In case you missed it... last week the PublicSectorViews team published two pieces of research looking at the cloud services market in the public sector.

The first report was entitled 'Cloud Adoption in Whitehall'. Five years after the UK Government published its Cloud Strategy, the report looks at the current situation in central government, summarises the original objectives, considers the progress made and asks what the future holds for adoption of as-a-service solutions within the central government departments and agencies.

The second piece of research was entitled 'Memset: Light at the end of the tunnel'. Here, the PublicSectorViews team investigates the story behind several quarters of slowing growth for Memset, makes clear the company's UK Government intentions, explains why Craig-Wood is optimistic about the coming months, and delves into some of her most ambitious plans.

Don't miss out. If you already a PublicSectorViews subscriber, you can download the research now. If you are not yet a subscriber, please contact Deb Seth to find out more.

The Met Office has enlisted the help of DotNet Solutions to transition its crowd-sourced platform for weather enthusiasts and observers to Azure. The Met Office has been running the website on the Google Infrastructure-as-a-Service platform since 2011 but wanted to start exploiting some of the Platform-as-a-Service capabilities on Azure to pull in more data sources.

The Met Office is always looking for ways to improve its forecasting and climate projections through the use of new weather data and information. The weather observations website (WOW) was originally set up so members of the public could contribute information gathered by their own weather stations. The second iteration of the WOW sees The Met Office using APIs to take in data and extract it. It has also been using technologies such as the Microsoft IoT Hub and Microsoft Content Moderator to make sure the weather data it puts out (via the web or APIs) is both high quality and highly relevant. By exploiting some of the Azure PaaS capabilities, The Met Office says it will be able to reduce its overall in-house developer needs.

DotNet Solutions is a TechMarketView Little British Battler that turned over revenue of c£4m in 2015. In May, DotNet’s main UK backer, Bestport Capital, was replaced by US-based Microsoft consulting firm, New Signature- itself backed by a $35m investment from Columbia Capital.

DotNet has built credibility as a Microsoft Partner and an Azure specialist so it is hardly surprising it has been targeted by New Signature as a means by which to deepen its UK presence.

UK-headquartered, NASDAQ-listed, email and data security company Mimecast beat expectations with its Q1 results earlier this week and increased guidance for FY17 as demand for cyber security products continues to grow (see also Infosecurity 2016: Battling cyber security concerns). Mimecast’s share price spiked 25% higher on the news.

Total revenue was 24% higher than Q116 at $41.5m, up 32% on a constant currency basis. Profits also improved: gross profit increased to 73%, from 70% in FY16, and adjusted EBITDA margins were 4.5%, compared to 1% in the prior quarter. But perhaps the best news was that the company added 1,900 new customers in the period, outpacing its own expectations. With its strong track record in customer retention (revenue retention in Q1 was 110%) and upselling, plus a 95% recurring revenue model, these new customer wins should boost full year revenue growth.

Although the majority of the new customers were in the US, the EU and UK are important markets for Mimecast so it was interesting to hear the management team comment on the impact of Brexit thus far. Whilst acknowledging that it’s early days in terms of Brexit, Peter Campbell, CFO, confirmed that to date they hadn’t seen any change in close rates or buying behaviour from new or renewing customers in Europe or the UK, where demand continues to be strong. However, although the management played down the likely impact of a more fragmented regulatory environment in the region, it’s clear that like all SITS players operating in the UK Mimecast will be keeping a close eye on the UK’s separation from the EU to ensure they stay on top of any regulatory changes.

After a transformational 2015, Paysafe, the payment solutions provider, delivered 20% (pro-forma) revenue growth in the first half of 2016, to US$487m, with EBITDA of US$144m, a margin of nearly 30%. Paysafe has now completed the integration of the Skrill payments network and expects to generate US$40m of synergies over the year. This acquisition almost doubled the size of the Group and has provided better geographical balance, with 45% of revenue now in Europe, 29% in North America and 25% in Asia/ROW. The Group is also heavily focused on on-line gambling (some 45% of revenue). Net debt is now down to US$386m, and at 1.5x annualised EBITDA the management will not feel constrained from doing further M&A deals.

