Well here we have it - confirmation from Capita that revenue was indeed ‘subdued’ in FY10 (see Pipeline warning forces Capita warning). Revenue came in at £2,744m, up 2% on FY09 (vs. 10% top line growth in FY09). Revenue attrition was 6%, due to a ‘number of project completions and several contracts winding down or being taken back in-house’, with a further 2% revenue reduction attributed to disposals made in the latter part of 2009. Capita’s underlying margin however went up to 14% vs. 13% in FY09.
CEO Paul Pindar said: “We faced a slowdown in decisions on major outsourcing contracts, lower additional spend by existing clients and reduced activity in some of our transactional trading operations due to reduced public spending.”
During the year, Capita spent £301m on 12 acquisitions across a number of its sectors (of course some of which will fall outside our SITS landscape). These included property management company NB Real Estate, medical screening and reporting company Premier Medical Group, corporate dental plan provider National Dental Plan and public sector SITS provider Sungard Public Sector and travel company BSI (see Capita snaps up Sungard Public sector and travel company BSI). Since the start of the year, Capita has continued its acquisition drive taking over financial services business consultancy Xayce, and Barclays Capital Mortgage Servicing. Capita’s strategy is to acquire in areas where it sees organic growth potential and where it can expand market share. It has also renewed a couple of big deals (see Capita renews Teacher’s pension and MetLife contracts).
Capita is exhibiting the same kind of pain that many of its peers in the BPO industry are facing today (see Logica yet to claw back share). For instance major contract wins and renewals in 2010 were down 20% to £795m, and although the company claims a record pipeline of £4.7bn today vs. £3.7bn in February 2010, we wonder how much of this is delayed decision making, and which has yet to become active again. Capita is also facing fiercer competition in a number of its key markets such as life and pensions (see Diligenta optimistic on L&P turnaround). We think the BPO market is fundamentally changing and this will have big implications for the likes of Capita over the next few years. We will explore these and other points in UKHotViewsExtra later.