Problems at Fujitsu Services, the UK subsidiary of Japanese computer giant Fujitsu, have played a key part in shock forecast losses of £1.2bn for the 2006 financial year.
Today’s profits warning, made at the end of the business day and ahead of a public holiday in Japan, came after years of problems with Fujitsu Services, which holds a number of high-profile public sector contracts.
Fujitsu Services is a lead contractor for the southern region of the NHS’s £12.4bn IT programme. It is also an important IT provider to HM Revenue and Customs where its £930m outsourcing contract has been absorbed into the Aspire contract held by Capgemini.
The Japanese computer giant, which had earlier forecast profits of £238m, said it now expected to record a loss on devaluation of its stock in Fujitsu Services.
Fujitsu acquired a majority stake in the UK-based IT services firm – then ICL – in 1990, renaming it Fujitsu Services in 2002. It originally planned to float the company, but in a statement released with its results for the 2006 financial year, Fujitsu said it had “changed its basic stance” in relation to Fujitsu Services – a phrase that suggests it now intends to retain the subsidiary.
The company has now been forced to admit that a sale would not recover its investment in Fujitsu Services. The statement said: “Because the estimated value from the recovery of net assets within roughly a 5-year period is less than the book value of its investment, Fujitsu will record a loss on devaluation of the subsidiary’s stock.”
Fujitsu’s statement did not detail what had led to the revaluation of its subsidiary, but attributed its move to “factors including its previous financial results” as well as a one-off charge relating to the acquisition of businesses in Scandinavia.
A spokesperson for Fujitsu Services in the UK said he was unable to comment on financial statements from the parent company.
Fujitsu’s relations with the NHS National Programme for IT (NPfIT) were strained last month when Andrew Rollerson, its healthcare consultancy practice lead, spoke out at a conference to discuss implementation of the programme, warning of a “gradual coming apart of what we are doing on the ground”.
The slow progress of NPfIT in the southern region where Fujitsu Services is the lead contractor was recently revealed in a parliamentary written answer that showed the firm had completed just £27m worth of work – less than 10% of the £287.5 paid out to contractors in the other four regions.
Until this month, Fujitsu Services also held the Libra contract to provide a new case management system and infrastructure for magistrates’ courts. But the contract for the long-delayed and troubled systems ended in March and has since been split in two and awarded to Atos Origin and LogicaCMG.
Other elements contributing to Fujitsu’s forecast losses include increased costs in its telecommunications systems manufacturing and sales subsidiaries and poorer than expected sales performance by its US server business.