It’s unusual for so much attention to be paid to the UK on the investor concall, but Francisco D’Souza, CEO of New Jersey-based (though India-centric) offshore services firm Cognizant had to go into bat a couple of times to explain why his UK business didn’t grow in Q4.

And the answer he gave was all about the usual end-of-year slowdown in discretionary spending, which kind of passed muster as Cognizant UK growth slowed substantially in Q4 2012 and indeed went backwards in Q4 2011. But D’Souza wasn’t brimming with confidence about the UK business this year, other than to say that they were “having initial conversations about new SMAC-related discretionary work …  (but) it's too early to call that a trend yet.”

This perhaps set the tone for Cognizant’s fairly cautious expectations for growth in 2014. After rounding off 2013 bang on revised guidance, with headline revenues up 20% to $8.84bn, D’Souza called 16-17% growth this year if only to signal they would cross the $10bn revenue line in 2014. Though technically a slightly softer call than this time last year, when management guided for17% growth, accounting for small acquisitions the 2014 guidance was actually a little bit ahead. I would not be surprised, then, if 'the herd' pencilled in a number more like 20% growth for this year too.

By the way, Cognizant's Q4 headline growth was a tad under 21%, which toppled Tech Mahindra off its very brief stay on the top perch with the fastest growth among India-based peers (see here).

As usual, we'll have much more to say about the India-centric IT services players – including their UK performance – in the next edition of OffshoreViews.

European tech buyers are continuing to put a higher premium on profitability than on revenues judging by latest data from corporate finance firm, Regent Partners. The aggregate Price/EBITDA multiple for the 270 European TMT M&A deals completed in January rose for the fifth successive month to 9.9x. In contrast, the aggregate Price/Sales multiple held steady at 1.1x after four prior months’ decline.

January was a busy month for acquisitions involving UK software and IT services companies including Alternative Networks’ acquisition of Intercept IT (here) and then of Control Circle (here), serially (and seriously) acquisitive Access Technology Group buying Production Modelling Ltd (here), and of course the $400-500m acquisition of UK machine-learning start-up DeepMind by Google (here).

Eligible TechMarketView subscription service clients can also read our concise analysis of UK software and IT services M&A activity in 2013 by downloading the latest edition of IndustryViews Corporate Activity.

Back in Oct 13 I reported that Duane Jackson’s KashFlow had been sold to IRIS. Although no price has ever been announced, I speculated at the time that I doubted that Duane would have sold for less than £20m. In KashFlow Kashback (sorry to those readers who aren’t subscribers and therefore can’t access our archives) I told the Duane Jackson story, his involvement with the Prince’s Trust and, therefore, with me. I also hinted that the Prince’s Trust would benefit from the sale. Tonight, HRH Prince of Wales at a Prince’s Trust fund-raising dinner announced that Duane had donated £100,000 to the Prince's Trust.

Duane said “Making this donation to The Prince’s Trust means the world to me. They were there for me when I was at my worst – I was a young offender who was unemployed, with no qualifications and, having grown up in the care system, no family to offer financial or moral support. The Trust saw past all of that and helped me to see that I could be a success. I am delighted to be able to support the amazing work they continue to do with young people up and down the country.”

It’s a fantastic ‘payback’ story. It shows what the Trust does so well. Perhaps not everyone the Trust helps can succeed as Duane has done. But I believe this story will be inspirational to many other young people who, perhaps, have given up on themselves.

Vehicle telematics provider Lysanda has acquired stolen vehicle recovery (SVR) and fleet telematics player Tracker NetworkLtd (Tracker) from general insurance provider Direct Line Group. Lysanda now plans to drop both names and rebrand the combined business as Tantalum Corporation Ltd (Tantalum).

Terms of the deal weren’t disclosed, although Lysanda said it will create a business with combined revenue of £20m and some 500,000 telematics installations throughout Europe. Lysanda has been on the telematics scene since 2005, backed by Sustainable Technology Fund, Rockhopper Investments Ltd and Disruptive Capital Finance LLP. These investors are also funding the Tracker purchase.

Lysanda brings to market telematics technology predominantly for the B2B fleet sector, with offerings around driver analytics, vehicle diagnostics/prognostics reports, fuel management and forensic reporting for crash analysis. Tracker meanwhile has been around for some 20 years, and claims to be the market leader in vehicle tracking with over 1m of its tracker units installed. Over this time, it claims the Police have recovered vehicles worth over £479m using its technology.

