Capita's turnaround plan derailed by pandemic after first-half loss

(Reuters) - British outsourcer Capita CPI.L posted a 28.5 million pound ($37.44 million) loss for the first half of 2020 on Tuesday, saying it had taken a significant hit from the coronavirus and would not generate sustainable cash flow for up to two years.

FILE PHOTO: An illuminated sign is seen in Capita offices in London, Britain, January 31, 2018. REUTERS/Toby Melville

Britain’s outsourcing industry had been forced to cut costs and shrink operations even before the pandemic, hit by a wave of cutbacks exacerbated by the country’s decision to leave the European Union.

Shares in Capita, which provides consulting and digital services to the public and private sector, have lost around 80% of their value so far this year and were down 10% in morning trade after falling as much as 21%.

Its pre-tax loss in the six months to June 30 compares with a profit of 31.2 million pounds a year earlier and Capita said it would not generate sustainable cash flow for one to two years.

“This crisis has come in a pivotal year for Capita when we had expectations of beginning to generate revenue growth and sustainable cash flow,” Chief Executive Jon Lewis said.

“Instead, we have had to focus on managing our way through the crisis.”

Capita said it had launched the sale of its standalone Education Software Solutions and would use the proceeds to strengthen its balance sheet.

“We do see the potential offered by a material cash inflow from the disposal of the Education franchise as material in turning the Group’s fortunes around,” Shore Capital analysts said.

Second-half revenue is seen flat to slightly down from the first half, the company said. First-half adjusted revenue fell 9% to 1.65 billion pounds.

Net debt came in at nearly 1.1 billion pounds as of June 30, slightly lower than last year. But the group said it expects it to return towards December 2019 levels.

Capita's results contrast with rival Serco SRP.L, which reported a jump in profit earlier this month.

It also comes at a time when Mitie MTO.L scooped up Interserve's support services arm for 271 million pounds, flexing its financial muscle.

Reporting by Yadarisa Shabong in Bengaluru; Editing by Rashmi Aich and Nick Macfie