Capita back in profit after first year of turnaround

Outsourcing giant Capita, which a year ago signalled it needed to reorganise its finances after issuing a profits warning and a £680m rights issue, has now announced a return to profit as it completed its first year of a major overhaul of its operations

Jon Lewis, Capita’s CEO, said: ‘We’ve successfully completed year one of our multi-year transformation, fixed the basics and are firmly on track.

‘We’ve strengthened our balance sheet, achieved cost savings, and invested in our people. On top of that, we’ve improved our governance, introduced a “One Capita” operating model, and started turning around challenging contracts.’

The company, whose problems raised concerns following the collapse of fellow outsourcer Carillion, has reported a pre-tax profit of £272.6m for the year ended 31 December, compared to a £513.1m loss in 2017.

Adjusted profit is put at £282.1m, slightly ahead of target. The balance sheet has been strengthened, with £1.1bn raised through rights issue and disposals.

Plans for 2019 include accelerating cost competitiveness to realise cumulative savings of £175m by the end of the year, with expectations that profit before tax will be between £265m and £295m.  

Lewis outlined progress on what he termed three ‘problem’ contracts, saying there had been ‘encouraging’ progress with fixing performance issues and delivering against more of the key performance indicators.

One is Capita’s recruiting partnering project (RPP) contract with the British Army, which was roundly criticised in a recent National Audit Office report. Lewis said the number of regular soldier recruitment applications are at a five-year high and Capita working hard to reduce the amount of time it takes to join the Army.

Secondly, Lewis highlighted action towards the end of 2018 over issues relating to the Primary Care Support England (PCSE) contract with NHS England. This followed the discovery of delays in the issuing of cervical screening correspondence, which forms part of the PCSE contract, to thousands of women.

Finally, he cited the transformation of Capita’s seven-year customer services contract with mobilcom-debitel – one of Germany’s largest mobile, internet services and telecoms products providers. 

Lewis said: ‘The aggregate financial loss from these challenging contracts reduced from over £50m in 2017 to around £30m in 2018. We plan to generate an aggregate profit on the contracts in 2020, including reaching break even on the PCSE and mobilcom-debitel contracts by the end of 2020.

‘Our transformation still has some way to go. But I am very pleased with our progress. Our targets remain on track, and I’m excited about the prospects for a simplified and strengthened Capita.’

Report by Pat Sweet

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