Capita Group PLC

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Capita Group PLC

71 Victoria Street, Westminster
London SW1H 0XA
United Kingdom
Telephone: +44 20 7799 1525
Fax: +44 20 7799 1526
Web site: http://www.capita.co.uk

Public Company
Incorporated: 1984 as CCS
Employees: 16,936
Sales: £1.08 billion ($1.99 billion) (2003)
Stock Exchanges: London
Ticker Symbol: CPI
NAIC: 541611 Administrative Management and General Management Consulting Services

Capita Group PLC is the leading business process outsourcing services provider in the United Kingdom, a market the company was instrumental in creating and developing. Capita offers a wide range of front office and back office services for both the public and private sectors. The company's clients include regional, local, and central governmental departments and services, and public and private clients within the health, education, transportation, insurance and pensions, and other industries. The company counts more than 20,000 clients, and a significant number of long-term and recurring contracts. Capita's business process outsourcing (BPO) operations range widely. For example, the company's Payrolls and Pensions unit processes payments for more than three million people, and provides payroll services for more than 1.65 million people. In the insurance field, the company operates call centers handling more than three million assistance calls and 250,000 emergency assistance calls per year; the company provides claims settlement and other support services for more than 30 insurance companies and oversees nearly one million life insurance and pension policies. Capita's shareholder services section supports more than 2,000 corporations, providing shareholder communication, share transfer, and other services. Capita develops and delivers software and other IT services for more than 23,000 public and private schools, as well as tax and other administrative software and support services to housing councils overseeing more than 30 million people, backed by 21 call centers handling more than 26 million inquiries per year. The company also provides support for conferences and training programs—in 2003 alone the company organized 1,700 conferences and training courses, and provided training for more than 50,000 people. Capita also has achieved notoriety as the bill collector for a number of British organizations, such as the BBC licensing fee, and the London city congestion charge program instituted in 2003. With the United Kingdom's BPO market expected to be worth as much as £40 million in the early part of the 21st century, Capita has limited its geographic focus to the domestic market, where it expects to continue doubling its sales each year for some time to come. In 2003, Capita's sales neared £1.1 billion ($1.99 billion). The company is led by founder and Chairman Rod Aldridge and is listed on the London Stock Exchange.

Outsourcing Pioneer in the 1980s

Rod Aldridge was credited as pioneering the business process outsourcing (BPO) market in the United Kingdom in the 1980s. Aldridge, whose father was a sheet metal worker, had failed his 11-plus exams that would have allowed him to advance to higher-level schooling under England's former twotiered educational system. As Aldridge himself described it to the Sunday Times: "My options were being closed down."

After leaving school at the age of 16, Aldridge went to work in the mail room at a local council office. Yet Aldridge sought more for himself, and began attending night school to study to become an accountant. Part of Aldridge's inspiration was watching his father, who was laid off after 38 years with the same company, launch a new career at the age of 52. As Aldridge said: "He started his own business in painting and decorating. His courage still fills me with awe."

With encouragement from his family, Aldridge earned his accountant's qualifications at the age of 23. Aldridge began working for the local council authority; his ambitions remained modest, and for the next decade, Aldridge continued to work for the public sector. In the early 1970s, however, Aldridge decided to broaden his horizons, and in 1972 took a job in London with the Chartered Institute of Public Finance and Accountancy, or Cipfa. By 1974, Aldridge held a technical director's position with Cipfa.

Cipfa's revenues came almost exclusively from membership fees. In the early 1980s, Aldridge was asked to investigate the possibilities of raising additional revenues from other sources. Aldridge quickly spotted an opportunity.

The Thatcher government was then in the process of dismantling much of the centralized, nationalized system developed by Labour governments over the previous decades. The new privatization effort also extended to the country's 450 local council governments, which found themselves confronting new legislation and the demand to contract out for services previously handled entirely by the government. At the same time, the use of computer-based information systems had become a vital component of government and bureaucratic life, and many council governments were struggling with requirements to install their own computer networks and systems.

Aldridge understood that local governments would need help to meet the new legislative imperatives and to integrate the new information technologies. In 1984, Aldridge convinced Cipfa to allow him to create CCS, Cipfa computer services division. Starting with a staff of just two people, including Aldridge himself, CCS quickly signed on customers—including 160 of the country's local councils.

By 1987, CCS's staff had grown to 33 people, and the division was generating profits of nearly £60,000 on annual revenues of £2 million. Yet Aldridge had begun to feel the constraints of operating from within Cipfa. For one thing, he had become impatient with his own prospects, having been passed up for senior executive positions. For another, the CCS had begun to receive inquiries from private companies seeking its services—a market that was outside of Cipfa's sphere of operations.

In 1987, Aldridge and three co-workers approached Cipfa's management with an offer to buy out 80 percent of CCS. Cipfa angrily refused the offer. Aldridge, however, then 40 years old, decided to call Cipfa's bluff. He came back with a new offer—sell him 100 percent of CCS, or he would simply launch a new company.

Cipfa backed down, and agreed to sell CCS for £330,000. Venture capital firm 3i provided most of the backing capital for the management buyout. Yet Aldridge contributed some £24,000 of his own, raised by taking out a second mortgage on his home—despite the imminent birth of his fourth child. As Aldridge stated to the Sunday Times: "There was no way I was going to fail."

Renamed as Capita, the company grew rapidly, posting profits of £1.5 million by 1989. In that year, Capita went public, with a listing on the Unlimited Securities Market, in an offering that valued the company at £8 million. Just two years later, as its revenues swelled to £25 million, Capita moved its listing to the London main board. By then, the company employed 320 people—many of whom came to Capita from the government services the company had taken on—at 11 sites in England.

