21st Nov 2023 11:47
(Alliance News) - Capita PLC on Tuesday announced that around 900 jobs in its 50,000 workforce are at risk of redundancy, as it ramps up its cost-cutting drive.
After a rocky year for the stock, Capita shares were trading 6.3% higher at 20.40 pence late Tuesday morning in London, having risen as high as 10% earlier in the morning. It is down 19% in 2023 so far.
The outsourcer said it will begin to conduct employee consultation programmes. Capita expects to deliver cost savings of around GBP60 million on an annualised basis from the first quarter of next year, with GBP27 million in exceptional costs related to the job cuts to be recognised this year.
The cuts will mostly be "indirect support function and overhead roles", Capita said.
The measures are to further its medium-term target of doubling its operating margin to 6%, as announced in its interim results in August. It had said the goal was underpinned by plans to cut costs by GBP40 million per year by the end of 2024.
"The group continues to trade in line with its expectations, delivering positive operational and financial performance and has won contracts with a total contract value of GBP2.85 billion year to date [from GBP2.59 billion in 2022]," it added on Tuesday.
The company is still recovering from a major cyber attack back in the spring, which saw hackers access data of some clients and staff. Around 90 organisations wrote to the UK Information Commissioner's Office to report a potential breach of the data in relation to the incident.
The firm will be under new leadership from mid-January, as Adolfo Hernandez, vice president of Global Telecommunications at Amazon Web Services, becomes CEO, replacing incumbent Jon Lewis.
"Under Lewis' five-year leadership, shares in Capita have fallen sharply by around 80% with the new CEO appointment and the latest cost cuts providing some reasons for investor optimism once again," said Victoria Scholar, interactive investor's head of investment.
Lewis, who was appointed as CEO in 2017, began considering retirement last year but delayed such plans to lead Capita's response to the cyber attack.
However, Shore Capital noted that "challenges remain" for Capita. The broker cites a "tight" UK government spending outlook, with government contracts underpinning the majority of the firm's revenue. Its peers have also "not stood still" whilst it has restructured.
"Non-performing contracts still need to be resolved and the new business win rate needs to be sustained and strengthened. AI is also a challenge (and opportunity) to revenues in the future, in our view (delivering at a lower cost, similar margin)," Shore said.
By Elizabeth Winter, Alliance News deputy news editor
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