Capita maintains course amid mixed performance

Capita’s five-month trading update out this morning shows a company navigating headwinds while betting heavily on its AI transformation programme. Group revenue declined -4.5% as was expected, with the Contact Centre division (Capita Experience) particularly challenged by teleco sector weakness and some contract losses.

The standout performer was Capita Public Service, growing 2.3% driven primarily by its Central Government contracts. However, this couldn't offset broader declines across the portfolio. The company's decision to exit its Regulated Services business follows the previously outlined strategy, though its 6.4% growth figure was flattered by one-off termination fees and some deferred income from the Mortgage software business.

The impact of Capita's significant AI pivot continues to take shape. This saw the launch last week of Agentforce AI for recruitment (as we covered here), aimed at transitioning processes from weeks to hours, and showcased tangible applications. With over 200 AI use cases now identified through their Catalyst Lab and five products already launched, the company is moving beyond experimentation toward commercial deployment that should shake up its delivery model significantly.

Capita is sensibly taking a "client zero" approach - testing solutions internally before external rollout - providing credible proof-of-concept credentials. Microsoft Copilot's 150,000 monthly interactions suggest genuine operational integration rather than superficial adoption.

Management's unchanged guidance of flat 2025 revenue with margin improvement remains achievable. The £185m of £250m targeted cost savings already delivered provides confidence in its execution. However, the weighted second-half margin improvement will likely create some near-term pressure, particularly given the Contact Centre businesses ongoing challenges. Of key importance will be the projected free cash flow positive position from end-2025 which should represents a critical inflection point for investor confidence.

While revenue headwinds persist, Capita's AI strategy and cost focus show promise of a medium-term recovery. The key test will be converting those AI ‘product’ investments into sustainable competitive advantages as well as client retention of key contracts in a challenging market environment.

Posted by: Marc Hardwick at 08:36

Tags: bps   trading update