Capita sees pick up in government outsourcing

LONDON Tue Nov 13, 2012 11:33am GMT

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LONDON (Reuters) - Britain will push ahead with outsourcing more public services before the next election, the head of the country's biggest back-office company said on Tuesday after a recent visit to the heart of government.

Analysts have long been expecting Britain to pick up the pace of outsourcing as it battles to reduce the public deficit.

But private firms' ability to take on public work has been called into question by security firm G4S's failure to provide enough guards for the London Olympic Games, which heaped embarrassment on the government and forced it to draft in troops.

"One of the clear themes that came through was that we're now in the second half of the football match and the activity needs to kick off again," Capita chief executive Paul Pindar said on Tuesday, after a visit to the Cabinet Office which is responsible for public sector efficiency and reform.

Britain's coalition government is approximately half way through its term in office.

Pindar said there was a mixed picture across government, with the Ministry of Justice, Ministry of Defence and local authorities presenting the largest opportunities, but other departments showing less "appetite" for what the company does.

Capita runs contracts from civil service training schemes to disability assessments and, by value, 68 percent of its 4-billion-pound bid pipeline is in the public sector.

In a trading update, Capita said it was on track to meet expectations of 3 percent organic revenue growth - which excludes acquisitions - in 2012.

Shares in the company were down 2.3 percent at 711 pence by 1100 GMT, having risen 15.7 percent so far in 2012.

Capita's reliance on the public sector has concerned some analysts who believe that highly competitive bidding, particularly from new entrants, has squeezed profit margins.

"There are a lot of balls in the air," said Panmure Gordon analyst Mike Allen, who has a "sell" rating on Capita shares.

"They've got to drive organic growth momentum, get above average margins, integrate acquisitions well and ensure that the cash generation is very strong," he said.

Pindar conceded he did not see a further rise in margins for the foreseeable future.

"At some point you have to reach a ceiling but equally we don't see anything in our bid pipeline that suggests that our margins should be driven downwards," he said.

Pindar brushed off suggestions the fiasco of G4S's Olympics contract might have a long-term impact on outsourcing.

"Issues such as that will not make an iota of difference," he said. "The outsourcing industry is a force for good and we're also trying to help the UK economy get back into balance, which it badly needs," he added.

($1 = 0.6302 British pounds)

(Editing by Rosalba O'Brien and Mark Potter)

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