Capita share price up 4% after profits fall less than expected

The outsourcing company saw its pre-tax profit fall 26% in its full-year results, but the decline was less than expected, helping its share price climb higher on Thursday.

Capita recorded a 26% fall in pre-tax profit in its full-year results on Thursday, with the company’s pipeline of new orders in a slump, reflecting the myriad of economic headwinds the outsourcing firm faces as it tries to execute its turnaround strategy.

Despite the sharp decline in profit, the company took a small victory in narrowly beating its own earnings guidance, helping to send its share price 4% higher on Thursday morning.

‘Our transformation still has some way to go,’ Capita CEO Jon Lewis said. ‘But I am very pleased with our progress.’

‘Our targets remain on track, and I’m excited about the prospects for a simplified and strengthened Capita,’ he added.

Capita results: key figures

The outsourcer recorded an adjusted pre-tax profit of £282 million in its 2018 full-year results, down from 383.1 million in the previous year, but the company managed to come it a touch above its own guidance of £250 million - £275 million.

Meanwhile, the company’s revenue dropped 5% to £3.8 billion, with company meting its £70 million cost-savings target and is on track to meet its £175 million target by the end of 2019.

‘We’ve strengthened our balance sheet, achieved cost savings, and invested in our people,’ Lewis said.

‘On top of that, we’ve improved our governance, introduced a ‘One Capita’ operating model, and started turning around challenging contracts.’

Capita’s 2019 outlook and 2020 targets

Capita has entered the second year of a turnaround plan and the successful delivery of this programme is critical to the future performance of the group, with its new management team targeting net finance costs to be in the region of £40m and profit before tax to be between £265m and £295m in 2019.

The company is targeting 2020 targets of £175m initial cost savings, double-digit EBIT margins and at least £200m of sustainable annual free cash flow, before exceptional and restructuring charges and additional pension contributions remain unchanged, the company said.

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