UK now leading Steria’s growth

(By Anthony Miller). After clawing back the revenue gap from the closing out of major contracts with the Learning & Skills Council and My Travel, Steria’s UK business turned in the fastest growth in the group in Q408, at 2.6% on a constant currency (ccy) basis. Steria’s home French market grew 0.7% in the last quarter but German revenues fell 3.2% ccy. The UK is Steria’s largest market, with 42% of the group’s €1.77bn 2008 revenues, though the 1H08 ‘drag’ set UK revenues back 1.3% ccy over the year, to reach £590m. Steria’s managed service and BPO services grew 1.5% ccy at group level vs 0.6% growth in consulting & systems integration.

I spoke to Steria UK MD, John Torrie, this morning, and it’s clear that the Xansa acquisition is really helping to push the UK business forwards. OK, it took a year or so to bed down, but towards the end of last year they picked up a new BPO contract with Whitbread and an extension to a BPO deal with O2, both with high offshore content. With some 5,000 staff in India, Steria now has over 25% of its group workforce offshore, but this looks more like 60%+ for Steria’s UK business as currently almost all the offshore delivery is for the UK market.

Notably, some 30% of Steria’s landmark BPO contract with the NHS is delivered offshore, which is likely to rise to 40% over time. This illustrates rather well the basic conundrum in UK government’s attitude to offshore services – how to balance ‘best value’ delivery with ‘British jobs for British workers’. On that basis we can’t help thinking that UK-based players with offshore ‘back-ends’ will look a more politically attractive option to the public sector than Indian ‘pure-plays’. Having said that, whether the Government considers Steria UK, or for that matter, IBM UK, Accenture, UK, HP/EDS UK, etc as ‘UK-based businesses’ is yet another confusing aspect of the conundrum.

Like every other CEO we have spoken to, Torrie is seeing opportunities “galloping to the right”, as spending decisions get delayed But he sees just as big a challenge in getting better 'leverage' within the Steria Group. In our view, Steria is still very much a federation of country-based IT services businesses now trying to ‘work as one’. The ‘old hands’ such as IBM, Accenture and EDS, have been doing this for years (sort of), but Steria – and indeed ‘our very own' Logica – are really only just starting down this path. Everyone knows (or should know) that IT services ‘propositions’ that work in one country market won’t necessarily work in another. Therefore the key to ‘leverage’ is more about process industrialisation, using common tools and systems, than trying to raise the same flag up each country’s flagpole. Torrie knows this and we think he has an ‘interesting’ challenge to get the message accepted and acted upon by group management as it is in fact he who has been tagged for just this task by Steria’s board!