INTERVIEW: Capita CEO Expects Slowdown From UK Govt Cuts

22nd Jul 2010 09:48

By Anita Likus Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Capita Group PLC (CPI.LN), the U.K.'s largest support services provider, is preparing for spending cuts by the British government that will hit the business in the short term, but Chief Executive Paul Pindar told Dow Jones Newswires on Thursday that he expects big opportunities in the medium term. "I don't think we're viewing the spending cuts with great trepidation but we cannot think we will not be affected," said Pindar. He identified recruitment operations and property services as areas that will suffer from central government spending cuts, while reduced expenditure from local governments likely will impact areas such as software purchases. While the company provides services mainly to local governments, with only 10% of its revenue coming from central governments, Pindar cautioned that spending cuts will trickle down to regional authorities. "There will be an impact on local governments ... They will have a tighter fiscal position, too." The company has so far been resilient in the recession, reporting Thursday a GBP4.4 billion bid pipeline as businesses and governments increasingly turn to outsourcing to cut costs. But while outsourcing companies appeared to have escaped any impact from the government's plan to cut public spending by GBP6.2 billion, the relief might be short lived. The U.K. government said that it would reduce spending by 25% per year after three years and cut spending in areas such as education, transport and local government, among others. As part of the initiative, Minister for the Cabinet Office Francis Maude met with the government's 19 biggest suppliers to determine where savings should be made. It plans to renegotiate some 70 contracts with suppliers of public services including Capita as well as rival outsourcing giant Serco Group PLC (SRP.LN) and security services provider G4S PLC (GFS.LN). Telecoms provider Cable & Wireless Worldwide PLC (CW.LN), one of the suppliers, which along with Capita was called to a meeting with lawmakers earlier this month to discuss ways to cut the costs of services, Tuesday issued a profit warning as a direct result of government spending cuts. While outsourcing companies normally provide services, which are difficult to get rid of, they will not be protected when contract awards are delayed or discretionary spend reduces. "There will be pressures within the business ... But we also see a huge scope for opportunities," said Pindar, adding that he is having an "intelligent dialogue" with the government and anticipates more outsourcing opportunities. The CEO said that Capita can help with the 25% of savings the government aims to achieve: "We would expect to save 25% plus in the short term, contractually." He added that "the actual amount of work outsourced is small," so he sees scope for more: "There are billions of pounds of savings around process improvements, which can be realized quickly." Pindar said the solution is to consolidate and create scale within departments as well as review the nature of service levels that are being sought. He called on the government to review its procurement process, which takes two years and could be shortened to six months, and involves huge bid costs. "It's ridiculous and is wasting a lot of money," he said. "This needs to be compressed." Pindar said the government needs "more pace, far more simplicity and better quality people who have the confidence to make decisions." Still, Pindar said he is "extremely encouraged by the pace of activity in the coalition government" to change the situation. He said the government is looking to find its own solutions to determine how it can save money and how it can engage with parties to crystallize savings. -By Anita Likus, Dow Jones Newswires; +44 20 7842 9407; [email protected] Order free Annual Report for Serco Group PLC Visit http://djnweurope.ar.wilink.com/?ticker=GB0007973794 or call +44 (0)208 391 6028 Order free Annual Report for G4S plc Visit http://djnweurope.ar.wilink.com/?ticker=GB00B01FLG62 or call +44 (0)208 391 6028 (END) Dow Jones Newswires July 22, 2010 04:48 ET (08:48 GMT)