'Transformation' at Capita: Profits? Down. Revenue? Down. Order book? You guessed it

Better luck next year

Outsourcing and IT services giant Capita has reported a fall in revenue of 6.3 per cent to £1.85bn in its half-year results to June, and a drop in profit before tax of 3.6 per cent to £31.2m.

Meanwhile, the company reported a fall in its order book to £6.7bn compared with £7.1bn at the end of 2018.

It is the second year of Capita's "transformation" programme announced by new chief exec Jon Lewis after he blasted the company for being "too complex" and "driven by a short-term focus" as well as lacking "operational discipline and financial flexibility".

In April last year, Capita confirmed a fully underwritten £701m rights issue at 70p per share. Some £150m will be used to hack overheads with the cost-cutting programme forecast to yield yearly savings of £175m from the end of 2020.

At the time Lewis said he intended to simplify the corporate structure, and noted in one example that Capita has multiple overlapping operations, such as 10 IT help desks and 35 customer relationship management systems.

The company said its results today were "in line with expectations". However, Patrick Stewart, analyst at Megabuyte, said the transformation programme seems "lacklustre" as its latest results detail both a declining top line, order book and profitability.

He said: "In addition, its targets seem fairly bullish with a current free cash outflow expected to turn into £200m of sustainable free cash flow by the end of 2020.

"In terms of our interests, its software division is starting to show some progress (after declining 1.3 per cent in fiscal 2018) with a growing order book and a number of contract wins but is still a long way off achieving its target of mid to high single digit growth by 2020.

Commenting on the results, Lewis said: "Having addressed the balance sheet and made disposals last year, we have continued to strengthen the business in 2019. We are beginning to see the benefits from: strengthening our functions, culture and governance; improving relationships with our clients; recruiting significant talent to key roles; and investing in people and new client propositions.

"We have made significant progress in a short period of time. There is still much work to do but the foundations we are laying now will put us in a position to succeed and grow. There is huge potential for our business as companies invest in digital transformation. With Capita's credentials and client base, the long-term opportunity for growth is significant." ®