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February 22, 1993


By CBR Staff Writer

Capita Group Plc, which provides consultancy and services to the public sector, has cut its number of operating divisions to two from three and proposed a two-for-one bonus share issue, raising the number out to 48m from 16m; the effect should be the same as a share split, with the unit price of the shares in the market declining by about two thirds, but in practice, a split or a bonus issue usually enhances the value put by the market on a company. Capita has a current market capitalisation of UKP75m. The group has seen eight successive years of growth. For the year ending December 31, pre-tax profits rose 27.8% to UKP4.4m, while turnover increased 33.9% to UKP33.1m. In line with its interim forecasts, the board has recommended a final dividend of 4.2 pence a share, making a total of 6.3 pence for the year. Capita also boasts a strong balance sheet, with no borrowings, net assets of UKP8.8m, and cash balances UKP2.9m higher than last year at UKP9.6m. This has been achieved by keeping a tight rein on working capital, chairman Rod Aldridge claimed, despite UKP3.9m going in capital expenditure, and other cash being spent on acquisitions. Each subsidiary is accountable for its own budget, has its own targets, and focusses on long-term contracts, usually of three, five or seven years’ duration. Capita often offers discounts for long-term deals if cash is paid in advance – it is keen to have ready capital for investing to promote further growth. Aldridge promises to continue to manage finances in a conservative manner, but attributes Capita’s success to three main factors.

Advisor and doer

Firstly, he said, it has in-depth knowledge of the public sector, and is aware that customers no longer want just consultancy services. They demand both ‘advice and solutions’, and Capita, he stated, is both an ‘advisor and a doer’. It provides consultancy, training and facilities management or ‘white-collar services’, and can help by taking over such problematic areas as payroll, and exchequer. Second, the group has customers in 7,000 organisations, and as each is going through change in line with government policy, he said, Capita is well placed to take advantage of a ‘very buoyant market.’ Third, ‘The financial strength of the group, particularly when measured against many of its competitors, remains an important consideration for clients when awarding contracts of a long term nature.’ Aldridge stated that customers are keen to do business with a firm they know will be around in a couple of years. The company, he said, has a ‘significant volume’ of new business in the offing, and an order book worth UKP76m – some invoices even stretch as far as 1998. The Birmingham-based firm now comprises outsourced services, consisting of computer services, managed services, and estate services; and advisory services, made up of consultancy; training; building services; marketing services and corporate finance. The reorganisation is intended to help the divisions focus more sharply on their target markets, and to simplify external marketing. No job losses have resulted, because, Aldridge said, the move ‘was largely cosmetic’. The facilities management division saw a 25% increase in profits to UKP2.45m, and by 1998, revenues are forecast to hit UKP76m. The group invested UKP500,000 more than budgeted for in its computer services subsidiary, Telecom Capita, adding five new sales staff to the existing team of three. As a result, Aldridge claimed, it won six out of 10 contracts tendered by local government. The most significant one came from Kent County Council and was valued at UKP15m. Telecom Capita won a total UKP44m-worth of business in 1992, but Aldridge expects this to double in 1993. He said that revenues generated from new sales did not contribute much to profits this time, but as the cost of actually making them was written off during this fiscal year, Capita should benefit in the year to come. The managed services unit won its first facilities management deal to look after the local government revenue function at East Cambridgeshire District C

ouncil as well as what Aldridge attests is the first UK contract to manage the collection of business rates for the Royal Borough of Kensington & Chelsea. After acquiring Bristol, Avon-based Revenue Collection Services Ltd last September (CI No 2,024), Capita also claims to be the only UK company that can provide services covering all aspects of local tax collection. Estate Design and Management Ltd, purchased in April 1992, has now been fully integrated into the property services business, and Aldridge said he was ‘delighted’ with its performance during the year. In December 1992, Capita agreed to pay the contingent liability for deferred consideration. This was financed by issuing extra shares in the group worth UKP707,000. Estate has now been reorganised to focus more efficiently on the health-related sectors in which it operates. Capita’s advisory division saw profits up 31% to UKP2m. Despite strong competition in building services, the JE Greatorex & Partners consultancy benefitted from the September acquisition of Yates Edge & Partners (CI No 2,026). Greatorex’s order book is ‘adequate’, and Aldridge said he was seeing the first signs of improvement in market conditions. The management consultancy business also suffered heavy competition, but Capita took on new directors to strengthen business in central government and health. Corporate finance also ‘had a quiet year’, but Aldridge said it has a strong list of prospective customers, and is optimistic that corporate activities such as management buy-outs will increase during the year. The two training businesses, Ripa International and Capita Training ‘both enjoyed record years’, he added, with over 4,500 customers attending training courses during 1992. They have now been merged, with the aim of stimulating further growth. The marketing consultancy subsidiaries managed to maintain profits at 1991 levels, although turnover declined.

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