Industry news

Serco’s reported revenues for the first half of 2015 show signs that the outsourcing services group is stabilising, despite a post-tax loss of £92 million and a 28 per cent decline in revenues from UK central government.

The group lost its contract to run the Docklands Light Railway line in London, with deals involving the National Physical Laboratory and Colnbrook immigration removal centre also coming to an end.

Serco said in an official statement: “Following the significant disruption to our customer relationships with UK central government in 2013 and the subsequent corporate renewal process that was put in place over the course of 2014, rebuilding the pipeline is now a major focus, and we will look to identify new opportunities in our core markets of justice & immigration, defence and transport in the UK as they emerge from policy decisions taken by the new government.”

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Related: Serco Seeks Redemption after £1.3bn Operating Loss

US technology provider CSC has acquired Fixnetix, a UK trading technology group, in order to make strides in the high-speed trading and data services markets.

CSC and Fixnetix will both continue with plans to develop an array of services targeting banks and brokers, such as high-speed trading and a variety of other IT services. Both businesses see this as a lucrative market, with many banks looking to make the switch from trading over the phone to trading electronically.

According to speculation in the FT, the acquisition may have cost CSC just over $100 million.

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Related: Co-operative Bank and Capita agree on £325 million acquisition

G4S experienced significant financial losses on the stock market recently, after Goldman Sachs lowered the firm’s share rating to “sell” one day after its half-year results were published.

Analysts at Goldman Sachs cited a “fiercely competitive” security business environment and disruptive technologies “creating opportunities for new players” as current trends that will take away from G4S’s business, hence the downgrade.

The bank also claimed that economic pressures in Africa and Latin America are likely to negatively affect the company and impact on its end-of-year results.

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Related: G4S wins £80 million EDF Energy contract to guard new nuclear power plant facility

After confirming that its integration with new $4 billion acquisition IGATE will be complete by mid-2016, Capgemini has announced that it plans to expand its engineering services team in India as soon as things are settled.

"Definitely, engineering services is the next big thing in the IT industry," explained Aruna Jayanthi, CEO of Capgemini India. "We started an engineering services team 18 months ago and we will expand that going forward… Indian companies are realising that to go global you have to have a world-class technology backbone and that's driving a lot of the business. Our preferred set of customers has begun to invest.”

Despite the rise of digital technologies, many Indian IT firms are investing in engineering services first and foremost, an area that is expected to grow faster than any other Indian business sector this financial year.

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Related: HMRC will take on 250 Capgemini workers to ease Aspire contract transition

Research from arvato has revealed that the size of the local government outsourcing market rose from £53 million in 2005 to just shy of £100 million in 2010 during the coalition government’s time in power.

arvato stated that this rapid increase was caused in part by the uptake of shared service arrangements. However, global BPO director Debra Maxwell says that, despite this rise, “adoption of genuine shared services among local council has been relatively low”.

With further cuts to council funding expected from the government’s next spending review later this year, Debra expects councils to embrace outsourcing in previously unchartered territories, in an attempt to find revolutionary new ways of improving efficiencies while maintaining services at the same level.

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Related: Local councils embrace outsourcing as part of austerity-driven innovation push

Investors in outsourced public services firm Interserve are slowly starting to panic, as the group issued a warning that George Osborne’s planned increase to the national minimum wage will make the company’s profits at least 10 per cent lower next year than previously forecasted.

Interserve will need to pay at least 10,000 of its 15,000 cleaners a higher wage as a result - £7.20 an hour by April 2016 and £9 an hour within the next five years. Due to the unexpected nature of the summer Budget announcement, company analysts had not previously anticipated this decline in profits.

Interserve CEO Adrian Ringrose warned that there will also be “knock-on effects”, where more senior workers, such as staff supervisors, will expect their own wage increase to protect their pay differentials from junior employees.

