Capita says gov cuts hit hard

Capita shares are down nearly five per cent this morning after it warned that government cuts were hitting revenues harder than expected.

In an update to the stock market, the government's favourite outsourcer said the message was mixed. It has had constructive discussions with the government on cutbacks and it believes outsourcing will pay a key role in achieving the £6bn reduction in government spending, it said. Shares are down 4.4 per cent to 690 pence.

Capita said trading was "solid" but revenue growth had been subdued. It said: "Our bid pipeline is at a record level and our prospect list is very active, indicating that the market for significant outsourcing opportunities across both private and public sectors is buoyant."

Capita has no major contract renewals, worth more than one per cent of turnover, until 2012.

However, the offshorer warned: "We expect turnover growth for 2010 to be modest due to the unusually high degree of revenue attrition in the year, fewer sales decisions to date in the second half of this year and the short-term impact of current public sector retrenchment on some of our trading businesses."

In local government, which faces cuts of 7.1 per cent, Capita again expects to pick up some offshoring work.

Capita also said that the bidding process in the life and pensions market was easier under those firms' new owners and management.

Looking forward, Capita said short-term pressures were likely to continue into the first half of 2011 but added that continued spending pressure: "will generate a strong flow of outsourcing opportunities for Capita during 2011 and beyond." ®