Capita back in profit after first year of turnaround

19 March 2019

Outsourcing firm Capita has returned to growth in the UK, a year after signalling the need to restructure its finances in the wake of a profits warning and a £680 million rights issue. Following one year’s worth of organisational overhauls, the firm hopes further positive results are on the horizon, with further changes in the pipeline. 

In the wake of Carillion’s collapse at the start of last year, the outsourcing sector as a whole endured a troubled FY17. Serco saw a share slide of 3.9%; alongside Kier (-1.3%), G4S (-1.1%) and Interserve (-1.9%). Capita also slumped by 43%, and the company issued a profit warning before reporting a £513.1 million loss in its annual financial results in early 2018.

Beyond its financial results, Capita also suffered a succession of controversies in 2018, relating to its public sector contracts. When, alongside Atos’ Independent Assessment Services wing, Capita was said to be paid more than £700 million for a five-year contract assessing if disability claimants should receive Personal Independence Payments, MPs argued the DWP was “rewarding failure". Atos and Capita had a shared target for 3% or fewer of their reports to be ranked “unacceptable”, but 6% of Capita’s alone were found to be unacceptable.

Capita back in profit after first year of turnaround

Elsewhere, the professional services firm was further stricken by a scandal involving its mishandling of almost 50,000 letters relating to cancer screening information across England. The company, which has worked as an administrative support outsourcer for the NHS since 2015, failed to send the letters to patients, which had crucial information – including hundreds of abnormal test results – in their contents.

Despite this succession of issues, the company still managed to win a number of new contracts, including an NHS connectivity contract worth more than £5 million to help the Essex NHS Trust over the following five years. As a result, it was able to return to growth in 2018, and Capita reported a pre-tax profit of £272.6 million up to 31 December 2018. Adjusted profit has meanwhile been put at £282.1 million, slightly ahead of target, and Capita’s balance sheet has been strengthened with £1.1 billion raised through rights issues and disposals.

Jon Lewis, Capita’s CEO, said of the results, “We’ve successfully completed year one of our multi-year transformation, fixed the basics and are firmly on track. We’ve strengthened our balance sheet, achieved cost savings, and invested in our people. On top of that, we’ve improved our governance, introduced a “One Capita” operating model, and started turning around challenging contracts.”

Looking ahead, Capita is keen to accelerate cost competitiveness to realise cumulative savings of £175 million by the end of the year, with expectations that profit before tax will be between £265 million and £295 million in 2019. According to Lewis, key to this will be fixing three ‘problem’ contracts, in order to deliver on key performance indicators.

One of these is Capita’s recruiting partnering project (RPP) contract with the British Army, which was roundly criticised in a recent National Audit Office report. According to Lewis, the relationship here is already well on the way to being mended, thanks largely to the controversial ‘Snowflake’ campaign. Applications for the British Army are at a five-year high, and the ad campaign led to a 78% rise in website visits, though it was criticised in the media for its provocative approach to recruits.

At the same time, Lewis said action had been taken towards the end of 2018 over issues relating to the Primary Care Support England (PCSE) contract with NHS England. He also cited the transformation of Capita’s seven-year customer services contract with mobilcom-debitel – one of Germany’s largest mobile, internet services and telecoms products providers.

Lewis concluded, “The aggregate financial loss from these challenging contracts reduced from over £50 million in 2017 to around £30 million in 2018. We plan to generate an aggregate profit on the contracts in 2020, including reaching break-even on the PCSE and mobilcom-debitel contracts by the end of 2020. Our transformation still has some way to go. But I am very pleased with our progress. Our targets remain on track, and I’m excited about the prospects for a simplified and strengthened Capita.”


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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.