Q&A: Andrew Dutton, A4e

What is A4e?

We are a social purpose company. In layman's terms, we get people off welfare and back into work, and we provide the training and skills they need to stay employed.

What's your revenue model?

It's complex. Around 60% of our global revenue is based on taking people on welfare benefits - the long-term unemployed - and supporting them back into work. More importantly, we have to sustain them in that work when they've found it.

Our revenue model is risky. The government pays us a small amount for working with the customer, we get a further payment when we place them in the job, but the majority of our fee comes in when we have sustained them in that job for a minimum of six months.

It's not for the faint-hearted. You can do as much as you can with an individual. You can even get them to interview but if the culture's not right or if the personality doesn't fit, there's nothing we can do.

Sounds risky. Have you got a safety net in place?

Our business has diversified over past four years. There are a lot of barriers for the long-term unemployed. Many of our customers have significant debt issues or legal issues stopping them from moving forward in their lives. We are the largest provider of independent debt advice in the UK. Over 850,000 people will get advice from us on how to approach their debt and use our money advice service over next five years.

We also have a large skills business in the UK. We deliver the government's 'Train to Gain' initiative and their nationwide apprenticeship scheme. There's our legal services business too. We have a telephone service delivering community legal advice on behalf of a number of local authorities and the Legal Services Commission. A4e also does a lot of work with prisons, helping inmates learn a trade in prison so they can come out and go straight into work.

Lastly, we have an outplacement business that works with the private sector, making redundancies and helping the redundant parties to find new work. There are even more revenue streams on the horizon. We're looking to diversify the skills business to cater to the private sector, for example. Our commercial model is definitely getting more aggressive.

Was the recession a friend or a foe?

Bizarrely. we grew over that period. We're in the welfare business and during the downturn there were more people being made redundant. In good times, we do less welfare work but much more skills trading because that becomes a priority for the government and the private sector.

You have a unique insight into our welfare system. Is Britain a nation of benefit trolls and layabouts?

Over 90 % of the people we come across want to work and have a job. They see it as part of what gives them identity. There is a tiny minority of people that sees being on benefits as a lifestyle. They are few and far between. But it's also part of our job to persuade those people that working has more benefits to staying at home. I do not subscribe to the view that a large proportion of our society is happy to sit on benefits.

Tendering for government contracts is notoriously tricky. What are your tips?

There's a real art to responding to tenders for government contracts. You need to be very precise when answering questions, relate all your material to the government's needs and priorities. We spend a lot of time on this. One tip is to admit that you can't always do everything on your own. We partner with the third sector and private sector to deliver some of our services. You must also present a strong financial model. Make sure you know how you're going to get paid. You need to drive results while still maintaining a profit.

How competitive are these tenders?

We've just won a new contract under the Coalition administration. Over 100 companies submitted expressions of interest for these contracts.

To give you an idea of the cash at stake, here's an eye-opener: the contracts currently under tender are worth £3-4bn collectively. Two years ago, competition was stiff but there was a multitude of relatively small players. We now turn over a quarter of billion pounds a year. We're competing with the big boys and plcs , people like Serco. Contracts are valuable and the long-term deals are competitively fought.

Tell me about your international operations

We have a presence in France, Germany, Poland, Australia and we just entered India. A key territory for expansion is France. We're in the process of negotiating a few big contracts there. We've been in Australia for three years now and we just bought a skills business to bolster our welfare business out there. It's an interesting contract. We help indigenous people in prison to integrate back into society when they've served their sentence.

Without a doubt, India is the biggest opportunity for long-term growth. The Indian government is trying to train half a billion people by 2020. It wants India to be the net exporter of human resources.

How do you manage growth? Is there an exit strategy in place?

We are a large organisation and we are hugely ambitious. Cashflow and the need for ready cash to drive acquisitions and support growth are really important. We do have revenue streams that are very cash generative but our contracts in the UK are based on outcomes more than ever before. If we can't drive performance to generate the cash we need, growth will be limited. At the moment we are privately owned. We're always on the look-out for investment and private equity but I have a strong desire to fuel our growth organically. I value our ability to be masters of our own destiny.

Different vehicles for growth have their own rewards and challenges. When you float, financial quarterlies become extremely important. You have to convince investors to believe in you.

The ultimate plan is to be a half-a-billion-turnover business by 2014, and generate revenues of £1bn by 2020. Being privately owned, we can take a long-term view. How we do that in terms of equity structure is still up for debate. I do know we'll have to open up the company to enable that level of growth, so we'll never rule out the option for an IPO.

 

Find out more about A4e

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