Shares in Capita rose to their highest point in 19 months after the outsourcing group posted a 15 per cent rise in half-year profits and said it expected to benefit from government spending cuts as public sector clients are forced to offload work to the private sector.
The back-office specialist posted an increase in pre-tax profits of £163.1m for the six months to 30 June 2010, up from £141.7m for the same period last year, on revenue up four per cent to £1.36bn.
Capita said its bidding pipeline grew to £4.4bn from £3.7bn in February and it predicts “significant opportunities” in government outsourcing in the light of inevitable public sector cuts. The coalition government plans to cut 25 per cent from some public sector departments and has asked the civil service to identify savings of up to 40 per cent.
“There is buoyant demand for outsourcing across both the private and public sectors," said chief executive Paul Pindar. “While 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 forward,” he added.
The group, which has numerous high-profile public sector contracts including the collection of TV licence fees and provision of a criminal records service for the Home Office, said it had won and renewed contracts worth £523m in the first six months of the year. Central government contracts account for about nine per cent of Capita’s revenue.
Capita has a 27 per cent share of the UK BPO market, and with analysts estimating the total potential market at £94.2bn with only six per cent outsourced to date, according to analyst Ovum, Capita is pinning its hopes on significant growth across both the private and public sector as organisations seek alternative and more efficient service delivery models.