There really was only one consistent theme in the performance of the major European SIs last year –and that was ‘UK down’! All of Atos Origin, Capgemini, Logica and Steria saw their UK revenues decline in 2010, and all but Logica also saw UK margins shrink. Indeed, in aggregate, these four SIs generated £3.7b in UK revenues, around 2-3% lower than in 2009.
Although all these SIs depend on the public sector for over half their UK revenues, this was not the full extent of the problem. For example, revenues in Logica’s UK Energy & Utilities business (15% of the total) grew by 4%; however, the rest of its private sector business (23% of the total) saw revenues decline in aggregate by 9%, steeper than the 6% decline in the public sector.
There is a greater sense of optimism among the players for 2011 in general which also extends to the UK. No one is thinking that the public sector spending flood gates are going to open again – indeed perhaps ever again – even though the ‘moratorium’ is over. Instead, many of the players are moving the focus of their public sector activities to areas where there is still likely to be spending growth, for example in local government (see UK Local Government SITS Supplier Landscape 2011).
The private sector will also be patchy, and players are narrowing their focus to those verticals and sub-verticals where they feel they can differentiate. The challenge here is that differentiation is going to depend more on what happens at the client ‘front-end’ i.e. ‘business consulting’, rather than the ‘back-end’, particularly ‘bog standard’ outsourcing. So, by the way, will revenue growth, as it is as the front-end where there is less pricing pressure.
All the players reported business recovery in Q4 last year and it seems that the pace is being maintained – though we will get a better sense when Q1 numbers come out next month. Personally, I am a little wary that what we are seeing is a ‘sigh of relief’ flush after a couple of years of little or no ‘discretionary’ spend. I suspect this may soften – though hopefully not peter out – in H2. Even so, the overriding market dynamic of ‘more for less’, and continued concern on UK GDP, will conspire to keep top line growth muted again this year – which in real terms (i.e. excluding inflation) will surely mean another year of ‘UK down’.