Payments Processing revenues (48% of total) were up 28% on a pro-forma basis with strong growth in US volumes. Digital wallets (30% of total revenue and with a gross margin of 77%) also grew revenue by 28% with particular advances in cross-border remittances. The prepaid business (22% of group) was relatively pedestrian with an 11% growth rate, but this offers faster growth as the service is made available across the PlayStation, Apple and Android platforms.

It’s interesting to compare Paysafe with much more established and significantly larger Worldpay, which reported results yesterday. Paysafe’s transaction volumes are less than one-tenth those of Worldpay, but its growth rate is double and the reported gross margin of 54% dwarfs that of Worldpay at 22%. Paysafe will increasingly have to compete with the likes of Worldpay as it grows. It will look to its more agile and entrepreneurial culture, expanding portfolio and acquisition strategy to build customer relationships with growth companies across the connected economy. Management confidence is high, as usual, with revenue guidance for the year edging up towards the US$1bn mark.

Last night NASDAQ closed at a record all-time high of 5225. NASDAQ’s dot com high was 5046 on 9^th Mar 2000 but had hit 5210 in July 2015. NASDAQ’s largest components – Apple, Alphabet, Facebook& Microsoft– have all done really well of late as their latest quarterly results have exceeded expectations. Indeed, Alphabet, Amazon, Facebook and Microsoft all hit record highs. Of course, if you happen to be a UK holder of these US stocks, you will have done even better as the £/$ Exchange rate will have worked in your favour too -  to the tune of over 10%.

Allianz Technology Trust (#ATT), where I have been a director since 2007, closed yesterday at 750p. That’s up a massive 28% since 24^th June (the day BREXIT was announced). As over 90% of our holdings are $ denominated, #ATT has proved an excellent currency hedge as well as selecting top tech stocks that have performed well in this reporting season.

On top of that, all the indications are that tech M&A – already white hot – will getter hotter. The smaller SaaS players will become major targets for those bigger – previously on-premise – players. But anything Cloud, AI, AR, IoT, autoTech will also be in great demand.

The FTSE100 closed yesterday at 6851. A suggestion of 7000 just a few months ago would have looked fanciful. Again, the FTSE100 companies are mainly global players where the £/$ Exchange rate has been a major advantage.

But far from the feeling of confidence I usually get when my investments do well, I have a growing feeling of unease. Bull runs like this must end and confidence will quickly evaporate. There are just too many worrying problems both globally and, in particular in the UK.

With the arrival of G-Cloud 8 we’ve taken the opportunity to refresh our brand. We’ve relaunched as UKCloud but please be reassured, the very essence of our focus remains the same. We’re more committed than ever to meeting the specific assurance and security requirements of our customers. We’ll still deliver flexible, agile and value-based cloud hosting.

And innovation remains a top priority. For G-Cloud 8 we’ve added both OpenStack and Oracle platforms to help support our public sector customers deliver cost-effective and secure transactional services to citizens. All developed in line with our customers’ feedback, demonstrating our continued and exclusive commitment to the UK public sector.  We’ve also introduced price cuts for the ninth time, as doing the right thing by the UK citizen remains at the forefront of everything that we do.   

Welcome to UKCloud. The home of pure commitment.

After a moribund first quarter in the UK for Zurich-based recruitment giant Adecco (see UK IT revenues in decline at Adecco), performance picked up in Q2, boosting half-time revenues (to 30^th June) 3% higher in constant currency, though flat in headline terms, at €1.12b. Some of this growth came from Adecco’s UK IT recruitment activities, where revenues remained flat in H1 after a 5% decline in Q1. However, UK operating margins eased to 2.1%, down 20bps yoy, and leaves the region again with lowest profitability in the group.

Worldwide, Adecco’s headline revenues grew by 3% to €11.0b, representing 5% growth in constant currencies. Operating margins remained flat at 4.5%. Management made no comment about BREXIT, but the numbers seem to suggest little concern on its impact, at least for now.

US-based Baker Hill has signed a contract to use Fujitsu’s GlobeRanger IoT technology to enhance its manufacturing processes. The company supplies precision machined components to the aerospace, defence, medical and commercial industries.

