Transformation is complete.
'A year of significant change with the transformation of Capita now complete: we have established a platform to drive
sustainable improving financial performance whilst continuing to strengthen the balance sheet' from 1st line of the press release.
The only adverse operating margin impact I am aware of is the IAS37 note to the 2021 accounts on onerous contracts which was £16m on £3Bn revenues...!
https://www.capita.com/sites/g/files/nginej291/files/2022-03/Prelim-Statement-2021.pdf
Think markets are worried about debt, servicing debt and sustainable cashflow. CPI just spent 6 years sorting those issues out. Transformation is done. New Chairman starts 12 May. Another £215m debt reduction August. Looks positive for the future imo
AGM is 12 May and introduces the new chairman, designate
https://www.lse.co.uk/rns/CPI/capita-announces-appointment-of-chairman-designate-sv3paysxhl40otd.html
@ocean, lewis said
In 2022, we expect to deliver revenue growth [note in 2021 it was over £3,182,500,000], positive sustainable free cash flow and to continue to strengthen the balance sheet [note net assets improved £377.6m YoY]. Our revenue growth is built on strong contract performance in 2021, our order book, lower attrition, a growing pipeline of new business in both Public Service and Experience, as well as ongoing recovery from Covid-affected businesses. Notwithstanding the margin benefit from revenue growth and the flow through of the cost benefits from the divisional restructure implemented in 2021, we expect operating profit margins to reduce slightly in 2022. This reflects the full-year impact of prior-year contract losses and the structural decline in the closed book Life & Pensions in Experience, operational changes in the Army recruitment contract in Public Service, as well as the cost of recruiting and training staff to support our growth. Next year, we will include restructuring, pension deficit contribution and VAT payments within our adjusted free cash flow. With higher cash-backed profit and the significant decrease in the payments noted above, we expect to deliver positive sustainable adjusted free cash flow in 2022. As we continue to make disposals, we expect net debt to decrease materially.
Medium term
Beyond 2022, we expect core Capita to continue to build on the platform we have established today. We will target revenue growth at least in line with the mid single-digit range of our core markets and deliver high single-digit Group
EBITDA margins. We expect to grow free cash flow, as cash conversion increases to between 70% and 80% and additional cash commitments fall away.
We will maintain a prudent approach to our capital structure, and will target a leverage ratio of around 1x net debt:EBITDA on a pre-IFRS 16 basis [note CPI has reduced headline net debt to adjusted ebitda pre IFRS 16 from 2.7x (2020) to 1.7x (2021)]
There was a note in the accounts about onerous contracts and at the reporting date, c£16m to be reported in 2022 under IFRS
Suggests you recruit when you have won a bid or just about to... 'just in time' is a good commercial finance principle.
I like that shareholders funds have increased year on year, being negative £81m 2020 and positive £297m 2021. Thats £378m improvement YoY whilst net debt is reducing YoY and 'material' debt reductions again this FY (2022).
Signs (to me anyway) are transformation is complete and the business is positioned to take revenue growth opportunities forward underpinned by increased operational capacity (labour/ jobs).
Last time I saw these conditions, the increase in value got scooped up in a series of sequential M&A's over a number of years. £3Bn revenue is a shed load of cashflow and people are the real assets not showing on the balance sheet.
aimo
In the 1st half [2022], collecting and applying the business disposal proceeds and in the 2nd, driving out earnings from the continuing business.
In august, paying down the maturing debt ensures another year of material debt reduction as well as underpinning liquidity (RCF) to withstand any adverse economic conditions.
There are still some further 'onerous' contract costs to recognise so, despite revenue growth, earnings will be have a drag into 2023 according to Lewis et al.
Taking that all into account, with confirmation of bid wins/ conversion, 21p wont be around after anyone of those milestone events imo
If volume is like last year, I dont expect pickup until August. But clearly there is a better bet than last year and bigger interests may sweep us along. I am not expecting the likes of Marshal Wace unless the SP increases 50% or 100% and Lewis' performance is found wanting. In particular, Lewis has indicated:
£9.4Bn unweighted pipeline in 2022
BBC TV licensing -WON
Utilities sector - H1
Technology business - H1
NHS England - H1
Financial services - H1
Financial services - H2
DWP - H2
NHS Scotland - H2
66% of client contracts include inflation linked escalators
22% are fixed price with indexation assumptions built into contracts
12% of revenues are transactional so naturally hedged by updated pricing
Dont forget, CPI has reduced headline net debt to adjusted ebitda pre IFRS 16 from 2.7x (2020) to 1.7x (2021) and have targeted 1.0x over the medium term
'A game of 2 halves.'
