goodm ornnig; - charles babbage institute€¦ · goodm ornnig; before we review financial...

GOOD MORNING;

BEFORE WE REVIEW FINANCIAL HIGHLIGHTS OF THE 1978-1982 STRATEGICPLANS, I WOULD FIRST LIKE TO COVER THOSE SEGMENTS OF THEPROCESS WHICH WILL INFLUENCE THE FINANCIAL RESULTS BETWEEN NOWAND THE TIME FINAL STRATEGIC PLANS ARE REVIEWED WITH THECOMPLETE BOARD IN SEPTEMBER.

AS YOU KNOW, WE HAVE BEEN INVOLVED WITH THIS PLANNING CYCLE INVARYING DEGREES OF INTENSITY AT DIFFERENT LEVELS OF THE ORGANIZATION SINCE LAST FEBRUARY. FOR PURPOSES OF CONTINUITY ANDCONSISTENCY IN THE FINANCIAL DATA, THE ENTIRE PLAN HERE ISBASED ON THE CURRENT YEAR'S BUDGET BASIS. THAT IS TO SAY, THESENUMBERS REFLECT 1977 ORGANIZATIONAL STRUCTURES, AND 1977BUDGETED RATES FOR FOREIGN EXCHANGE TRANSLATION. IN ADDITION,1S77 ALLOCATION METHODOLOGIES AND ACCOUNTING TREATMENTS WEREUSED THROUGHOUT THE CYCLE. AS A RESULT, THE NUMBERS WE REVIEWINTERNALLY DURING THE PROCESS ARE CONSISTENT WITH OUR HISTORYAND CONSISTENT WITH THE 1977 BUDGETS, - IN THIS WAY WE KEEPTHINGS ON AN "APPLES TO APPLES" BASIS IF YOU WILL. AS A RESULT,CHANGES FROM YEAR TO YEAR CAN THEN BE DIRECTLY ATTRIBUTED TOOPERATIONAL FACTORS AND STRATEGIC IMPLICATIONS RATHER THANTO CHANGES IN ACCOUNTING OR STRUCTURE.

THESE CHANGES WILL BE SIGNIFICANT THIS YEAR IN VIEW OF THE RECENTREORGANIZATION AND THE CHANGING FOREIGN EXCHANGE SITUATION.BETWEEN NOW AND SEPTEMBER, THE PLAN WILL BE REWORKED FOR THESE

R M Price CDC speeches Charles Babbage Institute <www.cbi.umn.edu>

ITEMS -- AND THE FIRST YEAR OF THE PLAN - 1978 WILL BE THE BASISFOR ESTABLISHING 1978 BUDGET GUIDELINES', THEREBY ASSURING THATPLANS AND BUDGETS ARE FIRMLY LINKED.

IN SHORT THEN, THE NUMBERS REVIEWED HERE THIS MORNING ARE INEFFECT AN INTERIM SET IN THAT THEY ARE CONSTRUCTED ON THE 1977BUDGET BASIS, WHEREAS THOSE TO BE REVIEWED BY THE ENTIRE BOARDIN SEPTEMBER WILL BE ON THE 1978 BUDGET BASIS.

I'LL GET TO THE NUMBERS THEMSELVES IN A MINUTE, BUT BEFORE WEDO, I THINK IT IS APPROPRIATE TO QUICKLY REFLECT ON THE CHANGESIN THE PLANNING PROCESS AND PLANNING EMPHASIS THIS YEAR. LASTYEAR, IF YOU RECALL,' THE EMPHASIS WAS ON IMPROVING THE BALANCESHEET, WHILE THIS YEAR THE PRIMARY THRUST HAS BEEN DIRECTED ATIMPROVED PROFITABILITY.

