In year two of its supposed three-year turnaround plan, Capita shares took a dive today after it posted a larger than expected losses for calendar '19.
The company is deepening its restructuring and the process will both cost more and take longer than expected, it said.
Revenues and operating profits were down four per cent and eight per cent respectively at £3.7bn and £0.4m. Capita made a loss of £62.6m before tax compared to a pre-tax profit of £272.6m. The news saw it shares fall 20 per cent to 88 pence per share down from a year high of 185.25p.
The software divison turned over £375.4m in sales, down 1.2 per cent. Here, 29 "siloed" sub units are being broght into one. People Solutions grew 1.2 per cent to £500.5m, Customer Management was flat at £80.24m, and Government Services fell 0.3 per cent to £777.9m. Technology Soutions dropped 2.4 per cent to £429.3m and Specialist Services was down 16.1 per cent to £744.5m.
Jon Lewis, Chief Executive Officer, said progress was being made in turning the business around but he warned:
“Transforming an organisation of Capita’s size is a complex challenge; there remains more to do and it is requiring more investment than we had expected in 2018...our plan is the right one and remains unchanged.”
The company said it had reduced revenue declines and saw growth in four of its six simplified divisions. But Lewis admitted: “...our progress has yet to be fully evidenced in our financial performance... We recognise that the benefits due to many stakeholders, especially our investors, still need to come through.”
It follows a miserable few years for the UK’s least loved outsourcer (possibly, it’s a hotly contested title). This process began in 2016 with 2,250 job losses, and deepened in 2017 when the company lost £515m for the year
In early 2018 newly-appointed chief exec Jon Lewis watched shares collapse 40 per cent on yet another profit warning. We were told then that the business was too complex, driven by short-term focus and short on “operational discipline and financial flexibility.” Lewis used a rights issue to bring in £701m to pay for the turnaround then described as “multi-year”.
The company said today it would look to flog off more non-core assets but claims to have made £105m in cost savings this year – it is aiming for cumulative cost cutting of £175m within two years. This will be achieved by consolidating divisions and cutting management as well as savings from improved procurement and property management.
The next stage is reorganising Specialist Services – parts of this division will be borged into other parts of Capita and other bits are being prepared for sale. It recently sold off ParkingEye as well as setting up a consulting arm called...errr...Capita Consulting.
Despite its traditional reliance on huge government contracts like the BBC licence fee, London Congestion Charge and contracts with the Ministry of Defence, the company did not make the cut for the most recent list of Technology Products and Associated Services framework providers.
Looking forward Capita expects modest organic growth for the year ahead and free cash flow of at least £160m but said “the external trading environment continued to be challenging”. ®