Improved margin with good progress on cost reductions underpinning unchanged underlying full year profit expectations
Adolfo Hernandez, Chief Executive Officer, said:
“In my first six months I have been working with colleagues to identify and action many initiatives that will make Capita a better company. Our teams are passionate about the delivery of critical services to our clients, their customers and to wider society. Our focus is on ensuring that the value we create for those stakeholders is reflected in the financial performance of the business and I am excited about the future and the progress we've made in a short period of time.
"We are implementing changes that will make us more competitive and drive growth, by becoming more efficient and spending less, digitising our offerings and leveraging technology partnerships. This, together with more precision in delivery and evolving our culture, is enabling us to accelerate execution.
"We are on track to deliver on our cost reduction programme, having taken action to deliver £100m out of the £160m of annualised cost reductions we expect to achieve by June 2025. This will support our planned improvement in the adjusted operating margin of the group, which in the first half increased from 3.1% to 4.5%.
"We have much more to do, but I am pleased that Capita is making encouraging progress in its journey to deliver its medium-term financial targets and create sustainable value for all its stakeholders."
H1 2024 Financial results adjusted for business exits, including Capita One
- Adjusted revenue1 decreased by 9% to £1,201.5m (H1 2023: £1,324.4m) reflecting the non-repeat of one-off benefits in H1 2023 in Experience and the impact of previously announced contract losses
- Adjusted operating profit1 increased 33% to £54.2m, benefitting from the successful implementation of ongoing cost reduction programme
- Reported profit before tax of £60.0m (H1 2023 loss: £67.9m) boosted by £38.1m gains on the sale of businesses, including Fera
- Free cash outflow excluding business exits* of £51.9m (H1 2023 outflow: £64.3m) reflecting costs associated with the cost reduction programme and final pension deficit reduction contributions
- Net financial debt (pre-IFRS 16): adjusted EBITDA1 ratio 1.1x
Good momentum in delivery of positive cash flow in medium term
- Targeting £160m of annualised cost reductions, to be delivered by June 2025
- At the half year, actions taken to deliver £100m of these savings, with associated cash cost of £19.7m
- Operating cash flow* in H1 2024 improved by 75% to £51.4m reflecting reduced deferred income releases
Contract wins
- Total contract value won £934.4m (2023: £1,317.0m), reflecting a lower level of bid activity
- Book to bill ratio of 0.8x (2023: 1.0x)
- Contract win rate of 48% versus 63% last year, partially reflecting our focus on ensuring contracts are bid at an appropriate margin in line with the Group's medium-term operating margin target
Outlook for full year 2024
- Expect a low to mid-single digit percentage adjusted revenue reduction, reflecting delayed operational go-live on certain contracts and a more focused approach to bidding
- Expect modest adjusted operating margin improvement reflecting continued benefit of cost reduction programme, pay review phasing and H2 2023 bonus release; underpinning profit expectations
- Adjusted operating profit1 and free cash outflow excluding business exits* outlook unchanged on an underlying basis. Pro-forma outflow of between £90m and £110m following Capita One disposal, with £50m cost associated with cost reduction programme
- Capita One disposal to complete in Q3 with net proceeds of c.£180m; minimal year end net financial debt
Six months ended 30 June 2024
Financial highlights | Adjusted1 2024 | Adjusted1 2023 | Adjusted1 | Reported 2024 | Reported 2023 | Reported |
|---|---|---|---|---|---|---|
Revenue | £1,201.5m | £1,324.4m | (9%) | £1,237.3m | £1,477.0m | (16%) |
Operating profit | £54.2m | £40.9m | 33% | £43.9m | £(35.8)m | n/a |
Operating margin | 4.5% | 3.1% | 45% | 3.5% | (2.4)% | n/a |
EBITDA | £102.2m | £97.1m | 5% | £101.7m | £85.6m | 19% |
Profit before tax | £31.6m | £18.3m | 73% | £60.0m | £(67.9)m | n/a |
Basic earnings per share | 2.19p | 2.68p | (18%) | 3.14p | (5.06)p | n/a |
Operating cash flow* | £51.4m | £29.3m | 75% | £73.5m | £34.2m | 115% |
Free cash flow* | £(51.9)m | £(64.3)m | 19% | £(44.6)m | £(84.0)m | 47% |
Net debt | £(521.9)m | £(544.6)m | 4% | £(521.9)m | £(544.6)m | 4% |
Net financial debt (pre-IFRS 16) | £(166.4)m | £(166.2)m | —% | £(166.4)m | £(166.2)m | —% |
1Capita reports results on an adjusted basis to aid understanding of business performance.
* Adjusted operating cash flow and free cash flow exclude the impact of business exits (refer to note 9).
Investor presentation
A presentation for institutional investors and analysts hosted by Adolfo Hernandez, CEO and Tim Weller, CFO, will be held at 09:00am UK time, Friday 2 August 2024. This will be held in the Capita offices at 65 Gresham Street, London EC2V 7NQ. A live webcast will also be available (www.capita.com/investors) and will subsequently be available on demand. The presentation slides will be published on our website at 07:00am and a full transcript will be available the next working day.
Webcast link: https://webcast.openbriefing.com/capita-hy24/
About Capita
Capita is a modern outsourcer, helping clients across the public and private sectors run complex business processes more efficiently, creating better consumer experiences. Operating across 8 countries, Capita’s 41,000 colleagues support primarily UK and European clients with people-based services underpinned by market-leading technology. We play an integral role in society - our work matters to the lives of the millions of people who rely on us every day.
For further information:
Helen Parris, Director of Investor Relations T +44 (0) 7720 169 269
Stephanie Little, Deputy Head of Investor Relations T +44 (0) 7541 622 838
Elizabeth Lee, Group Head of External Communications T +44 (0) 7936 332 957
Capita press office T +44 (0) 2076 542 399
