Capita is undergoing a transformation under the leadership of Jonathan Lewis who was brought in as CEO in December 2017. Stuart Morgan, Head of Investor Relations, gave an update on this progress at the latest Yellowstone Advisory webinar which you can watch here. The first two years have been spent fixing underperforming contracts, improving customer relationships, building employee relations and improving trust.
2020 was supposed to be the year when the company returned to revenue growth and they were on track for this when COVID-19 hit and had a material impact on their operating environment. Consequently, revenue growth has been pushed back a year but they are rebuilding a strong pipeline of profitable contracts and emerging from the pandemic in good health. Key to this has been the cost savings achieved of £63m in the first half, out of a target of £100m, which they are confident of hitting for the full year.
COVID-19 has accelerated strategic decisions and increased the focus on disposing of non-core assets to enable the company to grow the parts of the business where they have a compelling advantage. At the same time this will strengthen the balance sheet. Stuart confirmed the company was confident of meeting balance sheet covenants at year end. In response to a later question Stuart confirmed this statement regarding the balance sheet was made before Capita entered into exclusive sale discussions for their ESS software business with Montagu Private Equity. Again, in response to another question, they are hopeful of updating the market on progress on this disposal in the near future.
The strategy Capita is pursuing is based around 3 pillars of Simplify, Strengthen and Succeed. The company is going to focus on their strongest divisions with the best growth and profit potential, they have invested in improving governance structures, people and technology. Success will be measured in terms of sustainable revenue growth and free cash flow.
Stuart reiterated that COVID-19 has had an impact on the transformation plan diverting attention to the health and safety of colleagues and ensuring client service levels were maintained whilst working patterns changed. Under COVID-19, given the uncertainties, cash preservation has been key and as such, the board and senior management have led by example with salary reductions and the cancellation of the bonus scheme.
Despite COVID-19 challenges this year, good progress has been made on the transformation program. The…
