It takes a dive into the detail to get the measure of Steria’s business performance in the UK. During FY11, organic (like-for-like revenue growth was just 0.8% (to £656.5m) – well below Atos’ 4.2% growth in the region, and Capgemini and Logica, which both reported 2.0% growth. Group revenue growth for Steria was 3.3% (like-for-like) to £1,747.7m.
According to our estimates, Steria derives just over half of its UK revenues from the public sector. And, remarkably, it looks like if it hadn’t been for its business with UK Government, Steria’s UK business would have been in decline. By our calculations, it appears that its private sector business declined by just over 2%, while UK public sector revenue growth was 3.6%. However, this growth appears to have been driven by one contract in particular: Steria’s NHS Shared Business Services JV with the Department of Health delivered 17.2% growth (compared to 12.5% growth in 2010). Extract that contract from the equation, and the rest of the public sector business was relatively flat. If we consider that Steria also added a fair few new contracts to its books during 2010 (which would have contributed to 2011 performance) – see UK public sector SITS supplier landscape 2011-12 - such as Cleveland Police Authority and Ministry of Justice, it follows that its other existing contracts must have really suffered as a result of the UK Government’s project reviews and contract renegotiations.
The Q4 results are also interesting, while Group revenues grew by 2.3%; the UK suffered an organic revenue decline of 2.2%. That is balanced with the good news that UK Q4 order entries increased by 8.2%, but that only succeeded in bringing the book-to-bill ratio to 1.0 by the end of the year. In addition, since the year end, Steria will have been disappointed to miss out to G4S on a major contract in one of its core UK public sector focus areas – police (see Lincolnshire Police signs £200m deal with G4S).
In terms of profits, the UK produced an operating margin rate well ahead of its peers at 10.6% (while its European SI peers – Capgemini, Logica and Atos – were in the 6-7% range). While at Group level, the adjusted operating margin (after amortisation of customer relationships recognised on the acquisition of Xansa) stood at 7.2%, compared to 6.8% in 2010. Steria continues to invest in “reinforcing its product portfolio and deploying high performance common tools” and states that the first effects are starting to emerge. In the UK, protecting its margins will be crucial as Steria’s performance is looking pretty precarious.