Specifically, Baker Hill is looking to create efficiencies in the end-to-end manufacturing process, from initial order right through to shipment of the product. A workflow planning and tracking system will enable the firm to establish the precise location of any component as it moves through the manufacturing facility. The GlobeRanger iMotion platform draws data from a wide range of sources throughout the production process. This means staff at the plant receive real-time data at all stages of the manufacturing process so they can avert problems before they occur but also manage assets in a more efficient way (which will ultimately help the profit line).

While the Baker Hill win is in the US, GlobeRanger is actually owned by Fujitsu’s UK business which acquired it in 2014. At the time financial terms were not disclosed but we estimated Fujitsu paid $20-30m. Fujitsu has recently made another acquisition, this time in Europe with the purchase of Symfoni ESM to build out its ServiceNow capabilities.

Interim results from enterprise services platform and marketplace provider blur Group show signs of the impact of its decision to pivot the business model and focus on indirect spend in large enterprises (see here), which hold the promise of higher margin revenues and lower costs. Expectations also include lower losses and reduced cash burn.

How it is doing? The H1 (to June 30 2016) LBITDA loss reduced by 54% compared the year ago period and cash burn was reduced by 58%. But the losses still came to $2.12m while cash stood at $4.3m vs $7.1m. Revenue also dropped due to the business model change, down by 62% to $0.6m.

There was encouraging movement on the large enterprise front with early stage projects started with four new enterprise customers during H1, including a US-based Systems Integrator, a UK-based law firm, a UK-based multi-platform media organisation and a multinational real estate service firm. It also worked with a further three large customers on pilot projects which have the potential to deliver rising revenue down the line.

However, the race to achieve the turnaround before the cash runs out is still on. 

CSC reported its Q117 results earlier this week revealing revenue up 9% at constant currency to $1.9b. But this growth was driven by the UXC and Xchanging acquisitions. While CSC talks about the strong momentum from sales of its next-generation offerings (growth of >110% year-on-year and a book to bill of 1.6x)), the market is clearly proving challenging.

Across the business, Global Business Services (GBS) revenue growth was 16.4% at constant currency, compared to the quarter a year ago, at $919m. While GIS revenue was up just 1.7% at constant currency despite the impact of acquisitions and growth in next-gen offerings, in areas like cloud migration and service management. CSC refers to the negative impact of contract completions and price-downs. CSC claims that it is moving towards “revenue crossover, the point at which the growth in next-generation business outpaces the decline in our legacy business”. But it is not there yet (unforunately we are not given sight of the organic performance).

The book-to-bill for the quarter was 0.8x and bookings were down y-on-y ($0.9b to $0.7b), but CSC highlights that this does not include a large BPS contract with MetLife that was signed after the quarter closed. CSC has made a strategic commitment and investment in its BPS segment and believes this is a “growing area of market leadership for CSC”. Moreover, there are some other positive signs for the future outlook, like the fact that its qualified pipeline for strategic growth deals (generally $100m+ in value) has grown more than 50% and is now more heavily defined by new logos and the sale of next gen transformations for existing clients.

Meanwhile, profitability was impacted by ongoing restructuring costs, pushing the company into loss before adjustments. But excluding the impact of those items, non-GAAP income from continuing operations was $91m compared to $97m a year ago. The focus continues to be on automation, offshoring and rightshoring. Clearly there will be more upheaval for the company when it completes its merger with HPE Enterprise Services due to close in March 2017. Until then, CSC has plenty to focus on as it continues on its “revenue crossover” journey, at a time when some clients may be concerned about the future impact of next year’s corporate activity.

Half time results from UK-based international recruitment firm PageGroup show no changes to the recent July trading update (see here), even down to the Brexit perspective.

In July the company said it was too early to say what effect the vote to leave the EU would have and that statement was reiterated in today’s H1 results release (to June 30), although it is “mindful of ongoing macro-economic uncertainty in the UK and elsewhere as we start the second half of the year”.

It is early days but PageGroup appears to be faring better than Robert Walters who alluded to ‘an uncertain economic and political backdrop … which has impacted client and candidate confidence and the speed of decision-making’ when releasing its challenging H1 results (see here). PageGroup is still moving forward with revenue of £576m, up 8.6% (5.5% cc) and gross profit of £299m, an increase of 6.5% (3.6% cc).

