The Daily Telegraph - Business
‘Capita has been by far my most challenging turnaround’
Jon Lewis is confident of the upturn in fortunes of his outsourcing firm, reports
It has been nearly four years since Jon Lewis, once crowned “the turnaround king”, was brought in to fix Capita, amid a broad crisis in outsourcing that led to the collapse of Carillion.
Undeterred, the 59-year-old unveiled his grand vision to “Simplify, strengthen, succeed” in 2018. When that misfired, the former oil executive pushed forward a new strategy under “Future Capita”, focusing on efficiency savings of £50m a year.
Despite his many critics, the ever-hopeful Lewis now insists the outsourcer’s transformation is finally under way.
“We have been executing on what some people would describe as one of the more, if not the most, challenging turnaround transformations of a FTSE company of the last three years,” he says, with a hint of a Welsh accent.
“There were a number of industry pundits, actually some industry grandees, who felt that this was not possible, that it was not a company that could be turned around because of the severe underinvestment.”
There is reason for some optimism. Last week, Capita announced that it was on track to deliver its first revenue growth in six years after winning several contracts, including a £925m deal to provide training for the Royal Navy.
It follows a dire few years. In 2019, Capita made a loss of £63m, and last year said losses had reached £49m.
The company already collects the BBC licence fee, operates the London congestion charge and deals with the Government’s universal credit scheme. It was also awarded a contract for the Government’s Covid test-andtrace programme.
But investors and politicians have long been critical of its complex structure and mounting debts. Labour’s shadow chancellor Rachel Reeves has repeatedly focused on the failings of Capita, using it as an example of private contractors’ alleged inability to run public contracts.
Lewis sees the attacks as unfair. “We are not delivering on less than 1pc of contracts today, we have an extraordinarily strong delivery performance,” he says.
“A huge chunk of those are contracts for the Government, whether it’s personal independence payments, collecting TV licences, training the Royal Navy, recruiting for the Army.
“It’s easy for politicians to make off the cuff comments about outsourcing companies. But it is becoming increasingly difficult for them to back that criticism up.”
In August last year, Lewis admitted the business might have been under threat had Covid hit just two years earlier.
He claims that Capita is now in far better shape: “That is the end result of a commitment we made right at the start of the transformation, which was to massively simplify what was a conglomerate organisation that hadn’t really grown on the back of its clearly defined strategy. There just weren’t the synergies, therefore, between a good many of the businesses.
“We’re now in the exciting part. It’s been hard graft ... This is my fifth turnaround and by far the most challenging.
“We were hoping to refinance our debt at the beginning of last year and sell a number of businesses, but Covid prevented us from doing so.”
His focus now is to quickly remove many of the disparate divisions which he says no longer serve the company.
Capita recently said it would sell IT firm Axelos, the joint venture set up with the Cabinet Office in 2013, to PeopleCert for £380m. The company will see around £180m from the sale, and the Cabinet Office will take home the rest.
It follows the disposal of its education technology business ESS, with private equity buyers Montagu paying £300m. As part of the deal, Capita is set to be given another £45m based on regulator approval. The agreement is now being reviewed by the Competition and Markets Authority.
Despite the uncertainty, Lewis is phlegmatic about the process. “Of course, I would love us to be in receipt of that £45m, we could use it to pay down debt. But frankly, it’s not a quantum that’s going to be a needle mover.” What seems to excite him more are the changes he’s made to the company’s board this year, hiring Capita’s first ever employee directors to help shape Capita’s priorities.
Lyndsay Browne, a finance manager at the outsourcer, and Joseph Murphy, a civil engineer, beat 400 internal candidates to take the roles on the board, which come with a £64,500 a year bump to their current salaries.
“We knew what we were looking for,” says Lewis. “We wanted people who brought the perspective of colleagues. They brought the perspective of what it’s like to live and breathe in the organisation.”
Lewis is also keen to help his employees embrace hybrid and flexible working models that have been introduced due to the pandemic. In March, he told 35,000 out of 55,000 staff that they would be able to permanently work from home for the majority of the time.
A survey within the company, he says, showed nearly three quarters would prefer to spend up to three days a week working from home. “What Covid has demonstrated is that work is an activity, it’s not necessarily a place you go to,” he says.
“It’s opened people’s eyes to the ridiculous amount of time we were spending, at cost, commuting.”
Last year, the company reduced its office space by 11pc and plans to cut it by 25pc this year.
Lewis says his experiences in the US, where he ran a research and development centre for software company Landmark Graphics, were partly behind the changes he’s made to employee life at Capita.
“Having come back to this country five years ago after 20 years in the States, I was a little shocked at the dissonance between society and big business,” he says.
“It’s not a gimmick, it’s not a marketing exercise. You know, I’m someone who grew up in a mining town in South Wales and somehow managed to have the career I have.
“I still live in that part of Wales. I go back there. Every weekend, I go to the same rugby club.
“But many of the people I went to school with, they live a different lifestyle. I know what it’s like to be an average Joe in the UK, and that colours my approach to business.”
Despite the strong rhetoric, there remain questions over the extent to which a defence contractor can be driven by social purpose, high ideals or woke policies.
Lewis reveals that the firm did turn down one contract with a foreign government over its stance on LGBT rights, but refused to name which nation.
Simultaneously however, he has championed Capita’s relationship with Israeli defence firm Elbit, whose headquarters were sprayed with fake blood by pro-Palestinian protesters last month.
What’s clear is the criticism of Capita is unlikely to fade any time soon, despite Lewis’s attempts to change the working culture. What investors want to see are real changes to the company’s bottom line.
Lewis claims this may be his final job and he only has a few things left he wants to achieve, chiefly reinstating Capita’s dividend when appropriate.
Despite a tough year during the pandemic, he remains confident the company can finally deliver.