Outsourcing giant Capita’s 2019 was a bloodbath, earnings reported this week showed, with the company slumping to a £62.6 million loss, from 2018 profits of £272 million.
The company saw £78 million-worth of contracts terminated or re-negotiated in 2019, as it struggled to rebuild a desperately damaged reputation for poor performance.
The company cited a “major reduction in client penalty payments” as a bright spot.
Amid amid an aggressive, sweeping restructuring, including sustained investment in its own internal processes, IT and teams, it hopes to turn the corner in 2020.
The consulting, digital services and software firm operates in the UK, Europe, India and South Africa across six divisions: Software; Technology Solutions; People Solutions; Customer Management; Government Services and Specialist Services.
CEO Jon Lewis, who took over in December 2017, told investors that the company was “broken” when he took over, after years of under-investment and poor strategy: “Transforming an organisation of Capita’s size is a complex challenge; there remains more to do and it is requiring more investment than we had expected in 2019”.
Finance Automation Overhaul Delayed
In 2018, the Board launched a multi-year transformation plan including procurement centralisation, a new CRM system, a new human resources system (Workday) and transformation of finance systems, with the aim of boosting automation.
Perhaps somewhat embarrassingly for the company, its own IT project to overhaul finance functions (“by increasing standardisation, automation and the quality of available data”) is significantly over-budget [pdf] and has now been delayed.
The company said: “The new financial systems were due to go live in the second half of 2019. While progress was made, we took the decision to defer the go-live as more work is required on the core processes and procedures before the system can effectively be implemented. We have reviewed the costs capitalised and assessed that £12.3 million is impaired, representing areas that we expect to redesign before going live.
“The carrying value of the investment at 31 December 2019, post impairment, is £58.6 million. Further impairment may arise should there be a material change to the Group’s operating model ahead of any go-live… We have continued to invest in shared service centres and offshoring,” Capita noted in an earnings call deck.
More Disposals Promised
The company is readying for more “non core” asset disposals, it said.
Revenues were hurt by contract losses of £109 million in 2019, “including in local government and in some other divisions.
“Delays in local authorities taking back work meant that the impact of these losses were lower than expected in 2019, but the majority of these have now come to an end.”
High competition and market pressures in Technology Solutions also hurt it.
Lewis could point to 91 percent contract renewal rate in 2019, however, and Capita’s government supplier status improving from Tier 4 to Tier 1.
Capita invested £182 million in capital expenditure in 2019, including in “data centre remediation”, new software and broader IT infrastructure.
CEO Lewis said: “I am confident that, with the work done to date and investment made in 2019, we can deliver organic revenue growth for the first time in five years in 2020.”