The intention is to reach into new fleet operators, OEM, Tier 1 suppliers, and stolen vehicle recovery markets. There is also a growing opportunity to expand into the B2C consumer space where ‘connected car’ technology is becoming an increasingly hot space with new innovation and investment springing up all the time (see Seeing machines – looking ahead). One of our LBBs Concirrus is also a new entrant in this connected world space (see Concirrus connecting the ‘internet of things’).

On the services side, insurance BPS providers The Innovation Group and Quindell are seeing the potential to invest in telematics technology to provide end-to-end outsourcing services for automotive insurers. But as the buzz grows, so are the valuations (see Telematics investments getting dearer for Quindell).

BT has just announced that Neil Rogers, President of Global Government at BT Global Services, is to retire after 24 years at BT. Ian Dalton, currently President of BT Global Health, ‘will lead a newly combined public sector team reflecting the coming together of health and government’.

I’ve known and worked closely with Neil since the 1990s. I think it started when Neil was managing BT’s JV with AT&T – Concert Communications. Then in 1999 when Neil became responsible for BT’s network solutions operations which he grew from £1b to £3b over 5 years and negotiated the $3b network outsourcing deal with Reuters. This was at a time when BT was going through all kinds of “what do we want to be in IT services when we grow up?’ arguments which seemed to result in a new corporate name and new strategy every few months. I well remember at the time giving a presentation to Neil’s senior team about ‘sticking to the knitting’ of what BT did best – which, bluntly, in the corporate world is all things around network management. Unfortunately BT’s top management at the time had different ideas which resulted in the grand name change to BT Global Services and an ambition to take on IBM in the global SITS area. I seem to have written too much over the years of the folly of that decision. Indeed, BT Global Services current renaissance can be tracked back to the abandonment of that strategy.

Neil then had stints as MD of 21CN and as BT Group Global Chief Procurement Officer before, in 2010, taking on the role of President Global Government. This was a tough job at an even tougher time. Neil did a really good job at cleaning up some pretty difficult contracts, winning new ones and maintaining relationships with HMGovt. In our talks with the Cabinet Office, I’d put BT in the top quartile of relationships. And a lot of that is due to Neil.

On a more personal level, Neil has played a really important role on the Technology Leadership Group of the Prince’s Trust. Not least in procuring the BT Tower, free of charge, for my long series of ICT Leaders Dinners. I think Neil proves, if such proof is required, that you can be both a gentleman and a strong business leader. I wish others would take note.

After a much deserved break, Neil tells me he’ll return to do the usual ‘pluralist’ roles.

We wish Neil well and thank him for all his support over many, many years.

One of the takeaways from a recent Unit4 briefing was its determination to ramp up its partnership activities, moving them from an opportunistic onto a strategic footing, according to CEO Jose Duarte (see Unit4: preparing to make its presence known). An early sign of this is a tie-up with HP Enterprise Services who will provide a managed cloud platform to support Unit4’s provision of SaaS applications to further and higher education institutions in the UK.

It is a five year agreement (which interestingly Unit4 refers to as a partnership and HP as a client win) under which HP is the preferred hosting provider for the education sector. HP will provide its IaaS offering, HP Enterprise Services – Virtual Private Cloud, enabling Unit4 to deliver its CAMPUS education solution via the cloud and on a PAYG basis.

Unit4 has had considerable success partnering with Agilisys in local government and partnerships are part of its growth strategy. One of the target areas is hosting providers, which will enable Unit4 to scale without having to provide the hosting capability itself, so HP fits into this category. We would expect to see further announcements with other hosting providers in other verticals. Relationships with local and specialist providers are on the cards too, either via a traditional partnership model or via an OEM model with Unit4 willing to embed its software into partner offerings, or vice versa. Unit4 is looking for visibility and growth, and a partner ecosystem and adaptable model are central to that.      

Genpact, was one of the fastest growing BPS players last year delivering c19% growth (see Genpact sets the BPS pace), but things are now slowing down considerably. FY13 revenues were still in double-digits, up 12% to $2.13bn, although adjusted margins were flat at 16.5%. Revenue has been held back by recent ‘headwinds’, which CE N.V. 'Tiger' Tyagarajan said in the conference call with analysts had knocked c3% off the top line.

