2014 Annual Report
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MOBILITY CLOUD APPS BIG DATA CYBER DELIVERING INNOVATION TOGETHER 2014 ANNUAL REPORT “Given our rapid progress with the transformation, I am more optimistic than ever about CSC’s ability to continue establishing leadership in next-generation IT services while delivering outstanding value to our shareholders.” Rodney F. Chase Chairman FROM OUR CHAIRMAN Two years ago, CSC began a far-reaching transformation. high-growth applications-modernization market, and with Our objective was to fix the foundation of our company, AT&T to leverage its investment in cloud and networks. realign the business to capitalize on the historic changes in These actions enable CSC to broaden our market reach and our marketplace, and make rapid progress in becoming a capture additional next-generation opportunities. next-generation IT leader. As we took these significant steps to improve our capabilities, Since then, President and Chief Executive Officer Mike Lawrie the company also continued to implement delivery excellence has led CSC on a disciplined journey of change and improve- programs that enhance our responsiveness to clients. As a ment that continues to create a more efficient, innovative and result, CSC achieved significantly higher client satisfaction financially strong company today. Despite the major financial scores this year. and operational challenges we faced when the transformation began, CSC has more than doubled in value over the past In addition, our company continues to return cash to share- two years. holders. CSC repurchased 9.8 million shares for approximately $505 million, and the company declared $118 million in This year, the Board authorized action on several fronts to dividends during FY 2014. strengthen our financial position and accelerate CSC’s momentum toward market leadership. We welcomed two Through our commitment to corporate responsibility, CSC new Board members, Nancy Killefer and Brian MacDonald. continued to demonstrate our ability to act in the best interests Both bring fresh perspectives to CSC and key skill sets in of clients, shareholders, suppliers and the broader communities senior-level management and operations, international in which we work. CSC was recently recognized by CR Magazine business experience and financial literacy expertise. as one of the Top 100 Best Corporate Citizens. Strong execution by Mike and his leadership team resulted in While CSC has become much stronger in a relatively short a cost takeout of approximately $570 million during FY 2014. time, I firmly believe that even brighter days are ahead. With These savings and a strong balance sheet are enabling CSC ongoing cost discipline, further improvements in sales and to reinvest in our business to accelerate top-line growth, delivery, and strategic investment in offerings and new differentiate our offerings, develop our talent and improve capabilities, we are creating a solid foundation for growth. our internal systems. Investments in additional salespeople, We are poised to deliver better results and additional value regional hubs and training drove stronger commercial to our clients and shareholders. bookings in the second half of the year. Thank you for being a stockholder and for the trust you have The company also made a major push to assemble key placed in CSC. assets, form strategic partnerships and hone the capabilities needed to become a leader in next-generation IT services. Rodney F. Chase We acquired data analytics provider Infochimps, Inc. to bring Chairman our clients “as-a-service” big data platforms, and we acquired cloud management platform leader ServiceMesh to help clients integrate their multivendor clouds with Amazon Web Services, Microsoft, VMware and others. We also created new partnerships with HCL Technologies to lead in the CSC 2014 ANNUAL REPORT | 1 “We are assembling the key assets, capabilities and strategic partnerships to execute on our strategy of leading the next generation of IT services and solutions.” Mike Lawrie President and Chief Executive Officer A TRANSFORMATION IN THE MAKING Throughout FY 2014 CSC invested in significant change to Our carefully designed Offering Lifecycle Management improve our financial position and better align the company program launched several new offerings this year, including to lead the industry in next-generation IT services and next-generation solutions such as CSC MyWorkStyle, which solutions. Focused on our transformation, CSC has assembled redefines the modern workplace by uniting industry-leading strategic partnerships with leading technology companies to mobility, communication, and collaboration tools and technol- bring next-generation offerings to market. ogies in an integrated, easy-to-use platform. We also launched CSC Storage as a Service, new cybersecurity offerings In FY 2014, we improved profitability and cash flow. We are featuring Advanced Threat Detection, and a machine-to- transforming our offerings and investing in our talent and machine application called OmniLocation® MachinEdge. sales effectiveness