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July 23, 2010

Three faces of ICT fortune in the new public sector disciplines

A tale of three very different sets of results this week that paint a very more complex picture of the state of overall health of the UK IT scene

By Cbr Rolling Blog

A tale of three very different sets of results this week that paint a very more complex picture of the state of overall health of the UK IT scene.

First out of the gate we had once almost comically troubled Cable & Wireless, which went from being one of the British Empire’s stalwart companies to a pretty fair telco in the 1990s to being, well, judge for yourself: it had to write off no less than £300m off its valuation in a few hours as it warned the City it would be severely impacted by the coalition government’s enforced crash diet in public sector ICT.

"Following the new government’s emergency budget in late June, non-contracted spending in the UK public sector has slowed very significantly," its chief executive had to tell a somewhat unforgiving Square Mile. "Given the nature of our public sector business, this reduction will adversely impact trading in the current year."

He then told them he expected a six-month hiatus on new public-sector contracts and they sold his firm’s shares off cheaper than signed Spice Girls CDs get on eBay.

Some "fairly significant" government spending programs have been delayed and additional projects suspended, said the firm, adding that the speed of the slowdown caught it off guard. (Incidentally, if you’re not up on the jargon, non-contracted spending is the extra 20% typically a supplier can expect to get above the basic face-value contract fee when signed upfront.)

Then a few days later, our friends at Capita tell us things are on the up and up. The BPO player reported very strong half year figures, with sales grew up 4% to £1.3bn and pre-tax profit climbing to £142m.

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In sharp contrast, Capita said it had major contract wins and renewals of over £500m in the first half of the year alone, and the company, which styles itself as the UK’s leading supplier of business processing outsourcing, says it expects the new regime’s attitude to public spending will only serve it even better going forward: "There is buoyant demand for outsourcing across both the private and public sectors, with the most active markets in our strong bid pipeline including local government and life," its chief executive Paul Pindar claimed in the company’s results release.

"Whilst the current pressures on public spending may potentially affect growth in the short term in a small number of our trading activities, the need for our public sector clients to achieve substantial cost efficiencies offers significant opportunities for the Group going forwards," he added.

Finally, we had IBM, which as a non-UK company may not strictly fit our template, but bear with us. Its second quarter as discussed this week as well showed a 5% up-tick on its US Federal government business, Australia’s pubsec was good for the IT giant – and the UK was up 11%.

That’s in the context of basically flat services business globally, note.

Things that I think are worthy of discussion from this data. 1) Some firms have been very dependent on a cheerful public sector ICT spending regime and may face some big shocks now the happy face has gone. 2) There is still vast opportunity in this market for canny players. 3) A question that we will only really see answered over the next 18 months; is the austerity diktat about no technology spend or a different sort of technology spend?

A final note – expect a lot more ‘it wuz Osborne who done it’ coming from bedraggled tech firm CFOs the next few months.

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