Capita on track to meet forecasts as the TV licensing enforcer group reveals first-half contract wins
- Capita said its first half had been ‘in line with expectations’ in an update today
- Group said it remained on track with its full-year outlook forecasts
Capita’s first-half performance was in line with expectations amid further revenue growth and strengthening of the outsourcer’s balance sheet.
The group, which is responsible for enforcing BBC TV licences, also highlighted to investors on Wednesday successful contract renewals and new business achieved during the half year.
Capita shares were down 3.75 per cent or 1.06p to 27.18p this afternoon, and the company’s share price has fallen nearly 30 per cent in the past year.
Update: Capita shares fell this afternoon amid the group’s latest trading update
Commenting on its work this year, Capita said: ‘We have won a number of significant contracts in the first half, including the renewal of the BBC TV licencing contract (£456million), an extension of our PCSE contract (£94million) and further work for the Northern Ireland Education Authority (£51million).
‘We also won a new contract with ScottishPower worth £63million over five years.’
In the five months to 31 May, the group’s public service division grew by 2 per cent. Its experience arm slipped 3 per cent, while its portfolio group of non-core businesses grew by 5 per cent.
The group said it expects revenue growth in the first half of 2022 of up to 1 per cent. It said it ‘remained confident’ of delivering revenue growth this year.
Capita added: ‘We expect profits in 2022 to be significantly weighted to the second half, with a reduced EBITDA margin reflecting the full-year impact of prior-year contract losses, structural decline in our closed book Life & Pensions business, and operational changes in the Army Recruitment contract.
‘We remain on track to deliver positive free cash flow in 2022. We continue to expect a material reduction in net debt by the end of the year.’
The group also said it expects to have begun the final disposal processes of its remaining non-core businesses by the end of the year as it looks to complete its financial turnaround.
On its disposals, Capita said: ‘This year we have completed the disposal of four businesses: Secure Solutions and Services, AMT Sybex, Specialty Insurance, and Trustmarque. As a result, we have received total proceeds of over £750million from previously announced disposals, exceeding our £700million target, six months earlier than originally announced.’
Jon Lewis, Capita’s chief executive, said: ‘I am pleased with the progress we have made across Capita since the start of the year.
‘Our operational performance remains strong, with impressive levels of delivery across our client base; and we have secured important contract renewals and new work.
‘Our financial performance has remained in line with our expectations, as we have maintained revenue growth in 2022, while continuing to reduce debt and strengthen the balance sheet.
‘We continue to expect further strong progress in the second half of the year in revenue, profit and cash flow generation.’
Broker Shore Capital said: ‘Capita still needs to complete the sale of the remaining businesses in the Portfolio division to become a self-financing and sustaining business.’
It added: ‘The likelihood of dividend payments or other shareholder capital returns is minimal in our analysis until at least FY27F driven by the continuing need to retain capital within the business and the low (exhausted) distributable reserves in the company balance sheet.
‘We continue to see light at the end of the tunnel for Capita and believe that a fundamental valuation analysis is now emerging.
‘We anticipate the revenue and profit base should begin to gain some momentum in FY23F with growth returning more strongly into FY24F – but the disposal programme needs to be completed.’