IT services companies struggle in UK
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Logica, Steria and Cognizant all saw UK revenues shrink in their most recent financial quarters
Three major IT services companies have reported their most recent set of financial results this week, and all three saw revenues in the UK decline.
Although not the only reason for these declines, it was clear that the UK government’s spending cuts have taken their toll on the IT services sector.
UK-based Logica saw revenues in its home market fall 4% in the first quarter of the financial year, down to £179 million.
The company said this decline reflected the steep drop in UK public sector IT spending. Logica’s UK public sector business grew 5% in the first quarter of 2010, but shrank by 9% in the same period of this year.
UK revenues are expected to return to growth, however, thanks to some recently announced contract wins including Shell and the Serious Organised Crime Agency (SOCA).
French-owned Steria, whose UK customers include a number of government bodies as well as businesses, saw UK sales fall by 3.3% to €164 million in the first quarter of 2011. (Revenues from SBS, the company’s joint venture with the NHS, are not included in its group sales figures).
The company said this drop was partially explained by "one-off equipment sales in the first quarter of 2010 as part of the services provided to the Ministry of Justice" and subsequent currency fluctuations.
Steria also said it expects UK revenues to return to growth in the next quarter, and that it has recently signed new contracts with government suppliers including "the Financial Services Authority, Ministry of Justice, Ministry of Defence, National Health Service and Blaby District Council, amongst others".
Overall, Steria’s revenues grew 1.3% to €429 million.
Thirdly Cognizant, the US-headquartered Indian IT services company, saw UK revenues fall by 3.5%.
Chief financial officer Gordon Coburn said that “a good chunk of that was the ramp down of a couple of clients where we're doing M&A work”. However, he conceded that the “UK [economy] is softer than the continent,” and that “massive cuts in the UK budget” had made an impact.
Cognizant’s UK dip did little to take the shine off its overall growth. Revenues for the first quarter of 2011 grew 42.9% year-on-year to reach $1.37 billion. It looks likely that Cognizant will soon become the third largest Indian IT services provider, overtaking Wipro, whose IT services revenues were $1.40 billion in its most recent quarter, a 20% increase from the prior year.
A recent report from analyist and advisory TPI that outsourcing activity in Europe, the Middle East and Africa was strong in the first quarter of the year, even as the global market waivered. It seems from these results, though, that this trend did not apply to the UK.
In related news, US IT services giant CSC warned investors that it will not be as profitable as hoped this year, after reaching new a 'memorandum of understanding' (MoU) with the NHS.
CSC is responsible for the delivery of the much-delayed Lorenzo care records system, part of the controversial NPfIT programme. Last month it acquired iSoft, its software partner on the product, shortly after it admitted that the project would be delayed yet further.
