Steria UK update

(By Anthony Miller – Thursday 3rd September 2009 7:45am). I had a long chat with Steria UK CEO, John Torrie, yesterday about the results (see Steria, Sopra losing UK share). He was pretty pleased to have clawed back almost all the revenue gap from last year’s closing out of major contracts with the Learning & Skills Council and My Travel (see UK now leading Steria’s growth) but echoed the comments of his peers in the industry that trying to make up the ‘missing’ revenue is a huge challenge. At the same time, Steria is putting more work offshore as other contracts come up for renewal or extension, diluting top line growth – though benefiting margins.

Torrie is also in charge of Steria’s offshore and process industrialisation initiatives across the group. He told me they are well on the way to industrialising offshorable services such as application management, infrastructure management and testing. The next step will be to start shifting more of Steria’s non-UK work nearshore (Morocco) and to India. Indeed this will be crucial if Steria is to make the double-digit margins in France that Group CEO (and chairman) Francois Enaud has all but promised investors, though he didn’t give a timeframe. There’s a bit of a gap to make up, as Steria France’s margins are running at 6.6%, down 70bps yoy – but Enaud sounded confident!

I also asked Torrie about progress with the NHS SBS (Shared Business Services) JV, which for the first time made a profit, albeit just €200K. It’s approaching the 5th anniversary of (then Xansa’s) announcement of this landmark deal, and to be honest it should have washed its face well before now. So long as Steria can drive increased volumes through the service (and there’s lots of NHS bodies still ‘doing it for themselves’), then profitability should ramp. It’s a battle, though, as there is no mandate in the NHS to use the JV, which sounds a bit bonkers to us, especially in the light of today’s news that the government has rejected advice from McKinsey’s to cut the NHS workforce by 10%. Indeed, the Department of Health said many services needed more staff not less (and see 'More for Less' - even in the public sector?)! Torrie tells me that NHS units can save around 20% on average by moving their back-office to the NHS SBS platform – so what’s not to like?

SBS ought to have been – maybe still can be – the poster child for public sector shared services, supposedly a cornerstone in this (and future) government’s cost efficiency programmes. But, as ever, there is a gap between the theory and the practice. There are lessons that must be learned from SBS, and actions that must be taken, if a future government is going to take the shared services agenda further forward. You can be sure we will be writing much more on this topic.