Capita's share price plummets as pandemic hampers H1 results

Outbreak puts brakes on outsourcing giant's recovery efforts

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Capita has seen its share price tank almost 20 per cent this morning after it reported a bleak first half of the year.

The outsourcing giant saw revenues dip nine per cent year-on-year to £1,652.2m for the six months ending 30 June 2020, with about £80m of that lost due to the fallout from Covid-19. Operating profit dropped 43 per cent to £34.6m over the same period.

The company acknowledged that it would continue to be a "challenging year" and that sustainable cash flow will be delayed by up to two years due to the pandemic's "significant" impact on profit.

"Capita and its people faced a challenging first half of the year, like many other companies. Thanks to our transformation progress over the last two years - and the hard work and professionalism of our colleagues - we were able to deliver a strong and decisive operational response to the COVID-19 crisis," stated CEO Jon Lewis.

"However, this crisis has come in a pivotal year for Capita when we had expectations of beginning to generate revenue growth and sustainable cash flow."

Lewis stated that it would be offloading more business units to help the balance sheet, after selling Eclipse Legal Systems to Access UK for £56.5m and putting its Education Software Solutions unit up for sale.

"Instead, we have had to focus on managing our way through the crisis, while accelerating some strategic decisions, including our plan for the disposal of Education Software Solutions, a standalone business in our Software division.

"We expect to make further disposals which, alongside other measures, will strengthen the balance sheet and help build towards a more focused, sustainable Capita for the long term. These are unprecedented times and we need to adapt but our strategy remains the right one."

Its Technology Solutions arm saw revenues fall 15 per cent to £190.5m, as it had anticipated.

Revenue in that unit was impacted by the pandemic, known contract endings and reduced demand for its professional services. However, its recent TfL win helped offset the losses, Lewis added.

Revenue for H2 is expected to be flat or lower than that in H1 due to "slow economic recovery" and challenges around winning transactional work. However, the chief exec is optimistic that focusing on certain divisions will spur revenue growth.

"We are continuing to invest in those areas of our business that we believe will be long term growth markets and where the shift to digital over the last few months, and the UK Government's investment plans, will be strong tailwinds," Lewis said.

"For example, the move into the cloud has been a major factor of the Covid-19 crisis and cybersecurity is also a major focus for our clients. Our automation work has been growing this year and we are developing new services to leverage the Smart DCC network, Europe's largest 'Internet of Things' project."