Multinational, multi-discipline recruitment firm Hays’ interim results confirm the picture painted in its January trading statement: strong growth from its international business and the UK private sector dragged down by the UK public sector market, which remains dismal. Overall, Hays’ net fee income (which equates to gross profit) for the six months to end December '10 was up 20% (before exceptionals) to £326.1m. Operating profit was 38% higher on the same basis at just over £52m. Asia Pacific was a strong engine for growth (+38% NFI), but Continental Europe and RoW also saw a 33% increase in net fees (led by Germany at +38%).

In contrast, in the UK and Ireland net fees increased by just 1% to £123m, and operating profit declined by 66% to just £2.1m. As a result, 62% of Group net fees are now generated outside the UK, up from 54% last year. The net fee stability in the UK masks strong growth in the private sector (+27% NFI) but much tougher conditions in the public sector, which saw NFI drop by 36% in the period. The recovery in the private sector appears broad-based with notable growth from Hays’ IT as well as Accountancy & Finance and other City-related businesses.

Hays is doing what it can to mitigate the declines in the public sector, which now accounts for 26% of UK net fees and 9% of group net fees. Consultant headcount in the UK & Ireland decreased by 7% in the half because of the difficult public sector market, whereas investment continues in the International business, which saw a 13% increase in consultant headcount in the period. With the UK public sector staffing market set to remain challenging in the months ahead, Hays will be glad of its broad geographic and sector spread. Indeed, CE Alistair Cox believes “the business is well placed to capitalise on the excellent long term structural growth prospects ahead.”

It looks like we called it right last year (see here) - E.ON’s outsourcing of its IT to HP was indeed a sign of more things to come from the energy sector. Centrica (British Gas) has now also signed up HP in a $400m (£250m) seven-year data centre migration, that will see the energy & utility company move its IT infrastructure, applications and services over to two HP data centres in the UK, including its flagship air-cooled centre in Wynyard. IT support will be provided out of HP’s offshore delivery centres in India, Malaysia and the Philippines.

HP will provide services to Centrica on a private cloud basis – in other words hosted infrastructure, software and services for Centrica alone, delivered as a utility. HP’s cloud strategy is to move clients on to its hybrid model, where it can also offer its own products and those from third parties to multiple clients, on a ‘public cloud’ basis.

As we pointed out in our report UK Business Process Services: Spotting the opportunities, the energy & utilities sector is one we expect to show opportunities for suppliers in 2011 through investments in IT transformation and billing in preparation for smart metering rollouts. Suppliers like Logica, Atos Origin, Steria and Capgemini are already designing and installing smart metering systems for first movers such as OnStream (part of the UK’s National Grid), BC Hydro (Canada), ERDF (France) and EDF (France). Smart meters will collect a huge amount of additional data and information on customers and energy usage, which suppliers will seek assistance in managing. So the next step, and potentially the big prize, will be taking on the management of the infrastructure and administration of billing and metering for these companies.

There’s no doubt that CEO Andy Green’s ambition to move Logica’s ‘adjusted’ operating margin into double digits in the medium term  is a fine and noble cause (see Logica UK yet to claw back share). Indeed, to do so could start to put Logica on a similar footing with Accenture which, at 13-14% margins, is surely the gold standard for a (non-Indian) global IT services pure-play.

But could this merely be a pipedream?

In our latest CompanyViews note, we take a slightly deeper look at the challenges facing Logica’s march towards 'margin Nirvana', and offer some thoughts as to how they might be surmounted – with clear lessons for other players in the pan-European IT services marketplace.

TechMarketView Foundation Service subscribers can download Logica’s margin challenge here. Others can dash off an email to our Puni Rajah (prajah@techmarketview.com) to find out how!

I guess if there’s one lesson UK-headquartered recruitment firms have learned in recent years, it is to get out of the UK! Today’s results from Robert Walters reinforce the point made by Hays yesterday (see Hays reports strong growth despite tough UK public sector) and SThree earlier this year (see SThree still seeking the new normal) that growth markets lie beyond our fair shores. Indeed, almost half of Robert Walters’ gross profit and 85% of its operating profit derives from its activities in the Asia/Pacific region.

