Shares of Capita plummet 14% as business performance slows

18 December 2017

Professional services firm Capita has seen its share price crash by 14% amid concerns of rising competition and a fall in its number of big ticket contracts. The drop comes in spite of winning several high profile governmental and private sector contracts in recent months, as fears of a tightened post-Brexit market begin to manifest.

Following a turbulent 2017, troubled outsourcing provider Capita faced further market woes as shares slid 14%, after the group warned of tough times ahead in a 'subdued' market. While sources at the firm – which has issued profit warnings this year – still expect underlying profits to rise in the second half of the year, the organisation also made it plain that major business had been sluggish throughout 2017, particularly in the public sector.

Earlier in Autumn, Capita was noted for its successful support of two local authorities, which it’s Local Government wing helped collect over £14 million more in council tax via digital innovation, although its service uptake has been limited to few major advances. Most notably, Capita added to its public sector portfolio, winning a new seven-year contract with the Cabinet Office to administer Royal Mail’s £47 billion Statutory Pension Scheme, made up of 400,000 deferred members and pension members. According to government documents, Capita will be paid £31 million for the eight-year deal, equating to £3.9 million a year.Capita shares plummet 14% as business slowsWhile at first glance this figure appears to be solid business for the firm, the government had previously spent an average of £5.2 million a year on administration costs for the scheme since 2013, according to Cabinet Office financial reports for the past four financial years. This implies firstly that the new arrangement could save the government more than £1 million a year, and secondly, that Capita’s negotiating position may have been significantly weakened by its market performance, forcing a significant mark-down in pricing as a result.

In the private sector, 2017 also saw little progress. Since the addition of a £70 million customer service contract for communication giants 3 to Capita’s portfolio last year, there has been little movement of note, beside the group extending a customer management contract with British Gas to April 2019. 

Volatile market

Compounding the concerns raised by this slow growth, Capita warned that it anticipated a higher level of ‘contract and volume attrition’ at its Private Sector Partnerships division over the course of 2018. Intensifying competition amid the professional services sector – thanks to new challengers leveraging innovative digital technology – along with a general tightening of belts among clients, bracing for Brexit, have impacted the firm’s plans for next year, already.

The UK defence budget is one area facing major cuts thanks to the UK’s lethargic economic performance – with slower growth than expected decimating £26 billion put aside for a smooth Brexit transition. As the government’s Brexit efforts continue to flounder, the Ministry of Defence reportedly faces a £30 billion shortfall, after Chancellor Philip Hammond was forced to retool his November budget. According to Capita, despite “encouraging progress” at its public sector division, a £22 million defence contract will not recur next year – which likely relates to the government’s need to find savings in defence.

Capita’s IT services division did see some improvement, thanks to cost cutting exercises. However, the group said it still expected profits of the division to decrease slightly for the second half of the year than the first, as a result of a further non-recurrence of a £9 million one-off supplier settlement.

New Chief Executive Jonathan Lewis, who arrived at Capita this month to replace Andy Parker, stated that he aimed to “focus the business and allocation of capital and resources on the markets which offer the best growth prospects.” However, such comments seem to have done little to allay the fears of investors. Following their trade update, Capita’s continued fall in stock value accelerated by a further 13.6% in early trading in London’s Stock Exchange, bringing the year-to-date decline to almost 25%, according to Reuters data. The firm’s overall decline now languishes at a fall of 68% over the past two-and-a-half years.

Top firms in the UK’s professional services industry have seen profits slow over the past year, according to the latest research. A recent study from the MCA revealed that the consulting industry in Britain in particular seeing dawdling growth, compared to its European competitors, as businesses prepared to deal with the realities of a post-EU UK.


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PA Consulting results reveal record 14% revenue growth

17 April 2019

Global professional services firm PA Consulting has reported another year of strong growth, outpacing the global consulting market significantly over the duration of 2018. PA’s revenue boomed by 14%, passing £455.8 million over the course of the year.

Founded in 1943, by Englishmen Ernest Butten, Tom Kirkham and David Seymour, the firm once known as Personnel Administration has since gone on to become one of the largest consulting firms in the world. PA Consulting Group, as it is now known, has over 2,600 professionals and a global presence spanning 18 countries. While turnover took a decade to recover from a rocky spell after the global financial crisis, PA Consulting is now firmly on the upward incline.

PA has booked strong growth in recent years, following its securing of private equity investment from the Carlyle Group in 2015. While the first full year of results following that move were slightly muted, due in part to the altering of how PA measured its results, the decision has clearly paid dividends since. Revenues jumped by 6% in 2017, hitting an all-time high of £400 million in the process.

Annual consulting revenues of PA Consulting versus UK market

Now, in the latest chapter of the firm’s rapid turnaround, the innovation and transformation consultancy has revealed things only got better in 2018. A set of record results released in April have confirmed that fee income rocketed up by 14% over the course of the prior 12 months, hitting £455.8 million. Considering the UK’s consulting market saw growth slow for the second year running (just 5.6%), PA’s performance is even more pronounced, especially in its first year of full results since influential Chair Marcus Agius stood down. 

The firm is also outpacing the global consulting market. Analytics firm Statista estimates that the consulting market expanded by 4.08% in 2018. As a result of such bullish demand, PA Consulting has also bolstered its staffing, boosting its consulting team’s headcount by 10% in the space of 12 months. 

PA’s team was further strengthened with its continued acquisition campaign, which brought three new firms into the fold during 2018. Boston-based innovation company Essential Design, specialist digital service design firm We Are Friday and London-based digital insight and strategy consultancy Sparkler all became part of PA over the course of the year. PA has also announced plans to recruit 400 professionals for its new digital centre in Belfast. 

‘Not traditional’

In terms of client work, in the UK PA supported Skipping Rocks Lab to create an edible alternative to single use plastic drink packaging, and worked on a notable restructuring project at disability charity Scope. Further afield, PA helped Norwegian authorities deliver their citizen-facing digital services, while in the US and India, PA partnered with Virgin Hyperloop One to build the first new mode of transport in a century, one that hopes to revolutionise travel. It even worked with United Nations to identify the technologies most likely to contribute to the achievement of the organization's Sustainable Development Goals.

Commenting on the year’s performance, Alan Middleton, PA Consulting CEO, said, “We’re not a traditional consulting firm and we think this is key to our ongoing success and why 98% of our clients recommend us… Our people are strategists, technologists, digital experts, consultants, designers, scientists and engineers – all of whom bring real-world experience, and apply it at pace. We offer the innovation, design, digital and transformation skills that our clients need to change, fast. There’s a sense of optimism behind our purpose. And it’s a feeling that inspires our people as well as our clients.”

The existing staff of PA also enjoyed a bumper year, as it was revealed that a refinancing manoeuver at the firm was expected to land over 1,000 employee shareholders a significant pay-out. The firm’s debt, which includes vendor loan notes put in place when Carlyle purchased the firm, is set to be refinanced in a deal worth £350 million.