OVUM. Dominique Raviart
Since its acquisition of Integris (an important part of Bull Services) in 2002 Steria has improved its operating margin year after year from 3.1% in 2002 to 7.1% in 2006. The performance is not stellar but signals steady improvement in a market environment that from 2002 to 2004 was clearly not favourable. The performance is strong in its domestic market: revenues are up by 10.3% to €533 million and operating margin improved to 9.3% in 2006 (from 8.3%). This positions Steria as one of the most profitable players in France, ahead of Sopra, GFI, Atos Origin and Capgemini.
It is worth noting Steria's performance in infrastructure management, an area where it derives 9.5% in operating margin on revenues that reached €537 million in 2006 (up by 10%). The company puts this overall strong achievement down to three things. First, Steria carefully selected where it wanted to play in infrastructure management - it selected Microsoft and Unix technologies and turned its back on mainframe management where it felt competitive pressure was intense. Second, it recognised that client satisfaction would lead to contract extension which in turn enhances profitability. Thirdly, since the acquisition of Integris, the company has worked on industrialisation and consolidated datacentres.
Ironically, Steria's consulting and systems integration (including application management) operating margin at 7.2% in 2006 (up from 4.9% in 2005) is lower than in outsourcing. And this is where Steria has the most potential improvement with its German operations now back to full profitability in H2 of 2006, consulting driving margins up and Spain now back to profitability. Meanwhile, revenue growth (5.6%) in consulting and system integration was affected by the sale of a hardware business in Northern Europe. Excluding this sale, revenue growth reached 7% organically in this business unit. In other words, Steria grew in line with the market, despite the restructuring. With Steria building up its solution portfolio and its Nordic and Spanish subsidiaries now realigned and in better shape, we think the improvement story in project services is credible and likely.
In light of these solid but unexciting 2007 results, we look forward to 2007. In particular we will be monitoring the ambitions of Steria in low cost countries such as Morocco, Eastern Europe, Spain and India. We estimate that Steria wants to grow its Indian headcount to 800. Steria's reinvention process is hardly over.