*UKHotViewsExtra* ‘Better Capita’ looks to improve profitability on declining revenue

Capita’s FY 2024 results out this morning were previewed back in December’s 11-month trading update (see Capita trims revenue guidance, but ups margin expectations). This morning’s results are on trend with the other Big (Public Sector) BPO players Serco and Sopra Steria who published their results in last couple of weeks and also experienced improving profitability on declining revenue (see Serco’s focus on profitability pays off and Sopra Steria navigates a wait-and-see market). All three firms have had to deal with a tricky market environment and have leant heavily on the levers of operational efficiency and tech/AI deployment.

At Capita’s Capital Markets Day presentation six months ago (see here), new CEO, Adolfo Hernandez outlined the company’s plans for “getting smaller to get stronger and fitter to then grow”. In this morning’s release he remains optimistic that the actions being taken will help to drive profitable revenue momentum from 2025 onwards. However, investors have yet to be convinced with Capita’s share price at the time of writing approximately where it was back in July 2024 (c.14p).

Highlights from the financials released saw adjusted revenue decline -8.0% to £2.4bn, reflecting the impact of prior year losses, some volume reductions in its Contact Centre business, and the cessation of lower margin service lines as planned. Adjusted operating profit increased 5.5% to £95.9m as major cost cutting initiatives and redundancies (delivering £90m savings) more than offset revenue decline. Some of the key profitability metrics improved such as reported profit before tax which was £116.6m (vs 2023 loss of -£106.6m), boosted by disposals of Capita One and Fera. Net financial debt reduced to £66.5m (2023: £182.1m) and importantly Customer net promoter score improved significantly to +28 points, up 12 points from 2023 – this has been a big area of weakness for Capita historically. Also, of note the firm’s contract renewal rate grew to 92%, up from 51% in 2023, demonstrating stronger client relationships.

CEO Hernandez has spent the last six months implementing his "Better Capita" strategy focusing on four key pillars:

TechMarketView subscribers can read more on our analysis of Capita’s financial results in UKHotViewsExtra (download here). If you are not yet a subscriber or are unsure if your organisation has a corporate subscription, please contact Belinda Tewson to find out more.

Posted by: Marc Hardwick at 08:50

Tags: results