Exclusive Capita IT Services (CITS) has told 1,000 staff they are at risk of redundancy and plans to offshore roles to India.
The cuts were announced to employees this morning on the same day that the Department for Education confirmed that CITS was among 18 companies selected for an £575m IT framework.
Company insiders told The Reg that management confirmed to back-office workers and programmers that their roles were in danger and kicked off a 90-day consultation with them as required by law.
"There is scope for 1,000 potential redundancies," said a source.
Sources say some of the developer roles will be outsourced to Pune, one of seven Capita offices in India. It is understood affected UK staff will be asked to help train those workers in India.
A Capita spokeswoman said:
In order to maintain its competitive position in the marketplace, optimise operational efficiency and maintain and improve service delivery to its clients, Capita’s IT services business has concluded that a revised delivery model is necessary.
As a result, on 30 March we commenced a series of consultation exercises involving our employees and their representatives, some focused on moving elements of our work activity to our existing IT services operation in India, and others focused on achieving headcount efficiencies on a function or location basis in the UK.
"At this stage we believe this may lead to approximately 400 redundancies," she added. This latest blow to staff – CITS employs 3,800 workers – comes amid other austerity measures being initiated by Capita, including freezing salaries and canning bonuses.
In an internal update to staff, seen by The Reg, Capita said it was expecting the economy to be challenged in 2012 and said the business had "much to fix".
In 2011 the group reported sales of £2.9bn and pre-tax profits of £302.9m, down from £309.8m. The contract pipeline was £4.6bn.
John O'Brien, analyst at TechMarketView, said in a research note today that Capita wants to take on the big pure-IT services players. He noted Capita has an operating margin of 9.2 per cent - or 5.5 per cent when amortisation and acquisition costs are factored into the equation.
"With no leverage on pricing for the foreseeable future, Capita will have to rely on cost efficient delivery to improve the margin," said O'Brien.
"This generally comes from a combination of low-cost resources (i.e offshore), non-linear services, superb execution on fixed price contracts, and sophisticated resource allocation processes to drive optimum utilisation and bench levels.These are areas in which we feel Capita has everything yet to prove." ®