It’s been a long downward spiral for the Capita share price since the heady heights of 2015, when it was trading at record highs over 800p. Taking on contracts with extremely thin profit margins to try and win business soon caught up with Capita in the wake of the spill over effects of the collapse of UK construction giant Carillion, which sent a massive shock all the way through the UK contracting services sector.
Jonathan Lewis steps in
The company, which oversees the London Congestion Charge, two years ago hired Jonathan Lewis as CEO as concerns rose about the survival of the business as this UK government contractor started experiencing cash flow problems as it strove to deliver various services in the face of wafer thin margins. At the beginning of 2018 Mr Lewis took decisive action to address the myriad of problems facing the business. In announcing a business restructuring, a £700m rights issue, suspending the dividend and issuing a profits warning, the Capita share price tanked as investors took fright.
Capita share price by numbers
The Capita share price has recovered since then after hitting a record low of 78p in 2018, while progress has been slow over the last 12 months with the share price finding a near-term base close to 100p in 2019. In August last year the company announced a decline in half year pre-tax profits to £31.2m from £42.3m while revenues slid to £1.85bn as management focused on driving down costs.
Earlier this year the company announced it was looking to sell a number of non-core businesses including translation services and event management in order to generate up to £200m to help boost its balance sheet. This morning’s numbers continue to highlight the challenges facing the business with revenues sliding 4%, coming in at £3.6bn, while sliding to a pre-tax loss of £62.6m due to various one off transformational costs, including £159.4m in business restructuring costs, and goodwill impairments of £41.4m. Without these costs the company would have made a profit of £275m, which would have been in line with its guidance of between £265m and £295m.
CEO Jon Lewis expressed optimism about the outlook while saying that the turnaround plan was a work in progress for a complex business, and that it was turning out to be more complex than originally thought. He went on to express optimism about 2020 while hinting that it may take a lot longer than originally anticipated. Given concerns about the viability of the business two years ago, it is certainly in much better shape than it was then. And while the business appears to be behind schedule when it comes to where it was supposed to be in terms of the turnaround plan, there has been progress.
Whether investors will agree is another matter and with the Capita share price already down from its highs this year, this morning' s opening slide suggests that some still remain to be convinced.