These headwinds caused Genpact to miss its revenue guidance last quarter (see here). Q4 was better, with revenue up 10% to $558.5m, and up 4% on the previous quarter. The adjusted operating margin however dipped to 15.3%, from 16.5% last year. Like Q3, we assume 2 percentage points of top line came from JAWOOD, the healthcare payer business Genpact acquired back in February (see here).

These headwinds are various, including declines in Genpact’s US mortgage originations business, continuing shrinkage in its business with GE Capital, foreign exchange fluctuations, and also delays in converting bigger opportunities.

As we pointed out in our recent analysis, Genpact faces a number of significant challenges as it seeks expansion in new, often mature markets where some of these big contracts are to be found (see Genpact challenges and opportunities in UK BPS). Larger transformation deals are now critical as Genpact attempts to maintain its edge, evolving beyond core process operations into higher growth areas like business process consulting, analytics and provisioning (BPaaS).

This change in focus means slower growth for now. FY14 growth is expected to be 4% to 6% - effectively half that of FY13. Adjusted operating margins will also come down to 15% – 15.5%, due to Genpact’s plans for $45m of ‘strategic investments’ to boost both front line consulting and R&D.

Reports in the media have emerged that suggest IBM is sounding out possible buyers for its semiconductor business. This is particularly interesting given that it was only a couple of weeks ago the company confirmed the sale of its x86 server business to Lenovo. However, there’s a big difference between low-end servers and semiconductors - not least the amount of IP and investment wrapped up in the latter. It would be a much bigger step to remove itself from the semiconductor market, and one that doesn’t make quite so much sense. For example, it is this technology that powers Watson, which is at the heart of a newly created division to provide cloud-delivered Big Data analytics to enterprises.

If a sale were to happen, Intel would be one of the obvious candidates. However, media reports also suggest that some kind of joint venture - between Big Blue and a partner - may also be considered. This sounds like it could be a more viable way forward, meaning IBM could share the burden of investment required to maintain a highly competitive semiconductor business. This would also leave more resource to support strategically important areas of revenue growth – notably cloud (see e.g. IBM plans $1.2bn cloud investment) and big data analytics (e.g. IBM boosting big data resources with Aspera acquisition).

It’s also worth noting that Japanese technology giant, Sony, has said it plans to sell off its Vaio laptop business and spin-off its Bravia television brand. While it is another example of a very large tech company ‘cutting free’ very established revenue streams, Sony’s situation is different. The Japanese firm needs to move fast to plug huge losses. IBM’s game is about shaping itself up to become the sort of company that can remain highly relevant in the market (and therefore highly appealing to shareholders) for another 100 years (see Happy centenary, IBM).

Yesterday, in Twitter fails the growth test, I started my review of their maiden results since their IPO with the words “Over the last week, I seem to have written many reports of major global tech companies reporting quite reasonable growth but finding their shares are pummelled in after hours trading due to ‘outlook’ concerns”. I might as well recycle that introduction for Linkedin’s results announced last night.

Although Linkedin reported a 20% rise in profits to $48.2m in Q4 on revenues of $447.2m – both better than analysts had expected – its forecasts for the future were disappointing. Q1 revenues of $455-$460m were well below expectations and represented a slowing growth rate. These results, as with the other globals we have reported on this week, caused a 15% slump in Linkedin’s share price in after hours trading. But, let’s remember they are still up 140% since their 2011 IPO.

Again, Linkedin is ‘priced for growth’. But growth is slowing. Linkedin users base grew by 7% to 277m in Q4 – slower than in the past. Mobile users now represent 41%.

But we have always been a fan of Linkedin as it has a real business model which relies on subscriptions rather than advertising (as per Twitter, Facebook etal). It is THE tool of choice for every recruitment agency and head-hunter we know. Indeed, Linkedin has changed recruitment radically. Only last week we were told of a job search for oil rig technicians where every one of the c140 people who were eligible for the job were on Linkedin!

Linkedin also announced the acquisition of two year old start up Bright Media for $120m. Bright is a data analytics company which focuses on the jobs market. Linkedin will use the company to ‘improve its algorithms to connect prospects and employers”.