WITHIN THE PLANNING PROCESS, COMMUNICATION HAS BEEN SUBSTANTIALLYIMPROVED THIS YEAR, AS EACH COUNTRY/REGION PROVIDED PRODUCTFAMILY MANAGEMENT WITH COMPREHENSIVE ASSESSMENTS OF THEIROVERALL BUSINESS ENVIRONMENT - i.e. ~ MARKET SEGMENTS, SOCIAL,POLITICAL AND ECONOMIC FACTORS, AND COMPETITION, AS WELL ASPERCEIVED PRODUCT LINE/ SERVICE NEEDS. PRODUCT FAMILIES INTURN SUPPLIED THE MARKETING ORGANIZATION WITH PRODUCT LINE/SERVICE STRATEGIES, ENHANCEMENTS, TIMING AND PRICING.

THE FINAL RESULT OF THIS CHANGE SHOULD ENABLE US TO MORECLOSELY MATCH OUR PRODUCT OFFERINGS/ACTIVITIES WITH EXISTINGAND FUTURE MARKET OPPORTUNITIES.


THE BUSINESS INTELLIGENCE RESULTING FROM THIS INTEGRATION OFSTRATEGIC PLANNING UNITS HAS PROVIDED A HIGHER CONFIDENCELEVEL, WHICH WILL HELP US TO IMPROVE OUR FINANCIAL PERFORMANCEIN THE NEAR AND LONGER TERM, AND OBTAIN ACCEPTABLE RETURNS ONREVENUE AND INVESTMENT.

CHART IIN THAT REGARD, THE FIRST CHART COMPARES THIS YEAR'S PLAN WITHLAST YEAR'S. THERE IS GOOD AND BAD IN THIS COMPARISON, AS YOUCAN SEE, BUT MOST IMPORTANT IS THAT WE ARE OUT-PERFORMING INACTUALS WHAT WE HAD IN LAST YEAR'S PLAN FOR 1977. ALTHOUGHTHE INDICATED PROFIT FOR 1977 IS SLIGHTLY LOWER, WE MUST REMEMBERTHAT THIS FORECAST IS OVER 3 MONTHS OLD. THE CURRENT UPSIDEPOTENTIAL FOR THE REMAINDER OF THE YEAR IN COMBINATION WITH1st HALF RESULTS IS MORE THAN ADEQUATE TO MAKE THAT UP.IN SPITE OF THE APPARENT DISCREPANCY ACROSS THE PROFIT LINE,BOTH OUR ACTUAL FINANCIAL PERFORMANCE AND FUTURE EXPECTED PERFORMANCE LOOKS BETTER NOW THAN IT DID AT THIS TIME LAST YEAR.ALTHOUGH REVENUE IS ESSENTIALLY IDENTICAL IN BOTH PLANS, THEASSETS INCLUDED THIS YEAR ARE $120 MILLION BELOW THOSE PLANNEDFOR 1977, AND ALMOST $200 MILLION BELOW THE 1979 LEVEL INCLUDEDIN LAST YEAR'S PLAN. AS A RESULT, THE ENTIRE BALANCE SHEET,BUT IN PARTICULAR, CASH FLOW, REFLECTS THE RECENT ATTENTION ONASSET MANAGEMENT.

CHART IIALTHOUGH PRIMARY EMPHASIS WAS SHIFTED TO OPERATING STATEMENTSTHIS YEAR', THE BALANCE SHEET WAS NOT NEGLECTED. AS YOU CANSEE, THE ENDING EQUITY INCREASE OVER THE PLANNING HORIZON IS


FROM $343.8 MILLION AT YEAR END '77 TO SOME $725.9 MILLION BYYEAR END '82. MORE IMPORTANT PERHAPS IS THE 1978 GOAL TOINCREASE EQUITY BY SOME $32 MILLION FROM 1977 PROJECTIONS ~THE GOAL WHICH WILL FORM THE BASIS FOR BUDGET GUIDELINES.

FOR PLANNING PURPOSES, DEBT HAS BEEN SEGREGATED INTO TWOCATEGORIES; CCC DEBT, AND OTHER OR EXTERNAL BANK DEBT. BY WAYOF REMINDER, CCC DEBT IS ASSOCIATED WITH REVENUE PRODUCING (GOOD)ASSETS SUCH AS LEASED AND DATA CENTER EQUIPMENT WHILE BANK DEBTCAN BE CATEGORIZED AND ASSOCIATED WITH NON-REVENUE PRODUCING ASSETSSUCH AS INVENTORY AND RECEIVABLES.

