UK Tech Finance Blog

MasterCard buys Irish payments technology vendor Orbiscom

MasterCard announced today the acquisition of Orbiscom, a Dublin, Ireland-based payments technology provider to major financial institutions.

The purchase price is approximately $100m, a portion of which is contingent upon the future performance of Orbiscom’s business.

The acquisition builds on the companies’ existing partnership that created MasterCard inControl, claimed to be an innovative platform featuring an array of authorization, transaction routing and alert controls designed to assist financial institutions in creating new and enhanced payment offerings.

In 2008, Royal Bank of Scotland became the first financial institution to implement MasterCard inControl for its commercial card customers.

“We are pleased to solidify our relationship with Orbiscom,” said Robert W. Selander, MasterCard president and CEO. “By adding Orbiscom’s expertise, intellectual property and talented team of innovative payments-industry professionals to MasterCard, we will further accelerate the development of new payment solutions for our customers."

"As part of this agreement, Orbiscom’s existing customers, which include leading financial institutions, will receive continued support for current Orbiscom products and the opportunity for new capabilities to help them develop new payment solutions,” said Selander.

“At Orbiscom, we have valued our partnership with MasterCard and are pleased to build on the relationship,” said Garry Lyons, CEO, Orbiscom. “Joining MasterCard, a proven, global payments leader, enables Orbiscom’s innovations to come to life on a bigger scale.”

The acquisition paves the way for more innovation and deployment of turn-key payment platforms such as MasterCard inControl, which has seen significant interest from financial institutions since its introduction, according to the firms.

UK financial svcs acquisition: Focus Solutions buys The Coaching Platform

Focus Solutions Group plc, a provider of enterprise solutions to the financial services market, announced the acquisition of The Coaching Platform Limited, a specialist financial services consultancy and training resource company for an initial cash consideration of £100,000.

A deferred earn-out consideration to be satisfied half in cash and half in shares of up to £300,000 will also be payable on achievement of certain future profit targets by 31 March 2010.

Richard Stevenson, CEO of Focus, said: “We have seen an increasing demand from the industry to provide an integrated training and competency module to support regulatory requirements. The acquisition of The Coaching Platform provides Focus Solutions with this capability and enables us to further differentiate ourselves in the market and make focus:360° an even more attractive proposition to the adviser community.”

British managed services player Maxima sees 'steady' trading

Maxima Holdings, a managed services provider, announced a trading update for its six month ended November 30, in advance of the publication of its results which will land on February 3.

The firm’s board said trading across the group remains steady, and it expects operating profits for the first half to be slightly higher than last year.

Cash collection was good in the period; net debt was in line with plans at 30 November 2008 and is expected to fall in the second half. Maxima has a stable financial position and the Company continues to have the full support of its bankers, Barclays, the board said.

Maxima continues to derive more than half its revenues from recurring managed service and support contracts. It won 40 new clients in the first half of its financial year, compared to 35 in the same period a year ago.

However, the company warned, “Macro-economic conditions are leading to some delays in decision making on some of the larger opportunities and we are therefore cautious about the future impact of this.”

“Macro-economic conditions are challenging,” said Kelvin Harrison, Maxima’s Chief Executive. “However, Maxima has had a steady first half and has a resilient business model and stable financial position.”

“We continue to place a strong emphasis on cost control and will only pursue further acquisition opportunities where there is a substantial opportunity to create shareholder value with low levels of risk,” said Harrison.

Maxima bought DXI Networks on July 2 – it says that business has already been integrated and that cost efficiencies have been achieved.

Cybit scorches to 37% sales growth

Cybit Holdings, a provider of telematics based products and services for the management and control of land and sea based assets, announced interim results with sales up 37% to £12.3m.

Pre-tax profit increased 39% to £855,000, with major new customer wins including Greene King Brewing, Stannah Lift Services, Abel & Cole, Powys County Council and the Highways Agency.

The firm also announced an exclusive contract with Ford Motor Company in the UK to provide a fully managed aftermarket service branded 'Ford Fleet Telematics'.

Cybit now supports nearly 50,000 mobile assets for approaching 2,000 customers.

Richard Horsman, Chief Executive of Cybit, said: “Even in these turbulent markets, Cybit has achieved another period of substantial organic and acquisitive growth in both revenue and profit. We continue to deliver against our stated strategy of building a profitable, multi-faceted, international telematics business.”

“The organic growth shown by the Company during the period is a strong indication that businesses believe our fleet management solutions can help reduce costs and increase efficiencies, making this a cost-effective investment in these tough economic conditions,” said Horsman.

