CSC’s shares are trading at around $25, 43% lower than this time last year, after the US firm filed results for FY12 last week that new CEO President and CEO Mike Lawrie could only describe as “very poor”. Turnover in the twelve months to 30th March declined by 1% (2.9% in constant currency) to $15.88bn but the company made a staggering pre-tax loss of $4.3bn (compared to a $968m profit the year before). Of course we already knew that CSC’s losses had topped $4bn after a dire Q2 and Q3 (see UKHotViews archive). The detail in the FY12 results reveals the goodwill impairment charge for the year was $17.41 per share, the ‘NHS charge’ was just over $10 per share, the U.S. claims settlement cost $1.06 per share and there was a restructuring charge of $0.88 per share.
The write-offs that CSC has made on its troublesome NHS contracts (see CSC prepares to write-off £1bn spent on NPfIT) got most of the blame for the dismal results, although the troubled contracts within the Managed Services Sector (MSS) business division came a close second. Unfortunately, CSC is also still seeing “some uncertainty” in the US federal sector and EMEA. To be fair to CSC we should also take time to mention the bright spots in the results – and there were a few, notably the increase in total contract values (up 30% on the previous year at $19.3bn) and ‘growing traction’ for its offerings in areas like Cyber and Cloud. These bright spots suggest there is hope for CSC if it can get its house in order and put the NHS and its other ‘problem contracts’ behind it.
Indeed, we’re pleased to see that CSC’s new management team, ex-Misys CEO Mike Lawrie and the new CFO appointed just last week – Paul Saleh – appear to be taking the radical steps needed to turn CSC around. They’re instigating a $1bn/12-18-month cost takeout programme; have conducted a thorough review of the contract portfolio and are taking steps to fix 40 problem deals; and have put in place a systems assurance programme to review all contracts over $50m. As for the NHS contracts, Lawrie is now talking to the head of the NHS on a weekly basis and is “hopeful” that the long-awaited ‘interim agreement’ will get completed “in the not-too-distant future”. It’s this kind of top-level engagement that’s needed to get the deal across the line and we too hope the outstanding issues can finally be resolved.