17 December 2024

Trading and operating update

Capita plc ("Capita")

Good margin progression in 2024. Further focus on operating model delivers
additional cost savings and underpins our Group medium-term targets

Summary:

  · Outlook for adjusted operating profit unchanged for 2024, with adjusted
operating profit margin up c.50bps, largely driven by cost reduction initiatives
  · Adjusted revenue1 was c.8% lower in the eleven months ended 30 November
2024, owing to exiting lower margin service lines and the impact of prior year
headwinds. Good momentum on cost savings target of £160m, with £140m annualised
savings, now actioned
  · Experience of live projects and data capture creates significant opportunity
to use more AI and generative AI in our service offerings, enabling cost savings
target to be raised to up to £250m by December 2025
  · Increased employers' National Insurance Contributions to have an annual cost
of c.£20m with cost savings expected to mitigate these costs over the medium
-term
  · Expect a free cash outflow2 of £120m-£140m in 2024 as a result of lower
revenues and a more sustainable approach to working capital management. Majority
of the up to £50m additional cash restructuring costs to deliver additional
savings, expected to impact 1H25 free cash flow. We expect positive and
consistent free cash flow2 from the end of 2025
  · Progress exiting managed for value businesses. Completion of Capita One
disposal in September 2024, c.£180m net proceeds received, providing funding
optionality. 2024 year-end net financial debt to adjusted EBITDA, pre IFRS 16,
expected to be <1.0x
  · The Board is increasingly confident in delivering its 6-8% medium-term
operating margin target

Strategic priorities

As outlined at the Group's Capital Markets Day in June, the first priority of
the ongoing transformation is improving the operating margin of the Group, which
in turn will deliver free cash flow2 and adjusted revenue growth as we become
more cost competitive.

Significant opportunities continue to be identified to fundamentally improve our
operating model and drive cost efficiencies throughout the organisation, with
the increasing use of AI and generative AI at the heart of this transformation.
Consequently, the accelerating momentum of the current cost reduction programme
has increased our confidence in the level of efficiencies that can be delivered,
enabling us to increase our cost reduction target from £160m to up to £250m.
Voluntary employee attrition of around 21% contributes to these savings, reduces
the need for redundancies and the Group can ensure that it can rebalance new
hires, incremental training of our colleagues and investment in key growth
areas, particularly within the Contact Centre business. By combining people,
processes and technology to develop repeatable scalable products we can drive
efficiencies for our clients and make us more competitive. The progressive
adoption of AI in the delivery of our client solutions will enable us to
continue to focus on efficiencies in the future on a "business as usual" basis.

Increasing our operating cash conversion and a return to positive free cash
flow2 is our next priority. Though the total cash cost of delivering the cost
reduction targets will impact free cash flow by c.£50m in 2024 and up to £50m
further in 2025, the combination of improving profitability, and the absence of
pension deficit payments (from H2 2024 onwards) will contribute to positive and
consistent free cash flow2 from the end of 2025.

We are increasingly focused on leveraging our domain expertise with technology
solutions provided by our hyperscaler partners to deliver profitable revenue
growth in the medium-term. The use of AI is already enabling us to deliver
significant productivity and service quality improvements for our early adopting
Contact Centre and Local Government customers, where those early clients have
seen average handling time reductions of around 20%. We are also seeing some
encouraging early successes on winning new contracts due to our enhanced service
offering. Looking forward, we have opportunities which deliver AI solutions with
the hyperscalers worth more than £5bn within the pipeline.

In 2024, we have accelerated the exit from lower margin activities, including
the sale of our Mortgages Asset Services business which we expect to complete in
Q2 2025 as detailed in yesterday's news release. We will continue to exit those
activities that are either low margin or where we have a limited right to win
and as a result, we expect a broadly flat revenue performance in 2025.

Financial performance

Adjusted revenue1 was c.8% lower in the eleven months ended 30 November 2024.

