Six months after floating on the London Stock Exchange, ITNet, the 80+ million pound IT outsourcing company, has set out plans to diversify its services business and make strategic acquisitions. ITNet, formed out of the 1987, 32m pound management buy-out of Cadbury Schweppes’ computing services operation, says its February 1999 figures will show that income streams have already become less reliant on revenues from traditional data center caretaker contracts. In previous quarters ITNet, based in Birmingham, England, has derived some 60% of all revenues from its top ten customers – principally contracts with public sector bodies for the supply of largely mainframe-based infrastructure services. Such contracts provided 50.7m pounds of its 81.7m pound 1997 revenues. In coming quarters the company expects to reduce this proportion to a third and says it’s working on plans to move more aggressively into applications outsourcing and business process contracting, which earned 28% (22.9m pounds) and 10% (8.2m pounds), respectively, of 1997 revenues. Over time the company wants to see an even balance across its three main revenue streams, with IT infrastructure services, applications outsourcing, and business process outsourcing each generating a third of its trade. This year it will concentrate sales efforts on winning more business process work, providing payroll, revenue and benefits collection services to local government. Elsewhere it will continue with its push into the supply of applications support services where it is looking for any contract in excess of 500,000 pounds. One key aim here is to add to the 63% growth it saw last fiscal year selling SAP and document management services to the likes of Dun & Bradstreet and British Airways Pensions. Lately the company added to this when it won a multi- million agreement with the restaurant, hotel and leisure chain of Forte for various SAP support services. ITNet’s applications outsourcing division covers business consultancy, development, support and maintenance services. Staff numbers in this area now make for 385 of its 1,800 employees. The last available figures suggest business here is growing at the rate of 40%, with customer gains such as Argos, the high street retail chain, and Bacon & Woodrow. Closely connected to applications outsourcing is ITNet’s business transformation service, formed in 1996 to handle workflow and document management contracts but also to deal with the emerging needs of businesses wanting SAP support. ITNet is a SAP partner and its SAP skills extend from software configuration and BASIS development, SAP interface design and development, to data loading. Its main clients in this area are West Midlands- based: Cadburys Schweppes Plc, Trusthouse Forte and Birmingham City Council. Business process outsourcing, the company’s third business sector interest, takes in those administrative areas with a high IT content, such as revenue collection, payroll, pensions and human resource. ITNet claims to have a 52% share of the UK local government’s payroll administration market. Recent wins in this area include: Hounslow LBC, signed in October 1998, to outsource its revenues and benefits administration in a deal worth 21m pounds over seven years; Islington LBC for 21m pounds; and the biggest so far with Hackney LBC worth some 70m pounds. These wins will help improve the division’s relative performance, which has been steady at 10% for the last three years. ITNet boasts it has never lost an outsourcing client to a competitor, but it is clearly becoming more selective about the type of work it bids for. For example, despite being the incumbent services firm for Wandsworth London Borough Council (LBC), it did not bid for a three year, 5m pound contract, eventually won by MDIS Plc. ITNet’s June 1998 IPO was oversubscribed by four times at its offer price of 350 pence (stock is currently at 474 pence) and raised an estimated 28.6m pounds net for the company. The money has been used to clean up the balance sheet, but an ITNet spokesperson told ComputerWire that the company now has cash reserves and some 10m pounds set aside for acquisitions. The flotation’s success was partly due to ITNet’s steady annual revenue growth from 20m pounds in 1989, to 81.7m pounds in 1997. In the last three years, ITNet’s revenues and net income have been growing at a compound annual growth rate of 18% and 12.1%, respectively. The proportion of revenues derived from Cadbury Schweppes has declined to 10% in 1997. ITNet’s interim results, for the six months to 30 June 1998, showed net income up 8.8% at 1.4m pounds on revenues up 33.4% at 50.1m pounds. The commercial sector generates 50% of its revenues, with government agencies contributing the other half. The company has made a deliberate effort over the last few years to reduce the public sector’s relative percentage to 50:50 and it expects to keep it there in the future. ITNet’s top ten clients currently are BAA, Birmingham City Council, Islington LBC, Hounslow LBC, Cadbury Schweppes, Coca Cola Schweppes Beverages, City of Westminster, English Heritage, Hertfordshire County Council and Hackney LBC.
