IT outsourcing and consulting firm Xansa Plc is not looking to sell out to a larger rival as a quick fix to its ailing performance, according to CEO Alistair Cox. Speaking to ComputerWire, Cox who recently took over the helm from chairman Hilary Cropper, said: “We absolutely don’t need to sell out to a larger player. The best answer is to establish profitable growth by improving the cost base.”
Cox’s answer is going to involve Xansa axing between 380 and 430 staff positions or as much as 7% of its workforce over the next four months to save between 20m pounds ($30.4m) and 23m pounds ($34.9m) annually.
For the six months ended October 31, London, UK-based Xansa posted a net loss of 147.8m pounds ($224.7m) compared to a net loss of 10m pounds ($15.2m) in 2001, on revenue that fell 14% to 232.5m pounds ($353.4m). The bottom line was hit by a impairment charge of 144.4m pounds ($219.5m) against further valuation falls in its three acquisitions, OSI, Synergy and systems integrator Druid, which it acquired in March 2000 for 725m pounds ($1.1bn). It follows a huge 497m pounds ($755m) impairment write down Xansa took against Druid in its full year to April 30, and Cox said the company has a further 105m pounds ($159.6m) of goodwill still on its balance sheet.
Commenting on the current market, chairman Cropper said: These are the toughest conditions I’ve experienced in my entire career. As a result, we have planned on a flat market for this year and next. It is prudent to assume it is not going to get any better.
The bleak results follow a profit warning in September and the announcement of a management overhaul at the firm, which included the resignation of CFO Geoffrey Dunn. One of the problems for Xansa has been its dwindling IT consulting practice, Business Change, which saw revenue slump 50.4% to 20.8m pounds ($31.6m) during the half year with an operating loss of 2.3m pounds ($3.49m) compared to an operating profit of 1m pounds ($1.52m) in 2001.
Meanwhile, the formerly buoyant divisions Systems Integration, Enterprise Solutions and Recruitment all tumbled during the half, with revenue down 13.5%, 13% and 25.4% respectively. Systems Integration fell primarily as a result of the early closure of Xansa’s flagship outsourcing project First Banking Systems with the Bank of Scotland (HBOS), which is seeing Xansa lose out on 90m pounds ($136.8m) of contracted revenue.
Future growth is going to come from recent outsourcing projects, and the company’s new business process outsourcing (BPO) practice Business Process Management, which generated 18.2m pounds ($27.6m) during the half, and began work on a 250m pound ($380m) seven-year project with BT Group in July. Cox said: There is an increased interest in outsourcing and BPO where IT is being used as the enabler.
Xansa is also in early stages of negotiations over a joint outsourcing contract for UK postal service Consignia, in which Xansa would act as a subcontractor to CSC on the proposed 1.5bn pound ($2.3bn) deal. During the half, Xansa signed a total of 344.1m pounds worth of outsourcing contracts with firms including BT Group, Boots, Lloyds TSB, Diageo, and the Co-operative Bank.
Consolidation is continuing to pick up in the IT services market, and recent merger activity between Logica and CMG and IBM Global Services and PwC Consulting, will result in far tougher competition for Xansa in its core markets of the UK, US and Asia Pacific. Despite Cox’s assurances that it will remain an independent company, Xansa is going to be under increasing pressure to ally itself with a larger player if it hopes to successfully win a share of the larger outsourcing and BPO projects from where it expects future growth revenue to come.
Cap Gemini Ernst & Young is keen to build up its outsourcing practice to 30% of revenue by 2004 up from 22% in 2001, and EDS is keen to increase its scope within the UK financial services sector. However, neither firm is currently in a position to make such a deal given their own financial woes. So perhaps Xansa will content itself with growing through strategic acquisitions. As Cropper suggests: We haven’t stopped talking to targets, but most are owned by their management, and they’re damn well not going to sell at their current values.