Capita Public Service adjusted revenue1 reduced 0.9%, in the eleven months to 30
November 2024, driven by the continued impact of previously announced contract
losses in 2023, the cessation of some lower margin services, and delayed
mobilisations of two contracts in 2023 which impacted current year revenue and
profit and will benefit 2025. These factors offset additional volumes in our
contract with Transport for London and the benefit from indexation. Looking
ahead, we have strong alignment with the UK Government's priorities as outlined
in the recent budget, particularly in areas such as Healthcare and Defence.

Capita Experience adjusted revenue1 reduced 16.3% in the eleven months to 30
November 2024.  The Contact Centre3 business declined 18.5% reflecting the one
-off benefit from the Virgin Media O2 contract transition in the prior year, the
impact of prior year contract losses with the Co-operative Bank in 2023 and
lower volumes on a Telecommunications contract, which we expect to remain
subdued in 2025.

Pension Solutions3 grew 6.7% reflecting volume growth across a number of
clients, including PIC and Rothesay and the benefit from indexation.

Regulated Services3, including closed book Life & Pensions, saw revenues decline
25.8% as expected reflecting the one-off benefit from the prior year commercial
settlement, the impact of contract exits and volume reductions as we resolve
legacy issues and look to exit this business segment.

Financial guidance

For 2024, we expect to deliver a high-single digit adjusted revenue decline,
after adjusting for disposals including Capita One, with improved margins
driving an unchanged operating profit outlook. In 2025, we expect additional
savings to offset the £16m of in-year incremental employers' National Insurance
Contributions costs (£20m on an annualised basis), and to deliver further margin
improvement and modest profit growth.  The up to £50m additional cash
restructuring costs to deliver the up to £250m upgraded cost savings target are
expected to mainly impact 1H25 free cash flow.

Adolfo Hernandez, Chief Executive Officer, said: "As we head towards the end of
my first year as CEO of Capita, I am very encouraged by the progress we have
made against our strategic priorities, despite the impact of prior year
headwinds being larger than originally expected.  Our focus is on becoming a
better business, "getting smaller to get stronger and fitter to then grow" and
being more selective in not pursuing and exiting existing lower margin
contracts. Consequently, revenue is expected to be high single-digits lower in
2024. However, we are encouraged by the customer reaction to our suite of AI
solutions developed with the hyperscalers which will help to drive profitable
revenue momentum from 2025 onwards.

We have implemented a significant proportion of our efficiency programme, and
today have outlined further savings which will result in further improvement to
operating profit margins. We have made good progress with the managed for value
businesses including the sale of Capita One in September and we look forward to
2025 with expectations of continued progress with positive and consistent free
cash flow2 from the end of 2025.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Notes:

 1. Adjusted revenue = revenue on a like-for-like basis, as outlined in the
Group's alternative performance measures note.
 2. Free cash flow, before the impact of business exits.
 3. Following a review of the Group's offerings, moving forwards, Capita
Experience will be reported as three segments - reflecting the different market
sectors and end product offerings. These are, Contact Centre, Pension Solutions
and Regulated Services which includes closed book Life & Pensions. We will
provide full comparative 2023 data ahead of the Group's year end results.

For more information, please contact:

Investor enquiries
Helen Parris, Director of Investor Relations
Tel: 07720 169 269
Email: IRteam@capita.co.uk

Stephanie Little, Deputy Head of Investor Relations
Tel: 07541 622 838
Email: IRteam@capita.co.uk

Media enquiries
Capita external communications
Tel: 0207 654 2399
Email: media@capita.co.uk

About Capita

Capita is a leading provider of business process services, driven by data,
technology and people. Capita is a modern outsourcer, helping clients across the
public and private sectors run complex business processes more efficiently,
creating better consumer experiences. Operating across 8 countries, Capita's
41,000 colleagues support primarily UK and European clients with people-based
services underpinned by market-leading technology. We play an integral role in
society - our work matters to the lives of the millions of people who rely on us
every day. Capita is quoted on the London Stock Exchange (CPI.L). Further
information can be found at: http://www.capita.com

This information was brought to you by Cision http://news.cision.com