Equiniti had a good start to 2018, with revenue up 30.4% to £254m (H1 2017: £195m) with strong organic growth of 7.7%. Underlying EBITDA grew by 31.6% to £55m (H1 2017: £41.8m), but reported EBIT was down 23.7% to £10.6m (H1 2017: £13.9m) as a result of transaction and integration costs associated with the acquisition of the Wells Fargo Share Registration & Services (WFSS) business (see Equiniti to acquire Wells Fargo Share Registration and Services business).

Revenue in its Investment Solutions division increased by 7.3% to £68.9m (H1 2017: £64.2m) with organic growth of 6.7%. The acquisition of Boudicca Proxy in April this year has now been fully integrated into this part of the business.

Revenue in Intelligent Solutions increased by 41.8% to £78.3m (H1 2017: £55.2m). This part of the business achieved impressive organic growth of 34.8% driven by its financial remediation services.

Less positive, although not unexpected, was the performance of its Pension Solutions division, where revenues declined by 7.5% to £65.4m (H1 2017: £70.7m). The business continues to manage the cost base and drive efficiencies in this part of the business. £2.0m of restructuring and transformation costs relating to these efforts will be expensed this financial year.

The acquisition of WFSS, now called EQ USA, completed in February 2018 and results were consolidated into Equiniti from this date. Figures provided to demonstrate the underlying performance of this division show revenue decreasing by 6.3% to £35.4m (H1 2017: £37.8m). It lost some smaller clients in the period prior to completion but managed to retain all of its major clients including a five-year extension with General Electric.

The outlook for the remainder of the year looks positive and management expect full year EBITDA to be towards the higher end of market expectations.

Amazon, which normally shuns interest in profits, first recorded $1b profits in Q4 2017. Last night AWS alone topped $1b in Q2 and Amazon as a whole reported profits of $2.5b - up from a ‘mere’ $197m a year back. These far exceeded analyst expectations and gave an immediate - albeit modest - 3% boost to Amazon’s share price in after-hours trading. Amazon shares are up c50% YTD. Revenues rose 39% to $52.9b yoy - a smidgen below the highest analyst expectations but well within the range Amazon had set.

I’ll leave it to Kate to report on the wondrous AWS (see AWS growth accelerates for third consecutive quarter). But what really impresses and scares me - in equal measure - is the breadth of Amazon’s offerings. Revenue-wise, of course Amazon is still an e-retailer. Everytime it sets its sights on a new retailing sector, it scares the life out of the established players. Just look what it initially did with books and CDs. Now groceries with Wholefoods, pharmacies with PillPack. Maybe cars next? Emarketer reckon Amazon now has a 49% of all US e-commerce. That’s…amazing! Global e-commerce revenues are forecast to grow 28% to nearly $400b  pa by the end of 2018.

3^rd party sales on Amazon are also a hot sector. This is particularly useful for Amazon if they can move fulfilment to Amazon too - with the higher volumes making warehouses and delivery more efficient.

The Amazon Prime model is really seductive. Once you pay the subscription and get free delivery, why use any other retailer? Despite a price hike, Amazon’s subscription revenues were up 57% at $3.4b in Q2.

Amazon Prime includes a subscription to Amazon Video and Music streaming making Amazon a growing and major competitor to Netflix. Now Amazon invests in its own programming - winning Awards along the way.

I’ve also reported Amazon’s growing presence in search and advertising. If I am looking for a product, I will likely use Amazon ahead of Google. Amazon’s advertising revenues grew 132% to $2.2b in Q2. But that’s still c1.2% of the advertising market compared with Google’s 31% share.

But then it is pretty smart in hardware too. Remember that Kindles really revolutionised and still lead the e-reader market. Amazon Echo/Alexa is the out and out leader in voice-activated devices where its technology is being integrated outside the home in cars etc. Conversely Amazon failed in smartphones.

Amazon’s breadth of offerings really impresses me. But its scale scares me too. The side effects of its dominance can be seen on every High Street. The effect on tax revenues can be hugely damaging to the funding of the very public services that we all depend upon.

