Capita grows margin; a failure of procurement by their customers?

Capita are perhaps the most impressive UK corporate success story of the last 25 years, growing from a management buyout of the Chartered Institute of Public Finance and Accountancy's IT function to a £5 billion value company.  I have in also in the past met their founder, Rod Aldridge, who struck me as am impressive and thoroughly good guy.

They announced their annual results last week, with their range of outsourced service provision activities showing only a small (2%) revenue growth, but a 12% rise in profit, down largely to improved margin.  Here is what the Capita report says about this stellar performance:

Margin - We focus on generating a steadily improving operating margin. In 2010, the underlying operating margin increased by 109 basis points to14.40% (2009:13.31%). Our continued margin progression is due to our focus on operating at optimum efficiency across the Group, our ability to drive out benefits from our extensive scale, (in particular through IT rationalisation, property consolidation and effective procurement), the optimisation of our offshore facilities and the sophistication and added value of the services we deliver to clients.

So, given virtually all their work is business to business, with outsourcing contracts that are presumably negotiated by procurement professionals in the main, how did they manage to increase margin so dramatically?  Where was the gain-share with customers? Where were the procurement and contract managers arguing that, with margins already over 13%  (Serco, probably Capita's closest competitors, make a 6% profit margin), it should be the customers benefiting from operational improvement.

And having positively reviewed the UK Government's 'top suppliers' initiative last week, I hope officials there are taking note of the 14% plus margins; plenty of room for getting some meaningful  additional value back from Capita we would suggest.

So well done Capita. But come on Capita customers - get your negotiation boots on for 2011!

Disclosure; I hold no shares in Capita. My wife has a few hundred Serco shares in her SIPP. They've done a whole lot better than my Rok and Southern Cross shares. I can honestly say I'm better at blogging than share-picking....

Voices (3)

  1. bitter and twisted:

    Margin…meh.

    Have Better Demand Management and dont hire Crapita in the first place.

  2. David Atkinson:

    “So, given virtually all their work is business to business, with outsourcing contracts that are presumably negotiated by procurement professionals in the main….”

    Hmmm….presumably negotiated by procurement professionals?

    Now that’s a good one.

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