South African headquartered Datatec has said it expects to hit its forecasts for the financial year to the end of February 2015. When half-year results were released on October, the company reiterated its forecast for revenue above US$6b and underlying EPS of more than 40 cents. Current trading conditions suggest Datatec is on course to achieve this.

The performance of its Logicalis business, which is a resale and services provider, has improved during the second half (“as expected”). Revenue for the ten months to the end of December 2014 was in line with the comparative period in 2013, which is an improvement on where the business was at the half-year mark. Specifically in the UK, Logicalis was hard-hit by a very notable decline in its IBM resale business, with a drop in sales of high-end systems. To counter this knock to product sales, it has focused on increasing the services component of contracts.

In addition, the loss of its deal with the Welsh public sector (to provide broadband and other IP services) to BT would have been a very bitter pill to swallow. The value of the contract over its lifetime has not been confirmed, but it will be substantially larger than the initial £74m (when first inked in 2012) as the scope has been extended to include the likes of data centre and collaboration services.

Despite this we do see a couple of particular positives. Firstly, the revenue mix has been improving, which is good news for profitability. Secondly, the momentum around its cloud services looks to be continuing. In particular, Logicalis has benefitted from a run of demergers across various industries resulting in a requirement to rapidly establish a new IT capability (in the cloud). In fact, we think the cloud business will be key to countering the challenges it is experiencing elsewhere.

FY15 results will be announced on the 13th May.

HP has furthered its ambitions in the UK healthcare sector signing a useful reference deal with Sheffield Teaching Hospitals NHS Foundation Trust. HP Enterprise Services is the prime on the contract to provide the Trust with a new clinical portal from Orion Health and single sign-on from Imprivata. The portal is designed to ensure that 7,000 users at the Trust have fast, secure real-time access to health records, whatever their location. The value of the deal has not been announced, but it’s known to be a major phase of the Trust’s £35m ‘Transformation Through Technology’ project.

HP has been looking for opportunities in the UK healthcare market to compensate for declines in its central government revenue for the last few years. It had notable success with Cambridge University Hospitals NHS Foundation Trust in 2013 signing a $210m/10-year IT services contract (see HP: Strategically important health sector win).  This was followed last year by a £100m/4-year framework agreement with the Business Services Organisation of Health & Social Care Northern Ireland (see here). HP jumped from 19th to 17th in TechMarketView’s UK Healthcare SITS rankings in 2014 as a result of these deals (see the UK Healthcare SITS Supplier Landscape Report 2014-15 if you’re a PublicSectorViewssubscriber). And although not huge in monetary terms, the contract with Sheffield - a Trust which incorporates five high profile teaching hospitals - lends HP further credibility in the sector and should help it to climb TechMarketView’s healthcare rankings again next year.

There was a confident pre close trading update from software testing and quality management software services supplier SQS, with revenue up in its own right and in line with expectations, and EPS pushing ahead due to a lower than expected tax rate. The positive Thinksoft acquisition effect continues (now known as SQS India BFSI) but managed services is also growing, as is the US business, with the result that revenue for the year to December 31 is expected to be £268m, against the £226m of FY13 (see here).   

Managed services progress is encouraging and is now 45% of total revenue (vs. 41% in the previous year), benefitting from new wins and extensions, including a new contract with a European government agency worth at least €5m per year. Overall business in the US more than doubled, with cross sector demand.

The SQS strategy has been to grow the managed services part of the business on the back of larger contracts, to benefit from better revenue visibility, a closer relationship with clients and capitalise on the opportunity for extensions. Today’s update shows it continues to make progress although we will have to wait for the full results for insight into near/offshore staffing rates and the impact the larger managed services contracts are having on margins.

As we highlighted in New Banks to benefit from a clean slate, there are a host of new banks set to launch over the next couple of years, all intent on differentiating themselves and looking to technology to help them. Hampden & Co, due to launch this quarter, has opted for Oracle and its Flexcube core banking platform but unlike other Flexcube customers, the Hampden’s service will be run as a hosted service out of Oracle Linlithgow data centre in Scotland.

Usually Oracle partners like CSC and Capgemini provide the hosting capability for the Flexcube platform. By taking the hosting role, Oracle may be announcing that it is expanding its supplier role within the banking sector, a move that will increase tension within the partner ecosystem. With its commitment to cloud intensifying, we could see Oracle driving a new competitive dynamic across the supplier landscape.

