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UPDATE 3-Capita boss Pindar to step down after 26 years

Christine Murray
Monday, 18 Nov 2013 | 9:14 AM ET

* Outsourcing sector now facing greater scrutiny

* Pindar to be replaced by Deputy Chief Executive Parker

* Capita seen on track for 8 percent revenue growth

LONDON, Nov 18 (Reuters) - Capita's veteran boss Paul Pindar, who built a small IT consultancy into Britain's largest outsourcing group, is to step down after 26 years with the company, walking away from a sector facing greater scrutiny for being too reliant on a few major firms.

Pindar, 54, a trained accountant who leaves the firm ten times larger by revenue than when he took command in 1999, will be replaced by Deputy Chief Executive Andy Parker on March 1, 2014.

He leaves the group in a strong position, on track for 8 percent organic revenue growth in 2013 and with a good relationship with Britain's government, from which it gets 15 percent of its revenue.

"Paul has been instrumental to the success that Capita has achieved and therefore his departure is a disappointment," said Liberum Capital analyst David Brockton. "I would be very surprised if this was a board decision, this will be Paul's own decision to leave."

Among countless contracts, Capita evaluates whether disability claimants deserve benefits, runs the pension scheme for the Ministry of Defence, provides radios for police forces and designed tunnel portals for London's Crossrail trains.

Importantly, Capita has been spared scandals which have hit some of its big rivals, such as Serco and G4S. But it could still face a more difficult future as scepticism grows about the role of a small number of giant contractors in providing public services.

Last week, a government auditor's review of Britain's use of big companies to run services ranging from prisons to hospitals raised questions about whether the rise of a few major contractors was in the public interest.

BRITISH GIANT

Thanks to its rapid expansion, Capita is woven into just about every facet of life in Britain, where it earns 96 percent of its revenue.

Pindar told Reuters in an interview in April that he joined Capita two years before it listed on the USM in 1989, a precursor to today's AIM market, valued at 4 million pounds, with shares worth just 3 pence.

At that time it was primarily a consulting business, providing advice to central and local government, but it soon morphed from being advisers to what Pindar calls "doers".

Using its vast infrastructure, including offshore centres in India, Poland and South Africa, the firm says it is able to run services from property to payroll cheaper than they were before.

Shares in Capita, which has its head office in London's Whitehall district amongst government departments, are nearly six times higher than when Pindar took over in 1999.

Although conceived under former Prime Minister Margaret Thatcher's watch, Capita's share price multiplied more than ten fold under Tony Blair's New Labour government. It had revenues in 2012 of 3.4 billion pounds.

Thanks to Pindar the firm is now much less reliant on the public sector, earning half its revenue from private firms such as Telefonica's O2, which will pay Capita 1.2 billion pounds over the next ten years to run its call centres.

"I'd like to say to you that it was part of a grand strategy but the reality is it's not," Pindar, who is moving to private equity, said in the interview earlier this year.

Pindar's replacement, Andy Parker, joined the group in 2001 and was appointed to the board as joint chief operating officer in January 2011.

"Andy has been identified as the stand out candidate for our new chief executive for some time," Chairman Martin Bolland told analysts on a call.

Analysts said they did not expect to see immediate changes in the group's strategy once Parker took over, though Caroline de la Soujeole from Cantor Fitzgerald said the firm could eventually look at expanding into continental Europe.

Shares in the group fell in early trading on Monday and were down 0.8 percent, to give it a valuation of 6.4 billion pounds.

GREATER SCRUTINY

The upbeat trading update from Capita on Monday stands in contrast to those recently issued by rival outsourcing companies G4S and Serco, both accused of fraud by Britain's government over a contract to monitor convicts with electronic tags.

In an interview with Reuters last week, the man running the government review of G4S and Serco said that the state would continue to contract out public services.

The industry received a vote of confidence on Monday as Invesco, which owns 22 percent of Capita, raised its stake in troubled rival Serco.

But public sector austerity, originally seen by analysts as a great opportunity for outsourcing companies, has been less of a boon to the sector than expected as it has increased scrutiny of the previously low profile industry.

Along with executives from G4S, Serco and Atos, Pindar will face a public grilling by a parliamentary committee on Wednesday, with questions likely to focus on the lack of competition and transparency in the sector.

"Whatever the government wants to do, you still have public opinion that you have to contend with," analyst de La Soujeole said.