18th Aug 2020 09:06
(Alliance News) - Capita PLC on Tuesday announced a tough first half of 2020, as the impact of Covid-19, coupled with contract losses last year, weighed the company down.
The London-based business process outsourcing and professional services company swung to a pretax loss in the six months ended June 30 of GBP28.5 million from a profit of GBP31.2 million a year prior.
"The decline is due firstly to the net change in margin from
revenue losses and wins from 2019, as we lost high contribution and margin contracts and renewed or won lower margin work, as well as the impact of revenue losses from COVID-19," Capita said.
This was partially offset by GBP129.5 million in cost savings.
Revenue for the half was down to GBP1.68 billion from GBP1.85 billion year on year.
Covid-19's hit to revenue was mainly due to a decrease in transactional business and where client end-markets were severely affected, Capita said. Other hits to revenue came from the impact of contracts lost in the second half of 2019.
The company said it expects the impact of Covid-19 to delay its move into generating a sustainable free cash flow, which was the company's goal for this year.
"Profit has been significantly affected and the delay in the return to growth means we will not generate sustainable cash flow for one to two years," Capita said.
Chief Executive Jon Lewis said: "This crisis has come in a pivotal year for Capita when we had expectations of beginning to generate revenue growth and sustainable cash flow.
"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.
Capita explained that, going forward, the majority of its revenue should remain resilient given its client base and the long-term nature of its contracts.
Capita said: "Based on expectations of a slow economic recovery throughout the next six months and ongoing challenges to our
ability to win transactional work, our current expectation is that revenue in the second half is flat to slightly down on the first half."
The company plans on making multiple disposals, such as the most recent GBP56.5 million disposal of Eclipse Legal Systems on June 30, as a means of reducing debt and pension liabilities. Net debt is currently sitting at GBP1.10 billion.
Capita shares were down 9.5% at 32.49 pence each on Tuesday morning in London.
By Greg Roxburgh; [email protected]
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