Consulting services divisional report

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Divisional report

Overview

The Group’s Consulting services division, consisting of Analysys Mason and Intact, accounted for 2% of Group revenues and 5% of EBITDA.

Analysys Mason provides strategy and operations management consulting, and market intelligence worldwide to leading commercial and public-sector organisations in telecoms, IT, and media sectors to clients in over 80 countries worldwide. With offices in Cambridge, Dubai, Dublin, Edinburgh, London, Madrid, Manchester, Milan, Paris, Singapore and Washington DC, more than 66% of its revenues come from outside the UK home market.

Bob Dalton, Managing Director - Intact

Intact is a networking services and support consultancy business focused on providing high-end professional services to its customers. Intact’s services are offered exclusively through its partner network, which include value add resellers, systems integrators, network integrators and service providers. Intact’s technology focus is on advanced networking, unified communications, security, wireless and data centre, and although its technical expertise has a strong bias towards Cisco, the Intact service delivery system is entirely vendor agnostic.

From left:
Simon Jones, Chief Executive Officer - Analysys Mason
Bill Moore, Chief Operating Officer - Analysys Mason

The year under review

During the year under review Analysys Mason has continued to see the further globalisation of its client base, with non-UK revenues now representing 66% (2008: 60%) of total. The UK is still Analysys Mason’s largest market. Revenues from mainland Europe have remained steady over the last three years, as has the MENA (Middle East and North Africa) region, which is now the Company’s second largest market. The Americas are showing the highest growth rates, with year-on-year growth of 77,6%. Overall, during the year, Analysys Mason gained 139 new clients (accounting for 15% of the value of its sales in the year) and has worked in six new countries.

On 26 June 2008, Analysys Mason acquired the USbased analyst house OSS Observer, a company focused on the global telecoms software market. OSS Observer has a strong reputation in this key niche within the industry that Analysys Mason has historically not served. Consequently, it represents an excellent complement to Analysys Mason’s existing research portfolio. Integration of the OSS Observer team and their subscription portfolio and clients was successfully completed during the financial year.

Intact previously formed part of Logicalis, but during the year it was decided to move the business under the consulting services division to better reflect its nature of its consultancy and services-based revenue streams. Intact generated revenues of US$17,1 million during the 2009 financial year and generated US$2 million of EBITDA.

Markets

Throughout the first half of 2009, the telecoms services sector appeared resilient to the current global recession, but a softening in the market in the final quarter was evidenced by a fall in demand for services and operating performance being adversely affected by clients delaying project starts.

The duration of the recession is difficult to predict, but management at Analysys Mason expects there to be a number of key industry drivers that will provide further growth opportunities for the business in the near term.

These include:

• International regulatory developments and growth in emerging markets.
• Broadband stimulation, roll-out of next generation networks.
• Maximising revenue from content, applications and advertising-driven business models.
• Mobile broadband/4G.
• Spectrum and digital dividend policies and utilisation.
• M&A and licence acquisition opportunities still exist.
• Green IT and energy strategies.
• Wholesale and managed services.
• Strategies for telecoms software.

Intact saw significant change over the year in the profile of the customer base, with the number of partners drawn from the larger integrators and VARs increasing markedly. While some slowdown in projects from individual channel customers was evident, this was more than compensated for by a tendency for new and existing customers to rely more heavily on external resources rather than enhancing their own internal headcount, particularly in high skill, high cost areas around advanced technology.

In particular the trend of Intact’s larger partners to respond to the downturn by developing a more open stance to outsourcing of non-core functions has resulted in an increase in opportunity and uptake for Intact’s Managed Outsource solutions, delivering high-quality design, deployment and management services in support of global, multiyear transformational projects. We expect this trend to continue during FY2010, and are building on our proven capabilities with a strong sales and marketing push.

