UPDATE 2-Capita profits rise, warns of margin pressure

Thu Feb 28, 2013 8:10am EST

Related Topics

* 2012 pre-tax profit up 10 pct

* 2012 organic revenue growth 3 pct

* Company expects fall in margins

* Shares down 2.95 pct

By Christine Murray

LONDON, Feb 28 (Reuters) - Britain's largest outsourcing firm Capita warned of pressure on margins this year after the company reported a rise in full year profits and a return to organic sales growth.

The company, which earns 47 percent of its revenue from the public sector, produced a 10 percent rise in underlying pretax profit to 425.6 million pounds ($644.11 million), slightly ahead of expectations of 413.4 million shown in a Thomson Reuters poll of 20 analysts.

But margins dipped to 14.07 percent from 14.59 percent and Capita said that it expected a further fall in 2013 to levels seen before 2010 and 2011.

Chief Executive Paul Pindar said this was because of start-up costs associated with the high level of new contracts won and not the result of increased competition in bids.

"I would accept that our margins are higher than others in the industry but personally I feel that they are very defendable," he said, pointing to the improved win rate on contracts to better than one in two.

Shares in Capita were down 2.95 percent by 1300 GMT at 823 pence, against a 0.3 percent rise in the FTSE 100 index.

"The market's taken a little bit of a fright over that lower guidance ... most people normally see lower margins as competitive pressure, we just see it as part of the cost of getting growth," said Mike Murphy, an analyst from Numis with an "Add" rating on the shares.

The group, which runs a range of contracts from back office IT to front line disability assessments, returned to organic revenue growth of 3 percent, up from a 7 percent shrinkage last year. Pindar said Capita was set to more than double that next year.

Analysts have been expecting Britain to pick up the pace of outsourcing because the coalition government is trying to reduce the public deficit.

Capita said that the big opportunities lay in defence, health and justice as departments were under pressure to reduce budgets while maintaining frontline services.

It is currently bidding on a record 5.2 billion pounds worth of contracts and has signed more than 3 billion pounds of new deals in the last four months.

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