The first line of Steria’s H1 results statement appeared to be setting us up for a disappointing set of results. Perhaps though, it was a clever psychological trick, because after lowering expectations, the like-for-like Group revenue growth of 3.3% to €865.1m was a pleasant surprise. And indeed is better than the other European SIs reporting last week: Capgemini’s like-for-like growth was reported at 2.3% (see Capgemini increasingly confident on outlook) while Atos only managed 1.4% at Group level.
Though the geographic performance was mixed, Steria’s key geographies - France and the UK - which between them make up 72% of total revenues were the best performers, with organic growth of 9.3% and 3.6% respectively. Germany and the ‘Rest of Europe’ didn’t fare so well with declines of -6.0% and -7.2% respectively. The geographic performance was a stark contrast to Atos (see Atos UK in the ascendancy), which grew revenues in Germany by 6.2% but shrank in France.
The UK performance is particularly heartening considering Steria’s strong public sector slant (more than 50% of the UK business). Indeed, it seems that the public sector was the saviour in H1 with 8% growth (thus private sector was on the decline). The growth appears to have come from increased activity with three key clients: MoD (logistics contract), Ministry of Justice (shared services implementation) and NHS (Shared Business Services – “double digit growth”). One of the stand-out growth rates in the UK was in infrastructure management, which grew by a whopping 20%. Mind you, that means that we can assume a pretty dismal performance in the SI & consulting business.
The operating margin in the UK stood at 8.4% vs. 9.1% in H111 (Group level decline was from 6.1% to 5.1%). At Group level the decline in operating margin was put down to pricing pressure and the “inter contract rate” i.e. a decline in the utilisation rate, or an increase in billable employees on the bench. By putting a cost savings project in place across the Group, the aim is to save between €15m and €18m. As a result, Steria believes it can achieve an operating margin rate above 6% for the full year on like-for-like revenue growth of between 2% and 3%. In the UK, it looks like much of the H112 revenue gain came from a few large clients. The underlying business looks like it continues to struggle in the “deteriorating environment”. We will be interested to learn more from the UK management team in due course.