What is also notable is that Hampden & Co has opted for Oracle end-to-end because it believes it will minimise risk as well as keep costs low. Traditional backs are reluctant to use third party infrastructure but as one of the start-up banks, Hampden has to look to costs, agility and flexibility as well as risk management.

Oracle is one of several suppliers concentrating on providing the standardised banking software new banks are demanding. Others include Fiserv with its Agiliti hosted SaaS core banking platform, which will be used by the digital-only Atom Bank, while Metro Bank and Aldermore have opted for Temenos. Eligible subscribers can download Financial Services Market Trends and Forecasts 2014/15 and UK Financial Services Supplier Landscape 2014 for in depth insight into the sector.

Intel made something of a recovery in FY14 turning in revenue growth of 6% having started the year with top line growth looking roughly flat. Revenue came in at $55.9bn, while operating income increased 25% to $15.3bn. 

Intel has been dented by the consumer shift from PCs to smartphones and tablets. However, in Q2 of last year it brought some rare cheer to the PC market when chip sales were lifted by stronger demand in the enterprise space. Indeed, Intel had expected PC chip revenue to decline and operating profit to be flat, but instead it closed the year with a 4% increase in revenue and a 25% increase in operating profit.

The company beat its goal (40 million) for tablet shipments (hitting 46 million), although this push to establish its architecture in the marketplace meant it incurred heavy start-up costs. The plan from here on in is to grow roughly at market pace.

Intel's Data Center Group was boosted by cloud and data analytics and grew revenue by 25% and profit by 39%.

In spite of these good performances, Intel’s outlook unsettled traders. For the first quarter of the current year, the company is expecting revenue to decline 7% over Q414 to $13.7bn (“plus or minus $500m”). Shares fell 2.5% in afterhours trading, but have actually climbed almost 42% in the past 12 months.

That’s the ‘glass half empty’ story, given that Q3 headline growth (to 31st Dec. '14) in US dollar terms remained flat over the prior quarter at Mumbai-based IT/BP services player, TCS, following in the footsteps of Bangalore-based peer Infosys (see Currencies takes toll on Infosys’ growth).

However, the ‘glass half full’ story is somewhat different. Year-on-year headline growth at TCS exceeded 14% – more than twice the rate at Infosys – to reach $3.93bn. Operating margins remained ahead of Infosys at 27.0%, fractionally up on the prior quarter, though nearly 3 points lower yoy. In Rupee terms, headline revenues grew by 15% yoy (3% qoq, 2.5% constant currency) to Rs245bn.

These results belied dramatic variations in TCS’ regions. According to my estimates, the core North American market grew by 12.6% yoy (1.8% qoq) to just over $2bn. However, TCS UK growth continued its decline in local currency terms, remaining more or less flat over Q2. Once again it was TCS’ life and pensions business process services subsidiary, Diligenta, that appeared to be running out of steam (see TCS: UK “remains weak”). Nonetheless, UK growth over the prior 12 months remains in double-digits with revenues in excess of £1.5bn. The star performer for TCS was Continental Europe (CE), which I reckon grew by 27% yoy (7% qoq) in euro terms. CE generates around 12% of TCS’ global business, with some €1.3bn in 12-month revenues.

TCS management still expects to post ‘industry-leading’ growth for FY 15 (to 31^st March 2015) - industry association Nasscom has pegged that figure at 13-15%. That ought to be a shoo-in for TCS given that its worldwide revenue growth over the prior 12 months is almost 20% in Rupee terms. The question, though, will surely be about FY16!

You can interpret the news that Google has suspended sales of Google Glass in two ways. Either it’s been a failure or they are moving the product out of ‘beta’ into the mainstream with a V2 on the way.

I’ve never been a fan of Google Glass – although I respect Google for its experimentation. As I think will be found with other wearable technology, it must be fashionable or, at the least, not make you look like a freak. Also, you have to understand its effect on others. A small camera on your bicycle helmet seems much more acceptable than Google Glass being used in a nightclub (or, worse, in a public loo).

