Capita slashes net debt and profit as outsourcer kicks on with ‘radical’ turnaround plan

Outsourcer Capita’s revenues were down more than £300m last year, as turnaround specialist CEO Jonathan Lewis worked to nullify the “existential threat” facing the firm when he took over in late 2017.

Lewis told Morning Wire he has taken “radical, decisive action” to simplify the firm, which saw profits fall more than one-quarter but still halved its net debt and beat its own guidance for the year.

Shares rose 0.75 per cent in early morning trading.

The figures

Adjusted pre-tax profit fell 26 per cent in the year ending 31 December 2018 to £282.1m, after a figure of £383.1m the year before. This came in ahead of Capita’s own guidance of £250-275m.

Meanwhile revenue fell 7.5 per cent from £4.2bn to £3.9bn as Lewis sought to simplify the business, which he said was “far too complex” and had “underinvested in infrastructure and over-relied on acquisitions for growth” when he arrived. Net debt more than halved, from £1.1bn in 2017 to £466.1m last year.

But the firm still racked up a cash deficit of £260.5m last year, after a cash position of £66.6m the year before.

Why it’s interesting

Capita provides digital services for large private sector clients, and is seeking to reestablish itself as one of the public sector suppliers closest to the Cabinet Office, having contributed heavily to the CO’s new procurement guidelines, the so-called outsourcing playbook.

The firm provides customer services to Marks and Spencer, and manages the license fee for the BBC.

After a torrid 2017 in which profits plunged and former chief executive Andy Parker was forced to fall on his sword, new boss Lewis was tasked with changing the company’s fortunes.

Capita manages the license fee for the BBC (Source: Getty)

He has put in place a pension deficit reduction plan, raised £701m via a rights issue, and shaken up the company’s leadership structure.

“We made decisions on a number of the executive directors and parted with those individuals,” he said.

Capita set a flat profit target for 2019, and brokers at Shore Capital Markets said: “A return to growth in revenues and profitability remains on track”.

But challenges remain in the form of Brexit, which Lewis told Morning Wire has caused “a massive reduction in the amount of work that's come for tender”.

What Capita said

Lewis added: “We’ve successfully completed year one of our multi-year transformation, fixed the basics and are firmly on track.

“We’ve improved our governance, introduced a ‘One Capita’ operating model, and started turning around challenging contracts.”