- Firm back in the black
- Cost cutting on track
- New CEO making his mark
Investors in FTSE 250 professional services and outsourcing group Capita (CPI) may be scratching their heads this morning after the firm’s positive half-year trading update was met with sustained selling.
The shares, which had already lost 11% year-to-date, dropped as much as 2.1p or another 11% to 17p in early trading before recovering to settle down 1p or 5.5% at 18.1p.
FOCUS ON MARGIN
Adjusted for the non-recurrence of one-off benefits which lifted first-half 2023 sales, revenues for the six months to June were down 9% to £1.2 billion.
The total value of contracts won was down 29% at £934 million, and the contract win rate dropped from 63% to 48% as the firm, under new chief executive Adolfo Hernandez, bid only on contracts ‘at an appropriate margin in line with the group’s medium-term operating margin target’.
At the same time, the firm pushed down on costs and swung to an operating profit of roughly £44 million compared to a loss of £36 million last year while operating cash flow increased by 51% to £51 million.
Hernandez has targeted £160 million of annualised cost reductions by June 2025, and already the firm has taken action to deliver £100 million of those savings at a cost of just under £20 million.
For the full year, the group is guiding for a mid-single-digit drop in adjusted revenue to reflect a delay in go-live on some contracts and a more disciplined approach to bidding, a continued improvement in the operating margin and adjusted operating profit and free cash flow in line with its previous forecasts.
WHAT DID THE CEO SAY?
Since arriving at the start of 2024, Hernandez has begun a round of initiatives to create a ‘Better Capita’, translating the value it creates for customers into better financial performance.
‘In my first six months I have been working with colleagues to identify and action many initiatives that will make Capita a better company. 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 have much more to do, but I am pleased Capita is making encouraging progress in its journey to deliver its medium-term financial targets and create sustainable value for all its stakeholders.’