The evidence seems to show that Google Glass purchasers wore it for an initial period. But once the novelty had worn off it, was discarded. Same seems to be the case with developers. Google is moving Glass into its Nest division so we will have to wait to see what comes next.

Also worth repeating my view on ‘wearables’ in general. I think the genre is going to be huge but the breakthrough will only come where there are many (possibly hundreds) of sensors on the back with their use left to 3^rd party Apps developers. I think health monitoring – for the well and ill – will be the killer app. Battery life also needs to be improved significantly (why can’t it be powered like a self winding watch?) and, of course, they need to look good too. I suspect we are a still a number of years from this breakthrough. But I am absolutely certain that its day will come.

Footnote– An opportunity to use this photo of TMV’s Director Georgina O’Toole wearing Google Glasses.

I was a trainee computer programmer back in 1966. As well as learning Basic Assembler and PLAN, I cut my teeth on COBOL. So I was intrigued to read a report from ITjobswatch which showed that average salaries for COBOL programmers had risen by 11% in the last year (from £45K to £50Kpa) Apparently young people have no interest in learning COBOL so they are having to offer bribes to bring us ‘oldies’ out of retirement.

It’s the banks in particular that still have core systems written in COBOL. But you’ll find the same 40+ year old mainframe systems at the heart of Government, airlines etc too. We’ve often said that all the new mobile apps are bit like ‘putting lipstick on a pig’. The core systems are huge, complex, ancient and creaking.

At the time of the Y2K ‘Bug’ issue, I had nightmares because many of the programmes I wrote in the 1960s used just two characters/bytes to store the year bit of a date. My fear now is that some of the COBOL code I wrote for a certain bank back in 1968 might still be in use somewhere. Mind you it would need rather a big bribe for me to go fix it now!

It’s now twelve years since I used the first version of this slide. In my 2002 ‘IT’s all over now?” speech I declared that ICT is Deflationary. Gone were the days of spending more and more on our ICT. In future we would demand ‘More and More for Less and Less’. It has, of course, come to pass whether you are measuring corporate IT spend, consumer communications, hardware and every other major sub section. Initially, I used off-shoring, consumerisation and commoditisation as the major deflationary drivers. A few years back we added Cloud. Cloud, and sectors like SaaS, have indeed been the fastest growing sectors as they have offered users real savings. But growth there has not been enough to make up for declines in on premise. Indeed, lower costs have been paid for by shareholders who have ploughed increasing investment into these loss-making businesses. A major correction in the making – but that’s both something we have warned about many times and is for another day.

To this list of deflationary factors, I would like to add Automation. In the last few weeks there have been several studies from the likes of Deloittes, Oxford Martin and others forecasting that up to 35% of existing UK jobs are at risk in the next 20 years from technology, automation and robotics. In the past, it has largely been blue-collar jobs that have suffered. But I am increasingly of the belief that the next wave will hit white collar jobs just as severely. Just look at how technology has revolutionised retail banking with hundreds of thousands of white-collar banking clerks losing their jobs. I see that sweeping through most other sectors with, for example, most of the work undertaken by call/service centres being automated.

But further I see many of the lower level roles in IT being replaced by automation. This is a view shared by Chris Boos, CEO of Arago, in an article last week IT industry to make IT industry jobs obsolete. Other researchers are forecasting declines in infrastructure admin staff requirements due to automation of these processes. As most of the costs in any activity come from ‘people costs’ this will, in turn, lead to lower prices.

Even in our own technology research business, many of the more routine data gathering tasks which were once the preserve of people are already automated.

I just cannot see the deflationary days for ICT ever ending.

Footnote - And where will the money saved by ICT consumers be spent? I was fascinated to read a report recently which showed that we were spending 16% more on eating out. Certainly the ever-increasing number of eating establishments in Farnham always seem to be packed. I wonder when automation will hit that sector?

A trading update from AIM-listed hosting provider, Nasstar, indicates profit (adjusted EBITDA) for the full year to the end of December 2014 will come in ahead of expectations. Integration of acquired businesses (e-know.net Limited and Kamanchi Limited) was completed ahead of schedule, thus delivering more synergy savings than expected within the financial period. Nasstar hit its first positive monthly EBITDA contribution in June 2014 and sustained this through the second half of the year. Revenue for the year is expected to be in line with expectations

Nasstar started to feel the benefits of the e-know.net acquisition in H1, with the acquired firm notching-up organic growth of 19%. The acquisition helped Nasstar deepen its foothold in the recruitment sector, one of its emerging areas of focus alongside legal and finance.

