Capita’s £500m loss raises more questions for outsourcing

Business services supplier Capita has announced it has lost over half a billion pounds in its latest financial results for the last 12 months, raising more questions about the stability of the services sector.

The collapse of business services and construction supplier Carillion, in January 2018, did little to reassure businesses about the stability of outsourcing, but with its offering being “blue collar” business services like cleaning and maintenance, the IT services sector was relatively untarnished.   

In contrast, Capita is involved in significant IT services contracts and technology-enabled business process outsourcing, and provides a diverse set of IT services to public and private sector customers.

For example, it provides ICT services to 1,100 schools in Northern Ireland through a managed IT service to 350,000 users, including a cloud-based network for access to educational resources and collaboration. Another recent contract saw HSBC implement Capita’s Omiga mortgage software to create a single platform for brokers in an attempt to increase business via this channel.

Capita reported a £513m loss for its latest annual results and announced it would raise over £700m from shares to do a reorganisation. In the previous 12-month period, the company announced a loss of  just under £90m.

In January, Capita issued a profit warning and said it might sell some of its non-core business units after issuing a profit warning, which the CEO partly blames on its business being too broad and complex.

At the time, CEO Jonathan Lewis said various divisions, including IT services, faced financial challenges, with “headwinds particularly expected to impact upon the financial performance of the private sector partnerships, in both insurance services and customer management, public services partnerships and IT services divisions”.

“We need to simplify Capita by focusing on growth markets and to improve our cost competitiveness,” said Lewis, speaking after the latest announcement. “We need to strengthen Capita and plan to invest up to £500 million in our infrastructure, technology and people over the next three years.”

Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, said Capita’s CEO often refers to the company being very different from Carillion because it is a technology-enabled outsourcer. “All businesses are technology enabled, so the question remains just how much IT enablement and advanced IT there is in Capita.”

He added that more traditional IT players such as Indian giant TCS are challenging Capita in the BPO arena.

A Capita spokeperson told Computer Weekly: "With regards to Capita’s reported loss – this is not a cash loss. The largest part of this is due to a number of specific items – the largest of which, £552m, is a write-down of goodwill, a non-cash item."