Capita was meant to be the outsourcer that investors could rely on. As G4S and Serco found novel ways to shoot themselves in the foot and annoy governments, Capita kept its reputation for reliability. It was a tribute, we thought, to its concentration on dull back-office tasks such as running IT operations for life assurance firms.
The company’s status as the sector’s star turn will not evaporate entirely with Thursday’s hefty profits warning that sent the share price down 27%. It is still possible to take a cheerful view that a £70m-ish shortfall in profits this year – £545m is now predicted instead of £614m – will become just one lost year in a remarkable 25-year run as a public company. At flotation in 1991, turnover was £25m; now it is close to £5bn.
But this was Capita’s first profits warning and the alarming part was that the explanation was one damn thing after another. Referendum-related breezes, which slowed stock market flotations and thus demand for Capita’s registrar services, grab attention but most of the confessions had nothing to do with Brexit.
A unit reselling IT systems was whacked by competitors. In specialist recruitment, more public sector bodies think they don’t need to use a middleman. Delays in installing new IT for the London congestion zone caused a £20m-£25m one-off hit. And, by way of diversion, Capita’s lawyers are quarrelling with the Co-op Bank over a mortgage-outsourcing contract.
Just a series of unfortunate slips? Possibly, but the nagging doubt is that G4S and Serco went off the rails, in part, because their businesses became so big and sprawling that central management couldn’t keep all the balls in the air.
Capita sensibly never shared its rivals’ dreams of spanning the globe but it is vastly more complicated than in the good old days of easy growth. It employs 75,000 people, 17,000 of them abroad, and some of the thousands of contracts run on fine margins. In the circumstances, the share price plunge looks fair: Capita has to show it has not grown too large.
Car trouble
There is silliness on both sides of the business-related debate about Brexit. Liam Fox, the trade secretary, provided a prime example recently when he said British business was too fat and lazy to exploit the wonderful trading opportunities he will soon be negotiating. His clarifying remarks about the opportunities in a “post-geography trading world” were equally vague.
But here, from the opposite direction, comes Nissan chief executive Carlos Ghosn with a truly off-the-wall demand. Nissan is contemplating where to build its next Qashqai sports utility vehicle and, if the choice is Sunderland, he would like to be paid compensation by the UK government if the European Union puts tariffs on cars imported from Britain.
“If there are tax barriers being established on cars, you have to have a commitment for carmakers who export to Europe that there is some kind of compensation,” he said.
What? Should UK taxpayers also be bribing Goldman Sachs to stay in London if Brussels cuts up rough on passporting rights?
Nobody would deny that UK carmakers face unique post-Brexit worries, but Ghosn must surely have noticed that the pound has fallen 12% against the euro since the referendum, delivering a nice competitive boost for exporters. Yes, an EU tariff on car imports, if set at 10%, would wipe out most of that advantage, but the sums would still be finely balanced at current exchange rates.
Time to take responsibility
Nick Varney, chief executive of Merlin Entertainments, and Sir John Sunderland, the chairman who has also chaired the company’s health, safety and security committee since 2010, do not share this column’s view that a resignation would have been the right response to the damning remarks made by the judge in Alton Towers rollercoaster-crash case.
The two men are staying in post, despite being told that the “needless and avoidable” accident that caused two women to lose a leg was the result of Merlin’s “catastrophic failure to assess risk and have a structured system of work”. It’s their decision to make, of course. But please, Merlin, stop telling us (yet again in Thursday’s trading update) that “from the beginning the company has accepted full responsibility for the accident”.
That phrasing skips over a heavy qualification made by Michael Chambers QC in his sentencing remarks: “Whilst the defendant [Merlin] should have full credit for the plea of guilty, the earlier acceptance of responsibility was tainted by the willingness to blame its employees when the fundamental fault was that of the company.”