Across the group, 2010 revenues rose by 34% at constant currency to £424m, with operating margins at 3.1% (2009: 0.5%). CEO Robert Walters reported ‘satisfactory’ performance in the UK (37% of revs, 29% of GP), with IT highlighted as one of the star areas.

Holy moly! Can it really be true? Has Ordina CEO, Ronald Kasteel, finally seen a glimmer of light? Here we are, at the start of the twelfth year of the millennium, and Ordina has only just investigated “whether we can set up or acquire our own nearshore facility. A final decision will be made in 2011”. Nearshore, note, not offshore. Because offshore delivery is provided by its relationship with Cognizant, which probably still can’t believe its luck to be invited ride on Ordina’s coat-tails at Rabo Bank.

Meanwhile, Kasteel’s ‘confidence’ in 2010 (see Ordina hoping for a year more ordinary) was soundly dashed. Revenues (excluding disposals) dropped by 15% to €456m – a decline rather worse than the Netherlands operations of its larger European peers. And, as expected (see Ordina returns to red), Ordina finished the year with losses at operating, pre-tax and net levels.

Despite the recovery in its sole Netherlands market, without any low-cost delivery of its own, Ordina is competing with one hand securely tied behind its back. With the Dutch public sector (47% of revenues) seemingly in as much turmoil as ours, a recovering financial services sector (27% of revenues) still highly price conscious, and competitors from all nations fixated on winning share, we fear that Kasteel’s encouraging noises about 2011 will quickly become muted.

Support services and BPO giant Serco has had a strong FY10 despite the challenging conditions in the UK public sector market. It’s benefited both from a string of contracts signed in 2009 and a growing international business (40% of revenues now come from outside the UK). Total revenue is up 9% organically (7.6% at constant currency) on the previous year at £4.3bn and operating profit climbed 13.8% to £241m as Serco moves closer to its 2012 target for operating margins of 6.3%.

UK revenue grew 2% to £2.58bn as good momentum from wins in 2009, which drove growth particularly in Serco’s civil government markets, was countered by the effects of austerity measures notably in defence and local government.

Of course it is Serco’s IT and business process services business that we’re most interested in and teasing clues to its performance out from 61 pages of results isn’t always easy. The UK and European IT and BPO business now sits within Serco’s Local Government and Commercial division, which grew by 5.5% last year to £854m, or 20% of Group revenue. Growth was driven by a range of 2009 contract wins including deals to deliver the European Space Agency and Peterborough City Council’s ICT services. Serco also had some notable contract successes in the sector in 2010 including its £200m/8-year strategic partnership with Hertfordshire County Council, which starts in April this year (see Serco takes over from Vertex at Hertfordshire).

Serco is likely to find 2011 more of a challenge in the UK as its ‘Maude moment’ MOU with the Cabinet Office delivers savings on a number of contracts (see here) and it feels the effect of the cancellation of a prison contract and the phasing out of its Business Link contracts pending developments in public service reform. Indeed, its order book was down about 3% on the previous year to £16.6bn at the end of December ’10 as a result of these ‘headwinds’ in the UK public sector. Longer term, however, there will undoubtedly be opportunities for the support services player which is well placed to deliver more public sector services – whether that be pathology or prison services -as the government looks to commission more from the private or third sectors.

Moreover, as a group, Serco is fortunate to have excellent visibility on revenues – 92% of planned revenue in 2011 and 77% for 2012 - and a substantial £29bn pipeline. It continues to expect good organic revenue growth in 2011 and claims to be on target for £5bn of revenue and 6.3% adjusted operating margin by the end of 2012.

Martin Leuw has announced his resignation as CEO of IRIS after 10 years in the post. Nick Discombe steps up from being an NED to the role of Chairman. I understand no Group CEO will be appointed. Instead, IRIS is to be separated into two businesses.

-IRIS Accountancy Solutions (IAS) where Phill Robinson (who some of you will know from Salesforce.com) steps up from MD to CEO. We guess revenues here at c£40m.

-IRIS Software Group (ISG) c£80m revenues. A search is on to find a new CEO.

I spoke to both Martin and Nick earlier today. Martin and the company give the usual resignation reasons of ‘pursuing other business interests etc.’ But I sense it’s more “a time for a change” for both parties.

