shortage does wonders for demand.

I'll wait a few weeks for a 16gb version. Although the Blackberry Bold might be out by then...

Regent Q2 2008 M&A Review

As readers will know by now I am a non-executive director at Regent. Regent have been compiling statistics on European tech M&A for 15 years; almost as long as I have been an analyst. Indeed, I have commented on their research on many previous occasions. I'm therefore delighted to bring HotViews readers an in-depth analysis of Regent's Q2 2008 M&A statistics.

Back at the beginning of 2007 Regent's verdict on acquisition activity involving European technology companies was that it had reached the “Peak of the Plateau”. 18 months later, current deal-flow suggests that it was a correct call.

Considering the threatening economic factors that exist in the world markets, acquisition activity in the first half of 2008 has held up well with just a slight tailing off during that 18 month period.

There were 779 acquisitions in the last quarter, a decline of just 1% from the 787 deals announced in the first quarter of 2008. However the combined value of the Q2 2008 acquisitions increased by 18% to $53.4b compared to $45.0b in the previous quarter. This demonstrates that there are still substantial amounts of cash available for suitable transactions despite the credit crunch severely reducing the potential for some of the highly leveraged multi-billion dollar buy-outs.

Regent Q2 2008 M&A Review - Country Analysis

An examination of the chart above, covering the 30 month period from the beginning of 2006 to the present day, shows individual country activity has ended the period at almost identical levels to when it began. After declining buyer activity for a period of five quarters, the UK based companies showed increasing purchasing levels in H1 2008. Some of this was down to the availability of companies seeking to sell because of the impending Capital Gains Tax (CGT) changes being applied in early April 2008.

Scandinavian companies showed recovering activity in the quarter whilst North American activity declined slightly after two quarters of good growth. The biggest percentage fall in buying activity was amongst Eastern European buyers where telecoms transactions in particular almost halved.

Regent Q2 2008 M&A Review - Industry Sectors

The remarkable fact in comparing H1 2008 with the same period last year is that there have been very few changes. The content and media sector witnessed exactly the same number of deals - 464 transactions in H1 2007 and H1 2008. Software was virtually the same with 225 transactions in H1 2008; just one less than a year earlier. However this did mask a decline in Application Software deals and corresponding increases in both Consumer and System Software acquisitions.

IT Services deals have fallen some 10% over the course of the year, driven down by falls in Consulting and Outsourcing transactions. Conversely there has been strong interest in IT Solutions companies with a vertical focus. The telecommunications sector has been the primary casualty, particularly in the latest quarter with deal flow down 29% on Q1 2008.

Regent Q2 2008 M&A Review - Buyers and Sellers

Recent comments in the press - and in HotViews - have highlighted the number of public companies that have either completed acquisitions or are the subject of current bids. This is confirmed by the 38 such deals in Q2 2008, up 46% on the 26 deals in Q1 2008. But this is nothing new. To put it in perspective it compares to 37 and 39 deals respectively in Q1 and Q2 2007.

Despite serious concerns that sub-prime problems and the resulting tightening of credit would mean that private equity investors would be less active, that appears not to be the case so far for deals other than the very large (greater than $1b). Private Equity players have directly accounted for over 14% of all acquisitions in Q2 2008 and supported many other deals through their portfolio companies.

Regent Q2 2008 M&A Review - Valuations and Outlook

Although public company valuations have fallen substantially in 2008, Regent's price to earnings (PE) ratios have remained reasonably consistent for the past few years. Indeed they staged a small recovery in Q2 2008. It should be remembered, however, that the components of value are quite different between public markets and acquisitions. With the former, the institutional investors are looking more to the short term and are seeking liquidity amongst the small cap stocks. Whereas with acquisitions, the cash rich trade and private equity buyers are investing more strategically and for the longer term. The price to sales (PS) ratio has displayed greater volatility ending the half on 1.30.

Outlook?

Whilst it is clear that deal activity peaked about a year ago, Regent did say that acquisition activity would remain high even in difficult economic times. However the resilience of deal flow and valuation levels has been surprising given all the economic gloom around. A serious economic recession or major collapse of the stock market will eventually apply a serious drag on activity – but there are still no signs of that. Cash is the driver, and although the banks and consumers may be running short, the technology trade and private equity guys have plentiful supplies at present.

Note – the recorded valuations include 50% of the maximum contingent consideration in deals with earn-outs and apply to historic performance.

