Capita pays price for record sales wins

25th Jul 2013 07:58

Outsourcing colossus Capita saw margins shrink in the first half despite the booming market for its services.Although it enjoyed record levels of contract wins, the group's underlying operating margin was 80 basis points lower at 12.5% in the six months to end-June.The successes of its sales team in delivering a record year of sales wins in 2012, including the two largest new contracts in its history, meant that the group has extra start-up costs from beginning work on a large number of new contracts, as well as the costs from integrating two significant acquisitions. With other new contracts beginning in the second half, the FTSE 100 group said its expected margins "in the range of 12.5% to 13.5% the foreseeable future".Chief Executive Paul Pindar accentuated the positives: "The return of strong organic growth, improved cash conversion, a replenished bid pipeline and a good pipeline of potential acquisitions, underpin our confidence in full year performance and provide a strong platform for further progress in 2014 and beyond."Underlying pre-tax profits rose by 10% to £205.2m from revenues up 13% to £1,819m, mostly from acquisitions completed in the last 18 months but with almost a quarter organically.The sales team have continued to bring home the bacon and have grasped more than £2.0bn of contract wins with clients including Carphone Warehouse, the Cabinet Office and O2-Telefónica. As a result of the strong sales performance in 2012 and following its largest annual contract win with O2, Capita raised its organic growth expectations for the full year from 6.0% to at least 8.0% and reiterated its confidence of achieving this target."Our strong sales performance over the last 12 months and contributions from 2012 and 2013 acquisitions provide us with excellent revenue visibility for the full year 2013 and already deliver significant incremental revenue growth in 2014," said Pindar.While most of the group's business traded well, Property Services and parts of the IT business struggled through the challenging economic conditions and have since seen some managerial changes, while the General Insurance operations is undergoing a review to "determine the future positioning of operations in these areas".The board has declared an interim dividend of 8.7p per ordinary share representing an increase of 10%.Shares in Capita were down 3.1% at 1,005p at 08:45 on Thursday.OH