Capita (LON:CPI) said it made operational and strategic progress in the first half despite costs tied to its Civil Service Pension Scheme, or CSPS, contract, with management highlighting revenue growth, contract wins and further efficiency measures.
Chief Executive Officer Adolfo Hernandez said the company’s immediate operational priority remained resolving issues in the CSPS contract and improving service for scheme members. He said the business had moved from crisis management to handling urgent cases, building capacity and reducing the accumulated backlog.
Hernandez apologized for the problems, while noting that the pensions business excluding CSPS was delivering at a 94% KPI rate. The rest of Capita’s public-sector business was operating at more than 90% KPI performance, he said.
CSPS Costs Weigh on Pensions Results
Chief Financial Officer Pablo said the pensions division’s results were heavily affected by the CSPS contract. The direct impact was £14 million in the first half, with a further £3 million collateral impact on other consulting activities as resources were redirected to support the contract.
The pensions business reported 24.7% revenue growth, although Pablo said only around 5% to 10% of that increase reflected underlying business growth rather than CSPS-related activity. The unit accounts for 12% of group revenue, he said.
Capita said on July 9 that it expected a further £25 million to £40 million profit-and-loss impact from the CSPS contract compared with prior expectations. Pablo said roughly half of that impact could be viewed as having been booked in the first half, though the company did not provide a formal split between the first and second halves.
Asked about potential litigation or loss of the CSPS contract, Hernandez said management’s present focus was on resolution rather than allocating responsibility. He said Capita was providing the pensions team with technology, automation, testing resources and financial support to address the situation.
“We need to marshal the resources of the whole company and the will of everybody to just do what it takes to get this one right,” Hernandez said.
He acknowledged the issue had damaged Capita’s reputation, but said the company continued to win contracts. Recent awards cited by management included UKHSA work, the Synergy contract, the Army’s Collective Training Service and a £425 million Transport for London contract announced Monday.
Public Division Grows and Order Book Supports Revenue
Capita’s public division grew revenue by 2.4% in the first half and recorded its strongest first-half contract wins since 2021, according to Pablo. Operating margin was around 8%, although he said it would have been 8.4% without central cost allocations associated with the pensions business moving from profit to loss.
Hernandez said total contract value exceeded £1 billion, up 15% from year-end, while the unweighted pipeline continued to increase. He said the company’s contract win rate was 84%, including an 82% rate for new scopes and a 100% win rate in opportunities it tendered.
Pablo said the timing of revenue from newly won contracts could be lengthy. Of the pipeline discussed, 11% was expected to convert in the second half, 14% in 2027, 21% in 2028 and the remainder beyond that period. The Synergy contract, for example, is expected to become revenue in the fourth quarter of 2027, although mobilization has begun.
Of £900 million in first-half booked revenue, 76% was already in the order book, Pablo said. A further £100 million was linked to recurring framework agreements, leaving roughly 15% dependent on specific annual wins.
Efficiency Program and Financing Actions
Hernandez said Capita had completed its previously announced £250 million cost-reduction program. Following the sale of its contact-center business, the company identified an additional £40 million of efficiencies. Although the transaction completed only this week, management said it had already delivered £8 million of those savings.
The company also refinanced and extended its revolving credit facilities. Pablo said Capita combined a £250 million revolving credit facility with a £75 million bridge facility into a £325 million arrangement with a three-year term and two one-year extension options. The company also renegotiated its interest-cover covenant to three times from four times.
In July, Capita issued a further £41 million of U.S. private placement notes and used proceeds to repay £84 million of maturities, Pablo said. Net debt to EBITDA stood at 1.6 times as of June 30.
Outlook and AI Strategy
Capita expects group revenue to be broadly flat, reflecting anticipated public-business losses in the second half before more recently won work contributes in later years. Management said operating margin should remain in line with previous guidance, while free cash flow is expected to reflect a £35 million to £50 million CSPS impact and strong public-services performance.
Hernandez said Capita was positioning itself as an AI-enabled business-process-services provider for government and regulated industries. Rather than developing core AI infrastructure or large language models, he said the company would focus on deploying technology within customer processes, with human oversight and governance.
Capita has brought close to 500 AI use cases into production, Hernandez said. He described the company’s intended model as a “Forward Deployed Orchestrator,” combining people, data and AI agents to improve services over the life of long-term contracts.
Looking toward 2027, Pablo declined to provide a formal profit forecast but outlined an illustrative calculation that he said pointed to free cash flow of about £57 million before business exits, based on annualized first-half EBITDA, the anticipated CSPS impact, efficiency savings and other cash items. He said Capita would update market consensus on its website.
About Capita (LON:CPI)
Capita is a modern outsourcer, helping clients across the public and private sectors run complex business processes more efficiently, creating better consumer experiences. Operating across 8 countries, Capita’s colleagues support primarily UK and European clients with people-based services underpinned by market-leading technology. We play an integral role in society – our work matters to the lives of the millions of people who rely on us every day.