UK data management player sees decent growth

Brulines Group, a provider of real time monitoring systems and data management services for the UK leisure sector, announced its interim results for the six months ended 26 September 2008, with sales up 10.4% to £8.9m.

Operating profit increased 7.5% to £2.21m, while EBITDA increased 11.8% to £2.47m.

Gross margin increased to 55% from 49.8%. The interim dividend was increased by 6.9% to 1.55 pence per share.

“We have made good progress in the strategic development of the Group in the first six months of this financial year,” said James Newman, Chairman of Brulines Group. “Importantly, the defensive qualities of our business model are demonstrated by the fact that over 65% of Group revenue is now derived from recurring contracts with the associated increase in gross margin to 55%.”

Commenting on the firm’s outlook, he said: “I am confident that Brulines will deliver another robust performance in the second half of the current financial year.”

Chancellor throws business IT into disarray with VAT rate cut

With news in the pre-budget report that the Chancellor is slashing VAT from 17.5% to 15% from Monday, many businesses will be struggling to get their IT systems updated in time.

Since the rate of VAT changes so infrequently, many smaller firms have hard-coded the rate of 17.5% into their application logic. Refactoring those systems to calculate VAT at 15% may not be such an easy task, especially for companies that lack in-house IT skills.

Ewen Ferguson, associate director at Protiviti, noted: “While the VAT reduction will be welcomed by many in the business community, for some organisations it will be a lot more difficult to implement than people initially think. Even just scoping the impact of the change could be tricky. Many IT systems, and particularly spreadsheets, contain the 17.5% VAT rate ‘hard-coded’ into them within numerous calculations. To check and amend every system and spreadsheet could be a massive and expensive task, and may cause an unforeseen impact to year to date data.”

Protiviti, a provider of risk consulting and internal audit services, warned that companies could face complexities and errors. There is a range of considerations, including supply chain, accounting timings of purchases and sales, decisions on pricing of goods, and invoicing, aside from the related IT issues.

For some organisations, making the change centrally will be quite straight forward, however for many it will not be as simple as changing a single rate. There is a range of considerations, including supply chain, accounting timings of purchases and sales, decisions on pricing of goods, and invoicing, aside from the related IT issues.

CODA, supplier of finance systems to 25% of the UK high street, warned of the confusion the cut in VAT will cause not just to retailers, but potentially also to consumers in the run-up to Christmas.

Following discussions with its retail customers about implementing the 2.5% cut in VAT, CODA found that many believe it will cause more problems than it solves at a time when they are already discounting heavily.

Among the concerns cited were:
• Risk of IT problems by overriding the pre-Christmas systems lock-down
• The time and cost associated with changing price tags
• Communicating price changes and setting a round number price point
• Handling customer refunds

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“It is clear from talking to our customers that many are unprepared for this change which comes into effect from Monday,” said David Turner, group marketing director at CODA. “They usually have months to prepare for this kind of thing and test the associated systems, but introducing it at this time of year will cause a huge amount of confusion. Retailers generally ‘lock-down’ their systems in the run up to Christmas, to avoid the risk of IT failures in their busiest trading period. Although the VAT changes are simple enough to make within the accounting system, there are other complications.”

“Retailers like neat price points - £1.99 or £24.99, for instance,” said Turner. “But take off 2.5% and you get odd numbers like £1.94 or £24.37. They will need to decide whether they round prices up or down - or even if they actually will pass on the savings to the consumer. And they will have to account for the changes at the point of sale while ensuring the consumer is clear about how much an item costs. Retailers we spoke to were unanimous when they said it would take them some time to reflect the changes on price tags of current stock.”

Many retailers planning to reflect the cut on current items said that the best they could do would be to produce generic ‘price converter’ posters showing how the VAT drop affected different prices, while reflecting the actual change through the central computer systems at the till. Many felt that they wouldn’t be able to change price tags until early next year or until they were ready to introduce new stock to their stores.

“Retailers in very seasonal areas like shoes told us they may have to wait until the next season’s stock comes in, early next year, before changing prices at all,” said Turner. “This change comes just as many UK retailers have implemented changes for Ireland, which changes its VAT from 20 to 20.5% next week. It’s looking like a change too far and Darling has made it clear that the changes will only last until the end of next year.”

Commentators also lined up to argue that the VAT rate cut may be a step in the right direction, it does not do enough for businesses or indeed for consumer demand. David Coats, associate director of policy at The Work Foundation, said: “While the VAT cut is welcome, it is not the best targeted measure and will only indirectly increase the purchasing power of consumers. There are better ways of boosting demand: our preference was for a one-off tax credit to put more money into the pockets of those most likely to spend it.”

Meanwhile salesforce.com’s Woodson Martin, VP strategy, argued that small businesses have been, “thrown a bone, not a lifeline.”

