Capita reveals problems in restructuring as profits drop

6 Mar 20

Public sector contractor and outsourcer Capita has revealed problems with its restructuring, reporting a £62m loss during 2019 and a 4% reduction in revenue.

The contractor, which provides outsourced services to both central government departments and local government, revealed in its annual report released this week, that more investment is needed for its restructure than initially thought.

Alongside the reported loss, net debt rose to £791m from £466m, which management admitted was “at the upper end of our desired range, as a result of lower conversion of profit to cash”, as shares fell as low as 58p on Friday from 126p on Wednesday. 

In a statement released alongside the accounts, Capita chief executive Jon Lewis said: “While good progress is being made, there is still more that needs to be done and we are having to invest more than we initially thought to fully transform Capita.

“In 2019, as well as investing in growth, we invested more to fix and restructure internal systems and processes, and to address issues of complexity, poor quality and technological deficit; it remains vital to build the right foundations for Capita to drive sustainable growth."

The report also said that £213m went out of the business over the year in contract losses, and that positive cash flows this year would be less than forecast.

The company expects modest organic growth and sustainable free cash flow of at least £160m this year, which Capita says is in line with current market expectations.

Capita is also planning to sell off non-core assets, in a bid to simplify the portfolio and recycle capital, it said.

The company, which employs more than 61,000 people, also said that £78m worth of contracts terminated or re-negotiated in 2019. However, it did win new contracts last year, including the provision of resourcing services for the Home Office and learning services for Network Rail.

In 2018, shares in the outsourcer dropped by almost 50%, after it announced profit warnings. Lewis announced a restructure later that year; as the company had become "too complex" and "driven by a short-term focus" and needed to change its approach.

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