To contact Regent - call +44 1753 800700 or go online to http://www.regent.com/.
or email Peter Rowell - prowell@regent.com

Don't Panic

Every newspaper I read this weekend had 'Don't Panic' in one of its headlines - all referring to the FTSE100 entering Bear Territory last week. Just as in my Friday piece - What if what the economists taught us was wrong? - I suspect that Don't Panic is not that good a piece of advice either. Last autumn, when Northern Rock investors queued around the block to withdraw their savings, they too were accused of panicking. But bluntly I thought they behaved entirely rationally. Indeed, if I'd had a branch account (rather than the internet-only account I had) I'd have queued up with them.

This weekend equity investors (which basically includes everyone with a pension scheme) were told not to panic. Bit late - they really should have started to panic last summer. But is it too late to panic? A reader sent me a very interesting article which quoted a Bridgewater report which estimated that the net worth of US-based assets is down about 13% since January 2007, a total loss of almost $8 trillion or about half of GDP. The conclusion drawn was that the bad news had already been factored into prices. So buying opportunity?

Well, not if you read the rest of the articles in the weekend newspapers which warn of much worse news to come with further stock market falls. If you think 20% is bad, share prices fell 70% in the recession in the 1970s. But please Don't Panic. Clearly, you'd be a mug to liquidate your equity holdings at today's low prices. After all, if they do fall by 70%, all you have to do is wait 20 years to get your money back. (Please note this is irony not financial advice)

Footnote - I got some great responses to my Friday post. I wish you'd let me publish them! One of the best asked "Do you think we'll see an "inter-generational politics of inflation" returning?"

The reader went on to postulate:-

"Grotesquely high house prices were effectively a transfer of wealth from kids, paying rip-off prices to get the proverbial "foot on the ladder", to the older generation sitting on increasingly overvalued houses and who'd had the benefit of seeing the real value of their mortgages wiped out by the inflation of the 1970s. Any youngster who bought an overvalued property towards the end of the "nice decade" (1995-2007) will be asking themselves if the middle-aged people with big mortgage-paid-off houses, who kept telling them to get a "foot on the ladder", were doing so because they wanted more money pumped into the housing market to keep their asset prices artificially inflated .

But ... what if we see a dramatic house-price collapse followed by "Stagflation 2" if the BoE decides that deflation & GDP growth etc matters more than inflation?

Today's kids buying over the next few years will then get the same real-term, one-off property subsidy their parents got more than 30 years ago in the 1970s when their mortgages got wiped out or heavily discounted in real terms. But, of course, today's pensioner parents on fixed incomes lose out badly from inflation (as their parents did in the 1970s). Still they could always sell the house... The kids will feel bad about that suffering. But then they will console themselves with the thought that they are merely meting out the same treatment to their parents' generation that the latter had meted out in turn to their own parents' generation 30 years ago."

As one of the generation which greatly benefited from both high inflation and rising house prices in the 1970s, I can see the point. Although the consequences as I mull over retirement are scary to say the least.

Can you help?

The number of subscribers to Holway's Hotviews just keeps growing -to such an extent that it risks outgrowing both Blogspot and Feedburner. Anyway, there are a number of additional features that readers have requested to the site that I would now like to incorporate.

I just wondered if any readers knew of any good web design firms or people who might have both the experience and motivation to help. Indeed, maybe even a reader looking for a new challenge! Just drop me an email on rholway@holway.com.

WNS wins mega 8 year $1b BPO contract with Aviva

You might not have heard too much of WNS. It’s a US quoted, ex-British Airways BPO spinoff. You might also not heard that yesterday it pulled off one of the biggest UK and Ireland BPO contracts awarded in a long while. It secured an 8 year, $1b BPO contract with UK insurance company Aviva and its Irish subsidiary, Hibernian . In the process WNS acquired Aviva Global Services, Aviva’s offshore BPO company, for £115m to be financed by a new $200m debt facility. WNS (which already provides some BPO facilities to Aviva) gets 5800 seats in Bangalore, India and Colombo, Sri Lanka as well as operations in Pune and Chennai.

This new contract will put WNS at a $500m annual revenue run rate with c$60m net revenue (as ever, excluding all the bad stuff) by Q1 2010 when the contract comes fully on stream.

In the UK BPO world, this ranks as a really big mega deal. It really does show that, even in (or is that because of?) times of economic downturn, the BPO players can do well.