AS A RESULT OF CONTINUED ASSET MANAGEMENT AND EQUITY IMPROVEMENT,BOTH CCC AND BANK DEBT ARE DECREASING OVER THE PLANNING PERIOD.

THE INVESTMENT IN COMPUTER BASED EDUCATION CONTINUES TO REFLECTA SIGNIFICANT INCREASE IN CCC DEBT DURING THE 5-YEAR PLAN, HOWEVER,THIS INVESTMENT LEVEL IS SUBSTANTIALLY REDUCED FROM THAT INCLUDEDIN LAST YEAR'S PLAN.

ALTHOUGH THE STATISTIC IS NOT DISPLAYED AS SUCH ON THIS CHART,OVERALL DEBT TO EQUITY RATIO IS REDUCED BY MORE THAN HALF ~SOME 69% TO BE MORE PRECISE, FROM THAT LEVEL FORECAST FOR THISYEAR. TO SAVE COMPUTATION, THE NUMBERS ARE 1.69 AT YEAR END1977 TO 0.9 BY 1981 AND 0.5 BY 1982. IN COMPARISON, LASTYEAR'S PLAN WAS 1.87 IN 1977 AND ALSO 0.9 IN 1981.


SO FAR, WE ARE AHEAD OF LAST YEAR'S RATIOS, AT THE FROIfT Effl,FROM WHERE WE PLANNED TO BE LAST YEAR.

CHART IIIAS I INDICATED EARLIER, CASH FLOW IS SUBSTANTIALLY IMPROVEDFROM LAST YEAR'S PLAN, AND IN FACT IS POSITIVE OVER THE PLANNINGHORIZON. THE 1982 NUMBER AT ONE EflD OF THE SCALE IS NO DOUBTMORE TYPICAL OF A LONG RANGE PLAN, BUT THE rlEAR TERM NUMBERSARE FAIRLY HARD. IN FACT, 1977 RESULTS MAY EVEN BE PESSIMISTICGIVEN THE UPSIDE PROFIT IMPROVEMENT AND CO.TTini'ING ASSETIMPROVEMENTS.

ASSET ADDITIONS ARE PLANNED TO BE RELATIVELY MODEST IN 19771978 AND 1979, WITH A SOMEWHAT LARGER INCREASE IN 1980.REVENUE GROWTH AT THE TOP OF THE CHART IS ROUGHLY 112 COMPOUNDED ANNUALLY OVER THE PLANNING HORIZON - ABOUT THE SAMEAS IN LAST YEAR'S PLANS. HOWEVER, AGAIN, AT THE FROIiT END,THE '77 REVENUE GROWTH OF 8.'8X COMPARES TO THE 7.6X CALLEDFOR IN LAST YEAR'S PLAN.

THE 1978 PRE-TAX PROFIT COMMITMENT ON THE 1ZZ BUDGET BASIS IS$76 MILLION. ON A DIRECTLY COMPARABLE BASIS, THAT REPRESENTSAN INCREASE OVER 1977 OF MORE THAN 70%. AGAIN, THIS NUMBERWILL BE CHANGING BETWEEN NOW AND SEPTEMBER AS THE 1978 BUDGETBASIS IS INCLUDED.


CHART IVTHE NEXT CHART GRAPHICALLY SHOWS TECHNICAL EFFORT G&A AND OTHEREXPENSE DECREASING AS A PERCENT OF REVENUE. THIS PROFILE, FORALL SEGMENTS, OF EXPENSE IS VIRTUALLY UNCHANGED FROM THATPLANNED A YEAR AGO.

CHART VTHIS NEXT CHART SUMMARIZES THEN THE EFFECT OF ASSET AND EXPENSECONTROL PROGRAMS ALONG WITH MARKETING PROGRAMS FOR THE REVENUEGROWTH.

