UPDATE 2-UK's Capita sees public sector work piling up

Wed Jul 25, 2012 6:36am EDT

Related Topics

* H1 pretax profit up 10 pct to 190.7 mln stg; f'cst 188 mln

* Revenue up 15 pct to 1.6 bln stg; 1.3 bln stg of work won

* Pipeline 4.1 bln stg, 58 pct coming from government

* Shares up 2.3 pct

By Neil Maidment

LONDON, July 25 (Reuters) - Britain needs private sector help to cut its debts and work with central and local government is piling up despite a high-profile blunder by a security firm at the London Olympic Games, the country's biggest outsourcing company said on Wednesday.

Capita, whose contracts range from managing over 21 million life and pension policies to providing radios for Britain's emergency services, reported a 10 percent rise in first-half profit and was upbeat about its prospects.

"Public sector (work) is looking encouraging, with austerity measures fuelling that. If you look across central government and local government together it is now somewhere in the region of 58 percent of our (4.1 billion pound) bid pipeline," Chief Executive Paul Pindar told Reuters.

A wave of government work has long been anticipated by outsourcing firms as central and local government looks to save cash amid dwindling budgets, but some contracts have been hit by delays as clients get to grips with new demands.

A high-profile blunder by G4S in a security contract for the London Olympics has made some analysts question whether the pace of government outsourcing may now slow this year as opposition to private firms running public services intensifies, but Pindar said Capita did not expect any impact.

"Over the history of private and public sector services there are always incidences, whether it's the private or public sector, where they've had things that have not gone to plan or not gone well, but the reality is people will dust themselves down and business will continue because there is a fiscal need for it to do so," he said.

Capita, which specialises in providing back office administration and customer contact services, posted an underlying pretax profit for the six months to June 30 of 190.7 million pounds ($296.1 million), ahead of a company compiled consensus of 188 million pounds.

Shares in the FTSE 100 listed group, worth around 4.5 billion pounds, were up 2.3 percent to 693.75 pence at 1028 GMT.

A 15 percent rise in revenues to 1.6 billion pounds was underpinned entirely by acquisitions used to offset existing deals coming to an end and a lack of new contracts won last year as opposed to renewals.

Capita said things were improving after it secured a record 1.3 billion pounds of work during the first half of 2012, including a big deal to run British army recruitment, which left it confident of bouncing back to organic growth this year.

Organic revenues declined by 7 percent in 2011 but the firm said that after a flat first half it was on track to swing to 3 percent organic growth overall this year and was confident in its full-year performance for 2012 and beyond.

Capita described the public sector as "buoyant" with high activity across central government's work and pensions, defence and justice departments, as well as local government, the emergency services and health markets. Private sector demand was also strong in retail and financial services markets.

Seymour Pierce analyst Caroline de La Soujeole kept a "buy" rating on the stock. "The outlook statement is very bullish: management talk of having clear visibility of revenue growth in 2012 ... (It) paints the picture of a company with strong momentum behind it," she said.

In April Capita raised $441 million selling new shares to help fund more acquisitions as buying opportunities improved, having originally said it would slow down buying in 2012.

It spent 341 million pounds on 21 acquisitions in 2011 and a further 129 million on 10 firms this year. Pindar said it would spend between 200 and 250 million in total in 2012.

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