This week, Mastercard and Weve, the Vodafone, EE and O2 m-commerce j.v.  have announced a partnership to accelerate the use of NFC (contactless) payments using mobile phones. This further congests the very busy mobile payments space with newcomers such as Powa and Apple (maybe) vying with more established companies like Paypal for wallet share and end-user acceptance.

Weve’s move is a step in the right direction, but growth in mobile payments is slowed due to islands of capability and lack of scale. Retailers can’t afford multiple systems, or to choose one which only 10% of their customers can use. The eventual mobile payments system must allow all cards and banks to use the same system, giving the customer some control and also enabling retailers to leverage the data they have on the customer to drive more value. This is still some way off.

Credit card operators need to build market positions in mobile payments now as interchange fees on domestic transactions fall, reducing the operators’ attractiveness to retailers. Expect more activity here. There is also good potential for Zapp, owned by Vocalink, launching late 2014 using the Faster Payments service and avoiding the expensive credit card settlement system.

The Weve move will not transform the fortunes of the mobile operators in payments as in developed markets where there are established and efficient payment systems, they are relegated to the role of messenger (see our September report, Setting the Scene for Mobile Banking).

Certainly the move to mobile commerce is continuing as will be shown in theMonitise results (due 19^th Feb.) with continued progress due to their broad partner base and growing volumes.

Throughout 2014 we shall see some important moves across the mobile payments and banking market. Look out for the report from FinancialServicesViews in the Spring. 

Today’s the day that we bid a fond farewell to Midlands-based CAD/CAM software supplier Delcam which delists from AIM as a result of its acquisition by US-based Autodesk (see here).

Delcam IPO’d in 1997 at 260p valuing the company at £12m. Autodesk paid some £172m, a 21% premium to Delcam’s then current valuation and 38% higher than the prior 6-month average. Happy investors, but another perhaps inevitable loss of a UK player to a global giant in an ever consolidating market.

Mumbai-headquartered IT services firm Hexaware has appointed ex-HCL veteran Amrinder Singh to lead the company’s European operations. Singh takes over from Ramanan Seshadri who has returned to the US as Executive Vice President and Global Head of Hexaware’s Healthcare & Insurance vertical. Singh was hired in the wake of Baring’s acquisition of a controlling stake in Hexaware (see here); the balance of Hexaware’s shares remain publicly listed in India.

I met Singh very recently and he clearly recognises his challenge to restart Hexaware’s European growth. Europe’s share of Hexware’s near-$400m global revenues dropped a tad to 27.1% in 2013, of which we estimate that the UK generates the small majority. As we have said many times before, the UK is replete with mid-tier India-based IT services players, including iGate, Mastek and NIIT Technologies to name but three, so there is already a scramble for share. As ever, for companies of this size it comes down to focus, focus, focus!

For the record, Hexaware ended 2013 with revenues 17% higher at Rs22.9bn ($388m, +6.4%). Operating margins expanded by over one point to 20.7%, ahead of its mid-tier peers.

Misys, the global provider of banking and financial services software, has announced the acquisition of IND, a Hungary-based developer of digital channel solutions. Misys is to integrate the IND service into its central BankFusion offering to support retail banks as they wrestle with the demands of customers to access services through on-line, mobile and social media.

15-year old IND, employing over 200 people, has partnered with Misys for about a year and they have experience of around 20 joint engagements. The IND solutions will enable Misys to offer an omni-channel solution to its long list of retail banking customers and this should accelerate the revenue and profits growth of the combined group. Financial details of the transaction were not disclosed.

The IND deal is well-timed. Established banks are still coming to terms with the growth of mobile and are investing disproportionately in this area. Mobile access to banking services now exceeds on-line access and growth continues apace as the population of smartphones increases. (See our Financial Services comment in our 2014 Predictions report).  In addition, banks are moving to second- and third-generation mobile systems to provide better customer experience and a more seamless connection to core systems. Such systems are thus increasing in scale and sophistication. Banks are also paying much greater attention to customer engagement via mobile systems as a way of driving value-creating business and of customer acquisition.

This is the first acquisition by Misys since they were acquired by Vista Equity Partners in 2012 and we would anticipate that more will follow as banks increasingly look to companies like Misys for specialist (and scale-advantaged) help in updating their legacy systems and in remaining competitive. Looks like a good move.