RETURN ON INVESTMENT ~ WHICH IS DEFINED HERE AS NET PROFIT '.".".BEFORE INTEREST AND TAXES DIVIDED BY AVERAGE ASSETS .".'.' RISESFROM 8.0% IN 1977 TO 19.8% IN 1982. AGAIN, PERHAPS MOST SIGNIFICANTIS THAT THE TRANSITION POINT TO BETTER PERFORMANCE IS UP FRONT IN1978, WHEN ROI IMPROVES BY MORE THAN 30% TO 10.6%. ANOTHER WAYTO CONSIDER THIS IS THAT 1978 WILL BE THE FIRST TIME SINCE THEMID-SIXTIES THAT WE WILL EARN MORE THAN THE COST OF MONEY.

IN 1980, THE PLANNED NPBT OF $166 MILLION WILL YIELD NPAT OFABOUT $78.0 MILLION DEPENDING ON THE EFFECTIVE TAX RATE ... THISWILL RESULT IN A 4% AFTER TAX RETURN ON REVENUE '.",".' SO EVEN THOUGHTHE PLANNED IMPROVEMENTS ARE SUBSTANTIAL AND AGGRESSIVE, THEABSOLUTE PERFORMANCE IS STILL RECOVERING. HOWEVER, ACHIEVEMENTOF THESE IMPROVEMENTS OVER THE NEXT THREE YEARS COULD PROVIDETHE MOMENTUM FOR US TO MOVE ON TO MORE ACCEPTABLE LEVELS OFPERFORMANCE.


CHART VITHE NEXT CHART REFLECTS THE FIVE-YEAR OUTLOOK FOR REVENUEAND PROFIT IN TERMS OF THE THREE MAJOR BUSINESS SEGMENTS ...SYSTEMS, SERVICES AND PERIPHERALS.

AS YOU CAN SEE, THE BASIC DIRECTION IN SYSTEMS IS TO BECOME INCREASINGLY PROFITABLE AT CURRENT BUSINESS VOLUMES. FOR 1978,PROFIT IS PLANNED TO ALMOST DOUBLE FROM $12.5 MILLION IN 1977TO $24.0 MILLION NEXT YEAR, WHILE REVENUE INCREASES BY ROUGHLY5% OR SOME $23 MILLION.

PERIPHERALS REVENUE GROWTH WILL APPROXIMATE 10% OVER THE PLAfKIhGHORIZON WHILE PROFITABILITY IMPROVES FROM $3.2 MILLION IN 1976 TO$22.1 MILLION PLANNED FOR 1978. IMPROVED ASSET RATIOS AND GROSSMARGINS ARE PLANNED THROUGH CONCENTRATION ON STANDARD PRODUCTSAND PRODUCT MODULES FOR BOTH INTERNAL AND EXTERNAL USE.

THE PRINCIPAL AREA OF STRATEGIC EMPHASIS FOR GROWTH REMAINS WITHSERVICES, AND THIS CHART DEMONSTRATES THIS VERY WELL. OVER THEPLANNING HORIZON, SERVICES REVENUE IS EXPECTED TO GROW AT ACOMPOUNDED GROWTH RATE OF 14%. IF WE CONSIDER OUR THREEHISTORIC BUSINESS SEGMENTS, YOU CAN SEE THAT WE HAVE PASSED THECROSS-OVER IN REVENUE VOLUME, SO THAT TODAY, SERVICES IS OURLARGEST, FASTEST GROWING BUSINESS SEGMENT.

CHART VIITHIS NEXT CHART AGAIN SHOWS THE EMPHASIS ON SERVICES GROWTHWHICH RESULTS IN A RELATIVELY HEAVIER INVESTMENT IN SERVICESASSETS.


FROM YEAR END 1977 TO YEAR END 1982 THE GROWTH IN ASSETS BREAKSDOWN AS FOLLOWS:

8.5% IN SYSTEMS23.1% IN PERIPHERALS, AND45.3% IN SERVICES

BEHIND THESE SUMMARIES OF COURSE ARE A FULL SET OF PLANS FOREACH BUSINESS ELEMENT AND GEOGRAPHICAL UNIT . '.' . AND BECAUSEOF TIMING AND THE SEPTEMBER REWORK I WON'T GO INTO THOSE TODAY.