But as a trading company, I admit to being in awe of both its business model and its execution.

So now, out of the 5 FAANGs due to report, so far two have exceeded expectations - (Alphabet exceeds expectations) and last night Amazon - and two have disappointed - Netflix disappoints last week and Facebook on Wednesday (Facebook shares crash)  night. All eyes now on Apple which reports after the bell next Tuesday 31st July.

Yesterday, Facebook shares did indeed crash - by 19% writing $119b off of the value of Facebook. This was said to be ‘amongst the biggest one day losses in US stock market history’. ‘Poor’ Mark Zuckerberg took a $15b personal hit. Don’t worry - he’s still ‘worth’ nearly $70b!

Our comments on Facebook in HotViews yesterday made it to various parts of the media. From ITV News,  Huffington Post to the Independent and  Daily Express this morning . They all picked up on my comment about teens abandoning Facebook because oldies like me were on it. Before they used to flee to Instagram, WhatsApp and Messenger - all owned by Facebook. But now it looks like growth in overall users of all types of social media might be stalling.

Facebook is totally dependent on advertising. ‘Compare and contrast’ with Amazon which seems to be firing on more and more cylinders. Indeed, amongst the FAANGs, Netflix is the closest as it too has only one revenue source. Interesting therefore that these were to the two to ‘disappoint’ in Q2.  

The Government has announced reforms to the probation service including the early termination of its outsourcing contracts for the supervision of low and medium-risk offenders.

In 2014 the National Probation Service (NPS) was established to manage high-risk offenders, with responsibility for low and medium-risk offenders being placed with 21 Community Rehabilitation Companies (CRCs). The contracts for the CRCs were awarded to a number of suppliers, including Interserve and Sodexo, working in partnership with charities and social enterprises (see: Interserve and Sodexo triumph in Transforming Rehabilitation procurements). The eight companies that currently run the CRCs will now have their contracts terminated in 2020, two years earlier than originally planned.

The National Audit Office (NAO) estimated that changes to contracts last year would cost the Ministry of Justice (MoJ) £342m over the lifetime of the contracts. Despite these changes the NAO found that 14 of the 21 CRCs were still forecast to make losses over this period (see Probation firms face punishing losses).  

In June 2018 the House of Commons Justice Committee said that it agreed with the earlier findings of the Public Accounts Committee that the MoJ: “significantly overestimated the ability of CRCs to reduce their costs to match any fall in income when it agreed the contracts”.

The committee said it was concerned that most CRCs are still forecast to make a loss and that the MoJ should closely monitor the financial position of all CRCs to ensure that they are not suddenly unable to deliver probation services. There are obvious fears about creating another Carillion situation. The Government will give the CRCs an extra £170m to help cover their losses and improve resettlement services for offenders.

A new look service in 2020 is expected to maintain a role for private companies in managing low and medium-risk offenders in England, but in Wales responsibility for these offenders will be taken back under public control. 

For Sopra Steria, the UK was the only business unit to suffer a decline in its H118 (to end June 2018). Revenues for the region were down 3.4% organically to €382.8m (with H2 performing slightly better – down 2.0%). As expected, the UK continues to suffer the effects of the maturing of the Shared Services Connect Limited (SSCL) joint venture, with revenues from that arrangement for the full year expected to total €140m. However, even discounting that effect, UK revenues were no better than “stable”. That compares to growth of 3.9% in France, 15.2% in ‘Other Europe’ (boosted by Germany), 8.7% in Sopra Banking Software and 4.0% in Other Solutions. Group revenue growth was strong due to these other business units – up 5.3% organically to €2.0b (with an operating margin of 6.6% vs. 7.5% in the comparative 2017 period).

The UK is a big focus for investment this year, as well as Sopra Banking Software and ‘digital’. We have written about the UK initiatives previously: to refocus the business model on higher added-value services, to reinforce presence in the private sector, to reinvest in consulting and sales, and to cut costs. Today’s financial release states that progress made in these areas will positively impact H2. We expect, for example, revenue growth to be boosted by the business’ win with UKVI (see Sopra Steria: strategic importance of VI win) in May. It is also the case, however, that the UK market has improved more generally this year – Sopra Steria refers to a “firmer” market. Sopra Steria also expects the operating margin to return from the 4.5% recorded in this half to nearer the 7.6% reported in H217.

