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Could this be an opportunity for growth in these uncertain times?
In support services we really are ahead of the curve. Not only does the UK public sector spend 5.6% of its GDP on outsourced services, (ahead of the US at 5.3%, France at 2.9% and Spain at 2.7%), we were the first to embrace PFI and a series of ‘next generation’ contract structures. These contracts are now gaining ground elsewhere in the developed world as well as the Middle East (where Serco won the first PFI in the region – a 50% share in a 30 year US$700m contract).
Proof that UK PLC is in a position to transfer home grown skills and experience to win abroad.
Is this all about the Middle East?
Actually no. Although the Middle East has been an engine for growth for a number of companies in the sector (WS Atkins – see below – and Carillion in particular) there are clear opportunities in countries less dependent on the price of oil.
For example the US - with the recently passed stimulus package including nearly $140bn worth of education, energy and transport infrastructure investment - represents a huge opportunity.
Is this just growth over quality?
We think not. Crunching the data from our last round of sector results, we see that as well as faster growth, average EBIT margins on international work are slightly higher across the sector than for domestic work. Either way the message is positive.
UK pacesetters
We have put some case studies below showing examples of UK companies leading the charge. It is deliberately a mix both of services and regions, but all have a positive story to tell. Of course every argument has an exception to prove the rule. Capita, arguably the UK’s leading support services firm, has yet to earn a penny abroad! (apparently)
WS Atkins - Consulting
International vital statistics:
Revenue: £286m; % all revenue: 22%; Growth: 27%
Area of international focus:
- Middle East, £128m revenue, 9% of total
- Design consulting on landmark infrastructure and building
They say:
"Working across multiple markets gives us robust underlying performance – we will focus on those markets that are attractive and are aligned with the Group’s strategy." Keith Clarke, Chief Executive
We say:
Went up fast in the boom and likely to come off a bit now. A good long term bet.
Serco - BPO
International vital statistics:
Revenue: £789m; % all revenue: 24%; Growth: 15%
Area of international focus:
- North America, £370m, 12% of total
- Logistics, anti-terrorism systems
They say:
"Our strong capabilities mean that we are well positioned to leverage our expertise through exporting proven models to new areas." 2008 Preliminary Results
We say:
In the past has dotted the map a little too freely. A coherent and convincing international strategy now emerging.
Balfour Beatty - Construction
International vital statistics:
Revenue: £3,415m; % all revenue: 36%; Growth: 46%
Area of international focus:
- N. America, £2,277m revenue, 24% of total
- Military housing and general building
They say:
"Balfour Beatty Construction US has performed ahead of our expectations... We will also develop major regional businesses from strong existing bases in South-East Asia, the Gulf and Western Europe." Ian Tyler, Chief Executive
We say:
Picks its territories carefully. Moved quickly in recent years to build real weight in the US.
Rentokil Initial - FM
International vital statistics:
Revenue: £1,359m; % all revenue: 56%; Growth: 22%
Area of international focus:
- APAC, £196m revenue, 8% of total
- Pest control
They say:
"Strategically, we are seeking to expand our operations in Asia as there is the potential for higher organic growth rates than are available in the Western economies." Annual Report FY 2007
We say:
Has its problems. But a fast-growing APAC business is not among them.
Cosima Pettinicchio is an Associate Consultant at Credo.
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