THANK YOU.

dehIO


1978-1982 LONG RANGE STRATEGIC PLANCOMPARISON OF CURRENT LRSP TO PRIOR LRSP

COMPUTER GROUP

($ MILLIONS)

1800 —

1977NPBTFCST/PLAN

1978 1979

CURRENT

PRIOR

1446.6 1578.4 1770.8REVENUE:

1421.6 1591.9 1767.4^ CURRENT

PRIOR

43.3 76.0 112.2NPBT; 45.3 . 85.6 126.6

^ - CURRENT

PRIOR

1278.9 1318.4 1354.8ASSETS; 1397.0 1475.5 1547.1

- * -

CASH.FLOW*

CURRENT

PRIOR

(19.1) (5 .3 ) 15.2

(41.4) (40.0) (13.7)


1978-1982 LONG RANGE STRATEGIC PLANBALANCE SHEET SUMMARY

COMPUTER GROUP

($ MILLIONS)

ASSETS

TOTALLIABILITIES

TOTALINTEREST BEARINGDEBT

;

ENDING EQUITY

-L1976 1977

FCST.1978 1 9 7 9 1 9 8 0 1 9 8 1

STRATEGIC PLAN - - -

1982

ASSETS

NIBL

CCC DEBT

OTHER DEBTTOTAL LIAB.

BEG. EQUITY

END. EQUITY

TOTAL LIAB.& EQUITY

315.4

326.9

1240.8

326.9 343.8

343.8

1278.9

375.6

375.6, 424.3' 500.0f1318.4

601.5

424.31 500.0) 601.5 725.9

1354.8 1430. 1 1501.9} 1557.1


t rC- 1T?B - nfl2 LONG RANGE STRATEGIC PLAN.. . GROWTH HIGHLIGHTS

COMPUTER GROUP

REV* GROWTH X 8.8 9.1 12.2

1770.8

u r .B F " * ^

F

REVEMVE

1446.6

ii

1578.4

112.2KPBT ? * q 4 3 . 3

*Vb

ASSETS/REV. «86(8K7)

.87 62 .75

ASSETADDITIONS

38.1 39.5 36.4

i- — ■•

93.4

CASHFLOU

(19.1)

' 7 b

12.4

1989.8

10.6

2200.2

1i

i

i

10.02421.0

1* ' .3215.7

254.9

AO ' A l ' a e

.7075.3

.67

71.8

v

• 63

55.2

L_69.7

31.8

MUllJU2.9

>AQ #A1 'A a


V * 9-<7 0*5 S'S I#9 *7'9 8-9

£•£ S'S 9'S £#S 8*5 3-9 0*9

Z ' £ l 8*31 8 '31 I ' d 8-31 €'31 3*31

6 ' I 0#8 G*8 L '2 0-6 t7*6 1*6

29bT

— N V l d D I 9 3 1 V i U S H ' 1 S D J

T 9 b T D 9 b T b i b T 9 < L b T . i i b T

^ H 3 H I 0S IS3H3INI

V 9 0 - • S ^ .

TVOINHOai

ONIX35IHVH

83H10* 1S3831NI

V » 9

?NI13^VU1H0JJ3

1V3XNI0313HN3A32J 01 V.

