Pandemic would have threatened Capita two years ago, outsourcer’s boss says

The head of Capita has said the outsourcing giant would have struggled to deal with the Covid-19 pandemic if it had hit two years earlier, even as the crisis dented his hopes of getting back to growth this year.

Jon Lewis said the firm has weathered a challenging six-month period in a way that would have been impossible when he took over in 2017.

“This company would not have been able to manage through this crisis in the way that it has, two years ago. In fact the threat to Capita two years ago would have been much, much more serious,” he told the PA news agency.

Despite his optimism, Capita’s first-half results hurt the company’s shareholders as the value of their holdings dropped by 10.8% on Tuesday.

It was meant to be the year that Capita finally turned around its ailing revenues, which have been falling for three years, but the “modest” growth Mr Lewis had been hoping for is unlikely to materialise as the pandemic blew the plans off course.

The company swung to a pre-tax loss of £28.5 million after making a £31.2 profit last year in the same period. Revenue dropped 9% to a little under £1.7 billion.

On an adjusted basis pre-tax profit was down by three-quarters to £30.1 million.

Around half the drop in revenue was from contracts Capita already knew it was going to lose and had already announced, many with local governments. The remaining drop was as a direct result of Covid-19.

The business won £80 million of contracts with the Government to help with the Covid-19 response, something that would not have happened two years ago, according to its chief executive.

“It’s great from a revenue perspective, but even greater in terms of a proof point around reputation,” he said.

“We would not have won that scope of work two years ago, given where we were with the execution on Government contracts.”

In 2018, senior Government officials had to deny Capita would go the same way as Carillion, which collapsed in January that year.

The crisis in the sector forced Mr Lewis to suspend the company’s dividend – it has yet to return – slash forecasted profits, and tap investors for another £700 million.

But during Covid the company has managed to furlough only around 4,000 of its 60,000 employees.

Many have been working from home and reacted well, and about a third want to continue working at least three days a week from their own homes, according to an internal survey.

Mr Lewis said that the company will be able to save cash by downsizing offices, and many workers will continue to be flexible in how they do their jobs.

“Work is an activity, not a place,” Mr Lewis said.

“I don’t think it’s revolutionary, but I do think we will see a change in the operating model,” he added, talking about work hubs.

But he said the changes are unlikely to finish off call centres as we know them.

“I think it would be premature to suggest it’s over. We talk about a hybrid working model,” he said.

“I think that offering people that sort of flexible working environment will actually enable us to attract more talent than we’ve been able to historically, because we will be enabling them to manage their lives in a much more flexible way.”

He said productivity and customer satisfaction have risen during the pandemic.