Thursday, 12 November 2009

CSC reports a 'solid' Q2

(By Tola Sargeant, Thursday 12th November 2009, 09:15) CSC has published what it describes as a ‘solid’ set of Q2 results. Revenues are down almost 5% on the previous year’s quarter at $4.0b (Q209 $4.2b) and EPS came in at $1.4, above the financial analysts’ consensus estimate of $1.35 (but down almost 50% on Q209 because that quarter included net tax benefits of $2.27 from the resolution of tax audits). Overall, cash flow, operating income and margins all improved sequentially and year on year.

The North America Public Sector business is driving any growth with revenues up 8.5% from the previous year at $1.62b. Managed Services Sector revenue was down 12.5% (7.4% in constant currency) at $1.58b, but management claim new business activity in this line of business is now strong as businesses look to outsourcing to cut costs. Unsurprisingly, demand for short term IT consulting projects remains subdued and Business Solutions and Services revenue was $0.86b, down 10.7% (7.5%cc).

As usual, CSC provided very little granularity on the performance of the business geographically other than commenting on the analyst call that in Europe most larger locations are doing pretty well apart from Germany, which is ‘a bit weak’. We’ll have to wait for more detail on how the UK is holding up although there was plenty of talk on the analyst call about CSC’s NHS contracts. The company appeared positive about the outlook for the c£3b of deals, describing the go-live of iSoft’s Lorenzo Regional Care at NHS Bury earlier this month as a ‘major turning point’. While we agree it is an important achievement, the real test will be the next milestone - getting Lorenzo working smoothly in Morecambe Bay, a much more complex acute Trust, by next March. Even iSoft’s UK-based MD Adrian Stevens admitted to me earlier this week that Morecambe Bay was going to be the real challenge. If it is successful - and there are no major changes to the National Programme for IT in the NHS as a result of a change of government - then CSC’s UK performance should get a boost in 2010.

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