REG-Capita Plc: Pre-close trading update for the 11 months to 30 November 2023

CapitaAnnouncement

14/12/2023 07:15

Capita plc

14 December 2023

Pre-close trading update for the 11 months to 30 November 2023

Capita plc (“Capita”)

Increased contract wins and execution of significant cost reduction programme

Summary:
* Positive operational performance across both divisions; adjusted revenue1
growth of 2.1% in 11 months to 30 November 2023
* Contracts won with a Total Contract Value (TCV) of £2.89bn, increase of 47%
from 2022; significant improvement in win rate for new contracts and
expansions to 70% 
* Execution of efficiency savings with planned overhead cost reductions of
£60m on an annualised basis from Q1 2024
* Underpins target of more than doubling Group operating margin from 2.9% and
delivering sustainable positive free cash flow over medium term 
* Completion of Travel disposal, exchange of Fera with completion expected in
early 2024 bringing to a close the Portfolio Division disposal programme
* Reduced future pension fund contributions under the recently agreed 2023
Triennial review; actuarial pension surplus as at end March 2023: £51m
Jon Lewis, Chief Executive Officer, said: “We have continued to make good
progress against our core priorities and remain on track to deliver our medium
term guidance of mid-single digit revenue growth, doubling our operating
margin and delivering positive free cash flow.

We have stronger client relationships as demonstrated by our material growth
in TCV won and continued strong cNPS scores.

Capita is a growing business with a materially stronger balance sheet,
reflecting the reductions in financial debt and pension deficit.”

Financial Performance

In the 11 months to 30 November 2023, Capita has delivered adjusted revenue1
growth of 2.1%. As previously disclosed, the Group’s revenue in H1 was
positively impacted by one-off benefits relating to the Virgin Media O2
contract transition and a commercial settlement. Excluding these one-off
benefits, Capita delivered underlying revenue growth of 0.7% in the 11 months
to 30 November compared with 3.2% in H1, with the slowdown in H2 reflecting
the strong performance in the comparative period, particularly in the last
quarter of 2022.

Capita Public Service grew 0.7% reflecting growth in the Defence, Learning,
Fire & Security vertical which offset delays in certain contract awards and
previously announced contract losses in Local Public Services. Capita
Experience grew 3.8% of which 3.1% relates to the one-off effects noted above
which also benefitted the division’s operating profit.

We continue to have good sales momentum. In the 11 months to 30 November,
Capita won TCV of £2.89bn up 47% on the same period in 2022, including
£1.58bn of TCV wins in H2. Capita Public Service TCV wins increased 86%,
while Capita Experience TCV wins are broadly stable year-on-year. Key wins in
the period include renewals with Virgin Media O2 and the Recruiting Partnering
Project alongside the British Army and expanded scopes working with the
Department for Work and Pensions and Department for Education, which commence
in 2024. New clients include the Civil Service Pension Scheme starting in
2025, City of London Police starting in Q2 2024, and Santander which has now
commenced.

We’ve seen a significant improvement in the win rate for new scopes of work,
both with new clients and expansions with existing clients, which, YTD, is
70%, an increase from 27% in 2022, demonstrating the competitiveness of our
market offerings across both divisions. There has been a reduction in the
Group’s renewal rate to 49% reflecting losses in the Pensions and Justice
market verticals and our discipline in ensuring scopes of work can be
delivered at the price bid and that resultant operating margins support our
mid-single digit medium term objectives.

Pensions and Disposals Update

The Group has recently reached agreement with the Trustees of the Group’s
main defined benefit pension scheme in respect of the March 2023 Triennial
funding review. Given the healthy funding position of the scheme, which now
shows an actuarial surplus of £51m, the 2023 agreement does not require any
further Deficit Recovery Contributions from the Group other than those already
committed as part of the 2020 Triennial valuation. In accordance with the 2020
agreement, we have paid £30m of regular deficit contributions in 2023 and
will pay a further £21m of contributions in 2024, with no further deficit
contributions in 2025 and beyond.

In December, Capita announced the agreement for the sale of its stake in Fera
and completion of the Travel business disposal marking the end of our
Portfolio business disposal programme. To date this year, we have received
over £100m of disposal proceeds, which has continued to strengthen the Group
balance sheet and we expect to receive a further £62m in early 2024 in
respect of the Fera disposal. Year-end leverage is expected to be around 1.1x
Net Financial Debt/Adjusted EBITDA.

Efficiency Savings

As announced on 21 November 2023, following an extensive organisational
review, the Group commenced a consultation programme expected to deliver cost
savings of £60m on an annualised basis from Q1 2024. We also committed to
continue evaluating additional cost savings opportunities to underpin our
medium-term margin goal.

As outlined in November, we expect to recognise £27m of exceptional
redundancy costs in respect of this programme in the income statement for the
year ending 31 December 2023, with the majority of the cash impact of the
redundancies expected to fall into Q1 2024.

Free Cash Flow

The Group reported free cash outflow of £53m after the capital element of
lease payments and receipts in H1 and expects a broadly similar cash outflow
in H2. The transition from 2023’s expected full year free cash outflow to
sustainable positive free cash flow over the medium term is underpinned by:
* The non-recurring nature of the cyber costs which are expected to be between
£20m and £25m and furlough repayment of £5m in 2023 combined with the step
down in regular pension deficit contributions from £30m in 2023 to zero in
2025 and beyond. In aggregate, this is expected to deliver a net £55-60m
positive swing by 2025; and 
* Our target of more than doubling the Group’s operating margin, supported
by the £60m of efficiency savings noted above.
 

Operational Performance

We continue to deliver on our operational commitments to our clients. The
Group’s customer Net Promoter Score (cNPS) performance remains strong at
+25, excluding the Pensions business which was substantially impacted by the
Group’s cyber incident. On a like for like basis, this is a 5 point
reduction from 2022. The Group’s cNPS including the Pensions business is +16
points.

We have seen improvements in employee engagement, inclusion and wellbeing
scores as measured by our annual colleague survey. As a result, we’ve seen a
significant reduction in employee attrition with improvements across all
divisions and are pleased to have seen a further 4 point increase in our
employee Net Promoter Score (eNPS) this year.

As previously announced, Adolfo Hernandez will be appointed as CEO and a
director on 17 January 2024, at which point Jon Lewis will retire and step
down from the Board. As previously advised, Jon will remain with the business
until July 2024 to ensure an orderly transition.

Full Year Results Announcement

The Group’s Full Year Results announcement is planned for 6 March 2024.

Notes:
1. Like-for-like adjusted revenue for the core Capita businesses (i.e.
excluding Capita Portfolio)
 

 

For more information, please contact:

Investor enquiries
Helen Parris, Director of Investor Relations
Tel: 07720 169 269
Email: IRteam@capita.co.uk

Stephanie Little, Investor Relations Manager
Tel: 07541 622 838
Email: IRteam@capita.co.uk

Media enquiries
Capita external communications
Tel: 02076 542 399
Email: media@capita.co.uk 

About Capita plc:

Capita is a leading provider of business process services, driven by data,
technology and people. Every day our 43,000 colleagues help millions of
people, by delivering innovative, digitally enabled solutions to transform and
simplify the connections between government and citizens, businesses and
customers. We partner with our clients and provide the insight and
technologies that give time back, allowing them to focus on what they do best
and making people’s lives easier and simpler. We operate across two
divisions – Capita Public Service and Capita Experience – in the UK,
Europe, India and South Africa. Capita is quoted on the London Stock Exchange
(CPI.L). Further information can be found at: http://www.capita.com

 



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