Regional performance differed with gross profit for EMEA up 18.3% (12% cc), but within that the UK was down 1.3%. Changes in this figure will be an indicator of the Brexit impact. Asia Pacific was up 0.9% headline but down 2.6% on a constant currency basis, while the Americas also declined, by 3.4% (0.9% cc).

PageGroup is setting its sights on profitable growth whatever the environment throws up but is no doubt aware of the inherent challenge given current and future uncertainty - so is preparing to move quickly to changing circumstances.

Our previous assessment of spend control and eprocurement provider Proactis was that it was definitely worth a second look despite interim results that at the time (April 2016) were less than exciting (see here). The latest trading update, for the year to July 31, shows a sizable improvement in performance although it’s not clear how much is from organic growth.

The company expects to deliver revenue of c£19.4m for the year, which would represent a 13% increase, alongside adjusted EBITDA up 10% to c£5.3m and in line with expectations. The results will be boosted by the Due North acquisition in February but there is evidence of organic growth too in the form of 46 new name deals (vs.39 in 2015), including 29 committing to long term subscription contracts. In addition, Due North brought in 17 new names (along with the 300 or so customers it added to the Proactis customer base). It is hunting for more acquisitions.

The intriguing Supplier Network is coming along although it is still in the early stages. Using the Supplier Network buyers can bring supplier communities onto the group’s network, providing opportunities for e-invoicing, accelerated payments, dynamic discounting, etc. It is a growth opportunity rather than a significant revenue generator at the moment but commitments from Screwfix, Flintshire County Council and P&O Ferrymasters, who bring an aggregate of c15,000 suppliers with potential annual spend of over 1bn to the network, are a mark of its progress.

It has a long way to go however. Spend control and eprocurement is a rising market, where volume matters. Earlier this week SAP Ariba announced it had over 2m companies connected to the Ariba Network and that 1,300 new sellers joined each business day during the quarter ended June 30.  

The situation doesn’t appear to be improving at troubled AIM listed cloud based ecommerce platform provider cloudBuy (formerly @UK), judging by its H1 results. The period to June 30 showed another drop in revenue – an 11% decline taking revenue down to £0.8m. While the operating loss reduced 32% to c£2m, this was due to ongoing cost saving initiatives, with more to come.

Last year was a period of refocussing (and poor performance – see here) which continued into the current year whereby it is concentrating on key accounts and pushing traditional licence revenue, leaving the pursuit of transactional revenue on the back burner. It is in a catch-22 situation: reliant on a small number of key accounts but this dependency makes it harder to grow the business. It is nurturing some prospects and signed and launched 3 way memorandum of understanding with Visa and Efinance for Egypt; PHB Choices is now live for all 209 CCGs to use; and it won and delivered the SpendInsight project for New South Wales Health Share. However, in general these do not guarantee revenue. Management is slightly more optimistic for H2 as revenue should start to flow from projects it has already won but the turnaround has a long way to go.

Hewlett Packard Enterprise (HPE) has acquired SGI for $275m. If you have been following the story of HPE’s recent past, you’ll know that the firm that started out as HP has changed shape considerably. In 2014 it announced it was splitting into two companies: HP Inc and HPE. Then in May of this year HPE announced it was spinning-off its Enterprise Services business to merge with CSC (see HPE ES/CSC spin-merge: Impact on Infrastructure Services). 

The SGI acquisition underlines that HPE’s CEO, Meg Whitman, is trying to create an entity with a focused – as opposed to expansive – portfolio. Recent media reports have suggested Private Equity buyers have been showing a strong interest in HPE, and it is quite reasonable to assume Whitman is attempting to create the most valuable entity she can before any possible sale.

The SGI acquisition enables HPE to build out more specialist capabilities around big data analytics and high performance computing (HPC). And while it might seem at odds with a strategy that has been about reducing the size of HP/HPE, it makes sense to deepen these capabilities – and indeed, take out a competitor. The bigger question is what impact emerging cloud-based analytics services (e.g. from Amazon Web Services)will have on the competitive scene, and over what period of time.