Strategy

Analysys Mason’s reputation is built upon the sectorspecific knowledge, intellectual rigour, and operational experience of its consultants, whose expertise provides industry-leading insight into issues facing the convergent industries of telecoms, IT and media. Analysys Mason’s service portfolio is clearly defined into strategy, implementation, planning and review, with specialist sector market intelligence at the centre of its work.

Operational highlights

• Growth in core business areas including 7,7% in public sector and enterprise consulting, 12,6% increase in research
• Continued globalisation of client base with 66% of revenue from non-UK clients (60% last year)
• Completed the acquisition of OSS Observer in June 2008 and the successful integration of 2008 Redbox acquisition that is showing strong sales performance
• Established the single integrated brand as premier player in TMT management consulting
• INconTACT Service Desk operation launched in Berlin. This will provide a powerful platform for growth in the Intact Managed Services business in FY10
• Intact established as independent Cisco registered partner

Now that the integrated Analysys Mason brand has been established as the premier player in TMT management consulting, the business will continue to push ahead with the globalisation of its entire portfolio, and deeper penetration in those markets where it is already well known.

Organisation priorities for FY2010 include:

• Addressing the recent weakening in performance brought on by the economic downturn by focusing on a combination of a new sales and marketing strategy and cost management measures.
• Leveraging recent acquisitions and continue to search for similar attractive opportunities.
• Extending international reach and service propositions under the Analysys Mason brand.
• Targeting gross margins over 40% and net margins over 10% in the medium term.
• Diversifying the consulting offering to include telecoms software vendors/users and energy companies.

During the coming year Intact will continue to cement its position as a key provider of Cisco professional services with a push to achieve Cisco Advanced Technology Partner (“ATP”) status in Unified Communications Security and Wireless. Marketing effort for the year will focus on “Solving Complexity – Adding Value” and will combine addressing new customers as well as increasing internal marketing amongst Intact’s bigger existing clients.

Financial performance

Analysys Mason’s revenue fell to US$55,8 million (2008: US$63,5 million). On a local currency basis revenues grew by 2,2%.

Analysys Mason’s EBITDA was US$4,6 million (2008: US$6,9 million) at a margin of 8,5% (2008: 10,9%). This fall in performance has been due to a worsening of market conditions in the final quarter of FY2009, creating both a reduction in consulting sales and also a number of clients delaying project starts.

Intact delivered strong financial performance in FY2009, with revenues of US$17,1 million and EBITDA of US$2,0 million, representing an 11% margin. Costs were closely controlled, despite increased investment in sales and marketing, the launch of the Berlin based INconTACT Service Desk and further development of the INspan Partner model.

People

Analysys Mason employs over 250 people around the world, serving clients in more than 80 countries. The Company’s employees have had a major influence on the industry for more than 20 years. As a specialist telecoms, IT, and media adviser, Analysys Mason’s success depends largely upon the quality of its people. Attracting and retaining the best people in the sector to maintain the Company’s leadership in the markets it serves remains a key strategic objective for the business. Intact employs 123 people in the UK and Germany, serving more than 120 channel partners in these geographies.

Future prospects

The management of Analysys Mason expects near-term prospects to be affected by continued caution on the part of clients, including continued cutbacks on discretionary spending and project delays and cancellations. In the short term, focus will be given to internal cost management, pricing strategies, proposition development and sales optimisation. This will enable Analysys Mason to remain competitive through 2010, and quickly respond to any upturn in the market. Fundamentals of the sector remain strong for the medium to long term in terms of global subscriber growth, usage volumes and the rate of technological advance.

The tough economic conditions have continued into the early part of FY2010 and the Company continues to closely monitor market performance. A number of measures have been identified and actioned during the early part of 2010 to ensure that the Company is able to see out the current market uncertainty and optimise the opportunities that will inevitably follow in the next six to 12 months.

The management of Intact is expecting further growth in the coming year, despite the unfavourable global economic conditions, with particular opportunities in our Managed Outsource and INspan global delivery sectors as the businesses’ larger channel customers increasingly adopt an outsourced delivery model.