AI adoption powers Capita’s $316Mn cost cuts amid revenue slump
LONDON, UNITED KINGDOM — Outsourcing firm Capita reported an 8% drop in adjusted revenue for the first 11 months of 2024, driven by significant contract losses.
The company’s experience division suffered the most, with a 16.3% decline attributed to the loss of key contracts with Virgin Media O2 and Co-operative Bank in 2023, as well as reduced volumes in a telecommunications deal. Public service revenue also fell by 1%, impacted by contract delays and the removal of lower-margin services.
Despite these challenges, Capita remains optimistic about future growth opportunities, highlighting its alignment with UK government priorities in healthcare and defense. However, its stock price has taken a hit, falling over 20% this year and continuing a long-term decline of 96% since its peak in 2009.
Capita increases cost-saving target to $316Mn
In response to financial pressures, Capita raised its cost-saving target from £160 million (US$202 million) to £250 million (US$316 million) by December 2025. The company credits this increase to its adoption of artificial intelligence (AI), including generative AI, which has improved operational efficiency.
For example, AI integration in contact centers has reduced average handling times by 20% while also helping secure new customer contracts.
Capita CEO Adolfo Hernandez described the company’s strategy as “getting smaller to get stronger,” focusing on higher-margin contracts and exiting less profitable ones.
“We have implemented a significant proportion of our efficiency programme,” Hernandez said, noting that further savings are expected to boost operating profit margins.
Voluntary staff turnover to support cost-cutting goals
Capita also expects around 21% of its workforce to leave voluntarily each year, particularly in high-turnover roles like call centers. This natural attrition is projected to play a key role in achieving cost reductions, reducing the need for redundancies.
The company employs approximately 41,000 people globally and plans not to replace up to 2% of roles vacated by departing employees.
The firm also faces a £20 million (US$25 million) annual cost increase due to higher employer national insurance rates but believes additional savings will offset these expenses.
AI adoption fuels optimism, but analysts remain skeptical
While Capita is betting on AI to drive transformation and efficiency, analysts are cautious about its long-term impact. Adam Vettese from eToro noted that while AI advancements are promising, they may not fully resolve the company’s challenges.
Looking ahead, Capita forecasts annual sales declines of 7% to 9%, reflecting ongoing headwinds from contract losses and market uncertainties.
