UK software house Misys is restructuring its banking systems business following a 25% decline in first half operating profits at the division.
In a statement Misys says operating profit at the banking unit fell to £15m, from £20m a year ago, principally as a result of contract deferrals and some additional costs. The vendor says operating margin in banking for the first half fell to 11%, well below historic trends.
The reorganisation will result in cost savings of £10m - £15m for the next fiscal year.
Misys had warned in September that group first-half earnings will decline significantly due to delayed payments from banking clients. Overall the group's pre-tax profit fell to £34.4m for the six months ended 30 November 2005, from £40.2m a year ago, while revenue rose to £481m from £437m a year ago. Analysts had expected the vendor to post a pre-tax profit of around £36m - £38m.
But revenues at the banking systems unit were 10% ahead of last year at £125m, while initial licence fees (ILF) order intake at £36m was 27% ahead of the prior year.
Misys says the growth in banks' IT budgets has stabilised at around five per cent. Geographically, strong demand has continued in developing markets such as China, South East Asia and Eastern Europe.
In order to accelerate growth at the division, Misys is merging its retail and wholesale banking operations into a single unit, called Core Banking.
Kevin Lomax, chairman, Misys, says customers are increasingly looking to centralise back office functions and are demanding technology that can support both retail and wholesale banking operations, particularly in the faster-growing developing markets.
"It is clear that there is significant scope to increase the efficiency of our banking operations and align them more closely with changes underway in our customer base," he says.
The merged unit will include the Almonde risk technology business acquired by Misys last July. However the vendor says its Risk Vision unit is no longer core to its business and it is considering "a range of possible strategic options" for the division.
Lomax told reporters that the restructuring would probably include "a small number of job losses".
Misys says the shortfall in profits at its banking systems division was offset by its healthcare unit which posted a 13% increase in operating profit to £23m.
Lomax told reporters that going forward the group would now focus on growing its healthcare and banking software businesses. The vendor says it is hoping to dispose of its financial support services business Sesame in the next six months but still has to gain regulatory approval.
Shares in the firm were down seven pence to 233.75 pence in mid-morning trading.