Computacenter really rather good

Contrary to what you might expect if you read the warnings earlier this week from one of their competitors (Morse) Computacenter’s results today were really rather good. In H1 revenues grew 8% and investment banking grew 21% (though 1Q07 was quite weak) and is expected to be above 10% in the next quarter too. Now that is really counter to what you will have read almost everywhere. It looks like banks are continuing to build and equip a lot of data centres and Computacenter seems to be getting more than its share.

Indeed, praise where praise is due, Computacenter, at long last, seems to be making that change from PC reseller to software and IT services company. Indeed “strong growth” was recorded in their Software Business Unit – although investment there did dilute margins

We were rather amused at CEO Mike Norris’ comment that "PC’s are now ordered, not sold". Only C£1b of Computacenter’s c£2.4b revenues now come from PC sales. It’s their datacentre operations which are most impressive. With Cloud Computing now finally destined to be at the centre of the future of IT, Computacenter could be really very well positioned.

nCipher soars on Thales bid

This morning Thales was revealed as the bidder for nCipher with a 300p cash offer valuing them at £50.7m. Yesterday, shares in nCipher soared by 73% to 260p after they put out an RNS announcement.

Bluntly, this is a pretty amazing price - last achieved in the dot.com heights and c140% more than its pre-bid price. I am reminded that, on top of this, nCipher returned around £40m to shareholders over a year back too.

One note of caution though - nCipher has been here before. Back in early 2006 it received a similar 300p bid from SafeNet which was later abandoned (I won't go into the complex reasons here)

But I can think of at least one HotViews reader who will be pleased today and even happier when the cash is finally banked!

What if what the economists taught us was wrong?

Contrary to what you might believe if you look at the few comments posted on this site, I do get loads of comments ‘off-the-record’ and ‘not-for-publication’ from readers.

One of the more interesting arrived today. A reader chided me for taking what economists and so-called ‘city expert’s’ said seriously and suggested I read “What if what the economists taught us was wrong? from SeekingAlpha which was itself occasioned by an article in FT on 6th July The villains are not the bankers but the economists.

I must admit it started to resonate with me when I read. “Some U.S.-based financial advisers might be asking themselves today, eight years into a secular bear market in stocks where "stocks for the long run" may not make a whole lot of sense for someone whose "long run" is only 15 years or so and happened to begin around 2000”. I’m always being told that equity investment always beats a building society – but it has never worked for me! Even over the ‘long-term’ it is all about when you get in and when you get out. Something I always get wrong.

But the reader really wanted me to read the last bit from Andrew Mellon, Herbert Hoover’s Treasury Secretary, describing his solution to the 1929 downturn:

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate... It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”.

In other words, let 'em all go bust and start again. Seems a bit extreme to me! As he mused “Are there enough ‘Enterprising people’ around anyway?”. Problem is that when you are "an IT veteran" (as I was called in several newspapers this week) maybe you haven't got the time to do it all over again either.

Loosemore buys into Morse

Further to my report on Tuesday - Morse restructures For Sale? - I note that Morse's Executive Chairman, Kevin Loosemor, has bought 300000 shares at 46.9p for £141,000. This takes his holding to 700,000 .

The incentive for the purchase was that, yesterday, Loosemore was granted a nil-cost option over 1.05m ordinary shares exercisable in two year's time, but that would lapse unless his shareholding topped 619,500 ordinary shares within three-months

No iPhone for Holway...yet

In answer to the deluge of readers wanting to know if I have secured my 3G iPhone (see 11th June 08 - Holway in a quandary), I'm afraid the answer is "not yet". It looks as if the device is a complete sellout and I have no intention of queuing at an O2 shop early Friday morning. It is interesting that so, so many Apple fans have actually taken the advice I have long offered to "Never buy a Version One Apple product". The demand for the 3G version outstrips the demand for V1 by many times.

The switch from mobile to smartphone is now well under way. This year c11% of handsets will be smartphones (up 29% on 2007) but this will grow to c19% in 2009. It's likely to top 30% by 2010. The iPhone is actually doing a lot of good to RIM (Blackberry) by boosting the whole market. There are now an impressive set of new smartphones in the offing in the next few months - the Nokia N71 and Blackberry Bold being the most interesting.

My desire not to queue means that I will have a bit longer to deliberate my purchase.

No jobs for IT graduates. I wonder why?

My blood started to boil when I read the article in last Thursday's FT - Call for more relevant training as IT graduates struggle to find work. The article was occasioned by a report that one-in-ten computer science graduates were still unemployed several months after graduating - the highest rate for any subject. The answer put forward by 'the experts' was not to teach them "computer sciences" at university but "service sciences" instead.

