Capita scales back revenue guidance, shares drop

(Sharecast News) - Capita's share price dropped by almost a tenth on Tuesday morning after the outsourcing group scaled back its revenue guidance for the year. The company said that adjusted revenues for 2024 are expected to decline by a high-single digit percentage, compared with forecasts in August for a "low to mid-single digit" reduction.

The stock was down around 9% at 15.96p by 0917 GMT.

In a pre-closing trading update, Capital said that like-for-like revenues were down 8% over the first 11 months of the year.

Its public service division, which accounts for more than half of group turnover, saw a 0.9% reduction in adjusted revenue over the year-to-date, driven by the continued impact of previously announced contract losses in 2023, the exit of certain lower-margin services, and delays to two contracts that were signed last year. In August, the company said it expected its public service performance to be unchanged from last year.

Meanwhile, in the customer service-focused division, Capita Experience, like-for-like revenues were down 16.3% due to tough comparatives, the loss of contracts with the Co-operative Bank and lower volumes on a telecoms contract.

Elsewhere, the top line in the Pensions Solutions business grew 6.7% while Regulated Services contracted by 25.8%.

"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," said chief executive Adolfo Hernandez.

"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."

Despite the weaker-than-expected top-line performance, the outlook for adjusted operating profit remains unchanged for 2024, helped by improvements in margins as cost-reduction initiatives made an impact.