David Prosser: Don't bet on austerity being good for Capita
Friday 19 November 2010
Outlook Good things come to those who wait is the message from Capita. While it warned yesterday that spending cuts have had a bigger than expected impact on its business, it still expects to benefit from government austerity in the longer term, as services previously provided by the public sector are outsourced to private contractors.
The appropriate response to this assertion is that we'll believe it when we see it. For months now, outsourcers have been rubbing their hands with glee at the prospect of cash-strapped local and central government sending extra business their way. All that has arrived so far has been a heap of misery.
We've seen Capita's rival Serco hauled over the coals for trying to pass on to suppliers the cuts the Government seeks to impose on its fees. We've seen Mouchel scrap its dividend after contracts from local authorities dried up. And we've seen Carillion forced to slash its supplier base by 80 per cent as it desperately seeks to cut costs in the face of a tougher operating environment for outsourcers.
The bulging supply pipelines of which these companies all talk are all well and good – and their expectations of an increase in outsourcing work seems logical, at least for essential services. However, infrastructure projects, with a few exceptions, are off the table for the foreseeable future. And the work that is coming down the track will not offer the generous margins it might once have done.
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