■UbT

— O'l

— 0#C

_ 0*5

0"A

— 0*6

»— 0#II

rO'GT

3nN3A3a 01 5C - SISA1VNV 3SN3dX3diiottD aynidwou

S^OlVDIdNI 3DNVU^0JM.3d A3>NVld DI931VyiS 39NVU f?N01 59bT - 9£b.T


l^A - 1^2 LONG RANGE STRATEGIC PLANKEY PERFORHANCE INDICATORS

COMPUTER GROUPRATIOS

A/R / ALL OTHER

1.0/50.0

0.0/40.0

30.0

20.0

10.0 —*

ASSET/REVENUE

GROSS PROFIT% TO REVENUE

EXPENSE %TO REVENUE

ROI

, . . . - • * N P B T %TO REVENUE

■ I Il«57b 1 T ? 7

FCST

it? a

GROSS PROFIT'A TO REVENUE

EXPENSE'/. TO REVENUE

NPBTT"TO REVENUEASSET/REVENUE

ROI

36.0 H 37.3, | 38.

n ? ^ n a o n a iSTRATEGIC PLAN—

na2

34.1 H 34.3 || 33.7

u . . |.86

7 .4

3 .0

.87

8 .0

4 .8

.82

10.6

39.3

33.0

6.3

.75

12.9

40.1

31.7

8.4

.70

16.1

40.7

30.9

9 .8

.67

18.4

41.0

30.5

10.5

.63

19.8


NPBT/REV

1978-1982 LONG RANGE STRATEGIC PLANBUSINESS MIX CHANGE

COMPUTER GROUP

($ MILLIONS)

1000 —

900 —

800 _

700—

600—

500—

100/400-

75/300—

50/200—

25/100—

SERVICER ^ 'R E V E N U E * ^ * > . • • • * *

„ . . • • PERIPHERALS. . * • • • • * R E V E N U E ^ - * -

SYSTEMSREVENUE

SERVICES NPBT

tIPHERALSNPBT

SYSTEMSNPBT

REVENUE:

N.P.B.T. :

1976 1977FCST.

1978 1 9 7 9 1 9 8 0 1 9 8 1- - STRATEGIC PLAN

1982

SYSTEMS 429.1 416 .8 444 .9 493 .8 549 .8 592.0 634.9SERVICES 477.9 545 .1 595 .6 670.2 767 .7 870.5 985 .1

PER. PROD. 422 .5 484 .7 537 .9 606 .8 672 .3 737.7 801.0

TOTAL 1329.5 1446.6 1578.4 1770.8 1989.8 2200.2 2421.0

SYSTEMS 3.7 12.5 24.0 37.0 5 3 . 6 64.3 7 6 . 6

SERVICES 19.0 18.6 29.9 36.8 60.1 83.5 99.3

PER* PROD. 3.2 13.3 22.1 38.4 5 2 . 6 67.9 79.0

S&S ADM. ( 1 . 1 )

TOTAL 25.9 43. 3| 76 .0 112.2 166.3 215.7 254.9


1978-1982 LONG RANGE STRATEGIC PLANBUSINESS MIX CHANGE

COMPUTER GROUP

($ MILLIONS)

700 —

600 —

500 —

400

300

200 -

100 -

(100 ) -

SYSTEMS ASSETS

PERIPHERALSASSETS

\SERVICESASSETS

SYSTEMSCASH FLOW

SERVICESCASH FLOW

PERIPHERALSCASH FLOW

±

Y/E ASSETS:SYSTEMSSERVICES

PER. PROD.

TOTAL

CASH FLOW:SYSTEMSSERVICES

PER. PROD.

TOTAL

1976 1977FCST.

1978 1 9 7 9 1 9 8 0 1 9 8 1- - STRATEGIC PLAN

1982

593.0 547.8 554.7 551 .4 572.4 | 583.5 594 .2

245 .1 282.6 315.9 338.6 367.0 395 .7 410 .7

402 .7 448 .5 447 .8 464 .8 490 .7 522 .7 552.2

1240.8 1278.9 1318.4 1354.8 1430.1 1501.9 1557.1

103 .3 50.2 3.9 . 20.3 4.1 19.8 27.0

15.1 ( 2 9 . 3 ) (19 .9 ) ( 5 . 8 ) 0.0 11.4 33.5

( 2 5 . 0 ) ( 4 0 . 0 ) 10.7 0.7 ( 1 . 2 ) 0.6 .9.2

9 3 . 4 ( 1 9 . 1 ) ( 5 . 3 ) 15.2 2.9 3 1 . 8 69.7

i


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