For the background to this and what might - indeed needs to -happen next at Iris, TechMarketView's Foundation Service subscribers can read our full analysis in HotViewsExtra.

There is yet more evidence of consolidation in the UK health and social care IT space today with news that Ascribe, which was taken private in an ECI-backed MBO in 2009, is buying 21C. 21C is a small provider of business intelligence (BI) solutions to health and social care organisations in the UK, particularly in primary and community care. 21C is too small to have to file full accounts with Companies House, so all we really know about its finances is that its turnover was less than £2m last year. The terms of the deal were not disclosed.

This looks like a canny move by Ascribe, which plans to combine 21C with the WCI Healthcare business that it acquired in 2008 (see the UKHotViews archive) to create a new Consulting division. As we highlighted in reports such as ‘UK Public Sector SITS Market Trends and Forecasts 2010’, BI is a hot area in UK healthcare at the moment with public sector healthcare organisations struggling both to control their costs and improve clinical outcomes. The reorganisation of the NHS, which gives GP Consortia the power to commission care, is only going to increase the need for good management information in primary and community care.

As we wait in anticipation for the details from the iPad2 launch later tonight, there is news that the BBC will launch an international edition of the wondrous iPlayer for the iPad App. See my Thumbs up for the iPlayer for the iPad. I gather I am not alone in my love affair with this App. Mark Thompson (BBC’s DG) said that growth of the use of the iPlayer on the iPad and smartphones outstripped PC use since the App was launched.

But, so far, you can only use the iPlayer App in the UK. There is a huge audience waiting overseas from expats through to travellers (like me) wanting to experience their BBC TV and Radio via Holway’s Martini Moment “Anytime, Anyplace and on Any Device”. Thompson has announced that an international iPlayer app will be made available before the year is out for “less than $10 pm”. Interestingly, even if it was the max $10pm, that’s only £73 a year and about half the BBC licence fee in the UK! Mind you, this is all extra revenue for the BBC.

Of course, it is not just current programming that will be available. The BBC is constantly increasing the archive material available. This week it announced that the last 500 episodes of Desert Island Discs would be available. Another of my favourite programmes – if only I can find the time to listen to it!

I have a feeling the BBC will have another hit on their hands – certainly in the Holway household. The current App is currently #1 in Apple’s charts.

Perhaps the best bit of the iPad2 launch tonight was seeing Steve Jobs on stage. He said it was something he just couldn’t miss. And I (and the US stock market which marked Apple up just on his appearance!) was very pleased he was there.

Given the number of instant reviews on the blogosphere already, you will probably know all the details before you read HotViews. Personally I think it hit all the right buttons (not that it has any!) A third thinner, 0.2 pounds lighter, 9xfaster graphics, 2xCPUs, front and rear cameras, gyroscope. Same battery life and same price as the iPad1. Love the fact that iMovie now works on the iPad – oh how much more time I will waste on holiday now! Also loved the new Apple case – although I’m sure every accessory manufacturer groaned when that was announced! Also liked the new feature whereby you can turn your iPhone (Jobs announced that the 100millionth iPhone had now been sold…) into a WiFi hub to hook up your iPad (and other stuff)

Observers seem to say it’s an ‘evolution not a revolution’. But that’s fine with me. iPad1 was pretty stellar and iPad2 has just about all the features that I expected it to have – and then some. Other analysts talk of the reducing market share of the iPad. Well, that’s a bit rich as it’s a bit difficult to maintain a near 100% marketshare! Apple apparently makes 50% of all the smartphone profits and I would suspect they would be happy to make that claim in the tablet market in a few years time. Whatever people say, everyone continues to play ‘catch up’ with Apple. A Microsoft-based tablet isn’t even due until 2012 by which time Apple will probably be on iPad4.

My only problem is having to wait until 26^th March to get one.

It’s very clear that the Energy & Utilities sector is hot, hot, hot just now. Barely had HP inked a $400m deal with Centrica (see HP powers $400m cloud deal with Centrica), than Capgemini signed a £100m IT support services deal with EDF Energy, the UK arm of France-based EDF Group. EDF has been a long standing customer of Capgemini in France, most recently (July 2009) taking on application management associated with EDF’s nuclear power generation facilities. Capgemini derives almost 11% of its worldwide €8.7b revenues from the Energy, Utilities & Chemicals sector, though it was this segment that took the biggest hit in 2010, with revenues down by over 16%.

