First year of multi-year transformation executed as planned in 2018:
- Corporate purpose and strategy defined
- First-ever operating model rolled out
- Leadership strengthened and governance improved
- Balance sheet strengthened; £1.1bn raised through rights issue and disposals
- £282m profit before tax*, slightly ahead of our guidance
- Real progress on ‘challenging’ contracts
- Rebuilt relationships and partnerships with clients
- £1.8bn order intake
- £140m invested in infrastructure, products and systems
- Hit target of £70m in-year savings from cost competitiveness
- Pension deficit reduction plan agreed.
Clear plan for 2019:
- Accelerating cost competitiveness to realise cumulative savings of £175m by end 2019
- Increasing investment - in our people, systems and digital capability - to support long-term, sustainable growth
- Profit before tax1 expected to be between £265m and £295m in 2019
- Transformation of sales as part of new growth function.
On track for 2020 targets:
- Achieve double-digit margins1
- At least £200m of sustainable free cash flow2.
Jon Lewis, Chief Executive Officer, said:
“We’ve successfully completed year one of our multi-year transformation, fixed the basics and are firmly on track. We’ve strengthened our balance sheet, achieved cost savings, and invested in our people. On top of that, we’ve improved our governance, introduced a ‘One Capita’ operating model, and started turning around challenging contracts. I am particularly proud of our new corporate purpose and refreshed values.
The lion’s share of our business is providing digitally-enabled services and software solutions, using a combination of technology, data and insight to help deliver better outcomes for clients. This gives us a strong platform for significant, long-term structural growth.
Our transformation still has some way to go. 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.”
Capita is entering the second year of a major transformation and the successful delivery of this programme is critical to the future performance of the Group. We expect net finance costs1 to be in the region of £40m and profit before tax1 to be between £265m and £295m in 2019. We expect our headline net debt to EBITDA ratio to be in the top half of our stated range of 1.0 times to 2.0 times before adoption of IFRS 16.
Our 2020 targets of £175m initial cost savings, double-digit EBIT margins1 and at least £200m of sustainable annual free cash flow, before exceptional and restructuring charges and additional pension contributions, remain unchanged.
|Year ended 31 December 2018|
|Financial highlights - continuing operations||Reported 2018||Reported 2017||Adjusted1 2018||Adjusted1 2017||Adjusted1
|Profit/(loss) before tax||£272.6m||(£513.1)m||£282.1m||£383.1m||(26)%|
|Earnings/(loss) per share||17.99p||(48.82)p||16.37p||27.99p||(42)%|
|Free cash flow||(£260.5)m||£66.6m||(£82.5)m||£75.4m||(209)%|
The following table sets out the main differences between reported and adjusted profit for 2018:
|Year ended 31 December 2018|
|Reported profit before tax||£272.6m|
|Amortisation and impairment of acquired intangibles||£143.5m|
|Impairment of goodwill||£33.8m|
|Impairment of loans and investments||£1.6m|
|Litigation and claims||(£1.8)m|
|GMP and retirement age equalisation||£5.4m|
|Net finance costs||£18.8m|
|Contingent consideration movements||(£5.0)m|
|Business exit – trading||(£16.8)m|
|Business exit – non-trading expenses||£29.7m|
|Business exit – (gain)/loss on disposals||(£309)m|
|Adjusted1 profit before tax||£282.1m|
Refer to note 1 for further details of the above items.
This preliminary announcement is extracted from Capita's financial statements for the year ended 31 December 2018 and the basis of its preparation can be found in the notes to the statements in the full year results release.
Our 2018 Annual Report and Accounts has been published today and is available on the Investor results, reports and presentations page.
1 Adjusted. Refer to appendix for calculation of alternative performance measures