to win more in the marketplace. And we made rapid progress in assembling the right assets and We continued to re-architect our sales model to be more capabilities to be the world leader in next-generation IT. responsive to business opportunities and to improve our win rates. We invested in additional salespeople and sales support Due to our successful cost-takeout initiatives, we expanded professionals throughout the company, as well as sales training our profit margins from 4.3 percent to 8.0 percent. These and tools such as Salesforce.com. These changes resulted in a initiatives included better contract management discipline, pickup in our qualified pipeline and bookings for GIS and GBS improved supply chain efficiencies, workforce optimization during the second half of FY 2014. Our plan is to continue to and reductions to overhead costs. We delivered strong invest in and pursue sales excellence throughout FY 2015 to margin expansion across each of our segments: Global enable CSC to win more in the marketplace. Business Services (GBS), Global Infrastructure Services (GIS) and North American Public Sector (NPS). Earnings per share In continuing to transform CSC, we continue to receive (EPS) from continuing operations increased by 30 percent to recognition from key industry analysts such as Gartner, IDC $4.01, while our free cash flow increased by 161 percent to and Forrester for the strengths of our offerings and our $689 million. We achieved these results despite continued service delivery. Our clients, suppliers and partners have top-line pressure in our federal business, as well as certain noticed the changes we have made in our company, and pockets of our commercial business where we are reposi- we are a stronger, more relevant IT service provider. tioning our consulting business and restructuring certain contracts to become more profitable. In addition to all the internal changes we are implementing, Credit rating agencies have noticed the positive changes it is also important to keep 55 years to our profitability and liquidity. Standard & Poor’s upgraded a finger on the pulse of the of service to the CSC’s credit rating to BBB+ while Fitch Ratings improved changes happening in the IT Global 2000 and our outlook to “stable.” The broader financial analyst industry — the shifts that are governments worldwide community has also noted our improved profitability and causing disruption and forcing acknowledged our improved competitive position. In addition, IT service providers like CSC our customers appreciate the positive changes we are making to do business in an entirely Ranked #3 in IT Services in service delivery. Our Customer Advocacy Net Promoter different way. FORTUNE 500 2014® Score rose 43 percent in FY 2014 from 7.2 to 10.3. CSC 2014 ANNUAL REPORT | 3 “CSC builds, sells and delivers innovative IT solutions with its partners. As a global independent technology services company, we have recalibrated our company to meet an ever-changing marketplace and the needs of our clients.” FREE CASH FLOW ($M) EARNINGS BEFORE INTEREST AND TAXES (EBIT) MARGIN $689 8.0% 4.3% $264 $59 (30.1%) FY 2012 FY 2013 FY 2014 FY 2012 FY 2013 FY 2014 FULLY DILUTED EARNINGS PER SHARE (EPS) TOTAL SHAREHOLDER RETURN FROM CONTINUING OPERATIONS $4.01 68.3% $3.09 24.4% ($28.44) (37.7%) FY 2012 FY 2013 FY 2014 FY 2012 FY 2013 FY 2014 CAPITAL TO SHAREHOLDERS FY 2012 $124 $124 Ranked #185 FORTUNE 500 2014® FY 2013 $123 $305 $428 79,000 Skilled Professionals FY 2014 $118 $505 $623 DIVIDENDS SHARE BUYBACKS CSC 2014 ANNUAL REPORT | 5 “Bringing together deep industry expertise, coupled with leading-edge technologies and innovation, we deliver excellence with the agility our clients expect. We pride ourselves on giving our clients the choice to draw from the best-of-breed solutions of CSC and our partners.” Every 15 to 20 years, the IT industry goes through a • We acquired ServiceMesh to bring clients an industry- significant shift in how IT systems are built, with a new leading platform to integrate and optimize their cloud assets. generation of applications that emerge for that structure. • We are offering our customers a choice of cloud environ- In the Mainframe Era, the entire IT stack from silicon to ments: Amazon Web Services, CSC BizCloud™, Microsoft consulting was completely integrated, and the market was Azure and VMware vCloud. We’ll integrate enterprise dominated by a few companies. In the Client/Server Era, workloads in multivendor hybrid clouds with the CSC the IT stack was unbundled, and new players emerged ServiceMesh Agility Platform™. with innovations in software, middleware, databases, • Our global alliance with AT&T combines its highly secure operating systems and networking. And in today’s Cloud Era, network and cloud infrastructure platform with our own cloud with the virtualization of the IT stack, new competitors are services, specialized consulting and applications expertise. emerging and incumbent providers are evolving to meet the demands of the marketplace. • We acquired Infochimps to deliver advanced data analytics and big data as a service.