Capita has renewed and extended a major business process services deal with existing client Zurich Financial Services, and with it gets the green light to its international expansion plans (see Capita’s European ambitions!).
The total value of the extension and renewal to Capita is £570m over 15 years. We believe this is made of up a renewal worth c£220m over the 11-year period from 2015 to 2026, and an extension worth c£350m over a 15-year period from 1st July 2011. As is often the case, the renewal is being signed at a lower price point than the initial £300m-ten year contract that Capita signed with Zurich in 2005 – at c£20m per annum vs. c£30m originally. But where Capita will really grow revenue is on the contract extension, which should be worth an additional c£23m per year.
The extension itself is a real turning point for Capita, taking the UK BPS market leader into the EMEA market in a big way. Capita will take on some 400 Zurich staff in service centres in the Isle of Man, Ireland and Dubai, no less, and then ‘support the development of Zurich Global Life's European and international administration hubs’. It will become responsible for providing customer service, policy administration and claims activity to Zurich’s customers in Europe, the Middle East and international markets. This is of course in addition to the renewal’s on going UK service delivery component. Capita will initially manage the steady state of services for Zurich and then in time consider migrating on to a new platform. Meanwhile rival CSC, Zurich's global ITO provider, will no doubt be wishing it had a more coherent BPS strategy.
While Capita does already deliver a small amount of work outside of the UK in countries such as Belgium and Ireland, this is a big step forward in the group’s internationalisation that CE Paul Pindar outlined at the FY results in February (see Capita in slowdown). It also validates the decision made to set up a new service centre in Krakow, Poland where Capita could eventually employ 500 people. From here there may even be future opportunities for Capita to take on more services for Zurich in other European markets.
While the deal itself is unlikely to push Capita back to organic growth (in FY it was -5%), there are real upsides to this strategy. If Capita gets the model right and delivers for Zurich the kind of service it has come to expect in the UK, there’s no reason why it shouldn’t be able replicate this model for other international clients. Then this international expansion could become an important way for Capita to drive future organic growth.