In contrast, ‘our very own’ Logica depends on the E&U sector for 17% of its worldwide £3.7b revenues (-3%) and 15% of its £709m UK revenues (+4%). I have been consistently impressed with Logica’s propositions in this sector (e.g. see Logica explains Smart Metering for Dummies) and the calibre of its people. The battles lines are being drawn around smart metering and other ‘green’ energy initiatives, with huge potential rewards for those that win the big roll-outs.

We don't deal in rumours but the papers today are full of talks of a bid for Micro Focus as an explanation (or the cause of?) the near 10% 'recovery' in their share price yesterday. SAP and IBM are mentioned.

You can read our views on Micro Focus, and the rather sorry tale of multiple profit warnings, starting at Micro Focus fails to answer our one big question and working back. Apart from being a long term shareholder in Micro Focus, I actually have a bit of a soft spot for them as one of a very small (and ever dwindling) band of reasonably-sized UK HQed software companies. I just happen to believe that where you are HQed matters as you tend to concentrate your management, R&D, advisers, stock quote, (even research analysts!)  etc there too. Micro Focus was good for Newbury and the UK. I can see all these moving away should these rumours be true.

I also rate both Nigel Clifford and Mike Philips - the new CEO and CFO respectively. I had rather hoped they may be given the opportunity to 'prove their mettle'. Indeed I agree with George O'Connor (Panmure Gordon) in his morning note "We sorely want Micro Focus to do well operationally – the team is there – the new products are there – - the sales model is there - the demand environment is there – let’s fire up the Quattro and build up that pipeline".

Short of actually calling prior management complete and utter rubbish, Parity ‘encore’ top team, Philip Swinstead and Paul Davies, yet again laid bare all the sins of the past and listed all the painful remedies. There was nothing they could do to completely staunch the bleeding before year-end so, as presaged (see Parity buckles down for difficult H2), Parity ended the year (to 31^st Dec.) nursing operating, pre-tax and net losses on revenues 22% lower (£93m).

And, also as previously announced, the business of two halves has become a business of three. Swinstead and Davies have dissected the already sub-scale (£15m, down 20%) Solutions business into a (hopefully) less risky project services business (Parity Systems), and a new ‘talent management’ division. I still haven’t quite got my ahead around the latter, but it seems to have more to do with recruitment (Parity’s real knitting and the only part of the business actually making money) than projects, but there you go.

And this, for me, is still the nub of the matter. I truly struggle to see how Parity’s projects business can ever achieve scale and sufficient profitability, despite having broken even in Q4. I would think if management can knock it into some sort of consistently profitable shape they should be able to job it out to a more suitable home, and it is possibly with this thought in mind that the market had been marking up Parity’s stock over the past few months. However, today’s news has so far inspired a 10% share price hit, down to 22.5p, nonetheless still over double the price in early December but a third down on its February 34p peak.

Joanna Shields, who heads Facebook EMEA, has disclosed that they now have 30m UK users. That's an amazing three quarters of all the UK population with an internet account. Over half of all Facebook's UK users check in at least once per day. See StrategyEye Facebook hits 30m UK users.

Following yesterday’s announcement that System C Healthcare was in talks with a potential suitor (see System C shares soar on bid talks), shareholders didn’t have to “sit tight” long for an update. This morning, the company has confirmed that US healthcare giant McKesson – via a newly formed subsidiary McKesson UK – has made a cash offer for System C. The offer of 70 pence per share values System C at £87 million and represents a 50.5% premium over the closing price on Monday (the day before the offer talks were announced).

McKesson is already a top ten ranking player in the UK healthcare market (see UK healthcare supplier IT landscape 2010), with revenues totalling about £90 million from the sector. Having entered the UK healthcare market in 1999, it has a strong track record. In particular, it has benefited from a major Electronic Staff Records project to develop a centralised national HR system for the NHS in England & Wales, and a growing outsourced HR and payroll IT shared services business for the NHS.

