Capita plans to slash prices by £250m with the assistance of AI as employees exit

Capita has ramped up cost saving targets after claiming early success from its embrace of artificial intelligence as human workers voluntarily exit the business.

The outsourcing group, which administers the BBC licence fee, told shareholders on Tuesday it wants to slash £250million in costs by the end of next year, well up from its previous target of £160million.

It follows a strategy shake-up, announced in June, that sees Capita cut costs and refocus its energies on core segments to bolster financial performance and cash generation.

Capita said the ‘increasing use of AI and generative AI’ was ‘at the heart of this transformation’, and its early successes have ‘increased our confidence in the level of efficiencies that can be delivered’.

Boss Adolfo Hernandez, who joined in January, added he was ‘encouraged by the customer reaction’ to Capita’s suite of AI solutions, which ‘will help to drive profitable revenue momentum from 2025 onwards’.

The group, which employs 40,000 workers globally, also highlighted a voluntary employee attrition rate – or rate of employees quitting – of ‘around 21 per cent’.

Capita is ‘getting smaller to get stronger and fitter to then grow’, says boss Adolfo Hernandez

Capita said this level of voluntary staff turnover ‘contributes to these savings’ and ‘reduces the need for redundancies’.

It also helps the group ensure it can ‘rebalance new hires’, and put in place ‘incremental training of our colleagues and investment in key growth areas’.

Capita said: ‘By combining people, processes and technology to develop repeatable scalable products we can drive efficiencies for our clients and make us more competitive.

‘The progressive adoption of AI in the delivery of our client solutions will enable us to continue to focus on efficiencies in the future on a “business as usual” basis.’

Capita shares sank 8.4 per cent to 15.98 per cent in early trading, having lost roughly 30 per cent over the last year. They are down more than 90 per cent from their January 2020 levels. 

Adam Vettese, market analyst at eToro, said: ‘Given the extent of the share price decline in recent years, investors may be somewhat sceptical that AI will be a magic wand to fix all the issues and this morning’s share price reaction would seem to indicate this is the case.

‘It is far from an overnight fix at Capita and there seems to be a long way to go yet.’

Capita on Tuesday also maintained annual performance targets, with revenues falling year-on-year after the sale of some assets but management is ‘increasingly confident’ in delivering its medium-term operating margin goal of 6 to 8 per cent.

Hernandez added: ‘As we head towards the end of my first year as CEO of Capita, I am very encouraged by the progress we have made against our strategic priorities, despite the impact of prior year headwinds being larger than originally expected.

‘Our focus is on becoming a better business, “getting smaller to get stronger and fitter to then grow” and being more selective in not pursuing and exiting existing lower margin contracts.’