Capita return to growth ‘distinctly possible’ as turnaround starts to do the trick
Capita’s market value shot up today as investors toasted the first fruits of a sweeping turnaround plan.
The outsourcer’s share price jumped 17 per cent on the news margins had grown in four of its six main business divisions.
Capita runs the Ministry of Defence’s recruitment programme for the British army.
The figures
Pre-tax profit fell to £31.2m for the first six months of the year, while revenue declined eight per cent to £1.85bn. The revenue drop was put down to “structurally challenged contracts in local government and life insurance”.
But the firm said it was on track to achieve its goal of double-digit operating margins, £175m in savings and at least £200m in annual free cash flow by 2020.
Net debt was £1.2bn, up from £729.5m at the same time last year. This was because of cash outflow in the first six months of the year, the company said.
Free cash flow was still at an £85.9m deficit, but this was down from £173.4m the year before.
Why it’s interesting
Capita provides customer services to Marks and Spencer, manages the license fee for the BBC and is in charge of recruitment for the army.
But it has shed hundreds of millions of pounds in losses in recent years. Turnaround specialist CEO Jonathan Lewis was subsequently installed in late 2017.
He told Morning Wire earlier this year the restructuring plan he had imposed on the firm was “radical”. Analysts at Barclays this morning indicated that it is working, saying a return to growth was now “distinctly possible”.
“The improvement in margins across the divisions was due to cost actions bearing fruit as well as lower losses from challenging contracts,” Goldman Sachs analysts said.
What Capita said
Lewis said: “Capita is now in the second year of a multi-year transformation and we remain on track to hit the targets we set in 2018.
“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; changing the culture and enhancing governance; improving relationships with our clients; recruiting significant talent to key roles; and investing in people and new client propositions.”
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