Shares in outsourcing giant Capita (LSE: CPI) nosedived over 30% on Wednesday after the company unveiled a bigger-than-expected annual loss for 2023. This drop comes despite the CEO expressing optimism about the company’s future.
Capita reported a pre-tax loss of £106.6 million for 2023, a significant swing from the £61.4 million profit recorded in the previous year. Revenue also dipped by 6.6% to £2.81 billion, with core business growth failing to offset the sale of non-core assets.
While adjusted pre-tax profits saw a 14% increase to £56.5 million, this was largely due to a one-off £20 million profit from a commercial settlement. Underlying metrics painted a less rosy picture, with reported earnings before interest, tax, depreciation, and amortization (EBITDA) falling by 39% and operating cash flow dropping by 48%.
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Capita also carries a heavier debt burden, with net debt at £545.5 million compared to £482.4 million at the end of 2022.
Despite the underwhelming results, new CEO Adolfo Hernandez, who took the helm in January 2024, expressed confidence in the company’s future potential. He acknowledged they haven’t yet achieved “operational excellence” but outlined plans to drive improvement through cost reduction, client collaboration, and technology adoption.
Hernandez emphasised the need for “a rapid reduction in our cost base,” building on the previously announced £60 million cost-saving plan. Additionally, Capita aims to achieve an incremental £100 million in annualized cost savings by June 2025.
Looking ahead, Capita forecasts revenue for 2024 to be “broadly in line” with 2023, with a “modest improvement” in its operating margin.
