Local councils move to reassure residents over outsourcing giant’s woes

Outside Capita's offices in Bournemouth, Dorset. Picture: Andrew Matthews/PA Wire

Outside Capita's offices in Bournemouth, Dorset. Picture: Andrew Matthews/PA Wire - Credit: Press Association

Councils have reassured tax-payers over services outsourced to struggling firm Capita.

The company has asked investors for £701m after posting pre-tax losses of £513.1m and raising fears the business could follow competitor Carillion into collapse.

Among those in the region who use Capita's services are Breckland Council which uses it for its planning department, Norfolk County Council which pays for schools and library systems and Babergh and Mid Suffolk District Councils which uses its financial software.

Revenue fell 4% to £4.23bn in the year to December 31 and the firm also announced a £701m rights issues as part of a transformation strategy under new chief executive Jonathan Lewis.

The proceeds of the rights issue, part of a major overhaul, will be used to reduce Capita's debt and make investments. Under the new strategy, the outsourcer is also targeting annualised cost savings of an initial £175m by the end of 2020 and around £300m from disposals in 2018. Capita's woes come after construction group and outsourcing rival Carillion collapsed into liquidation in January, leaving the taxpayer on the hook for billions of pounds of projects and pension liabilities.

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Capita has contracts with several of the region's councils for services ranging from planning to treasury software and payment systems. But local authorities have said they have contingency plans in place should suppliers run into financial difficulty.

A spokesman for Norfolk County Council, which uses Capita's school software, said they 'do not anticipate Capita defaulting on its contracts' but had systems in place should there be problems. Breckland Council said although Capita was restructuring it had been reassured that the services utilised by the council would continue to be run.

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Babergh and Mid Suffolk District Councils' procurement team said although Capita was struggling nationally the parts of the group which it worked with were doing well.

Mr Lewis said Capita will centralise its procurement, consolidate its UK footprint and exit leases on properties as the chief executive seeks to cut costs.

But he also dismissed comparisons with Carillion.

'I get frustrated with that comparison – we are a completely different business. We have £1bn in liquidity, strong cash flow and a new strategy with investor support. We are not in PFI contracts and have nothing like the risk profile.'

The company restructure will see it focus on five activities – software, HR, customer management, Government services and IT.

Capita operates a raft of public sector contracts such as the London congestion charge, Jobseeker's Allowance helpline, administers teachers' pensions and provides an electronic tagging service for the Ministry of Justice.

Capita said 2018 profits would fall short of expectations, at between £270m and £300m.

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