Sopra Steria is on a journey aimed at making its business model more robust by 2020. The 2018 focus areas are just part of that. The three areas of focus for 2018-2020 are: expanding its consulting business to reach 15% of revenue; strengthening its position in software (with banking software a priority) to generate 20% of revenue; and strengthening the digital components of its offerings, accelerating the rollout of end to end solutions. The challenge for Sopra Steria is that it is trying to invest to transform its business at the same time as pursuing a cost cutting agenda. That is a tall order! In the UK, we were heartened by the UKVI contract; it showed a far more disruptive approach to the market than we had previously seen from Sopra Steria. However, one win does not a trend make… there is still much to prove.

I've been following the fortunes of John Cotterell, founding CEO of London-based nearshore services firm Endava, for a decade and have held the business up as one of the great UK tech success stories. Indeed it is one of the very few UK tech SMEs that have successfully burst through the £100m revenue barrier, which it did in 2016, without subsequently falling to pieces (see Endava's endeavours break the £100m barrier). Since then, Endava has gone from strength to strength, reaching almost £160m revenues last year (see More solid progress from digital Endava).

Cotterell contacted us to let us know that Endava is to IPO on the NYSE today, issuing 6.34m American Depositary Shares (ADS – a vehicle for 'foreign' companies to issue shares on US stock exchanges) at $20 per share. I am given understand that the IPO values Endava at around $1bn to become one of the UK's few tech 'unicorns' (in dollar terms).

We will bring you more detail later – including Cotterell's rationale for floating on the NYSE rather than the LSE. But we should not let that detract from what we hope will be a wonderful occasion for Cotterell and the Endava team as the NYSE opening bell rings later today.

Twitter

Following on from Facebook’s record one day stock fall, Twitter followed suit on Friday with a 20% plunge wiping c$5b from its valuation. Twitter spooked the market with a 1m fall in users - from 336m to 335m - in the last quarter.  Twitter put this down to its (admirable) purge of ‘fake’ accounts where it is said to be identifying 9m potential spam or fake accounts PER WEEK… BTW - This despite Twitter reporting revenues up 24% at $541m (higher than expected) with profits of $100m (loss of $88m last year)

End of Social Media 'Glory Days'?

Facebook announce a 3m fall in users in Europe and stagnation in the US. Twitter doing likewise on a global basis. So, is this the end of Social Media’s Glory Days?

Anyone with only a short memory will recall MySpace and Bebo. Social media users are fickle. As oldies like me get onto Facebook, the youngsters move to other platforms. Up to now, Facebook had been pretty smart in ensuring that they moved to Instagram and/or WhatsApp - which they owned. But I now doubt that is still the case. SnapChat maybe a million miles behind Facebook overall, but amongst the youngsters it is winning hands down. Over 70% of Snapchat users are under 34 year old. And 45% are aged between 18-24. That could be a huge problem to Facebook going forward. Even if users move to Instagram or WhatsApp, Facebook admits that it has difficulty making money from them. Putting an ad in your news stream on Facebook is lucrative. Doing the same on Instagram not so…

Anecdotally, I feel that social media is losing its appeal. I’ve had no new friend requests on Facebook in a year or more. My Facebook stalwarts post - but they are <10% of my Facebook friends. None of our ‘Little Ones’ is, or wants to be, on Facebook. That’s not a ‘good look’ going forward.

End of the ‘one revenue stream’ players

The three biggest fallers amongst the FAANGs last week were Facebook, Twitter and Netflix. All rely on just one revenue stream. All the best performers amongst the FAANGs have multiple revenue streams. Is there a message here?

MAGAs

Which has led some observers to suggest that the ‘FAANGs are Dead - Long live the MAGAs’. MAGAs, in this context, are NOT supporters of Make America Great Again! But are Microsoft, Amazon, Google and Apple.

