Capita profits fall less than expected
Profits from Capita tumbled less than expected in 2018 as the outsourcer made progress cutting costs and debts and dealing with challenging contracts.
Capita
13.46p
16:39 23/04/24
FTSE 250
19,799.72
16:59 23/04/24
FTSE 350
4,424.29
16:59 23/04/24
FTSE All-Share
4,378.75
17:14 23/04/24
Support Services
10,639.30
16:59 23/04/24
Adjusted pre-tax profit fell 26% over the calendar year to £282.1m, though this was ahead of the company's £250-270m guidance.
Net debt ended the year at £466.1m, down from £1.1bn thanks to a £701m gross proceeds in a rights issue and £408m from disposals. There will be £176m paid into the pension as part a phased deficit reduction plan, agreed with the trustees.
Chief executive Jon Lewis said: “We’ve successfully completed year one of our multi-year transformation, fixed the basics and are firmly on track. We’ve strengthened our balance sheet, achieved cost savings, and invested in our people. On top of that, we’ve improved our governance, introduced a ‘One Capita’ operating model, and started turning around challenging contracts. I am particularly proud of our new corporate purpose and refreshed values."
The FTSE 250 group achieved £70m of in-year savings and said it was aiming to accelerate cost competitiveness towards a cumulative savings of £175m by the end of 2019.
For the current year, the new guidance is for profit before tax of £265-295m and said it was on track for 2020 targets of double-digit margins and at least £200m of sustainable free cash.
"Our transformation still has some way to go. But I am very pleased with our progress," said Lewis.
On a long-term view, he said there was potential for significant structural growth as the "lion’s share of our business is providing digitally-enabled services and software solutions, using a combination of technology, data and insight to help deliver better outcomes for clients".
Capital shares fell initially but after two hours of trading were up more than 2% to 122.9p.
Analysts at RBC Capital Markets said these were always going to be a "messy" set of results given the level of restructuring and the disposal programme, but their key takeaways are that cost efficiency targets were delivered to plan, the £175m cost target is being brought forward slightly and the £200m FCF target has also been reiterated.
The balance sheet position is "solid" and net debt to EBITDA a "very comfortable 1.2x".
While guidance for 2019 is wide, this is "understandable given the evolving picture at the group" and the additional £176m for the pension deficit "will clearly push leverage towards the top-half of its 1.0-2.0x target for FY19".