“Money is important,” Martin said, “but if you scratch beneath the surface it often isn't what's really needed, particularly in small businesses. The government should be investing in education programmes to help small businesses work more effectively with the resources they have available.”

Cue segue into the value of Software as a Service and cloud computing. “Cloud computing gets the management overhead off site, hands maintenance to experts and reduces cost of ownership,” said Martin, “meaning SMEs will be able to focus on their core business. Cloud computing applications can also be up and running in minutes, hours or days to react to the kinds of swings we’re going to see in these uncertain economic times.”

Finally, Protiviti warned that companies face the added burden of having to make this change to their IT systems in the middle of the tax year. Making a change in one place could cause an unpredicted impact on year to date figures, while retailers in particular face a race against time to get their systems in order in the run up to Christmas following the change. Companies need to quickly set up a project team to assess and deal with the impact of the change, Protiviti urged.

PC growth forecasts down a third

Data tracking firm iSuppli cut its growth forecast for the personal computer industry by nearly two-thirds, Reuters reported, as rapidly deteriorating conditions in the global market weaken demand and many major economies fall into recession.

iSuppli now expects global PC shipments to grow by only 4.3 percent in 2009, versus a previous forecast for 11.9 percent growth, the company said in a release late on Thursday.

It also pared back its growth forecast for 2010 to 7.1 percent from a previous 9.4 percent.

'The result of the financial turmoil is less money to spend, and often that money is itself more expensive,' iSuppli analyst Matthew Wilkins said in a statement.

'With less money to spend, application markets, like PCs, have been impacted.'

Friday quote

“Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement.” The American politician Dan Quayle (vice president from 1989 to 1993).

BT shocks market with poor IT services results

The Financial Times noted that BT Group was the sharpest blue-chip faller after a profit warning brought on by its Global Services division. Shares tumbled 19 per cent to 115.1p after the company failed to cut costs and lost high-margin UK business.

Cable & Wireless fell 1 per cent to 122.9p, “in sympathy” according to the FT. However, analysts noted that C&W is due to report interim earnings on November 10, three days before BT is scheduled to report, suggesting C&W would have had to have warned of any shortfall by now.

Among the smaller operators, Colt Telecom was steady at 63¼p as speculation about a possible bid from AT&T was given yet another airing – FT.

British chip designer ARM has record quarter

Cambridge-based microchip designer ARM Holdings was rising on the LSE today after it announced record quarterly revenue and said it expects its next quarter to be in line with expectations.

Its quarterly revenues were up 7% year on year to $134.4m. For the first time ever it said its processor division saw a billion units reported during the quarter: it doesn’t manufacture its own chips, so it’s all about how many its licensees make.

“Although the global macroeconomic conditions make the near-term trading environment uncertain, based on the order backlog, robust licensing pipeline and underlying momentum in royalties, we expect that group dollar revenues in Q4 2008 will be at least in line with expectations,” the company said in a statement. “In addition, we anticipate that profits and earnings will benefit further from the strengthening of the dollar against sterling.”

Commenting on the results, Warren East, CEO, said: “In Q3, ARM delivered the best quarterly revenue performance in its history and we continue to see strong demand for ARM’s technology including long-term commitments for our physical IP technology by industry leaders.”

“We are encouraged to see that the inherent operating leverage in the ARM business model, combined with sound cost discipline and the recent strengthening of the dollar against sterling, has given rise to earnings growth in Q3 of more than 20% on dollar revenue growth of 7%,” East said.

UK economy shrank 0.5% in latest quarter

The UK economy shrank by 0.5% -- more sharply than expected -- in the three months to September, official data released on Friday showed. It is the first official confirmation that the UK is entering a recession, although Bank of England governor Mervyn King used the ‘r’ word in a speech early this week, saying a recession is “likely”.

Respected bodies such as the European Commission, the Organisation for Economic Development and business lobby group the CBI have said the UK economy started shrinking in July...[click continue reading for Global Insight economist Howard Archer's predictions for the UK economy]...

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The latest official data showed the economy shrunk 0.5% from July to September, the first decline in output since 1992 and the biggest single drop in any quarter since 1990.

Weaker service industries, construction and production output drove the deceleration in growth, the Office for National Statistics said. Manufacturing made the single largest contribution to the slowdown, falling 1.0% in the quarter.

If there is a glimmer of hope, it is that the data released today (Friday 24) is what’s called the ‘flash estimate’ of GDP, a number notoriously subject to being changed.

Technically, a recession is defined by two successive quarters of declining growth.

