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CSC picks up axe, takes aim at its own profitable bits

North America public sector biz set to split off as results slide continues

CSC confirmed last night it is to split the US public sector biz from the rest of the group – the only division last quarter where sales aren’t dropping and which generates the highest operating profit.

As expected, the hard-pressed integrator is to hive off the operation into a separately listed company, with sales of $4.1bn and 14,000 staff including 3,500 American military vets.

In a canned statement, CSC CEO Mike Lawrie talked up the move, saying that in the three years since the “turnaround began” the business moved forward, and this is the next stage.

“The best way to accelerate that transformation is by separating the company into two businesses, each uniquely positioned to lead its market by focusing strongly on the needs of its clients,” said Lawrie.

The remainder of the group will concentrate on roughly 1,000 commercial clients and government customers in the rest of the world. It employs 51,000 people and turns over $8.1bn.

CSC said the two segments have different “growth profiles and cash flow dynamics” and the split will allow them to better manage “capital strategies”, “unique customer needs” and “cost structures”.

The bisection is expected to be complete by October and intended to qualify as a tax-free transaction to CSC shareholders. Many would disagree that the multi-year transformation has gone smoothly; it has been typified by cost-cutting leading to poor staff morale, some lost contracts and weakened financial results.

Only last week, CSC announced it was reducing its UK workforce by almost 800 heads amid talk of job cuts in the Nordics region too. Unite, the trade union, told us this week that high earners are also at risk.

The fruits of the integrator’s labour were revealed last night, with revenue for Q4 ended 3 April 2015 down 12.6 per cent to $2.9bn. This included unfavourable for-ex conversions.

Turnover in Global Business Services dropped almost 15 per cent to $980m, with contract completions and the “ongoing repositioning of the consulting business” blamed.

Global Infrastructure Services dropped even more steeply, by 20.8 per cent to $929m. Here the impact of “price-downs, restructuring and contract completions” were the root causes, said CSC.

Lawrie said in a conference call with analysts the company is “making significant investments to help reignite out revenue engine” by “upgrading our sales force and we’re increasing the amount of business that we are bidding on”.

The breakaway North America Public Sector division was flat year-on-year at $1bn – the growth in cloud, state health IT and BPO was offset by declined in the Department of Defense and federal civilian contracts.

Total costs and expenses in the quarter climbed 11.4 per cent to $3.22bn, including restructuring charges of $246m and hefty depreciation and amortisation.

This effectively left CSC nursing an operating loss of $317m versus an operating profit of $432m in the prior year, but the company was spared the blushes – well, sort of – by a $330m tax benefit. But $4m attributable to non-controlling interest left a net profit of just $9m.

For the year, CSC's revenues fell 6.3 per cent to $12.17bn. Total expenses of $12.44bn resulted in an operating loss of $276m. A net tax benefit of $312m provided an operating profit from continuing operations of $36m but a loss from discontinued operations reduced this to $7m. Net income attributable to non-controlling interest of $15m left a net loss of $8m. ®

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