UPDATE: Capita Cautions Of Short-Term Growth But Still Upbeat

22nd Jul 2010 11:56

(Adds comment and detail.) By Anita Likus Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Capita Group PLC (CPI.LN), the U.K.'s largest provider of business services, on Thursday reported a 15% increase in first-half pretax profit and said that it is well placed to continue growing, but cautioned that public spending pressures could impact growth in the short term. "Whilst the current pressures on public spending may potentially affect growth in the short term in a small number of our trading activities, the need for our public sector clients to achieve substantial cost efficiencies offers significant opportunities for the group going forwards," said Chief Executive Paul Pindar in a statement. "There is buoyant demand for outsourcing across both the private and public sectors, with the most active markets in our strong bid pipeline remaining local government and life and pensions," he said. The company, which provides outsourcing operations to central and local government, the financial services industry and corporations, reported a record bid pipeline to June 30 of GBP4.4 billion, up from GBP3.7 billion in February. At 1030 GMT, Capita's shares traded up 31 pence, or 4.4%, at 741 pence, while shares of rival outsourcing giant Serco Group PLC (SRP.LN) traded up 12 pence, or 2.2%, at 551 pence. Capita's stock has fallen 12% in value in the past three months on fears that U.K. government savings to tackle the deficit will hit the company. Credit Suisse analyst David Rigby said that "a sizable increase in a 'buoyant' pipeline suggests conversations with potential clients are picking up." However, major contract wins and renewals fell to GBP523 million from GBP814 million in the same period last year as the pace of client decisions slowed on the back of the financial crisis and the U.K. election. The company has so far been resilient in the downturn, with strong demand for its services as businesses and governments increasingly turned to outsourcing to cut costs. But while outsourcing companies look like they have escaped any impact from the U.K. government's plan to cut public spending by GBP6.2 billion, the relief might be short lived. Capita reported good first half figures that were in line with analysts' expectations. First-half pretax profit for the period ended June 30 climbed to GBP163.1 million from GBP141.7 million in the same period a year ago. Revenue rose 4% to GBP1.36 billion. The profit excludes intangible amortization and acquisition costs of GBP18.2 million as well as the non-cash impact of movements of financial instruments. Operating margin increased to 13.1% from 12.2%. It also has declared an 18% rise in first-half dividend to 6.6 pence. But the U.K. government has yet to finalize its approach and CEO Pindar said he is "looking forward to the meeting with" Minister for the Cabinet Office Francis Maude, who has asked 19 major government suppliers to help cut the cost of services. The government will cut spending in education, transport and local government, among others, and 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). On the back of a meeting with Maude, Cable & Wireless Worldwide PLC (CW.LN) Tuesday issued a profit warning as a direct result of government spending cuts. According to JP Morgan, the U.K. public sector accounts for some 57% of Serco's sales, about 50% of Capita's and about 9% of G4S's. -By Anita Likus, Dow Jones Newswires; +44 20 7842 9407; [email protected] (END) Dow Jones Newswires July 22, 2010 06:56 ET (10:56 GMT)