Howard Archer, economist at Global Insight, was quoted in the Financial Times saying, “The depth of the decline means that we are there [in a recession] to all intents and purposes. Indeed, there can be no doubt that further marked GDP contraction will occur in the fourth quarter as consumers retrench in the face of major headwinds and investment is pared back sharply.”

Nevill Hill, economist at Credit Suisss, said “It is clear evidence that the economy is in recession. The weakness was broad based - the only sectors seeing a rise in output in Q3 were government services and agriculture.”

Stocks were still taking a beating on the LSE and indeed international markets at the time of writing, having already fallen to a multi-year low since the data was released.

UK CFOs getting more pessimistic

Optimism among Britain's company finance directors has deteriorated rapidly in recent weeks, with over half now not expecting a recovery in credit conditions until 2010 or later, a survey by Deloitte said on Monday.

The report, called 'Digging in for the Downturn', said with chief financial officers planning for a prolonged period of distress in credit markets, cost cutting and cash preservation had come to the fore...[click continue reading for more survey results]...

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'More than half of CFOs plan to cut current employee numbers and capital spending, up from 38 percent six months ago,' the report said. '70 percent expect to cut future hiring and 82 percent to reduce discretionary spending.

'The biggest increase has been in the proportion of CFOs contemplating moving capacity offshore (more than doubling from 13 percent to 29 percent) and reducing dividends (a fivefold rise to 16 percent).'

The report said most CFOs thought credit conditions were unlikely to improve before the second half of next year, and 53 percent do not expect a recovery until 2010 or later.

The report said a growing readiness to contemplate such options as offshoring and dividend cuts testified to the accelerating pace of the slowdown.

The survey of 105 chief financial officers took place between Sept. 12 to Sept. 30, as struggling banks such as Lehman and Bradford and Bingley (LSE: BB.L - news) hit the headlines but before the British government announced their plans for a bail-out of the sector.

The survey said the liquidity problems in the banking sector had increasingly led to a squeeze on the supply of credit to corporate firms, with 89 percent of respondents saying credit was hard to obtain, compared with 48 percent a year ago.

Deloitte said its UK report surveyed the finance officers of 28 companies in the FTSE 100 share index, a further 42 FTSE 250 (news) groups and the remainder from FTSE small cap groups, private companies and UK subsidiaries of major companies listed overseas.

The survey also showed a shift in attitudes to how companies financed themselves, with a majority of CFOs rating bank borrowing as being unattractive, compared with last year when almost three quarters of CFOs saw it as attractive.

Corporate debt issuance also saw a very sharp drop in popularity, leaving it even less attractive than equity issuance.

The report said the shift in finance officer's views suggested the wider, non-financial corporate sector was heading for a period of debt reduction, with more corporates planning to reduce gearing than raise it.

– Reuters.

British security risk management firm doing ‘OK’

Red24, which calls itself a security risk management services provider, said it remains confident of meeting market expectations for the six months ended Sept. 30 as trading has been in line with forecasts.

A sign, perhaps, that the security market is more likely to weather the financial storm than certain other sectors?

The company, formerly known as ARC Risk Management Group, said it will announce its interim results on Nov. 12.

UK IT stocks fairing better than average?

While the FTSE 100 is down 1.4% today -- despite the latest UK financial bailout plan -- the FTSE Techmark 100 index of IT companies is up 0.9% at the time of writing.

Perhaps simply a reflection that the Techmark does not include the shares of the beleaguered banks, it’s still reasonably good news for the IT sector, if it continues. It begs the question, will the IT sector emerge in better shape after this latest market crash than other industries? Drop me a comment below and have your say.

UK’s Autonomy wins deal with Fiat

UK-based enterprise search and information management firm Autonomy announced that automotive giant Fiat Group has chosen Autonomy to power its portal eTech, which provides technical assistance to Fiat’s dealers and workshops worldwide.

The project implemented in Fiat Group Automobiles covers Fiat, Lancia, Alfa Romeo and Fiat Professional brands and supports customers in more than 80 countries.

eTech is the technical documentation research point of reference for Fiat Group Automobiles’ network of auto traders who submit in excess of 25,000 technical queries a month in 11 different languages.

“Ensuring every Fiat Group Automobiles service point has on-line access to “first aid tools”, such as technical assistance documentation manuals, and service news, despite language or location, is vital to ensure the high level of service our customers demand,” commented Mario Ghirardotto, Fiat Group Automobiles ICT Quality and Technical Service Process Leader. “Powered by IDOL, eTech enables our dealers to quickly find repair information inside Fiat’s technical service knowledge base. The feedback we are getting from the field has been very positive,” said Ghirardotto.

IDOL’s unique Conceptual Search capability is said to enable service points to locate and access relevant content instantly even if the keywords used in the original query do not feature in the results.