So far YTD, ‘the FAANGs have it’ with an average 33% rise. But the MAGAs are close behind with a 28% increase.

I suspect the MAGAs will be the winners over 2018 as a whole.

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The event will be held on Thursday 13th September 2018 at the Royal Institute of British Architects in London with registration from 6:30pm. Our drinks reception, sponsored by InterSystems, has been extended, so plenty of time for networking and after the speaker sessions we sit down to a first-class silver service dinner. 

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The all-but-inevitable has finally happened. For the first time on record, Noida-based offshore services major, HCL Technologies has finally overtaken Bangalore-based archrival Wipro on quarterly revenues and is on track to move up the rankings over the year (see High-speed HCL closing in on ranking boost).  

HCL ended Q1 (to 30th June) with headline revenues 9% higher yoy, at $2.05bn, vs Wipro's at $2.03bn (see Wipro inches forward). HCL also remained more profitable than Wipro, at a 19.7% operating margin vs Wipro's 17.2%. However, on a trailing 12-month (TTM) revenue basis Wipro remains ahead of HCL at $8.12bn vs HCL's $8.01bn – breaking the $8bn barrier also for the first time.

The only thing that perhaps took the sheen off this otherwise notable milestone for HCL is that management reduced its dollar-based FY revenue guidance by a substantial 2 points, and now expects annual growth to come in at around 9.4% vs the 11.5% they predicted last quarter and the 12.4% HCL achieved in FY18.

There's still a huge gap between the $8bn players and next higher ranked Infosys, with TTM revenues of $11.1bn (see Infosys Q1 sets the scene). On current guidance, Infosys will still be some $3bn larger than HCL at the end of the FY (31st March 2019), so a further step up the offshore services rankings is still a ways away for HCL.

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French customer management specialist Teleperformance’s results for the first half of 2018 saw revenue of €2.1bn (up +8.3% like-for-like) with faster revenue growth in the second quarter (up +9.9% like-for-like). EBITA before non-recurring items was flat at €246m for the first half (€245m in H1 2017), with a margin of 11.9% (11.8% in H1 2017).

The UK is one of the largest components of Teleperformance’s ‘English-speaking markets & Asia-Pacific region’ which saw revenue total €740m in the first half of 2018, virtually stable year-on-year on a like for like basis (up +0.3%). 

Teleperformance has found the UK tough going for some time citing Brexit and political uncertainty as drags on the business (see Teleperformance stabilises in the UK). Whilst it will be pleased that the UK saw an improvement in revenue growth in the second quarter, particularly in the consumer electronics, administration and energy segments, it is still citing an uncertain economic environment as dampening profitability.

Globally Teleperformance’s future prospects will depend very much on the outcome of its $1bn acquisition of Intelenet, now scheduled to complete in September. Whilst the UK and the wider English-speaking regions remain sluggish Teleperformance overall has raised its guidance for FY 2018 with like-for-like revenue growth of more than +7.5%, vs. +6% in previous guidance.

Manchester headquartered cloud and hosting firm, UKFast, has appointed investment bank, GCA Altium, to undertake a review of the company and explore strategic options including a possible flotation.

UKFast, which had revenue of a little under £50m last year, has notched-up a strong growth track record over a period of almost 20 years – see Cloud services drives UKFast 2017 growth. The firm’s founders are Lawrence and Gail Jones – who own a string of businesses in addition to UKFast including building company UKFast Space, headhunting firm Mysort, and technology magazine BusinessCloud.

UKFast has also been involved with various investments in UK start-ups (see UKFast makes canny investment in Reconfigure.IO) and in February last year acquired cyber security and ethical hacking specialists Secarma. With more funding (via a stock market flotation, for example), UKFast would be in a position to make more acquisitions. Indeed, could the energetic Jones duo have a series of acquisitions or a very large purchase in mind - one that would transform the firm’s top line?

UKFast is a real local success story and we look forward to seeing what the next chapter might bring.

