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CSC loss not acceptable - Mike Lawrie

Mike Lawrie

Falls Church VA: CSC's new chief executive Mike Lawrie has described his firm's latest financial results as "poor" and "below an acceptable level".

CSC made a pre-tax loss of $156 million in the quarter to March 30, compared with a profit of $282 million in the same period last year. In the full year it lost $4.34 billion against a pre-tax profit of $968 in 2011.

Yesterday CSC reported fourth quarter fiscal 2012 revenue of $4.11 billion and fully diluted EPS from continuing operations of ($1.02) compared to fourth quarter fiscal 2011 revenue of $4.20 billion and fully diluted EPS from continuing operations of $1.01. Fourth quarter revenue declined by 2.1% and declined 1.5% in constant currency.

The company also announced full year revenue of $15.88 billion and fully diluted EPS from continuing operations of ($27.38) compared to fiscal 2011 revenue of $16.04 billion and fully diluted EPS from continuing operations of $4.51.

Full year revenue decreased by 1.0% and decreased 2.9% in constant currency. The reduction in the company's earnings per share for fiscal 2012 is primarily due to goodwill impairment charges of $17.41 per share, a U.K. National Health Service (NHS) charge of $10.03 per share, a U.S. claims settlement of $1.06 per share, a restructuring charge of $0.88 per share, higher corporate general and administrative expenses, and dilution from acquisitions.

Financial highlights include:

  • New business awards of $6.3 billion for the quarter, an increase of 40% year-over-year, and $19.3 billion for the year, an increase of 30%.
  • Pre-tax margin of (3.79%) for the quarter and (27.38%) for the year.
  • Operating margin of (1.73%) for the quarter and (7.88%) for the year.

New Business Awards

Across CSC's three lines of business, new business awards for the fourth quarter were $6.3 billion. The Managed Services Sector (MSS) reported $4.0 billion of new business, North American Public Sector (NPS) contributed approximately $1.2 billion, and Business Solutions & Services (BSS) closed $1.1 billion of new business.

For the full year, new business awards of $19.3 billion increased by 30% when compared to fiscal 2011. 2012 awards were comprised of $9.5 billion from MSS, $6.0 billion from NPS, and $3.8 billion from BSS.

Revenue by Line of Business

For the quarter, NPS revenue was $1.40 billion (down 6.6% from the fourth quarter last year), MSS revenue was $1.71 billion (a decrease of 2.3% from the fourth quarter of last year and a decrease of 1.3% in constant currency) and BSS revenue was $1.03 billion (an increase of 5.1% from the fourth quarter last year and an increase of 5.7% in constant currency).

For the fiscal year, NPS revenue was $5.70 billion (down 5.0% from last year), MSS revenue was $6.62 billion (an increase 0.5% from last year and a decrease of 2.2% in constant currency) and BSS revenue was $3.68 billion (an increase of 3.0% from last year and a decrease of 0.5% in constant currency).

Mike Lawrie, CEO commented, "We consider these results to be very poor as the company is executing well below an acceptable level for CSC and its investors. There are many reasons for our under-performance — primarily NHS write-offs and challenges managing our cost structure, aligning our global organization, and in executing some of our MSS contracts. We are also experiencing some market headwinds in the Federal business and in Europe.

"There were some positives in the quarter — namely our new business awards of $6.3 billion which showed particular strength in MSS and in North America.

"As I said previously, our company is in a turnaround situation and we are taking the first steps on that journey which include remediation plans for under-performing contracts, new leadership, revised compensation plans which reward business performance, implementing a more efficient operating model with updated lines of accountability, restructuring and cost re-balancing activities. This will be a multi-year journey, but we aim to place our business on a more profitable trajectory to the benefit of our employees, customers, and investors. I am confident that we can fix our current problems and start to deliver more acceptable results."

Guidance

The company is still evaluating the impact of the turnaround initiatives and will issue annual guidance for fiscal year 2013 at a later date, probably during the next earnings call which will be held in August.

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