Full results are out in April.

Brady plc, the provider of trading and risk management software to the energy, commodity and recycling sectors, has stated that the second half trading performance was in line with market expectations with good earnings growth and cash generation. More details will be forthcoming when the full results are published in mid-March.

2014 has been a good year for Brady after it recovered from a poor second half of the previous year when it lost momentum, see Brady – more than nickel and diming it and Brady picks up where it left off.  The announcement of two further contracts in December added to the lustre of the year, in which a total of 15 new contracts were signed, including 6 deployments of their new, cloud-based system. The company also extended its global reach with major contracts in Korea and the Middle East.

We would expect Brady to carry substantial momentum into the current year, but have to sound a note of caution about the trading environment. The rapid drop in the oil price will have significant repercussions for Brady’s target sectors, which may well lead to a postponement of investment decisions. Nevertheless the company has made great strides over the past year to improve its revenue and profit outlook.

It looks like CGI is on a public sector roll. Following swiftly on from its vetting contract (see CGI security cleared for Whitehall vetting contract), it is not the proud owner of one Lot in the Ministry of Justice’s (MoJ) Future IT Sourcing (FITS) Application Maintenance & Support (AMS) Tower. The Lot awarded covers the Courts & Tribunal Service and will see CGI responsible for the maintenance and support of the application layer of applications delivered from the MoJ’s Hosting tower. It is possible that CGI will also, “on a non exclusive basis”, be responsible for developing new or replacement business functionality to the in scope applications.

The contract value has been announced at £31m over three years (far lower than the £64m mooted in the original tender). The MoJ has yet to award the other Lot, which the tender document valued at £44m (but based on this announcement is likely to be lower), covering the Prison and Probation Service. This FITS contract award is one in a line of awards over the last couple of years, as the MoJ replaces its legacy ICT services contracts under a Service Tower operating model.

Under the MoJ’s legacy arrangements, CGI (or Logica as was) has been a core application services provider (the original deal was valued at £150m over seven years, though annual payments would indicate the actual value was higher). Under the new arrangements, as well as winning this latest deal, CGI was awarded the MoJ hosting tower in May 2014 (£40m, three year deal – see CGI awarded MoJ hosting tower). Though unlikely that CGI’s MoJ relationship will be worth as much annually as it has been in the past, the company does appear to have achieved the best possible outcome under the new procurement regime.

Something seems to be afoot at WANdisco: According to today's update, Q4 bookings were only up 8% to $4.7m. This compares to the 71% increase of the year ago quarter (see here). For the full year, bookings were up 18% to $17.4m, which is also a notable slowdown in the rate of growth (see here). The majority of WANdisco’s business comes from its ALM line, where Q4 bookings dropped from $4.3m to $2.6m but this is not as it initially seems as the drop was due to sales resources being diverted to closing the Big Data deals. The company says ALM demand is still growing and it plans "to advance the ALM business towards profitability in 2015."

The provider of technology to support non-stop Big Data, has been making progress around Big Data and has five new customers in this area (although it not clear whether they were all signed in Q4). Q4 bookings were $2.1m, compared to none this time last year. A three year/$750,000 British Gas extension contract was the most recent and biggest Big Data deal to date. The new customers came via the Cloudera and Hortonworks partnerships and include dunhumby and Epsilon who are both focussed on customer data, and two global banks using WANdisco to analyse buying behaviour and manage risk. Contract values are in the $160,000 to $750,000 range, with potential to scale up as the organisations develop their Hadoop operations. These are good wins but it will be a long time before they can produce significant revenue let alone profit, meanwhile WANdisco is burning cash and a long way from profitability.    

I have nothing against services e-commerce portals, honestly I don’t. But as regular UKHotViews readers know, I am a bit fussy about their business models and capacity to make money. I do feel that specialist services portals may have a better chance of success than generalist services portals, and London-based legal services start-up, Lexoo, is an example of the former. Lexoo has just raised £260k in a seed funding round from Forward Partners and Jonathan McKay, chairman of JustGiving.

