Thursday, 1 October 2009

Tessella profits from science

(By Tola Sargeant, 14:00, Thursday 1st October 2009) UK-based, privately owned ‘technology and consulting’ firm Tessella may not be a household name, but it is quietly growing and making a name for itself among its blue-chip clients.

In its last fiscal year, to 31 March ’09, it grew an impressive 21% organically recording a turnover of £17.4m. In fact, in the last three years it has nearly doubled in size, almost all organically. We also understand it is comfortably profitable - more so than its £871k published operating profit would suggest because a large chunk of the profits go to remunerate the founder.

Tessella is a firm of scientists – 60% of its employees hold PhDs – and, according to Director Alan Gaby, its USP is operating ‘where science and/or complexity meet IT’. The company, which celebrates its 30th birthday next year, is known for bespoke software development. But Tessella is also building a consulting proposition that ‘provides the glue between business, IT and science’.

That all sounds impressive, but what does it actually do? To answer that question properly you really need to look at specific examples of its work, which, though varied, all have science and IT at their heart. So, for example, it has developed software for train operating companies that reports back from the train on how equipment is degrading; it has worked on fire and explosives modelling for Shell, BP and the MoD; and it has developed software that helps to improve the decision making process in clinical drug trials.

Despite its varied work, the company’s strategy is clear: to focus on growing business in its four chosen verticals and further penetrate accounts it already has, not least by offering consulting. The four vertical sectors that Tessella operates in are loosely defined as Public Sector (including Space and Defence), Life Sciences, Commercial (with clients like ICI, Procter & Gamble & Unilever) and Energy (comprising Oil & Gas and Nuclear). The largest share of its revenue comes from Public Sector (44%) followed by Life Sciences (32%). Geographically, some two-thirds of its revenue is derived in the UK with the rest coming from operations in Holland and the US.

Tessella won’t repeat its stellar growth from last year in FY10, but it is still on track to grow slightly, which isn’t bad in the current climate. Gaby sees the most potential for growth in the energy and transport sectors in the UK; demand in defence has already weakened in the face of budget cuts. 2010 could also see Tessella make a small acquisition. It is currently on the lookout for a services company in the public sector market with a turnover of £1-5m and, importantly, a good cultural fit. That doesn’t sound like a particularly easy task to us!

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