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Third quarter results out last night from CSC show that Mike Lawrie’s efforts to take out cost are having the right effect on margin expansion and cash flow. Compared with the same period last year, the reported operating margin improved from 7.4% to 9.8%. That is despite a 6.9% decline in revenue (constant currency) to $3.2bn. Year to date revenue was down 7.5%, but the operating margin increased from 6.3% to 10%.
The positive profit story runs through all of the business segments. In Global Infrastructure Services, reported operating margin increased from 4.9% to 7.1%; in Global Business Services it increased from 8.3% to 12.1%; and in North American Public Sector it inched up from 11.3 to 11.7%.
However, note that Lawrie’s strategy it not just about ‘stripping the fat’, it’s also about reinvestment in key areas such as sales go-to-market initiatives and acquisitions (e.g. CSC Acquires ServiceMesh for Cloud Services). One of the big changes CSC has gone through is the shift from an account and region-based model to a product and offering model. Offering Lifecycle Management (OLM) has been introduced to provide a new policy, process and framework for CSC service offerings. As a result, the Infrastructure Services business has been focused on launching and selling next-generation offerings around workplace, commercial Cloud and Storage-as-a-Service.
In the UK, CSC reports “strong” year-on-year improvements in commercial bookings. Although whether that translates into full-year growth remains to be seen. In FY12, we estimate that CSC declined 4% in the UK – and slipped a place in our SITS ranking to number 12. For the business as a whole, Lawrie is targeting a revenue decline of “mid-single digit”, with EPS from continuing operations of between $3.80-$3.90 and free cash flow of c$600m.