The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
To get back on thread, Xenia Walters from the board of Cirata has been brought in by Adolfo to breathe some life into the cloud and AI offering. He very much has the Amazon vibe which I think will be lapped up by the Institutional Investors. The changes are promised to come thick and fast, but any non tech managers are probably under no illusion now this will involved cuts.
I feel a bit of a sea change with the last few rounds of redundancies. Costs from the middle and top heavy structure needed to be trimmed and they finally are. From the jobs open and changing management mix it looks like a pivot towards Europe rather than a head to head with slicker Indian operations for new English call centre clients which ends up as a fee race to the bottom. The transition costs will be high for an expansion of existing Euro work but worth it if they get the clients and can service them from Poland/ Bulgaria. Some severe local belt tightening going on so I don't think the next set of accounts will be pretty at all and I expect the press to put the boot in even with a decent medium term plan.
The contract may well be from 2025 AIM, but that is go live and there will be 12 months of billable transition before that + pensions dashboard and other data cleanse bolt ons needed due to the timing of the contract. I'm not one to beat the drum and talk up the bid team, but this is a good win.
Even on JPs prediction the price should not be less than 5.26 now before the div. Yes I think they are wrong anyway and this is an unexpected and welcome gift. Also was looking to top up ex div but will grab some more and the div basically for free now.
Quite a bit of truth in that Trenners, but I expect margins to come under pressure from offshore competition similar to the loss of Teachers Pension with limited provision for UK redundancies. So more one off costs whilst they expand India, South Africa and similar teams. Consulting need to get off their backsides and deliver as that is the only chance at margin improvement IMO.
To address some of the earlier comments and chuck in a few of my own.
Can they get out of loss making contracts - no
Is the board at fault - not really, the executive management team is responsible for delivering the cash flow and converting the pipeline. Lots of hiding behind the cyber attack, as predicted.
Have the one off costs finished - no, there is no contingency for lost contracts or the redundancy costs of moving jobs offshore.
Are the bigger clients generally happy - yes, but their own cost pressures make them consider 100% offshore outsource if they can ring-fence for privacy, which some of the Indian outfits have convinced they can.
Are employees generally happy - management realised they had to act fast after the April pay debacle bleed, but the solution is going to impact sometimes slim margins. Luckily some of the talent see the grass is not always greener and return after a few months.
How is the digital offering? Not bad not moving fast enough. May actually get some cyber jobs.
How will Adolfo go? Seems like a nice guy. I was hoping for someone with Amazon's ruthless competition destroying drive. I don't see that. I see the same old guard hanging around being nice to everyone.
It doesn't excuse it and won't stop the penalties, but the floor plans are off an open source bolt on, it is quite possible the job applications came through a similar route and there was another level of control before final data storage.
The problem is that services have either not been fully restored or services are available but key clients are hesitant to interact given ongoing security uncertainty.
Operationally, nothing has really changed since my post a few months ago. No new contract wins, ( certainly no-one is going to put up their hands now). Lewis actually said that current revenue, cash flow and profitability included results from disposed and not just ongoing business operations. The silence from divisional leads is deafening, unless the topic of equality, employee well being or yet another inclusion related yammer group or bench mark is established. I still think senior management hide behind it and will also now hide behind the cyber attack for not bringing in new quality clients.
The business remains profitable based on existing contracts and work quality has improved and it is good the debt burden is a thing of the past, but it is unsatisfactorily the same old pig with new lipstick once you get past the operational teams. New joiners have just gone with the flow and not changed the dynamic.
Lewis must be wondering where he can find someone who can take the hard decisions, 4 years on and no real progress in transforming the team beyond the gender mix.
It won't deserve the hammering the share price will probably get now but neither did it deserve the ramp up from 30p to 42p on a growth agenda, but business as usual reality.
On an unrelated matter, once the overtime dies back they will probably lose some key skilled workers with a pay increase so far below inflation for most. But credit those on the lowest wage kept up.
I'll shut up for a few more months to give you some peace now.
It is the timing that is a key problem here, a pile of end of year quarterly, triennial and annual filings missed or at risk of being missed with associated penalties and adverse regulatory disclosure by a bunch of grumpy clients. Annual pension increases may not be fully processed before the pay runs and precautionary measures from both sides limit the transfer of key data with others, such as annuity providers or Investment Funds, so a pile of rectification work at Capita's expense when they are back up and running. Bad luck being so close to tax year end. Won't be cheap and will be remembered unfortunately.
Public is probably chugging along but no material new contracts. Lewis said income may be weaker due to changes in how agreements were interpreted, I assume that includes the larger ones like defence. Experience not growing, you don't replace divisional leads twice from over performance, but contract renewals look ok. For new work looks like being kept in bid lists o make up numbers. Move to lower overhead locations India, Poland, Bulgaria, SA looks steady, but the UK management structure is still too top heavy to deliver good margins with the living wage increase which must come. Consulting going nowhere needs a clean out to refresh the offering. Unfortunately still playing second fiddle to overpriced consultancies seen as more expensive but safer bets, so only get the unwanted crumbs. Too much internal effort on soft HR outcomes wrt gender/ethnicity work life balance, only impresses public service HR managers, not those who make the contract decisions. If they can get a better handle on margins should easily be profitable and if Corrine Ripoche does it she should replace Lewis and I am sure he will be glad to go.