Google continues its journey to attract enterprise customers by forming partnerships with suppliers with enterprise credentials. This time it is Accenture, as it announces the launch of its Google Cloud Platform Business Group, building on a long-standing relationship between the two companies. In doing so, Accenture adds to its public cloud partnerships, which already include Microsoft and AWS. The intention is that the two companies will work together to develop software and services that deliver data-driven insight to customers. There are five areas of focus: Artificial Intelligence & Machine Learning; Managed Cloud Services; Managed SAP Applications; Marketing insights and G Suites expansion. Accenture states that the focus, initially, will be on developing cross-industry solutions, in retail, consumer packaged goods and health, across North America, Europe and Japan.

In April, Atos announced that it was making Google its preferred cloud partner (see Atos enters into major partnership with Google), believing that leveraging Machine Learning solutions would be the next wave in the development of the cloud; something it believed would benefit Google over others. Accenture hasn’t gone that far. However, it is investing heavily in its capabilities. Today, it has c1,000 practitioners trained on Google Cloud technologies; it intends to double that number in 2019. Having built its digital services capabilities via numerous acquisition over the last few years, Accenture now needs to accelerate organic growth (see Enterprise Software & Application Services Supplier Prospects 2018). This new partnership, leveraging Goole’s expanding cloud capabilities, will help to drive that, with a greater emphasis on customer experience and data analytics.  

Albert Technologies the Israeli headquartered digital marketer continues to make progress following last year’s decision to bet its future on AI. 

Having closed down its original advertising business during FY17 (Albert elbows out old timer online ad business) once it became loss making, Albert Technologies has focused everything on its SaaS based Albert AI marketing platform. 

This is an embryonic market and Albert is growing from a low base but achieved revenue for the first six months of 2018 of approximately $1.9m up some four times on the corresponding period last year.

Opening up a new market is an expensive business and Albert remains loss making. The adjusted EBITDA loss for the first half of 2018 is expected to be approximately $6.4m. The business does however have plenty of cash in the bank having undertaken a successful placing in May and now boasts a cash balance of some $22m.

Investment to date has focused on expanding the company’s sales and marketing activities signing up large enterprises including Dole, Harley Davidson and Generali. Albert’s strategy is ‘born global’ but is increasingly focused on starting small with large organisations with big potential. This has involved running pilot programmes designed to prove the technology’s worth and then looking to expand into larger commercial agreements.

Albert has a long way to travel to return to profitability but will be pleased with its progress to date in what is essentially a new market. With the funds now in place to execute on its strategy Albert also announced upcoming changes to its board with current Chairman John Allwood retiring to be replaced by current Non-Exec Lisa Gordon.

As ever, results from UK-headquartered, FTSE 100 listed Just Eat give a fascinating insight into the fiercely competitive world of 'on demand' meal delivery.

Just Eat rather blindsided the market in March announcing a thumping £100m+ net loss in 2017 occasioned by a near-£200m write-down on its Australian operations (see Is someone about to eat Just Eat's lunch?). The company returned to net profit in H1 2018, at £36m, pretty much in line with H1 2017. Headline revenues grew by 45% to £358m, again similar growth to the same period last year. However, IFRS operating margins plummeted from 20.4% in H1 2017 to 12.7% this half-year.

And the trend is set to continue with management accelerating 'growth investment' to lift its FY revenue guidance from £660-700m to £740-779m – but with no change to its 'underlying' profit guidance (£165-185m). Of course, 'underlying' profits exclude the usual costs of doing business but there we go. Nonetheless, on their forecasts, 'underlying' operating margins will be closer to 23% (at the midpoint of guidance) much as in H1 2018, rather than 26% as originally projected.

A goodly slice of Just Eat's investment goes into technology – they spent nearly £47m in H1 "improving both the customer and … restaurant partner experience", with a focus on mobile app development, explaining that "App users are more loyal and order more frequently than other customers". Meanwhile, marketing spend rose 29% to almost £70m, or some 19% of revenues, which sounds rather modest actually.

It's hard to see how Just Eat will be able to recover margin. The wider it spreads, the more competition it encounters, from 'market disruptors' old and new.

