Articles tagged: bpo

• Thursday 2nd February 2012

  Capita takes aim at SAP services

  Having caught insurance broker Fish Administration earlier this week (see here), Capita is now taking aim at SAP services with the acquisition of Smiths Consulting Ltd, a small SAP services business with 52 employees (and 150 associates) based in Newcastle. Capita is paying up to £12m in cash, on its usual terms ‘cash and debt free’, with £2m of this being dependent on Smith’s profit performance over the next two years.

  In its most recent year ended 31 March 2011, Smiths made a pro forma operating profit of £2.4m on a turnover of £11.8m (20% margin). There is no indication as to how the business has performed since, other than CE Paul Pindar’s comment that it has "has a loyal customer base that will benefit from Capita's scale and the scope of service offerings delivered by the wider Group.” This customer base is across government, aerospace, telecommunications and finance.

  We assume that Smiths will be brought in to Capita's IT Services division. One of Capita’s top priorities is to build up its IT services credentials. This has been in progress for some time through various bolt-on acquisitions. The most recent deals include the UK operations of telephony automation and voice recognition provider Salmat Speech Solutions in January (see here), as well as Call Centre Technology (see Capita acquires call centre partner), and web application developer Technophobia (see here) last year. It will be fascinating to watch how Capita plans to knit all of these technologies and offerings together.

  Posted by

  John O'Brien

  at 08:10 - 0 comments

• Wednesday 1st February 2012

  Firstsource takes further hit on margins

  India-based BPO pure play Firstsource took another hit on margins in Q311 on its quest to fuel revenue growth. In the three months to 31 December, the EBIT margin more than halved to 3.5% vs. 9.3% the previous year, and was down from 4.4% the previous quarter. Revenue meanwhile was up 3.3% in constant currency (ccy) to Rs5.77bn (£74.1m), and up 1% qoq (ccy). This is now the third consecutive quarter that Firstsource’s margins have slumped (see here and here). Firstsource said it was ‘largely driven by investments and cost of growth towards recently won large deals’.

  The company did manage to win $160m worth of new business in the quarter, including a ‘long term strategic partner’ relationship with an unnamed UK-based telecom and media client. The UK is a growth market for Firstsource thanks largely to its major deal with Barclaycard (see Firstsource confirms Barclaycard contract), and this latest contract should help ensure that growth continues. Q3 UK revenue was up 10.6% to Rs1.84bn (£23.3m), although the EBIT margin fell to 15.5% vs. 26.8%.

  The margin issue is a concerning trend for Firstsource, which looks like it is being forced towards the commodity end of the offshore BPO market. The company has a number of challenges. First is its high attrition rate, which averaged c61% in Q3 (vs. 55% in Q2) across its different geographies on an annualised basis. Onshore attrition (US and Europe) is the lowest, but this still stands at c38% annually, and undoubtedly also adds to the cost of delivery here.

  Then there is Firstsource’s ‘lift and shift BPO’ model, which we believe lacks the flexibility to manage these uncertainties in its cost base. While many of its offshore peers are moving fast to a platform-based BPS model, and with that greater automation and a healthier margin upside (see Offshore suppliers upping the stakes in platform-based BPS), Firstsource does not appear to be making the necessary investments.

  Posted by

  John O'Brien

  at 08:49 - 0 comments

• Tuesday 31st January 2012

  Serco cuts UK workforce

  Serco’s 500 job cuts announced earlier this week (see here) in management and back office support functions, are to be meted out mostly across its UK head office in Hook according to the BBC (see here). This number accounts for c1.4% of Serco’s current UK workforce of 35,000.

  The news coincides with Serco’s launch of its ‘global BPO’ operation created out of the amalgamation of its recent acquisitions of offshore BPO provider Intelenet Global Services (see Serco’s expensive offshore gamble),  UK-based call centre provider The Listening Company (see Serco acquires UK contact centre provider), and Australia-based contact centre provider Excelior last November. These deals together add a total of 37,200 people into Serco’s new global BPO operation mostly based out of India. However there will also be an additional 4,300 people in the UK from TLC and Intelenet.

  One of the keys to running a successful BPO operation has to be to ‘take your own medicine’, so it makes sense for Serco to plug its own back office services into this new BPO capability. In fact till now, Serco has had to partner with BPO providers for certain internal back office administration (see Serco renews BPO deal with Genpact), which really exposed a weakness in its delivery model. This shift will inevitably involve cost cutting. But retraining and redeploying staff elsewhere could minimise the impact of job losses.

  As Serco moves forwards with its ‘global BPO’ plan, it mustn’t lose sight of the experience and skills that it has built up in its core UK market.

  Posted by

  John O'Brien

  at 13:43 - 0 comments

• Monday 30th January 2012

  Capita catches Fish for insurance broking

  Capita has bought disability insurance broker Fish Administration to expand its reach in general insurance services. Capita is paying £21m in cash to private equity owner Inflexion - quite a premium of 3.6 times revenue for Fish, or almost £200k for each of its 30 staff – and on its usual cash-free, debt-free terms. In the year ended May 2011, Fish’s turnover was £5.8m (no previous year comparison available), and pro forma operating profits were £3.5m, giving Fish a very healthy 60% margin.

  Fish specialises in providing insurance products on a broker basis to people with disabilities, including cover for wheelchair accessible vehicles, travel, and mobility scooters, as well as insurance products to the independent living and care sectors. It has 70,000 policyholders and also has a boutique commercial insurance arm called Fish Corporate Insurance.

  Capita is far less well represented in general insurance than in the commercial sector, where it is the leading provider of life and pensions (L&P) administration. General insurance should be a natural area of opportunity to expand and broaden its scope of services. Capita also needs to continue exploiting other growth areas to mitigate increased threats in its core L&P hunting ground from newer platform-based business process services (BPS) players like TCS/Diligenta (see Diligenta wins £1.4bn Friends Life deal (update)).

  Posted by

  John O'Brien

  at 09:24 - 0 comments

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