- Challenging six months for Capita and our colleagues
- We continue to make progress delivering operational improvement as part of our transformation
- It enabled us to respond to COVID-19 with robust and decisive action to protect services and the business
- COVID-19 impact has come in a pivotal year for Capita when we expected to see revenue growth
- Profit has been significantly affected and the delay in the return to growth means we will not generate sustainable cash flow2 for 1-2 years
- We have accelerated strategic decisions including to simplify and align the Software portfolio with core Capita
- Disposal proceeds will be used to strengthen the balance sheet
H1 2020 financial outcome
- Adjusted revenue1 decreased by 9% to £1,652.2m (H1 2019 £1,815.5m), mainly due to 2019 contract losses and COVID-19 impact
- Adjusted profit before tax1 of £30.1m (H1 2019 £117.8m); decline resulting from change in profit mix from prior year revenue losses, net impact of COVID-19 and £42.6m non-cash accrual for untaken holiday
- Reported loss before tax of £28.5m (H1 2019 profit £31.2m)
- Adjusted cash from trading operations2 of £193.3m (H1 2019 £187.8m); Adjusted free cash flow £176.0m (H1 2019 £30.1m); improved operating cash flow and a £77m benefit from early customer payments
- H1 covenants achieved: gearing ratios at 2.1x for Euro and 1.5x for US notes; net debt of £1,096.6m (31 December 2019 £1,353.2m); liquidity of £704.1m; includes £117.3m benefit from VAT deferral scheme
Continuing to improve the business
- Fixing underperforming contracts, improving operational delivery and strengthening client relationships, developed further by strong COVID-19 response
- £73m delivered in the cost transformation programme
- Winning and renewing significant contracts to offset losses; more opportunities in the pipeline
Robust response to COVID-19
- Colleagues’ safety prioritised; over 50,000 employees working remotely and 4,400 furloughed at peak
- Decisive action to secure delivery of resilient core of long-term digital business process outsourcing ('BPO') and software contracts
- Robust cost and cash preservation measures deliver £57m of offset to revenue loss in the first half
Simplify the portfolio and strengthen the balance sheet
- Accelerated strategic decisions, including to focus on a portfolio of software capabilities better aligned to Capita’s core services and vertical markets; Eclipse Legal Systems ('Eclipse') sold on 30 June
- Disposal proceeds to be used to strengthen the balance sheet by reducing net debt and pension liabilities
- Expect COVID-19 to continue to negatively impact volumes and transactional revenue
- Further cost action and holiday accrual reversal to benefit H2
- Expect to comply with H2 covenants; net debt returns towards 31 December 2019 levels
- Inflection to sustainable cash flow2 delayed by 1-2 years
- Continue to build a more focused, sustainable business for the long term
Jon Lewis, Chief Executive Officer, said:
“Capita and its people faced a challenging first half of the year, like many other companies. Thanks to our transformation progress over the last two years - and the hard work and professionalism of our colleagues - we were able to deliver a strong and decisive operational response to the COVID-19 crisis.
“However, this crisis has come in a pivotal year for Capita when we had expectations of beginning to generate revenue growth and sustainable cash flow.
“Instead, we have had to focus on managing our way through the crisis, while accelerating some strategic decisions, including our plan for the disposal of Education Software Solutions, a standalone business in our Software division.
“We expect to make further disposals which, alongside other measures, will strengthen the balance sheet and help build towards a more focused, sustainable Capita for the long term. These are unprecedented times and we need to adapt but our strategy remains the right one.”
|Six months ended 30 June 2020
|Financial highlights - continuing operations
|Profit/(loss) before tax
|Earnings per share
|Free cash flow
1 Capita reports results on an adjusted basis to aid understanding of business performance. In 2019, International Financial Reporting Standard 16 Leases (IFRS 16) was adopted, and to aid comparison with 2019, the primary adjusted measures used by the Board for evaluating performance were presented before the impact of IFRS 16. The 2019 adjusted results have been represented in 2020 to include IFRS 16. Refer to alternative performance measures in the appendix.
2 Sustainable cash flow = reported free cash flow including restructuring costs, pension deficit payments, non-recourse trade receivables financing and payment of deferred VAT.
A presentation for institutional investors and analysts hosted by Jon Lewis, CEO and Patrick Butcher, CFO, will be held at 09:00am UK time, Tuesday 18th August 2020. This will be a live audio webcast and will subsequently be available on demand. The presentation slides will be published on our website at 07:00am and a full transcript will be available by midday the following day.
Participant Conference Call dial-in details:
- United Kingdom 0800 640 6441
- United Kingdom (Local) 020 3936 2999
- All other locations +44 20 3936 2999
- Access code 158011