SGI, meanwhile, has its own interesting backstory – including filing for bankruptcy protection in 2009 as Silicon Graphics before being ‘reborn’ as SGI following its acquisition by Rackable Systems. SGI’s FY16 results just out show a revenue increase of 2% (to $533m) with a net loss of $39m.

Back in March 2011 I had lunch with Arianna Huffington who had just sold her Huffington Post to AOL for $315m. Tim Armstrong, CEO of AOL, was the main speaker but he brought along Arianna who rather stole the show!

Must admit I was quickly enamoured of Arianna – probably the best connected woman in the universe. She had that ‘Thou shalt not ignore me’ aura. And indeed nobody did!

A lot has happened since. AOL was bought by Verizon in 2015 for $4.4b. Last week Verizon went on to buy Yahoo for c$5b. Looks like Armstrong will lead both. So maybe Arianna felt, as The Times postulated, ‘this could mean her losing stature within an enlarged group’. Because it has just been announced that Arianna is leaving to concentrate on her new venture, Thrive Global.

Thrive Global is a health and wellness start-up that intends to reduce stress by, for example, encouraging more sleep. Her first book on the subject was entitled “Thrive: The Third Metric to Redefining Success and Creating a Life of Well-being, Wisdom and Wonder’. I must rush out and get a copy.

Intuit and Etsy have gone into partnership to make it easier for Etsy sellers in the UK and US to mange their accounts and prepare their taxes, with better integration between Etsy and Intuit QuickBooks Self-Employed. It is an interesting move to bring a new set of small businesses into the Intuit fold. With plenty more marketplaces for small sellers and sellers of handmade goods out there e.g. Shopify, 3dcart, Quirky, Bonanza, Folksy to name just a few, this could be a crafty way to open up a new customer segment, not just for Intuit but also for Sage, and challenger Xero.

As is often the way with Intuit, there was also bad news as it announced its intention to discontinue QuickBooks Payments on September 28 on the grounds that it has not delivered as it should. It is taking it down while it develops a new version that will include features such as better GoCardless integration and improvements in the way it automates payments on QuickBooks invoices.

It will be a major issue for merchants and do little for customer satisfaction or engender loyalty. Inuit will close all accounts and it will not be possible to accept payments in QuickBooks. Merchants have to download their transaction histories or lose them, and where there are unpaid invoices it is up to merchants to get customers to pay by 27 September 2016 as afterwards it will not be possible to accept payments through QuickBooks, including any scheduled recurring transactions set up in QuickBooks.

Integrated payments is a core capability for SMB accounting solutions, and something we criticised Sage for until it introduced this feature itself. But it is better to introduce the right solution than have to pull it. Partnerships like the one with Etsy may be difficult to capitalise on in the light of the move as it will underline confidence in Intuit.

Data breaches are becoming horridly frequent and it was Sage’s unwelcome turn to disclose news of a breach as it revealed that the data of staff at c280 UK customers could have been compromised. The company says it is looking into ‘unauthorised access to customer information using an internal login.’

The breach happened over the past few weeks. The extent is not clear e.g. whether the data, which is believed to be personal and banking details of staff, was viewed or stolen. The companies affected have been informed, as have the police and Information Commissioners Office.

Sage is far from being alone in suffering a breach (the hit on Oracle’s Micros business is just one of several other recent examples), but it is a further reminder of the risks and higher stakes of doing business today. As we pointed out in Infosecurity 2016: Battling Cyber Security Concerns, even security suppliers cannot guarantee 100% security. Incidents (of varying degrees of severity) will happen to organisations. What matters then is how they are dealt with, which requires organisations to have made prior investment in defences (technology/policy/training), risk management, disaster recovery strategies and the expert staff needed to maximise vigilance, detect early and minimise fallout. This is something Talk Talk found out the hard way when it had a major breach: it ended up losing 100K+ customers and adding £60m in costs (see here), and the reputational damage lingers. 

Spending on security software, hardware and services is on an upward trajectory, with many organisations opting for third party security services to help cope with the complexity and expertise required. No matter how much technology and services are thrown at the problem, there is always a human element and often that turns out to be a weak link.

Sage will be judged on how well and how quickly it responds to the breach and management needs to be open in communicating progress and impact.