Founded in July last year, Lexoo describes itself as a ‘lawyer-matching service’. Law firms registered on the portal bid for work from companies looking for quotes for legal projects. The selected law firm pays Lexoo 10% commission on any work they get through the platform.

As with all services portals, the devil really is in the detail – of which there is precious little so far. The issue for services portals always comes down to how and when they get paid, especially when projects drag on (not unknown in the legal world!). I can’t imagine that £260k will go very far or last very long so let’s hope that Lexoo’s business model is sound.

NS&I and their IT Services partner, Atos faced an Olympian task last week as the Government owned savings organisation began selling £10bn of 65+ bonds aimed at older savers.

The start of the process was met by an avalanche of applications, fuelled by media stories of “Buy Now, before they’re all sold”. Consequently the web-site hit performance issues (in the early stages crashing and timing-out for some customers) and phone lines defaulted to the engaged tone due to the unprecedented volume. These now seem to have been resolved, but there are lessons to be learnt.

Firstly, it is fair to say that this task was is a lot more complicated than selling tickets for a Monty Python reunion concert. It had to deal with many users who are less than confident about the technology, interface with old-world systems in banking and the government and maintain high levels of security as well as be prepared for unprecedented levels of applications.

The news vacuum added to the problem, with many aspiring investors wondering if they had been successful in their applications or if the attractive bonds would sell out before they got through.

The lessons include faster interfaces with back-end systems, more helpful error messages and more rapid newsflow from the issuing bank as well as providing even more capacity than was originally available to meet the unexpectedly high levels of demand.

As it turned out, this proved to be the “biggest opening sales of any [UK] retail financial product”, according to the Chancellor and by Friday night, 130,000 investors had bought a total of £1.1bn bonds (with c.£9bn remaining to be sold). However, UK savers (and voters) will be looking for a slicker performance next time out.

We have been tracking Access Technology Group and its improving progress over the years since its £50m Lyceum Capital-backed MBO and it seems others have too, so now ownership of the Essex-based company is to shift to US-based TA Associates. The private equity firm will take a majority interest in the company.

Details of the deal, which is expected to close later this month were not disclosed, but the Sunday Times is reporting a £225m sum. The buyout will be good news for the management team, including CEO Chris Bayne, who have turned the company into a modest but high growth operation through a focus on selected verticals, a thorough understanding of the target sectors, measured development around areas like cloud, plus a series of acquistions that either built depth or moved the company into adjacent markets.

As we have previously noted, Access is emerging as a quiet powerhouse in the business applications sector. In FY14 revenue was up 24% to £53.5m with EBITDA up 29% to £11.6m, and good levels of organic growth (12%) alongside acquistion-led growth (see here). The company has been showing strong yoy improvement over several years.

The next steps have not been disclosed but TA talks of “continued opportunities for inorganic, as well as organic, growth” and TA’s own “longstanding and proven management-friendly approach” to work with Access to build value in the business. Access has confirmed that the management will remain and that the current growth strategy will continue, commenting to TechMarketView that: “Access has a robust business growth strategy in place, and that is going to continue with TA Associates. We’ve had a great deal of success with our strategy, with average organic growth each year of 12%, and a proven track record in adding strategic acquisitions to complement our product stack. This will continue going forward.” With a new investor and potentially more resources Access will remain a company worth watching.    

Mark Lancaster, CEO of customer experience company SDL, had an easier task outlining the company’s key financial data in its latest trading update than last year (see SDL exits a dark year). SDL’s revenue is expected to be in the range of £260m to £261m; an increase of 3% on a constant currency basis. Profit before taxation and amortisation of intangible assets ("PBTA") for the year jumped from £8.2m in 2013 to be in the range of £16.0m to £17.0m.

Key components to the improving picture were the 45% gross margins in the language services business, a three percentage point increase compared with 2013, while the technology segment grew new licence bookings by 15% (at constant currency).

SDL operates in one of the most dynamic and complex parts of the SITS market place. Indeed in Predictions 2015: Closing Thoughts we outline that ‘transforming the customer experience’ through mobile devices has barely got underway. Having spent the last two years focussing on their structure, systems and processes; we look forward to finding out more detail, in March, regarding their full year performance and how SDL fits into this rapidly evolving market.  

