Shares in Capita (LON:CPI) plunged on a warning failures at its civil service pension scheme contract will impact FY26 profits and cash flows.
The outsourcer now expects issues on the contract, together with the knock-on effect on its wider pension solutions division, will reduce FY26 adjusted operating profit by £25 million-to-£40 million.
Capita also expects a £35 million to £50 million free cash flow impact this year. As a result, the London-based firm pushed back its positive free cash flow delivery target to FY27.
Working through the backlog
Capita’s disappointing update follows the government’s criticism of its handling the scheme. The Paymaster General said ministers have withheld £9.9 million in payments and will recover the cost of deploying Cabinet Office staff to help clear the backlog.
The company said it has made ‘significant progress’ on the contract. Capita insisted it now has the processes, automation and technology in place to work through the backlog. However, restoring service levels will require additional spending on temporary resources, remediation work and investment.
Trading remains resilient
Capita sought to cushion the blow from the profit warning with its insistence trading remained resilient in H1. Adjusted revenue grew 1.6% with a strong revenue performance in the public service and pension solutions businesses.
During H1, the company secured contracts worth £998 million, up 15% on H1 2025. Capita also extended and increased its revolving credit facility to £325 million until June 2029.
The disposal of its private sector contact centre business remains on track to complete before the H1 results on 4 August. ‘This disposal is a significant strategic step,’ insisted Capita, ‘and will allow us to unlock a material overhead reduction as we remove further complexity from the group.’
CEO Adolfo Hernandez said: ‘We recognise the service on Civil Service Pension Scheme has not been good enough, we are working closely with the Cabinet Office on all aspects of the scheme, and this remains our number one priority.’
Capita remains indebted and is in the midst of a very complex turnaround. As such, the shares are for risk-tolerant investors only at this stage.
Under Hernandez, Capita has made strides in simplifying its business, cutting costs, offloading loss-making activities and integrating AI into its workflows.
Unfortunately, operational setbacks mean the recovery will be anything but smooth. As today’s update demonstrates, Capita remains vulnerable to contract delivery failures that could impact its financial targets.
Read the press release: https://www.capita.com/investors
