Capita says cuts have hit harder than expected

City A.M. Reporter
Outsourcing firm Capita said sales growth would be hit harder by government spending cuts than it previously expected – but said the measures would eventually create a climate that would benefit the business.

"We indicated that pressures on public spending might potentially affect growth in the short term ... This is now occurring and will subdue revenue growth in the second half of the year more than previously anticipated," Capita said.

Capita, which processes 25 million life, savings and pensions policies and handles complaints for the BBC, said revenue growth would be modest because many existing contracts would not be renewed or offset with new deals, and because fewer contracts had been signed in the second half.

Last month Capita, which chalks up half its revenues from government contracts, signed a deal to help Downing Street deliver savings, although it said the move would not materially impact its finances.

Many analysts have tipped Capita as one of the companies poised to benefit in the long-term from public spending cuts and, despite its sales warning, the firm remained bullish about its ability to benefit from demand for savings.

"The opportunities to work with central and local government to deliver greater cost efficiencies across public services through new outsourcing initiatives are strong," Capita said.