Capita vows cuts will not hit suppliers
Capita admitted to underestimating the impact of government spending cuts, but promised not to echo rival Serco by punishing its suppliers.
The outsourcing group's last update at the half year carried a warning that growth prospects would be dampened by an agreement with the Cabinet Office to offer savings on existing contracts.
But Capita - whose work for the government includes providing the Home Office's criminal records service - conceded that the fallout from austerity measures had proved even worse than first thought.
Capita provides the Home Office's criminal records service
Its shares shed 32p to close at 690.5p, as it conceded that the damage was 'now occurring and will subdue revenue growth in the second half of the year more than previously anticipated'.
But chief executive Paul Pindar promised that Capita had not 'done a Serco' by seeking to strong-arm its suppliers into offering discounts.
Serco elicited a furious response from cabinet minister Francis Maude after it warned suppliers to slash the cost of their services or face losing out on future contracts.
The company was eventually forced into an embarrassing Uturnin the face of Maude's ire. Pindar acknowledged that divisions such as Capita's public service recruitment business were taking damage, but said it was 'our responsibility' to find savings.
'I don't want to be overly holy, but its important that we respect customers, employees and suppliers,' he added.
Pindar insisted that improved operating performance and cost cuts meant that the company's full-year profit expectations would remain unchanged.
He said departmental belt-tightening would ultimately work to the firm's advantage, as government offices farm out expensive functions to outsourcers, amid 490,000 civil service job losses.
'The reason we're not getting despondent is that the process of saving money will deliver opportunities for some significant pieces of outsourcing.'
Pindar said big-spending departments such as the Ministry of defence and the department of Work and Pensions were likely to turn to the likes of Capita as they whittle down back office staffing levels.
Capita also said it expects to make acquisitions in 2011 and could buy back shares from investors, after spending £109m on buybacks this year.
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