Building Success in the 1990s

Capita quickly began expanding its range of services. In the early 1990s, for example, the company developed a strong property consultancy arm, which provided services especially to local governments and city councils, by acquiring a number of existing operations. In 1992, the company began managing revenues for the East Cambridgeshire District Council, marking the first time a council had outsourced this service. The following year, the company began administering benefits for Bromley council.

The national government also became a major Capita client. In 1996, for example, the company was awarded the contract to establish and administer the theory portion of the country's driver's license testing program for the Driving Standards Agency. The company also acquired the Recruitment & Assessment Service for HM Government, establishing Capita's involvement in the human resources sector. By the end of that year, Capita's revenues had jumped to £112 million, with profits of more than £12 million, and the company employed some 3,500 people at more than 60 locations.

By 1998, Capita's market value had soared past £1 billion. The company's revenues and profits had more than doubled, as the company added a number of new, large-scale contracts—such as a £230 million contract to provide IT training to U.K. teachers, and a contract with the Metropolitan Police Service to take over its payroll and pension service. By the end of 1999, Capita employed more than 7,000 people at 100 locations throughout the United Kingdom.

Company Perspectives:

Vision and Strategy

Capita is a constantly evolving company and we pride ourselves on being innovative and at the leading edge of service transformation.

Delivering excellence in all we do, we aim to enhance and modernise customer services, support the raising of education standards and assist our commercial customers to remain competitive.

Both locally and through a national network of customer service centres, we harness the best of technology and business process, to provide efficient, responsive, accessible services. We play a key role in regenerating local communities and focus on acting in a responsible manner, growing a sustainable business.

Acquiring Leadership in the New Century

As it entered the new century, Capita began a more ambitious program of expanding its range of services. Acquisitions played an important role in the company's quest to extend itself into new areas of operations. In 2000, for example, the company acquired Eastgate, which provided outsourcing services to insurance providers, and IRG PLC, which specialized in administrating employee share benefits programs for the private sector. Capita boosted the latter operation, renamed as Capita IRG, the following year when it paid Royal & Sun Alliance £24 million for its share trust operations. At the same time, Capita bought full control of aMyshares, which developed software for employee share plans. These additions enabled Capita to claim the leading spot in the United Kingdom's corporate trustee sector. By the end of that year, Capita's revenues had jumped again, to £453 million, while the company's payroll counted more than 13,000. The boom in high-tech stocks during that period also was reflected in the company's market valuation, which reached a peak of £4.3 billion that year.

Other acquisitions followed, including those of loss adjusting company McLarens Toplis in 2001 and Mission Testing PLC in 2002. In that year, also, Capita acquired City Financial Group Ltd., the United Kingdom's leading independent collective fund administrator, which formed the foundation of the group's new Capita Financial subsidiary. In 2003, Capita added Aurora Corporate Services Ltd., which provided services to the insurance industry.

By 2004, Capita estimated that its range of services touched the lives of more than 30 million people in the United Kingdom. Yet the company's ubiquity came at a price—as the interface between the public and an increasingly varied range of government services, Capita often found itself embroiled in controversy. Such was the case in 2003, when the company, hired to conduct teacher screening services for the nation's school system, was unable to complete the screening in time for the new school year. In that year, also, Capita began implementing and managing the new anti-congestion payment system for the city of London. These helped the company earn the nickname "Crapita" from Private Eye magazine.

In part in response to its difficulties in the public sector, Capita began stepping up its efforts to convert more of the United Kingdom's private sector to the outsourcing model. Capita, with revenues of nearly £1.1 billion, had clearly established itself as a leader in one of the most vibrant outsourcing markets in the world. With the U.K. market alone expected to rise to as much as £50 billion or more in the near future, Capita moved solidly into the new century.

Principal Subsidiaries

Capita Absence Management Services Limited; Capita Business Services Limited; Capita Gwent Consultancy Limited (51%); Capita Insurance Services Group Limited; Capita Insurance Services Limited; Capita IRG PLC; Capita IRG Trustees Limited; Capita Life & Pensions Services (Ireland) Limited; Capita Life & Pensions Services Limited; Capita Property Consultancy Limited; Capita Trust Company Limited; Cost Auditing Limited; Equita Limited; Management Services Limited (Ireland); Northern Administration Limited; Northern Registrars Limited; Sector Treasury Services Limited.

Principal Competitors

Pinkerton Computer Consultants Inc.; KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft; PwC Deutsche Revision AG; KPMG L.L.P.; Ernst and Young L.L.P.; Deloitte & Touche LLP; PricewaterhouseCoopers Associates Proprietary Ltd.; Lagardere S.C.A.

Key Dates:

1972:: Rod Aldridge joins Cipfa.
1984:: The CCS computer services division of Cipfa is launched to raise additional revenues.
1987:: Aldridge leads a management buyout of CCS, renamed as Capita.
1989:: An initial public offering is made on the Unlisted Securities Market.
1991:: Capita transfers to a full listing on the London Stock Exchange.
1996:: Capita receives a contract to develop and administer a new written driving test in England.
1998:: Turnover tops £238 million.
2000:: Eastgate and IRG PLC are acquired.
2001:: McLarens Toplis is acquired.
2002:: Mission Testing PLC is acquired; City Financial Group Ltd. is acquired and Capita Financial is established.
2003:: Aurora Corporate Services Ltd. is acquired.