REG-Capita PLC: Pre-close trading update <Origin Href="QuoteRef">CPI.L</Origin>

CapitaAnnouncement

14/12/2017 07:05

Pre-close trading update

Capita plc (“Capita”), the UK’s leading provider of technology enabled
customer and business process management services and integrated professional
services, announces its pre-close trading update covering the Group’s
performance to date in 2017.

Trading in the year to date has been in line with our expectations. Capita
continues to expect underlying pre-tax profits, before significant new
contracts and restructuring costs, to rise modestly in the second half of this
year in line with previous guidance.

Major sales

The market for major business process management contracts has remained
subdued throughout 2017, particularly in the public sector. Capita has secured
major contracts with an aggregate total value of £471m in the year to date.
Since the half year, we have won a new seven-year contract with the Cabinet
Office to administer the Royal Mail Statutory Pension Scheme (RMSPS) for its
400,000 deferred members and pension members and an extension of our customer
management contract with British Gas to April 2019.

The value of our bid pipeline is currently £2.5bn*. We expect a number of bid
decisions in the coming months. If successful, these bids are unlikely to be
accretive to profits in 2018, due to the phasing of revenue and costs under
IFRS 15, but are expected to create value for shareholders over their
lifetime.

Divisional trading

Since the half year results, although market conditions have remained
challenging, underlying trading across our divisions has been in line with our
expectations.

For the full year, we expect good underlying profits growth in the Private
Sector Partnerships division as a result of improvements in the performance of
a number of major contracts and cost initiatives. However, we anticipate a
higher level of contract and volume attrition which, subject to mitigating
actions on sales conversion and costs, could impact upon the performance of
the division in 2018.

Public Services Partnerships has made encouraging progress and profitability
has improved, albeit including a forecast contribution of around £22m from
the Defence Infrastructure Organisation contract which will not recur next
year.

The performance of our IT Services division has also improved, due to cost
actions, although we expect the profits of this division to be slightly lower
in the second half compared to the first half of the year as a result of the
non-recurrence of a £9m one-off supplier settlement.

The end of two major software licences in the second half of 2016 is expected
to result in a decline of profits in the Digital & Software Solutions
division.

Professional Services has made steady progress and traded in line with
management expectations.    

Cost initiatives

We have continued to progress the short and long term cost initiatives
announced in the 2016 restructuring programme, including reductions in
overheads and rationalising our property estate. The cumulative benefit of
these actions is still expected to be £57m by the end of 2018.

We are in the process of broadening the programme to transform the Group,
including the identification of further opportunities to improve cost
competitiveness. We currently expect to incur restructuring charges of around
£18m this year, which will be disclosed as an operating loss under
significant new contract wins and restructuring. This includes costs in
relation to the broadened transformation programme, which will benefit the
Group over the long term, and, separately, the restructuring of a small number
of businesses.

Non-underlying items

We expect to record a number of non-underlying items in 2017, including a
significant gain on the disposal of the Capita Asset Services businesses and
costs in relation to the agreed full and final settlement with the Financial
Conduct Authority regarding the Connaught Income Series 1 Fund.

As indicated at our half year results, we are still in discussion with a major
life and pensions client, the outcome of which we now believe is likely to
lead to an impairment in 2017 of the supporting assets relating to this
contract.

Finally, as part of the year-end close process, we also expect to record a
number of other tangible and intangible asset impairments in 2017, which will
not affect future cash flow. These include the recognition of goodwill
impairment charges, as a result of the annual impairment test, on a number of
businesses which have experienced more difficult trading conditions since
being acquired and the impairment of assets which, as a result of events
during 2017, have ceased to be of value to the Group.

Financial position

Capita’s net debt to annualised EBITDA ratio at end June was 2.9 times. We
expect leverage to fall to around the middle of our 2.0 to 2.5 times range at
the end of 2017, including contingent obligations under bonds and guarantees.
This reflects the receipt of proceeds from the disposal of our Capita Asset
Services businesses, partially offset by the unwinding of an historic
seasonally favourable working capital position at year end and some reduction
in receivables financing.

Appointment of Jonathan Lewis as new CEO

Jonathan Lewis started as Chief Executive Officer (CEO) on 1 December 2017, at
which point he also joined the Capita plc Board.

Outlook and next steps

We continue to expect underlying pre-tax profits, before significant new
contracts and restructuring, to rise modestly in the second half of this year,
compared to the first half of 2017.

Our final results are due on 1 March. Over the course of next year, we will
communicate the new programme to broaden the transformation of Capita. This
will include plans to focus the business and allocation of capital and
resources on the markets which offer the best growth prospects; improve our
cost competitiveness further; recharge our sales performance and, ultimately,
demonstrate how we deliver value to all of our employees, customers and
shareholders.

* Our bid pipeline of £2.5bn now consists of the total potential order book
value of major sales bids under IFRS 15 of £2.3bn (H1 2017: £2.2bn) and
frameworks of £0.2bn (H1 2017: £0.3bn), and excludes expected contract
growth (H1 2017: £600m).

- End -

This announcement contains inside information.

For further information:

Capita plc Tel: 020 7654 2281 or 020 7654 0220

Andrew Ripper, Head of Investor Relations

Fiona O’Nolan, Director, Corporate Communications

IRTeam@capita.co.uk

Media enquiries:

Shona Nichols, Executive Director, Corporate Communications

Powerscourt Tel: 020 7250 1446

Victoria Palmer-Moore, Peter Ogden and Andy Jones

capita@powerscourt-group.com

Capita is a leading UK provider of technology enabled customer and business
process services and integrated professional support services. Operating at
over 450 sites across the UK, Europe, India and South Africa, Capita uses its
expertise, infrastructure and scale benefits to transform its clients'
services, driving down costs and adding value. Capita is quoted on the London
Stock Exchange (CPI.L). Further information on Capita can be found at:
http://www.capita.com.
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