However, McKesson’s indecision over its approach to the UK healthcare application market has put it at a disadvantage. The company has a legacy hospital Patient Administration System (PAS) business, but following the appointment of iSoft and Cerner to provide PAS systems under the National Programme for IT (NPfIT), the company decided to pull out of the PAS market. In hindsight (it’s a wonderful thing!), the decision was the wrong one, as the Department of Health’s decision to release NHS Trusts from their central procurement obligations has now opened up the market for other vendors to provide PAS and clinical systems. McKesson has a modern product built for the US market (its Paragon Hospital Information system) and, we understand, the intention was to tailor the system for the UK market. However, it appears that McKesson’s management team have seen an opportunity to acquire a new, technically advanced, PAS system, by bringing System C on board.

There are other advantages for McKesson. For example, as we mentioned yesterday, System C has a presence in social care thanks to its acquisition of LiquidLogic last year, which will give McKesson a head start in capitalising on the government’s plans to more closely integrate health and social care provision in England. In addition, despite the recent declines in its services revenues due to delays in the NPfIT deployments, System C's services business could well be beneficial to McKesson in serving a healthcare market which is looking for improved integration amongst its organisations.

Should the acquisition go ahead (and it looks like the shareholder support is there) System C, which has total revenues of £38.3 million, will become part of a $108 billion revenue international giant. However, in the UK, where McKesson’s revenues are not much more than twice its own, System C shouldn’t be in danger of being ‘swallowed up’. Indeed, System C should benefit from the financial strength and reputation of its new parent. The rationale behind the acquisition appears sound.

To follow up our comment Micro Focus bid? earlier today, it has just been announced by the LSE that Mike Phillips' wife has bought 29,139 shares. I am absolutely certain that this would not have happened if there had been any bid talks going on. Phillips, as CFO, would have almost certainly been aware of such talks and would never have allowed his wife to make such a purchase.

So I think we can put paid to the bid rumours...for now anyway!

This week the Institute of Government, “an independent charity with cross-party and Whitehall governance working to increase government effectiveness”, published a report entitled ‘System Error: Fixing the flaws in Government IT’. The Cabinet Office has communicated its support for the recommendations in the publication with UK Government COO, Ian Watmore, speaking at the official launch. TechMarketView subscribers can read our views on the report in HotViews Extra.

(Updated) Capita has acquired Talis Information Ltd, the library management system division of Birmingham Based Talis. Capita is paying up to £21m for TIL, which turned over £7m last year at a 50% (!) operating margin. This looks like another useful addition to Capita’s burgeoning local government software products portfolio (yes, folks, it’s not just about BPO).

The acquisition leaves Talis as a business of two halves: an ERP-type system for education institutions; and a SaaS-based development platform for web data management. Suggestions as to what Talis should do next, on postcards only, please, to …

Overseas, that is! It’s only been a few weeks since ITSA (IT staff agency)-cum-international recruitment firm, SThree, reported it’s FY results (see SThree still seeking the new normal). But the messages in its Q1 trading update (to end-Feb) are uniformly positive, notably so outside of the UK. Group gross profit is up 19% to £42m, but of this, non-UK GP rose by 24%, twice the rate of UK GP. As a result, non-UK GP now represents 63% of the total (FY10: 60%). This is a phenomenon other recruitment players are seeing too, most recently Robert Walters (see Robert Walters profits in Asia/Pacific) and clearly points the direction UK recruitment firms need to be travelling – quite literally!

Now back in public life on AIM (see here), Instem Life Science Systems has made its maiden acquisition, that of Cambridge-based healthcare R&D business intelligence firm, BioWisdom. Instem will pay up to £1.5m in cash, debt and shares for BioWisdom, which turned over £1.55m last year at a 24% EBITA margin. Instem reports its maiden FY results later in the month, but were last seen heading towards revenues of £10m, though operating margin at half-time was only around 7%. Instem’s shares have done well since the 175p float, and now sit at 220p.

R&D business intelligence seems to be an interesting hot-spot, indeed one that privately held IDBS has been profiting from for quite a while (see Onwards and upwards for IDBS). And do watch out for our soon-to-be-published report on the UK Healthcare software and IT services landscape – though of course you will need to subscribe to our highly regarded PublicSectorViews research programme to get your hands on it!