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PBT down over 58% in H1 2018 for Capita

Capita plc has released its results for the first half of 2018.

Reported revenue decreased by 5.4% to £2,012.6m (H1 2017: £2,127.3m). Underlying revenue on a like for like basis, excluding results from businesses exited in both years, decreased by 2.3% including 2.4% organic decline and 0.1% growth from acquisitions. This was mainly due to the limited benefit from new contract wins, contract attrition in customer management, IT and networks and government services and the re-shaping of the company’s DIO contract, which benefited from the recognition of previously deferred income in the prior year.

Capita’s revenue mix in the half year was 71% long term contracts, 16% short term contracts of up to two years and 13% transactional.

Underlying operating profit decreased by 52.7% to £108.1m (H1 2017: £228.4m), as a consequence of decline in People Solutions margin, volume attrition in Customer Management, Government Services and IT and Networks, the reshaping of the DIO contract in Government Services and dropping out of a one-off supplier settlement in IT and Networks. This included restructuring costs and professional advisor fees of £49.1m (H1 2017: £nil), relating to Capita's new strategy and transformation plan. Underlying operating profit before significant new contracts and restructuring costs decreased by 31.2% to £157.2m (H1 2017: £228.4m).

Underlying operating margin was 5.5% (H1 2017: 11.1%) and underlying operating margin before significant new contracts and restructuring costs was 7.9% (H1 2017: 11.1%).

The company says it continues to target double digit underlying EBIT margins before significant new contracts and restructuring costs in 2020.

The underlying net interest charge was £27.6m (H1 2017: £33.4m). This reduction was driven by the removal of fixed rate swaps in 2017 and the repayment of US Private Placement debt following the disposal of Capita Asset Services in the second half of 2017. Capita expects underlying net interest costs to be in the region of £55m in the full year to December 2018.

Reported profit before tax was £42.3m (H1 2017: £27.6m), including profits from business exits of £22.6m (H1 2017 losses of £67.6m) and a charge for specific items of £60.8m (H1 2017: £99.8m) including the amortisation of acquired intangibles. Underlying profit before tax decreased by 58.7% to £80.5m (H1 2017: £195.0m) and underlying profit before tax before significant new contracts and restructuring costs decreased by 33.5% to £129.6m (H1 2017: £195.0m).

The underlying income tax credit for the half year of £14.1m resulted in an underlying negative tax rate of 17.5% (H1 2017: income tax charge of £36.0m and tax rate 18.5%). This was favourably impacted by a specific one-off deferred tax credit arising from a re-assessment of the recognition of deferred tax balances on tax losses since the year end. Prior to the recognition of this deferred tax credit, the underlying tax rate for the half year was 18.9%. The reassessment is driven by the accessibility of tax losses realised as an impact of IFRS 15. Capita continues with its commitment to prompt disclosure and transparency in all dealings with HMRC and overseas tax authorities. It does not have a complex tax structure, nor does it pursue any aggressive tax avoidance activities. The company expects a small underlying tax credit in the full year to December 2018.

Jon Lewis, chief executive officer, commented, "In April we set out our new strategy and received the support of shareholders to strengthen the balance sheet. Since then, we have continued to make good progress on the plans we set out to simplify and strengthen the business. It is still early days, but my team and I are very focused and confident in our ability to deliver those commitments."

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