At the halfway point of a turnaround year for listing tech outsourcing ship Capita, the vital statistics are still moving in the wrong direction with top and bottom line slipping and major contract challenges noted.
It's almost a year since UK-based Capita issued its first ever profit warning that forced a divisional restructure, a big wave of redundancies including a tier of middle management, business unit sales, and the departure of CEO Andy Parker, who finally left this month.
Results for the first six months of calendar 2017 showed a year-on-year sales drop of 1 per cent to £2.127bn and a 38 per cent dive in operating profit to £87m, hit by rising overheads. Net profit was down 26 per cent to £28m.
The Digital & Software division reported that sales fell 1 per cent, professional services was down 29 per cent due to the workplace recruitment sale and IT Services – which had a change of leader – was up 14 per cent due to the acquisition of Trustmarque and Acutest.
"In the first half of 2017, we made good progress on executing the plans laid out at the end of last year to reposition the group," said interim CEO and FD Nick Greatorex.
"We announced the sale of our Asset Services business, completed the disposal of our specialist recruitment business and commenced a number of cost initiatives. We remain confident that these actions are making Capita a simpler business."
Investors clearly don't share that optimism, as the stock had dropped 10 per cent at the time of writing, despite trading being largely in line with management's forecasts.
Capita confirmed major contracts wins came in at £403m versus £879m for the year-ago period. This was in a "relatively subdued business process management market in the public sector".
The news was scarcely better in terms of some existing contracts: the Defence Infrastructure Organisation gig with the Ministry of Defence is now expected to end in 2019 with a one-time £16m boost and no "benefit of any gain share"; Capita is "still addressing" issues with the NHS Primary Care Support England deal; discussions with a major life and pensions client could lead to the contract being amended at best or maybe terminated.
A series of short and longer-term "cost initiatives" – including overhead cuts, offshoring some IT app support to India, centralising procurement, and hacking real estate – are expected to save Capita some £57m.
Capita forecasted a modest rise in pre-tax profit in the second half of the year, but only compared to the first half, not the year-ago period. This prediction was "supported by the cumulative benefit from cost initiatives, partially offset by some of our trading businesses which are not improving as quickly as expected". ®