London-based Bright Network has raised £2.5m in its latest funding round. The transaction includes £2.15m from Maven VCT (Maven Capital Partners) with additional funds coming from existing and new angel investors.

Bright Network is an technology focused graduate engagement and recruitment business that aims to connect the brightest students with the best career opportunities. The company says it uses “advanced data analytics and cutting-edge technology” to create a graduate membership network containing the top 20% of talent. However, its membership criteria are a little more prosaic—they look for members with at least 128 UCAS Tariff points; that have studied or are studying at one of the leading UK universities based on average entry UCAS Tariff points; and/or have graduated with a first-class degree.

The company has built a strong client base of over 250 employers, including Bloomberg, Deloitte, Goldman Sachs, Morgan Stanley, UBS, Dyson, PwC and Vodafone. Bright Network helps clients identify members that match their requirements, builds targeted campaigns (including offline events) to promote their programmes, and raise their profile amongst the graduate community.

It intends to use the investment to expand its sales and marketing functions in support of its established business with enterprise clients and to develop a new SaaS-based offering for the SME sector. Bright Network is one of many businesses trying to disrupt the recruitment market, including TalentPool, which is also targeting the startup and SME space.

AIM-listed network, cloud and IT managed services provider IDE Group (formely Coretx) continues to get much needed support from MXC Capital, with another round of funding from the subscription and issue of convertible loan notes aiming to raise up to £5.5m.

Fellow shareholder Kestrel Partners threw in £2m of loan notes in May with MXC founder Andrew Ian (Ian) Smith also stepping in as IDE’s part-time executive director. As of 30^th June this year, IDE was juggling net debts of around £13m, including the £2m of loan notes and a £3.5m overdraft facility with the Royal Bank of Scotland (RBS) which the bank is reportedly under no hurry to call in.

The additional £5.5m of funding will be used to address short term cash pressures and appease other creditors, whilst simultaneously “right-sizing” the business to reverse its recent misfortunes and haul itself back into the black (see IDE/Coretx continues to drag at MXC).

Divestitures of certain business lines and assets look very much on the cards as part of that strategic and operational review. IDE’s ambition was never in doubt after the acquisitions of 365ITand Deverill Goup Limited and its expansion into enterprise cyber security provision, but it looks like MXC and Smith are about to inject a heavy dose or realism.

Just under three years since being appointed Vice President and General Manager, Europe, Middle East & Africa (EMEA) at Cogeco Peer 1, the hosting and managed services arm of Montreal-based Cogeco Communications, Susan Bowen has been promoted to the role of Cogeco Peer 1 President effective 1st September. She takes over from Philippe Jetté, who was appointed President and Chief Executive Officer of Cogeco Inc. and Cogeco Communications Inc in May.

Bowen joined Cogeco Peer 1 from Hewlett Packard Enterprise where she was Chief of Staff to then UK&I head, Andy Isherwood (see Cogeco Peer 1 scoops Bowen to run EMEA). Bowen also chairs industry association techUK’s Women in Tech Council.

We have been a long-time admirer of Bowen and wish her many congratulations on this very significant promotion.

I was intrigued by a couple of 'throwaway' comments in today's mid-term results from British Gas parent company, Centrica.

Apparently, the Government's smart meter rollout programme is not just injurious to our wallets (see Smart Meter Madness (9): Abandon hope!). It's also injurious to Centrica's employees. According to CEO Iain Conn, Centrica suffered a 'mixed' safety performance in H1, "with a total recordable injury frequency rate higher than in H1 2017, significantly due to musculoskeletal injuries in our smart meter programme in the UK". He didn't elaborate as to the precise nature or cause of these injuries or how they might affect their smart meter installation programme.

Just so you know, Centrica's UK Home Consumer business made an (adjusted) operating profit of £393m in H1 on revenues of £4.45bn, a 9% operating margin. Centrica has as one of its KPIs 'controllable operating costs'. Surprisingly (not!), smart metering is counted as a 'non-controllable cost'.

British Gas customer and worried about your energy bill? You very much should be!