Capita plc (‘Capita’), the UK’s leading provider of technology-enabled customer and business process management services, is today issuing a trading statement covering second half performance to date and the outlook for the full year 2016.
Capita achieved good profit growth in the first half of 2016, at which time we expected organic revenue growth of around 4% for the full year. Subsequently, our performance in the second half of the year to date has been below expectations, as a result of a slow-down in specific trading businesses, one-off costs incurred on the Transport for London (TfL) congestion charging contract and continued delays in client decision making. As a result, we now expect revenue growth for the full year to be in the range of 4-5%, including around 1% organic growth net of attrition, and underlying profit before tax to be in the range of £535m to £555m for the full year to December 2016, compared to the current company compiled consensus profit before tax estimate of £614m.
The Group has been impacted by a recent slow-down in the IT Enterprise Services division, in particular our technology reseller business, and specialist recruitment in the Workplace Services division. Since the half year, our expectation for profits from these businesses for the full year has reduced by around £30m. Capita is taking immediate steps to reduce the cost base in the underperforming businesses, which should benefit 2017. The Digital & Software Solutions division continues to perform well but, as referenced at our first half results, our Asset Services division has seen less activity in the short term, following the EU referendum.
We have experienced delays on the implementation of new IT systems on the Transport for London (TfL) congestion charging contract. As a result, we expect to incur between £20m and £25m of one-off costs, which will be included in our underlying results. The systems have now gone live, the contract is performing well operationally and these costs will not recur next year. Furthermore, we are in a contractual dispute with the Co-op Bank regarding obligations relating to the transformation of services. The ongoing mortgage processing being undertaken by Capita is performing well. However, there is a risk of litigation in respect of the transformation.
The Group has announced £949m major contract wins in the year to date, including being recently selected by Three as the preferred bidder for a contract to provide customer management services in the UK, which is expected to start in 2017. However, revenue from new major sales in the second half of this year is likely to be lower than expected, due to continued delays in decision making and lower conversion of our pipeline.
Capita’s net debt to annualised EBITDA ratio at end June 2016 was 2.5. As a result of the aforementioned trading issues and one-offs we now expect net debt to EBITDA to be in region of 2.7 at the year end, including a modest amount of additional acquisition spend. We continue to expect capital expenditure to be lower than last year and expect net debt at end December to be similar to net debt at end June. We have good headroom and liquidity.
We now expect revenue growth to be in the range of 4-5%, including around 1% organic growth net of attrition, and underlying profit before tax to be in the range of £535m to £555m for the full year to December 2016, compared to the current company compiled consensus profit before tax estimate of £614m. This outlook excludes the cost of potential restructuring actions and is subject to the satisfactory resolution of our dispute with the Co-op Bank.
We remain confident of the strength of our business model and aim to return the Group to profit growth next year, excluding the benefit from TfL one-off costs dropping out.
This announcement contains inside information.
Analyst conference call:
Andy Parker, Chief Executive of Capita plc will host a conference call in London at 08:00 UK time today.
Please dial into the call in time to allow for registration.
Participant Dial-in: +44 (0) 20 3139 4830 or +44 (0) 808 2370030 (Toll-free)
Participant Pin code: 28213609#
Replay: A replay of the conference call will be available for 7 days after the event
Dial-in: + 44 2034262807 or +44 (0) 808 2370026 (Toll free)
Access code: 677468#
For further information:
|Andrew Ripper, Head of Investor Relations||Tel: 020 7991525|
|Capita Press Office||Tel: 020 7654 2399|
|Andrew Lorenz||Tel: 07775 641 807|
|Nick Hasell||Tel: 07825 523 383|
Capita is a leading UK provider of technology enabled customer and business process services and integrated professional support services. With 75,000 people at over 500 sites, including 94 business centres 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), and is a constituent of the FTSE 100 with 2015 underlying revenue of £4.7 billion. Further information on Capita can be found at: http://www.capita.com.