Capita plc - AGM
statement and trading update
Capita plc ('Capita'), the UK's leading provider of
technology-enabled customer and business process management
services (‘BPM’) and integrated professional support services, is
holding its Annual General Meeting today and is issuing the
following trading update.
We are making good progress on executing the strategic
initiatives laid out at the end of 2016 to reposition the Group and
create a simpler business better placed to return to profitable,
Group restructure: We have bedded down our new divisional
management and our market-facing organisation structure has now
been in place since the beginning of 2017. This has increased
transparency and oversight, and created greater renewed focus on
sales, consistent operational performance and customer service
Creating a simpler business and addressing leverage: We
have completed the disposal of our stand-alone, transactional
specialist recruitment businesses (education, social care and
health personnel) to Endless. We are committed to our remaining
Workplace Services businesses which include our public and private
recruitment process outsourcing (‘RPO’), executive search, vetting,
employer branding agency and learning services businesses. The
larger disposal of the Capita Asset Services businesses is
proceeding well and is on track to conclude in the second half of
2017. Together, these disposals increase the Group's focus on
technology-enabled BPM and should result in a significant reduction
in leverage by the end of 2017. At the half year results these
businesses will be reported as non-underlying.
Performance improvement: We commenced a number of short
and long term cost initiatives in the last quarter of 2016 to
improve performance, including reductions in overheads, the
offshoring of some IT applications support, centralising more of
our procurement and rationalising our property estate. These are
progressing well and we are on track to realise net incremental
benefits in line with our expectations.
Trading businesses: The overall performance of our
trading businesses in the year to date is in line with our
expectations. The turnaround of IT Services is progressing better
than expected, with improving profitability following the
restructuring of the divisional management team and operating
model. There are also steady signs of improvement in Capita Europe,
our customer management operations in Germany and Switzerland. However, trading across our
property, employee benefits consulting and learning services
operations is yet to improve.
Major contracts: The majority of our major private and
public sector contracts are continuing to perform well and the
commencement of new contracts with mobilcom-debitel and Three UK
have gone smoothly.
Service delivery across our NHS Primary Care Support England
(‘PCSE’) contract, following the early stages of this complex
initiative to modernisation and standardise primary care
administration, is continuing to improve with additional resources
and we are seeing consistent progress across all services. The cash
cost of these continuing improvements has been and will remain high
for the remainder of the year.
As the Strategic Business Partner to the Defence Infrastructure
Organisation (‘DIO’) Capita has delivered a range of positive
outcomes, including key programmes such as the Better Defence
Estate (Footprint Strategy) and the Army Basing Programme.
Following this progress, the Ministry of Defence (‘MoD’) is
reviewing how they wish to deliver the next stage of transformation
of the estate and how it is managed. We expect that this may lead
to a reshaping of our DIO contract, which would result in lower
than expected profits from this contract in this year and going
forwards, and the possible early termination of the contract in
June 2019. This would then enable the
MoD to retender and procure services to best fit the needs of DIO
as it supports the restructured and reduced estate going forward.
Currently, we would expect to participate in any retendering
processes if they occur.
Major sales and business
Capita has secured £318m aggregate major contracts and
extensions in the year to date, with an improved win rate of 1-in-2
by value. This includes the extensions of our Personal Independence
Payments contract with the Department for Communities, Northern Ireland until end July 2019 and our IT services contract with the
Northern Ireland Education Authority to March 2019, and the renewals of our RSPCA
customer management contract and Royal
London life and pensions contracts.
Following these recent wins, our bid pipeline is currently
£3.8bn. We are seeing good levels of activity in the private
sector, particularly in financial services, transport and telecoms.
In local government, we are also bidding on a number of
opportunities where we can deploy high value, replicable solutions
in areas such as asset optimisation, digital transformation and
procurement management services.
Following recent media coverage, we confirm we have entered a
period of exclusive engagement with British Airways to explore
forming a potential partnership to support its global customer
contact operations, which currently handles approximately 9.5
million calls per year. No final decisions regarding the outcome of
this engagement have been made.
We continue to expect the majority of sales decisions by value
to come in the second half of this year.
Chief Executive search
The Board is making good progress in the search to select a new
Chief Executive and the selection process is moving forward with a
shortlist of strong candidates.
Early adoption of IFRS 15
On 30 May 2017 Capita re-confirmed
its intention to early adopt the new revenue standard IFRS 15 from
1 January 2017, ahead of mandatory
adoption on 1 January 2018. This is
an accounting change and has no impact on the cash generation or
operating performance of the business.
Early adoption will allow Capita to start 2018 having both
restructured the business and implemented the new standard in 2017.
We are progressing well with the detailed work required to adopt
IFRS 15 and will be holding a detailed ‘IFRS 15 adoption teach-in’
session for analysts and investors on 7
September 2017. Following a review by KPMG, the half year
results for the six months to 30 June
2017 will be reported under IFRS 15 on 21 September 2017 and the 2016 results will be
restated in accordance with the new standard.
From our initial work, we do not expect the adoption of the new
IFRS 15 accounting standard to result in financial performance
being any lower than market expectations for 2017.
As previously stated, Capita expects 2017 will be a transitional
year for the Group.
We expect that the first half performance of 2017 under IFRS 15,
including the impact of higher resourcing costs in PCSE, will be no
lower than the second half of 2016, as reported under previous GAAP
accounting standards, excluding the write-down of accrued income
and potential impact from disposals.
We continue to expect profitability to improve in the second
half, reflecting the cumulative benefit from performance
improvement initiatives and lower attrition, and our current view
that the trading businesses will continue to steadily improve.
We remain confident that the decisive actions we commenced in
2016 will make Capita a simpler business, better positioned to
exploit our fundamental strengths and generate renewed sales
performance, supporting a clear pathway to return to sustainable
profitable growth in 2018 and beyond.
For further information:
Tel: 020 7799 1525
Shona Nichols, Executive
Andrew Ripper, Head of Investor
Capita Press Office Tel: 020 7654 2399
Powerscourt Tel: 020 7250 1446
Peter Ogden and Ben Griffiths
Note to editors:
Capita is a leading UK provider of technology enabled
customer and business process services and integrated professional
support services. With 73,000 people at over 450 sites, including
98 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), with 2016 underlying
revenue of £4.9 billion.
Further information on Capita can be found at: