Capita reports segmental restatement for H1 2024

Capita plc released restated H1 2024 financials, reporting adjusted revenue of £1,198.6 million and adjusted operating profit of £54.5 million, yielding a 4.5% operating margin, with adjusted EBITDA at £102.4 million. The restatement reflects a new segment structure, detailing Capita Experience's £685.6 million revenue contribution, where Regulated Services achieved a 15.7% operating margin, partly due to £10 million in one-offs. The company reaffirmed its full-year 2025 guidance for broadly flat revenue and H2-weighted operating margin improvement, reiterating expectations to be free cash flow positive from the end of 2025.

Analysis

Capita plc has provided a segmental restatement of its H1 2024 financials, offering greater transparency into its new operating structure. The company reported adjusted revenue of £1,198.6 million and an adjusted operating profit of £54.5 million, resulting in a 4.5% operating margin. The restatement reveals a significant performance disparity between its divisions: Capita Experience generated £685.6 million in revenue with a strong £47.4 million operating profit, whereas Capita Public Service contributed £346.2 million in revenue but only £1.1 million in operating profit, indicating extremely thin margins in the latter. Within the profitable Experience segment, the Regulated Services subdivision posted a notable 15.7% operating margin, though this was materially boosted by £10 million in one-off profits. The Pension Solutions arm also showed strength with a 13.2% margin. Critically, Capita reaffirmed its full-year 2025 guidance, projecting broadly flat revenue but an improvement in operating margin, which is expected to be weighted toward the second half. The company also maintained its forecast of becoming free cash flow positive from the end of 2025, a key target given the reported H1 2024 operating cash conversion rate of 49.6% on an adjusted EBITDA of £102.4 million.

Key Decisions for Investors

• Investors should scrutinize the stark profitability differential between the high-margin Capita Experience subdivisions and the near-breakeven Public Service segment, as future margin expansion hinges on improving the latter's performance.
• It is crucial to normalize the Regulated Services segment's performance by mentally backing out the £10 million in one-off profits to assess its sustainable, underlying margin.
• Given that reaffirmed guidance for margin improvement is weighted to the second half of 2025, the upcoming H1 2025 results on August 5th will be a critical data point to validate the execution of the company's turnaround plan and its path to positive free cash flow.