Capita’s trading for the four months to 30 April show a slow start to the year for the BPO market leader (see Capita in slowdown). As a result, it expects H1 revenue growth to be “modest…due to the quieter sales activity in 2010 and the continued impact of public spending cuts on a small number of [its] trading activities”. However if the rest of 2011 goes to plan, Capita should begin to see improvements in the second half driven by a record pipeline of activity.
During the first four months, Capita signed seven new contracts with an aggregate value of £313m vs. 11 contracts worth £322m in 2010. The pipeline is looking promising. Deals worth £10m or above, where Capita has been shortlisted to the last 4 or fewer, stood at a record £4.7b on 24 February 2011, and up 27% on the £3.7b at the same point in 2010. Opportunities are apparently across all of Capita’s business divisions, although outsourcing in life and pensions and local government are the hottest opportunities. Among Capita’s shortlisted deals include administering army recruitment for the MOD, supporting Edinburgh City Council and rebidding to administer TV licensing for the BBC.
By any estimation, 2010 was a difficult year due to the general election, and public sector spending freeze (see Pipeline constipation forces Capita warning). As the public sector spending cuts bite in 2011 we would expect Capita’s opportunities to be on the increase. And it seems this is what is happening, since it said “the market for outsourcing has become more active” and the number of new tenders across its public sector operations “is now at the levels prior to the May 2010 elections”. Arguably the biggest opportunity for Capita is central government, where opportunities are “beginning to emerge” through new delivery models such as joint ventures and mutuals. However Capita really needs to turn this pent up public sector demand into new business wins. Unfortunately we suspect many of these opportunities are some way off coming to boil. In the private sector however, opportunities are “particularly buoyant” in the life and pensions, financial services and insurance markets. We suspect Capita will find this a more lucrative market this year.
Capita continued to drive forward on its acquisition strategy, spending a total of £80m in cash on six companies. These included Xayce, a financial services business transformation consultancy; the commercial loan admin business of Barclays Capital Mortgage Servicing; management software and managed services provider Talis; Right Document Solutions (see Capita makes right print services acquisition); the health and government divisions of Tribal Group (see Capita to buy Tibal’s health government business); and most recently in May, web application developer Technophobia. There are apparently a “good volume of potential acquisitions priced at attractive levels”, so we can expect more acquisitions to come through the year.
Capita’s internationalisation plans (see Capita’s European ambitions!) continue to take shape. The group has now opened temporary offices in Krakow, Poland, and signed the lease on a 500 seat capacity shared services centre in the city centre. From Q4 2011, it expects services to be delivered to existing clients and to new clients from 2012. We suspect Zurich Financial Services is its marquee customer for the Krakow centre, and although negotiations to extend its current contract to include the support of Zurich’s admin hubs in Europe and the Middle East are still on going, Capita hopes this to commence in Q3. Alongside Krakow, Capita is also looking to expand in India where it has operations in Mumbai, Pune and Bangalore. There is certainly plenty of scope for Capita to make more of its offshore operations, which accounted for just 10% of its total headcount in FY10.