2011 was a year of mixed fortunes for Capita, the UK’s third largest SITS provider and number one business process services player. Nonetheless, Capita does manage to retain the ‘Holway Boring Award’ which they have held since their IPO in 1989…ie 23 years of uninterrupted EPS growth as a publicly quoted company.
Capita’s headline revenue for the year to 31 December was up 7% to £2.93bn, and underlying pre-tax profits (before amortisation, acquisition expenses, etc.) were up 6% to £385.2m – allowing Capita to retain its very respectable underlying pre-tax margin of 13%. It is however the ‘organic issue’ which remains the Achilles heel.
Excluding acquisitions – of which there were 21 during the year (vs. 12 in 2010) – organic revenue declined 7%. This is steeper than 2010’s organic decline of 5% (see Capita’s European ambitions). It also shows that the continued acquisition spree in 2011 contributed a pretty significant 14 points of growth to Capita’s top line in the year. Perhaps unsurprising really given that Capita spent some £341m in total, on some of the largest purchases in its history, including a combined £106m on call centre providers Ventura (see here) and Vertex Private Sector (see here), which added c10,000 people to the payroll.
2011 will also be remembered as the year that Capita ‘got its timing wrong’, having predicted that it would win more BPO business of the back of Government austerity measures - unfortunately Capita thought they would start coming in sooner than this. Hence why its financials have suffered. Capita has started 2012 on a far stronger footing on this front, having been awarded preferred supplier on the potential £500m Army recruitment contract (see Capita trumps Serco for Army recruitment contract) and yesterday securing the £100m-250m Civil Service training contract (see here). As importantly, these deals put it back on the path back to organic growth. We can now expect the M&A juggernaut to slowdown, and begin to focus on integration.
One final point, Capita has for the first time broken out IT services (and consulting) revenues. Third party ITS revs now stand £600m (vs. £453m in 2010), which puts Capita just outside our ITS top ten. No mention by management of Mark Quartermaine’s appointment to head the ITS division (see It’s official -Quartermaine joins Capita). We are meeting him and the ITS team next, week so will bring you more then.
We will provide a ‘deeper dive’ in UK HotViewsExtra later. But only available to TechMarketView subscription clients.