That seems to be missing the point. As I said back in January (and many times before and since) -See Climbing the IT career ladder with the bottom run missing - the REAL problem is that most of the entry level jobs for IT staff in the UK now don't exist; having been off-shored. IT graduates in India, China etal seem to have no problem getting jobs; many of them with UK or other Western firms.

As every recruiter, ITSA and resourcer will tell you, the skills that are missing in the UK right now are the 'project management' skills that can only be acquired after 5-10 years 'on the job' experience or similarly experienced top level software/network developers. In a few years time (maybe, actually, right now!) the only people with those skills as well will be those from off-shore. That way the UK will have given up any hope of having any future as a centre of excellence for IT.

Whether it is IT or loads of other careers, we need more entry-level jobs, more apprenticeships, more 'on-the-job' training, more incentives for companies based in the UK to employ our own indigenous youngsters. Putting more people through equally unsuitable university courses will not help anybody.

Morse restructures...for sale?

Morse has announced that it has seen "some deterioration in short term services in Q4 as clients have reduced discretionary spend". This, together with "continued project issues and weaker performance in Spain" means lower EBIT margins in H2 which will lead to "full year EBIT being broadly similar to 2007 (£12.2m".

Morse has also announced that Kevin Alcock is stepping down as CEO and newly appointed Chairman, Kevin Loosemore, has stepped up to Exec Chairman. With that comes a "simplified Group structure" where Morse will operate as five business units:

- Investment Management Consulting
- Business Application Services
- Infrastructure Services and Technology - UK
- Infrastructure Services and Technology - Spain
- Infrastructure Services and Technology - Ireland

Morse is one of those companies which has not only joined Holway's 50% Club but the 33% Club too. It's share price is now a third of its 2007 high of 145p valuing them at £65m compared with their c£250m revenue line.

Making the transition from a product resale company to a software & services company is a very hard move to make. Goodness - it took IBM over a decade to achieve. Computacenter is still suffering in its move. Morse has the added problem of being quite small in comparison. It has got involved in a whole range - I might have said 'mish mash' - of different acquisitions of different businesses in different geographies. Readers should remember that the management also took their eye off the ball with Monitise - now separately listed.

I applaud Loosemore's move. He's identified the main business/niche areas and geographies and put them into separate units. What today's announcement doesn't spell out is "What next?". But it wouldn't take a clairvoyant to work out that these moves are being made prior to selling these units "when the time and price is right". Morse is a clear example of where the "Sum of the parts is worth more than the whole".

The market will probably punish Morse in the short term. But Loosemore has taken the right, bold decisions which I feel sure will pay off for shareholders in the medium term.

We are all Bears now

As you cannot have failed to see from the newspapers this weekend, the FTSE100 is within a whisker of entering Bear territory - defined as a 20% fall from a previous high.

More relevant to our sector is that NASDAQ has already entered Bear territory; ending last week at 2245 - down another 3% on the week and 21.5% from the 2859 high it hit at the end of Oct 2007. Similarly the FTSE UK SCS index also ended the week down 3% at 489 - 22% off its Oct 07 high of 611.

Interview with Francois Barrault of BT Global Services

The Sunday Times carries an interview with Francois Barrault, the 'new' CEO of BT Global Services who replaced Andy Green last year. See BT Global boss tunes up for new era.

I commend you to read it and make up your own mind. I just found it a bit...arrogant.

I think the problem I face with the telcos is that their view/definition of 'IT services' is different to mine. The telcos think of IT services pretty much purely as the taking over of the running of a network. This is often done to safeguard (or even win) the supply-side bit of the network. Often the telco has to offer a 'broader' service to the client in order that the contract doesn't go to a 'real' IT services player like IBM Global Services, EDS etc. who then use a variety of suppliers for the network bit. Indeed, the virtual network operators are still a considerable competitor to BT Global Services despite the problems at Vanco. Often these non-network bits are considered by the telco periphery to the network. So the difference is that the telcos put the network as the core of the 'service' whereas the conventional IT services player puts the business system at the heart and the network is merely one of the components required to supply the business system.

Indeed, such conventional IT services companies often partner with the telco with the telco supplying just that network bit to the contract. Personally I think the telcos (incl BT) work best in/should stick to that kind of relationship.

Micro Focus doing well

I had a note from Stephen Kelly - CEO of Micro Focus - which reminded me that I hadn't commented on their excellent results announced on 27th June 08. I won't repeat them now - you can read the FT 28th June 08 - Micro Focus in bullish form as sales jump 19%. Actually revenues jumped 33% if you include the acquisitions made in the period. Plus 38.8% EBITDA growth, almost 100m of cash generated from continuing operations and acquisition of a NASDAQ company, NetManage. Given the current economic backdrop, these results are pretty damned good.