In the 1st half, collecting and applying the business disposal proceeds and in the 2nd, driving out earnings from the continuing business.
In august, paying down the maturing debt ensures another year of material debt reduction as well as underpinning liquidity (RCF) to withstand any adverse economic conditions.
There are still some further 'onerous' contract costs to recognise so, despite revenue growth, earnings will be have a drag into 2023 according to Lewis et al.
Taking that all into account, with confirmation of bid wins/ conversion, 21p wont be around after anyone of those milestone events imo
If volume is like last year, I dont expect pickup until August. But clearly there is a better bet than last year and bigger interests may sweep us along. I am not expecting the likes of Marshal Wace unless the SP increases 50% or 100% and Lewis' performance is found wanting.
gla.
'I think economic growth and recession being spoken off.'
Dont forget public sector new budget year started. No public sector manager in his right mind will wait for (possible) recession and budgetary cuts. CPI strategy through to August looks sound. News, RNS', contract wins renewals, disposals, £215m debt pay down etc.
@whoknowswat...in a perfect market I guess so. Of course we only have access to information in historic published reports, hence the CEOs outlook is a good proxy as he is at the wheel..aimo..
'In 2022, we expect to deliver revenue growth [note in 2021 it was over £3,182,500,000], positive sustainable free cash flow and to continue to strengthen the balance sheet [note net assets improved £377.6m YoY]. Our revenue growth is built on strong contract performance in 2021, our order book, lower attrition, a growing pipeline of new business in both Public Service and Experience, as well as ongoing recovery from Covid-affected businesses. Notwithstanding the margin benefit from revenue growth and the flow through of the cost benefits from the divisional restructure implemented in 2021, we expect operating profit margins to reduce slightly in 2022. This reflects the full-year impact of prior-year contract losses and the structural decline in the closed book Life & Pensions in Experience, operational changes in the Army recruitment contract in Public Service, as well as the cost of recruiting and training staff to support our growth. Next year, we will include restructuring, pension deficit contribution and VAT payments within our adjusted free cash flow. With higher cash-backed profit and the significant decrease in the payments noted above, we expect to deliver positive sustainable adjusted free cash flow in 2022. As we continue to make disposals, we expect net debt to decrease materially.
Medium term
Beyond 2022, we expect core Capita to continue to build on the platform we have established today. We will target revenue growth at least in line with the mid single-digit range of our core markets and deliver high single-digit Group
EBITDA margins. We expect to grow free cash flow, as cash conversion increases to between 70% and 80% and additional cash commitments fall away.
We will maintain a prudent approach to our capital structure, and will target a leverage ratio of around 1x net debt:EBITDA on a pre-IFRS 16 basis [note CPI has reduced headline net debt to adjusted ebitda pre IFRS 16 from 2.7x (2020) to 1.7x (2021)]
'is there a definitive calculation? '
I am not expert but interested to understand this.
The nominator and denominator are always price and earnings per share. To be devils advocate, the share price will increase if there are more buyers than sellers..If everything else remains the same, the PE ratio will increase.
For the denominator, I would use adjusted and unadjusted and understand the adjustments in context of interpreting the financial statements and understanding the steps to execute the strategy.
' cant determine how much the business had improved as of yet.'
Thats fair comment. The statutory accounts are prepared on a historic cost accounting basis and break out continuing and discontinuing business. On contracts, to the downside, the Group has indicated its position on any 'Onerous Contracts' – Cost of Fulfilling a Contract (Amendments to IAS 37). The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous....The Group is in the advanced stages of the assessment of the amended standard and based on its current assessment, it is expected to result in an increase of c.£16m to the Group’s onerous contract provisions and c.£3m impairment of contract related assets.