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Related: Local councils must find extra £1 billion by 2020 to fund new minimum wage

An iGov survey, commissioned by Serco, has revealed that the majority of managers, department heads and directors working within NHS organisations believe outsourcing and shared services will make an important contribution to the successful delivery of NHS England’s efficiency plan over the next five years.

62 per cent of respondents shared this view, while just 41 per cent thought outsourcing and shared services are currently contributing towards their efficiency targets.

With Capita on the verge of taking the reigns of the NHS’s back office in order to improve efficiency and cut costs, Serco reported that there was “widespread agreement” among respondents that the delivery of immediate savings over the next year will be the easiest step to take. However, meeting NHS England’s demanding target of generating consistent savings of two-to-three per cent each year between now and 2020 was considered to be a much more significant challenge.

Procurement was seen by 54 per cent of those surveyed as the business support area where the largest efficiency improvements can be achieved, with 45 per cent also seeing that as the area where efficiency savings can be brought about most quickly.

The most highly sought outcomes off the back of these organisational changes were ultimately improving the patient journey (74 per cent) and successfully delivering integrated care models (73 per cent).

The “Efficiency Challenges in the NHS” survey polled a broad cross section of managers, department heads and directors from over 200 different NHS organisations.

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Related: NHS and Capita consider administrative cuts to achieve savings and frontline improvements

Capita Managed IT Solutions has been assigned by the Crown Commercial Services (CCS) to the national ICT Services for Education Framework Agreement.

Capita will now have the opportunity to bid to deliver technological solutions to service the needs of the UK’s educational establishments. The agreement was put in place by the CCS to provide educational bodies with easy access to IT suppliers who are best equipped to help them.

Over £300 million in revenue will be available to Capita and other providers involved in the agreement over the next four years.

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Related: Capita announces 11% rise in pre-tax profit with £1.6 billion in major contracts secured

The National Outsourcing Association has released its latest research examining the availability of important skills in the UK in order to ascertain whether the country is ready for global outsourcing leadership.

The research, which surveyed both buy and supply-side NOA members, found that the feeling in the industry about outsourcing’s growth potential over the next five years was strongly positive, with buyers returning an average positivity rating of 66 per cent and service providers responding with a more optimistic 76 per cent.

The general consensus strongly suggested that, in order for the UK to become the number one country for supplying high level services, UK-based suppliers must first and foremost be able to irrefutably prove the business value behind the services they provide.

The research concluded: “if there’s one last message to be taken away from this research, it’s this: regardless of whether they’re being recruited, trained or retained, people are the key to making outsourcing work.”

This opinion was reflected strongly from all sides. A top concern from suppliers was their inability to recruit the right people; buyers were troubled by the quality of staff working for their service providers. Across the board, the training of existing employees at all levels was seen as the best way to address skills issues in the UK.

A lack of enthusiasm for apprenticeships and reshoring contradicted key aspects of the government’s plans for the future of UK business, which appear to fall short of the NOA’s vision for the UK to become outsourcing’s global strategic hub within this decade.

Read the full research report.

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Related: Local councils embrace outsourcing as part of austerity-driven innovation push

Some outsourcing service providers contracted by the UK government to run British immigration detention centres are threatening to pull out of these deals if the government doesn’t try to rebalance incentives, the FT has reported.

Seven of Britain’s 11 immigration centres are run by private firms Serco, G4S, Mitie and Geo Group, while the Home Office is responsible for maintaining the other four.

However, over past years the profit margins involved in running these centres has fallen significantly. In November 2014 Mitie secured an immigration centre contract with the government worth just £180 million, 30 per cent less than similar contracts signed previously with Serco and Geo Group.

With potential profits falling to this extent, some of the companies involved are questioning whether the lower revenues are worth the significant risk of reputational damage that can come from this line of work.

An executive involved with one of these firms told the FT: “These contracts aren’t risk free. Any commercial company will have to look at the reputational risk as well as the financial risk, and if the government isn’t willing to address some of the issues, they will drive companies out of the market”.

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Related: Government spending on shared services sees meteoric rise since 2010