Capita (CPI: LSE) the UK-based provider of business process outsourcing solutions and professional support services reported underlying revenue declined by 4% in H1 2018 when compared to the previous year. 

Underlying revenue on a like-for-like basis, excluding results from businesses exited in both years, decreased by 2.3% including 2.4% organic decline and 0.1% growth from acquisitions. Capita said this was mainly due to the limited benefit from new contract wins, contract attrition in Customer Management, IT and Networks and Government Services and the re-shaping of its DIO (Defence Infrastracture Organisation) contract, which benefited from the recognition of previously deferred income in the prior year.

At the end of July, the Ministry of Defence announced it had suspended its contract with Capita to provide firefighting services on military sites after rival Serco began a legal challenge to the decision.

The group’s revenue mix in the half year was 71% long-term contracts, 16%-short term contracts of up to 2 years and 13% transactional.

Early this year Capita issued a profit warning and announced that it plans to raise over £700 million from investors. Capita’s new strategy, which includes the announcement of the launch of a rights issue to raise gross proceeds of £701 million, aims to simplify and strengthen the business in “order to deliver future success.” The group said it expect to raise £416 million from non-core disposals in 2018.

While the group said its 2018 half-year results are in line with its full year guidance, full-year profits will come at the lower end of expectations.

Underlying figures for H1 2018 were as follows.

Jon Lewis, Chief Executive Officer, commented, "In April we set out our new strategy and received the support of shareholders to strengthen the balance sheet. Since then, we have continued to make good progress on the plans we set out to simplify and strengthen the business. It is still early days, but my team and I are very focused and confident in our ability to deliver those commitments."

“Our guidance of between £270 million and £300 million underlying pre-tax profits, before significant new contracts, restructuring costs and implementation costs of the strategy, for the year ending 31 December 2018 included a full year's contribution of around £25 million from businesses which are now reported as business exits in non-underlying items. If we adjust for these disposals, underlying pre-tax profits guidance, before significant new contracts, restructuring costs and implementation costs of the strategy, on a comparable basis is between £250 million and £275 million for the year ending 31 December 2018,” Capita said. “This guidance excludes any potential positive accounting benefit from the end of our contract with Prudential.”

“Our 2020 targets of £175 million cost savings, double digit underlying EBIT margins and at least £200 million of sustainable annual free cash flow, before exceptional and restructuring charges and additional pension contributions, remain unchanged,” Capita stated.

The group also published statutory figures for the same period showing an operating profit of £66.7 million compared to £62.6 million last year. Capita also reported statutory profit before tax of £42.3 million, compared to £27.6 million, the year before. Statutory revenue was £2.01 billion, down from £1.98 billion the year before.

In April, the group put in place a new organisational structure, with six divisions: Software, People Solutions, Customer Management, Government Services, IT and Networks and Specialist Services. The People Solutions division which includes RPO, contingent workforce solutions, IT resourcing and executive search, declined by -1.6% in H1 2008 to £251.9 million.

Capita also announced that Nick Greatorex has informed the Board of his intention to step down as CFO. Nick will remain with the company and assist with an orderly transition over the coming months. A search for his successor is underway and a further announcement will be made in due course.

The results failed to inspire investors and, as of last trade, Capita traded at £150.00, down 7.41% on the day and 92.78% above the 52 week low of £77.81 set on 4 April 2018. Based on its current share price the company has a market value of £2.69 billion.