(By Anthony Miller – Tuesday 19th May 2009 9:00am). This is a trading update we really did not expect to see. UK-based BPO player, Xchanging, warned of a ‘triple whammy’ of problems. Transaction volumes and asset values in its banking sector clients, claims processing volumes in its US business, and IT services demand have all been hit by the downturn. As a result, revenues are currently below expectations. This is quite in contrast to UK BPO market leader Capita’s recent trading update (see Capita on track to retain Boring Award), which ‘boringly’ reported that “All our key financial metrics remain on track”.We have pointed out many times the big differences between Capita and Xchanging. Obviously there’s a matter of size (Capita’s 2008 revenues were £2.44bn vs Xchanging’s at £0.56bn) and margins (Capita’s 13% vs Xchanging’s 7%). Then there’s Capita’s 100% focus on the UK market, vs Xchanging’s growing international business (c. 30% of revenues). But perhaps more fundamentally, Xchanging almost wholly targets the private sector (though this is changing) whereas Capita has a near equal split between private and public sector business. Capita also has a much broader portfolio of BPO (and IT) services than Xchanging, which gives it more ‘levers to pull’ when parts of the business are not performing as well as others.
Nonetheless, we thought that Xchanging would be relatively unaffected by the downturn given its ‘cost reduction’ BPO proposition. But it just goes to show how few places there really are in which to hide. Xchanging’s shares are down 10% as I write, while Capita is basically flat.
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