Capita (CPI) H1 2024 earnings summary

Executive summary

• Achieved a 45% improvement in operating margin, reaching 4.5%, and delivered £100m in annualised cost savings, on track for £160m by June 2025.

• Revenue declined 9.3% year-over-year to £1,201.5m, mainly due to contract handbacks, losses in public service, and non-recurrence of prior year one-offs.

• Announced disposal of Capita One for net proceeds of approximately £180m, expected to complete by end of August, providing additional liquidity.

• Leadership transition underway with outgoing CFO Tim Weller and incoming CFO Pablo Andres.

• Transformation strategy focuses on efficiency, digitisation, technology partnerships, and a culture transformation programme.

Financial highlights

• Operating profit increased 32.5% to £54.2m, with EBITDA up 5.3% to £102.2m, driven by cost reductions despite lower revenue.

• Free cash outflow reduced to £51.9m from £64.3m, reflecting improved operating cash flow, lower pension contributions, and cyber incident costs.

• Net financial debt (pre-IFRS 16) stable at £166.4m, with net financial debt/EBITDA ratio at 1.1x.

• Swing from a £67.9m loss in H1 2023 to a £60.0m profit in H1 2024, aided by £38.1m in disposal profits and insurance recovery from a cyber incident.

• Cumulative net costs from the 2023 cyber incident remain around £25m.

Outlook and guidance

• Group revenue expected to decline low to mid-single digits for FY24; Experience division to see high single- to low double-digit decline, Public Service broadly flat.

• Modest improvement in operating margin over 2023's 3.5% anticipated, with full-year guidance reaffirmed.

• Adjusted operating profit and free cash flow guidance unchanged; pro-forma free cash outflow of £90m–£110m post Capita One disposal.

• Minimal net financial debt expected by year-end after Capita One disposal; continued lease debt reduction from property rationalisation.

• Medium-term targets reaffirmed: low to mid-single-digit revenue growth, 6%-8% margin, and positive free cash flow from 2025.