EDS sales up as wings spread

By ADAM GIFFORD

An initiative to sell IT services overseas helped lift EDS New Zealand's sales $20 million to $327.7 million during 2003.

The IT firm would not reveal exactly how much the programme, dubbed "Best Shores", delivered to its growth.

Investment New Zealand paid EDS $1.5 million in March 2003 to set up call centres and other infrastructure to support the initiative, conditional on job creation targets being met.

EDS managing director Rick Ellis said the 144 jobs linked to the programme were created during 2003. Its total New Zealand headcount now stands at more than 2000.

"We have to prove we created jobs to keep the money, and we have every intention of keeping the money," he said.

Because of the shortage of people with the right skills here, almost half the new people being hired are immigrants.

"We have a veritable United Nations here."

IT industry bodies and the Government are keen on promoting New Zealand as a provider of outsourced services to high-cost markets such as the US.

Ellis said it was easier for multinationals such as EDS, IBM and Hewlett-Packard to do that than local firms because it cost them less to win business.

"We have demonstrated we are competitive in areas higher up the value chain rather than providing call centres and bulk code cutting," he said.

"I am on a global network where I have access via email to all EDS employees, so I can communicate with them and pique their interest in what we have to offer."

The information technology services firm reversed 2002's annual operating pretax loss of $10.6 million into a profit of $16.3 million.

However, changes in the way parent company Electronic Data Services treats unbilled revenue turned the profit into a $79 million loss, on top of the $67 million loss the previous year.

Ellis said EDS stopped smoothing out revenues over the life of long-term outsourcing contracts, and now recognised actual revenue as the customer was invoiced.

It was a change adopted by the industry but which had a significant effect on EDS amounting to US$1.4 billion ($2.2 billion). This was New Zealand's share of that, Ellis said.

Rather than leaving the accumulated deficits on the books of the New Zealand subsidiary, EDS recapitalised the company during the past two years by issuing $150 million in new shares, funded through a reduction in intercompany debt.

"That reduces the amount of interest we have to pay, improves the expense line and improves profitability in future years," Ellis said.

He said more significant was the $26.9 million turnaround in operating profit.

Big customers include banks, government departments, Fonterra and Telecom.