Clearly my friend George O'Connor at Panmure Gordon agrees. You can download his 4th July 08 note on Micro Focus Click here.

Kelly was generous enough to thank me for the advice and guidance from the lunch I had with him at the Vineyard on his appointment a couple of years back But added "Never complacent and lots more to do…"

As I will say at my Breakfast Briefing for Grant Thornton on Wednesday, it is not all bad news for all the companies in our sector. Micro Focus seem to have a set of offerings well-tuned to today's environment of "Make do and Mend" and getting the very best out of what you already have.

Windsor Castle

Further to my report on the Prince's Trust Technology Leadership Group Gala Dinner at Windsor Castle on 2nd July - See Oh what a night! - I thought you might like to see the official photo.

Also we have had a number of very encouraging press comments. See:

- Computerworld - IT industry hits £5m charity milestone
- Computing - Tomorrow's entrepreneurs supported by £5m fundraising
- Computer Weekly - IT bosses meet at Prince's Trust Dinner

A number more to come this week I understand.

Oh, what a night!

It’s not often you get to sit on the top table in the Waterloo Room at Windsor Castle alongside Prince Charles, but that’s exactly what happened last night to my wife Elizabeth and I. Indeed, Elizabeth had the Prince on one side and Ronnie Corbett on the other.

The occasion was to celebrate the Prince's Trust Technology Leadership Group (where I was one of the founders back in 2002 and am the current Chairman) raising £5m for the Trust. Actually now it is more like £5.5m with a further £2m pledged. The 'Leadership Group' concept was pioneered by the TLG. The Princes Trust has since set up other 'LGs' – like Construction, Insurance, Women etc – which together now form one of the most significant parts of the Prince’s Trust fund-raising from the corporate sector.

And it needs it. The Prince’s Trust Business Programme alone needs £1m a month just to keep going at its current rate. Giving our disadvantaged young people the chance of a decent start in life gets more urgent by the day. We can’t just cast aside a large group of society to run feral on the streets. The Prince’s Trust, through its mentoring programme, provides the ‘role models’ that so many seem to lack at home. The problem is that the 40,000 young people that are touched by the Prince’s Trust each year is a mere fraction of the number that need such help. Hence why the technology industry has pulled out all the stops to help.

Indeed, our Gala Dinner last night raised £230,000 in its own right. But it was far more valuable than just that.

1 - It was a BIG THANKYOU to all our many patrons and supporters. I personally want to make particular mention of the two co-founders and previous Chairmen - James Bennet (E&Y) and John O'Connell. Without them, the TLG would not only not have been created in the first place but would not have been the success it is today.

2 - Capgemini used the occasion to announce that they were becoming Platinum Patrons – pledging to raise £1m over next three years. A fantastic offer!

3 – McAfee sponsored the evening which was greatly appreciated and allowed much of the money raised from the table sales to go directly to the Trust. Indeed Dave DeWalt – McAfee’s CEO - flew in specially for the occasion

4 – The guest list was truly fantastic. It included Ryoichi Bamba (President & CEO Canon), Andy Green (CEO Logica), Paul Walker (CEO Sage), Fujio Nishida President of Sony Europe as well as the CEOs of most our many Patrons and many top CIOs from both Government and the private sector..

The Prince's Trust Technology Leadership Group is (in my view!) now the best top level tech networking forum in the UK. On top of that it does fantastic work for the community.

Maybe last night the tech industry crossed from asking “Why should I join the Prince's Trust Technology Leadership Group?” to “I really don’t want to miss out by NOT being a member of Prince's Trust Technology Leadership Group!”

If you are not already involved, shame on you! For more information go to Prince's Trust Technology Leadership Group or just drop me an email on rholway@holway.com and we will quickly put that right!

So what do the Royals do for us?

Anyone who attended the Prince's Trust Technology Leadership Group dinner at Windsor Castle last night (see above) cannot have failed to be impressed with how Prince Charles made everyone he met feel relaxed and appreciated. He was introduced to many of the guests present (indeed I did much of the introducing!) and he had a special word for everybody. They all felt really ‘special’ as a result. Of course, the American guests were overawed!

As you can see from the Court Circular, this was Prince Charles fourth engagement of the day. Considering the few pence he costs us all each year, I think we got rather good value for money yesterday!