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:
- 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