Capita thrives on contracting out

CAPITA, the management services group, has reported record profits for the eighth successive year as local and central government continue to contract out white-collar services. Profits before tax rose by 28 per cent to pounds 4.41m, slightly above City expectations.

Nearly 90 per cent of Capita's revenue comes from the public sector. As well as offering consultancy services to councils, Capita can take responsibility for chasing errant council-tax payers, and run a council's computer system or its whole finance department.

Pre-tax profits from the out-sourcing division, which includes computer services and managed services, were up 25 per cent at pounds 2.5m in the year ended 31 December, on overall turnover of pounds 33.1m, up 34 per cent.

Profits in the advisory division rose by 31 per cent to pounds 1.95m. Capita trained more than 4,000 people over the period, double the number in the previous year.

Capita has no borrowings and net cash of pounds 9.6m. Rod Aldridge, chairman and chief executive, said it was important for prospective clients offering three or five-year contracts to see a strong balance sheet. 'We will be taking on members of their staff and they want to see our financial strength,' he said.

Typically, when Capita takes over a council's computer services it will buy the computer, buy the site, and bring the staff on to its own payroll. But when the computer has finished sending out, for example, council tax bills, Capita will increase margins by contracting out the computer for other work, such as data processing.

Sara Wigglesworth, an analyst at Panmure Gordon, said Capita's strength lay in its extensive connections in local government. 'Everyone knows that privatising local and central government is a brilliant growth market, but it's a question of getting in on the right track.

'Capita has so many fingers in so many pies in local government, talking to treasurers and chief executives, that they know what people are thinking,' she said.

Earnings per share rose by 23 per cent to 19.3p. The final dividend of 4.2p gave a total for the year of 6.3p (5.4p). The shares fell 10p from 472p, their all-time high.