Our fourth annual ‘Evening with TechMarketView’, which is sponsored this year by NetSuite, will take place in London on Thursday 8 September 2016. We're delighted that so many of you have already booked your place but if you haven't got around to it yet there is still time to nab one of the last places - you can book by clicking here.

The TechMarketView analyst team is busy preparing for what promises to be an enjoyable and informative evening with drinks, dinner and of course analysis of the disruptive trends and suppliers shaping the UK software, IT services and business process services sectors.

Following the success of the sell-out 2015 TechMarketView Presentation & Dinner, this year’s event will once again be held in the magnificent premises of the Royal Institute of British Architects (RIBA) in Portland Place, London, from 6.15pm. We’re expecting a similar audience to the previous three years with around 250 ‘movers and shakers’ from the UK tech scene, for what has been described by previous C-level attendees as “the best networking event in the industry”.

The evening, which will be centred around our 2016 research theme ‘Surfing the Waves of Disruption’, will commence with short, insightful presentations from the TechMarketView analyst team highlighting key trends in the UK software and IT services market. As in previous years there will also be a guest appearance from the CEO of a disruptive ‘Little British Battler’ company.

The formal part of the evening will be followed by ample time for networking over pre-dinner drinks, sponsored by Wells Fargo, and a sumptuous three course dinner with your peers.

TechMarketView Presentation & Dinner 2016

Venue: Royal Institute of British Architects (RIBA), Portland Place, London

Date & time: Thursday 8 September 2016, from 6.15pm

Ticket price: £395+VAT per person for TechMarketView research subscription clients and £495+VAT per person for everyone else.

Tables of ten are £3,950+VAT – ideal if you fancy bringing the team along or entertaining clients and prospects.

To secure your place, please click here to book or email tx2 Events who are organising the evening for us on eventenquiries@tx2events.com.

The TechMarketView Presentation & Dinner 2016 is proudly sponsored by:

Nakama Group, the ‘recruitment business of two halves’ formed from the absorption of veteran IT staff agency, Highams, by ‘digital consultancy’ Nakama way back when (see Last waltz for Highams as Nakama reverses in), is still struggling to get the model to work.

The group fell back into loss – albeit just £70k – in the FY ending 31st March 2016 on the back of a 3% decline in headline revenues to £21.0m. An 8% improvement in gross profit lifted gross margins by nearly 3 points to 27.3%, but this was not enough to offset the considerable extra SG&A spent on restructuring and on opening its first US office (in New York), leaving a mere £37k in operating profit (FY15: £336k).

Nakama’s business is far flung, mainly concentrated in the UK (65% of revenues) and Australia (26%) with the rest deriving from Continental Europe, Hong Kong and Singapore. The new US office is barely off the ground. There are no plans to spread any further, but acquisitions are once again on the table – though Nakama has less than £600k cash in the bank.

Nakama chairman Ken Ford reflected that ‘the business needs stable local economies in its current trading locations, stability in current staff numbers and the continued hiring of new sales staff to deliver against less specialised, but much larger competitors’. Given BREXIT, US elections, the usual political circus in Oz, who knows what in SE Asia, and intense competition in all these markets, perhaps Nakama should be in a different business!

Listed hosting provider, Nasstar, has acquired Bournemouth-based hoster, Modrus for £11.7m in cash. Modrus took part in TechMarketView’s Little British Battler programme last winter – see LBB Modrus: a fresh approach to IT outsourcing– but is by no means the first of our LBBs to be acquired. Other targets include Carrenza, Toplevel, and WTG.

For the year ending 31 March 2016, Modrus generated revenues of £6.1m, and adjusted EBITDA of £1.6m. A little over 85% of revenues are recurring. The acquisition gives Nasstar some scale and helps build its presence in the recruitment and financial services sectors, and opens-up exposure to new verticals including media and ISVs.

Nasstar has also announced a Placing to reduce net debt and fund the acquisition. Its strategy is to attain growth by both organic and acquisitive means – not unlike various other hosting providers, including Six Degrees, Pulsant, and iomart. However, Nasstar turned in a mixed performance last year, with H2 denting overall organic growth for the period.