Five years ago TechMarketView launched its research services and won its first orders. Of the first ten customers we won, only one is not still with us having had the misfortune of being acquired by 2e2! It now feels pretty amazing that big companies like Logica (now CGI), Fujitsu and Atos signed up in the first week on nothing more than a promise from Anthony & I. I guess we must have fulfilled that promise as they are all still with us – indeed the relationships are bigger and deeper than they ever were.

Launching any new operation is fraught with risk. According to recent research, 25% of all start-ups fail in the first year and 55% have failed by year 5. So we’ve already done better than the majority! But to have done this in the depths of one of the severest recessions in my lifetime in the UK is perhaps even more noteworthy.

We have around 100 very loyal, paid-for subscribers which include practically all the majors from  Microsoft, HP and BT – UK leaders in their respective Software, IT services and telecomms sectors. And some pretty important HMGovt clients too. We are equally proud of our SMEs – particularly those that have come on board as part of our Little British Battlers programme.

In five years we have added five new streams to the Foundation Service launched on Day One – PublicSectorViews, BusinessProcessViews, ESASViews, InfrastructureViews and, most recently, FinancialServicesViews. We’ve built up a fabulous team of equally fabulous analysts. All leaders in their respective fields.

I guess our flagship is still HotViews and its daily email. Now read by around 20,000 top executives.

Commercially we are now well north of a £1m annual revenues, profitable (something we rather believe in at TMV) and now earning revenues from a variety of sources as well as subscriptions including analyst briefings, sponsorship, our annual TMV dinner, banner advertising and Sponsored Posts – launched today.

Most of all we are proud of our influence. Widely quoted and widely respected.

Not bad for five years. Wonder what the next five years will bring?

Around 20,000 top executives in the UK tech arena like you read UKHotViews. They rely on UKHotViews for its fresh and authoritative approach to news, analysis and research of the UK Software & IT Services scene.

Today we launch Sponsored Posts giving companies a unique opportunity to speak directly to that audience. There will only ever be one Sponsored Post per day and probably only on 2 or 3 days a week. But it is positioned so that it will get read and noticed by all readers – even the many who read UKHotViews on their smartphones and via Twitter.

Companies can use Sponsored Posts for a variety of purposes:

• Product launches
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• ‘White Paper’ report findings
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And many other purposes that we wouldn’t normally ever cover on UKHotViews.

What better way of getting directly to the decision makers in Software companies, SIs, Telecoms companies, Recruitment specialists, Consultants, Investors including Private Equity… even to those in the Press and HM Government!

We’ve built up an impressive forward programme of Sponsored Posts ranging from companies like Fujitsu to some of our 'Little British Battlers'. Watch out in the weeks to come.

You can find out more details here or email hmcteer@techmarketview.com.

Email marketing and marketing automation provider dotDigitalGroup has confirmed the positive half year it presaged in its trading update last month (see here) and it is not showing significant ill effects from decision to close down its marketing services business last year (see here) .

For the six months to December 31 2013 total revenue was up 13.9% to £7.8m; continuing operations saw a more substantial 32.5% increase to £7.6m. Operating profit (before tax and exceptional items) was up a very respectable 17.8% to £2.1m. With demand for the digital front office rising and an intense focus on marketing automation, dotDigital is in a sweet spot, although with its current growth rates it will soon come to the attention of larger players looking for SaaS plays in the marketing area.

The company is strengthening the base – focussing on medium and large clients (426 new clients added during the period), and increasing the average monthly recurring spend per client ( from £238 to £284). Monthly recurring revenue from the dotMailer product was up 29% but what was interesting was that email related creative and managed service revenue was up 165% to £0.8m. This is a small sum but suggests increasing demand for creative services. The digital front office will open up new revenue streams (look out for a report in ESASViews over the next few weeks) but suppliers need to adjust their services, and will face competition from new types of providers, such as advertising and marketing specialists like WPP.    