Now that’s a headline you don’t often see! Bangalore-based IT/BP services firm Wipro actually grew faster than top-tier peers TCS and Infosys in Q3 (to 31^st Dec. ’14) compared to the prior quarter, achieving 1.3% sequential headline revenue growth in US dollars, vs under 1% for Infosys and all but zero at TCS. However, on a yoy basis, Wipro’s revenues grew by 7.0% to $1.8bn, faster than Infosys (5.6%), but half the pace of TCS (14.3%). Wipro’s operating margins were slightly down qoq at 21.8%, and over a point lighter yoy, still lagging peers by a wide margin.

Management is expecting a further 2% sequential growth in Q4 which, if achieved, would set FY yoy growth to around 8%. This is below industry association Nasscom’s current offshore services industry growth forecast of 13-15%, though media reports suggest that in the light of subdued industry performance last quarter, Nasscom will lower its growth prediction to 12-14%.

Perhaps the most telling comment from Wipro CEO TK Kurien on the results concall was his assessment of client interest and activity in ‘digital transformation’. He said that the ‘digital’ projects they were currently doing with customers were primarily around ‘visioning’ but these were not significant enough ‘to … move the meter as far as our quarterly growth is concerned’. I think this probably reflects the current state of play across the industry.

There’s still some India-based players yet to report and, as usual, we'll have much more to say about them – including their UK performance – in the next edition of OffshoreViews.

Offshore-centric business process services (BPS) pure-play WNS is now declaring its interest in business process automation (BPA). WNS has been slower to make its move than rivals like Genpact, Sutherland Global Services and Firstsource. It highlights the growing urgency for BPS providers to embed automation within process operations.

In the analyst conference call for WNS' Q314/15 results, management said they are now looking to ‘tuck-in acquisitions to drive automation’, which CFO Sanjay Puria sees helping WNS move to a ‘non-linear model or outcome model’.

In other words, WNS is looking to a step change in the way it currently delivers BPS. We have pointed out for some time that customers now expect innovation and continual service improvement as standard. Automation is a real enabler for some of this change (see Predictions 2015: Business Process Services)

Automation is much more than about driving out the next level of cost reduction for shared services centres or process operations. It offers big benefits in areas like improved productivity, process accuracy, operational resilience and compliance (see BusinessProcessViews report Business Process Automation: a brave new world for BPS providers for a detailed analysis of the market, suppliers and emerging opportunities).

This is happening against a backdrop of contractual change for WNS. It recently renewed its largest customer Aviva (see here) and lost a large online travel agency (OTA) customer, causing 'pricing and productivity headwinds in Q3'. This held back in the quarter growth by 6%.

For now at least, WNS is managing the levers well to keep revenue and profits moving in the right direction. In Q3, revenue less repair payments was up 7.3% to $128.4m, and up 1.5% on the previous quarter. Adjusted Net Income (ANI) meanwhile was up 27% to $25.1m, pushing the ANI margin to 19.5% vs. 16.6% last time.

Five new clients were added in the quarter, including two large deals with a UK utility and US financial services firm. Any autoamtion investments will be aimed at keeping new customers like these happy, and of course helping to retain the existing ones. This presents risks to both revenue and profit if not handled carefully.

During the course of our everyday research, the PublicSectorViews team often picks up on interesting developments in the UK public sector market that don’t make it into UKHotViews. In particular, we often become aware of interesting opportunities. These developments don’t get ignored; we always use them to form our views within our core research (for example UK Public Sector SITS Market Trends & Forecasts). However, we would like to offer our subscriber base a more regular update. That is why we bring you the PublicSectorViews’ Opportunities Bulletin, as a regular feature of the research stream.

In this issue, we take a look at SITS supplier opportunities in the Local Government, Police, Education and Health sectors. They are opportunities that caught our eye, as we feel they resonate with our ‘Sector Shaping Trends’ for 2015 (more to come on this soon!). As a result, our view is that the potential may extend far beyond this initial, sometimes small, contract. If you would like to discuss anything within the Bulletin, please don’t hesitate to contact one of the team. In addition, we would welcome any feedback on this publication - Please email gotoole@techmarketview.com.

PublicSectorViews subscribers can download January's Opportunties Bulletin now. If you are not yet a subscriber, and don't want to miss out, please contact Deb Seth to find out more.