Last night Rackspace announced its FY13 results and that long-time CEO, Lanham Napier, is to retire. Graham Weston – another long-time “Racker” – will take on the CEO role while the Board looks for a long-term replacement. On the financials, FY13 revenue increased 17% to $1.5bn, but the growth rate slowed notably from FY12 (27.7%). Sequential growth over Q3 FY13 was 5% (see Rackspace Q3 margins squeezed). While the average monthly revenue per server is up from $1,278 to $1,307, there is a squeeze on profits – partly due to increased R&D and sales and marketing costs. The operating income margin was 8.7%, down from 13.2% (FY12). Shares dipped nearly 12% in afterhours trading. Indeed, it hasn’t been a good time for RAX investors over the past 12 months, with shares slumping c46%.

Of course, the company's margins are also under pressure from the fierce price competition in the public cloud space that shows no signs of letting up. Rackspace is being impacted by the war led by Amazon Web Services (AWS) and its relentless price cuts (40 since 2006). Rackspace is fighting back by ploughing more money into marketing and trying to articulate how it differentiates from AWS et al. And of course, Rackspace is not the mirror image of AWS. Firstly, it emphasises its “Fanatical Support” for customers – i.e. it doesn’t have the same level of self-service as AWS. Indeed, still less than a third of Rackspace's revenue (27%) is derived from public cloud (however, the proportion is growing and was up from 23% in FY12). Secondly, it pushes its position as a provider of hybrid cloud services. And thirdly, it is the co-founder of OpenStack, the open source cloud software project. Rackspace’s (not insignificant) challenge is to remain competitive on price where it matters, while growing more profitable elements of the business elsewhere. The new CEO, when he/she arrives, will be under some pressure – no least to address the weakened share price.

Telecity, a provider of carrier-neutral data centres in Europe, has reported topline revenue growth of 15.1% (to £325.6m) for FY13 (year ending December 2013). Removing the impact of acquisitions, organic growth was 9.5%, of which 2.7% arose from the year-on-year movement in foreign exchange rates. Adjusted EBITDA was up 18.4% to £153.2m.

UK revenue increased 4.7% to £143.9m, which is some way off the 16.9% it achieved in FY12 (Telecity’s confident start to FY13– subscribers only). The company says that churn in the early part of FY13 suppressed revenue growth.

Telecity continued with its pan-European capacity expansion programme in 2013, with additional power in London, Dublin, Helsinki and Frankfurt. This is in addition to the acquisitions made during the year in Istanbul, Sofia and Warsaw.

Management expect 2014 full year revenues to be in the range of £355m to £362m, at current foreign exchange rates, with operating margins "remaining strong".

We’ll have more analysis later in HotViewsExtra, following our call with CEO, Mike Tobin.

The very same day it was announced that privately held IT & Telecoms recruitment company Talent International had decided to throw in the towel in the race to acquire troubled digital media and IT recruitment minnow, Nakama (see here), now so has the only other rider in the field, AIM-listed IT recruitment firm ReThink Group. Nakama’s shares are down 12% as I write.

Just ahead of the opening of its prestigious annual Leadership Forum in Mumbai, Nasscom, the trade association for the Indian software and IT services industry, has issued a slightly more upbeat outlook for the Indian offshore services sector.

Though many of the India-centric major suppliers have yet to announce their FY results, Nasscom expects that ‘exports’ (i.e. revenues from offshore software, IT  and business process services) will have grown by $10bn (13%) in FY14 (to 31st March), though domestic growth will be lower than expected at 10%. Nasscom believes the ‘SMAC stack’ (social, mobile, analytics, cloud) will help drive offshoring slightly harder in FY15 (to 31st March 2015) at a 13-15% growth rate.

Nasscom’s prognostications belie a huge diversity of performance in the sector even among the India-centric majors.  Fastest-growing Cognizant (strictly speaking a US company but with its beating heart in India) has already capped off its FY (to 31 Dec. ’13) with 20% headline growth (see Cognizant UK – 'too early to call a trend') though is calling ‘only’ 17% growth in 2014. TCS and HCL are also tracking above Nasscom’s 13% growth forecast. However Infosys expects to close its FY at 12% growth (see Infosys presages final quarter slowdown), while Wipro is signalling little more than half that rate (see Wipro pedalling a little faster).

Frankly, I think Nasscom is putting too much store behind the SMAC stack growth story. The word that we are hearing from the UK players is that much of the ‘SMA’ bit comprises small-scale pilot projects, while the Cloud bit is still very much about cost containment – which is in effect funding the SMA bit.

I’ll have more to say about all of this in the next edition of OffshoreViews.