Given the transformation is complete, I place reliance on the CEOs outlook statement. Year ending 31 December 2022:
'In 2022, we expect to deliver revenue growth [note in 2021 it was over £3,182,500,000], positive sustainable free cash flow and to continue to strengthen the balance sheet [note net assets improved £377.6m YoY]. Our revenue growth is built on strong contract performance in 2021, our order book, lower attrition, a growing pipeline of new business in both Public Service and Experience, as well as ongoing recovery from Covid-affected businesses. Notwithstanding the margin benefit from revenue growth and the flow through of the cost benefits from the divisional restructure implemented in 2021, we expect operating profit margins to reduce slightly in 2022. This reflects the full-year impact of prior-year contract losses and the structural decline in the closed book Life & Pensions in Experience, operational changes in the Army recruitment contract in Public Service, as well as the cost of recruiting and training staff to support our growth. Next year, we will include restructuring, pension deficit contribution and VAT payments within our adjusted free cash flow. With higher cash-backed profit and the significant decrease in the payments noted above, we expect to deliver positive sustainable adjusted free cash flow in 2022. As we continue to make disposals, we expect net debt to decrease materially.
Medium term
Beyond 2022, we expect core Capita to continue to build on the platform we have established today. We will target revenue growth at least in line with the mid single-digit range of our core markets and deliver high single-digit Group
EBITDA margins. We expect to grow free cash flow, as cash conversion increases to between 70% and 80% and additional cash commitments fall away.
We will maintain a prudent approach to our capital structure, and will target a leverage ratio of around 1x net debt:EBITDA on a pre-IFRS 16 basis.
So we closed the week with a dragon fly doji!
Thats a strong bullish signal at support. Might signal the SP is starting to turn. I hope so.
https://www.investopedia.com/terms/d/dragonfly-doji.asp#:~:text=A%20Dragonfly%20Doji%20is%20a%20type%20of%20candlestick,trend%20may%20be%20nearing%20a%20major%20turning%20point.
any. This time it will be different and can only blame myself if I am wrong, GLA
https://invst.ly/xvklw
Personally dont think anything wrong. Just have to be patient. Could be next year however I'd bet clearing £215m debt in August plus a couple of big contract wins/ renewal/ confirmation all is well and up we go on the back of bigger investors.
We do appear to be sitting on a going concern that has turned around. They are not messing about with important services and even if this management team is found wanting, there are others who would fall over themselves to get this business. Anyone see Warren B investment in HP? Its that time and opportunity imo
If you cant see the whites of your knuckles, you're not holding tight enough.
Good news and signals more to come imo
£9.4Bn unweighted pipeline in 2022
BBC TV licensing -WON
Utilities sector - H1
Technology business - H1
NHS England - H1
Financial services - H1
Financial services - H2
DWP - H2
NHS Scotland - H2
66% of client contracts include inflation linked escalators
22% are fixed price with indexation assumptions built into contracts
12% of revenues are transactional so naturally hedged by updated pricing
Yes lots of risks. What I Iike and top of Lewis' strategy/ presentation is the pipeline with the contracts taking care of a lot of the risk to assure service so commercially back to back.
£9.4Bn unweighted pipeline in 2022
BBC TV licensing -WON
Utilities sector - H1
Technology business - H1
NHS England - H1
Financial services - H1
Financial services - H2
DWP - H2
NHS Scotland - H2
66% of client contracts include inflation linked escalators
22% are fixed price with indexation assumptions built into contracts
12% of revenues are transactional so naturally hedged by updated pricing
'The only thing that will fix sentiment is Significant Debt Reduction.'
CPI has reduced headline net debt to adjusted ebitda pre IFRS 16 from 2.7x (2020) to 1.7x (2021) and have targeted 1.0x over the medium term.
They appear to be on track with a clear run through to August when they pay down another £215m debt maturing.
Perhaps that is the timeframe for renewed ii interest. Bottom drawer for now imo
Looking at the 2021 accounts, Trade receivables are £547.1m and Trade payables are £542.2m so 1:1.
The 'current ratio' is skewed by £669m deferred income (I think accounting book entries, not cashflow) and relating to long term public sector contract revenue recognition where cash is received in lumps but the accountants spread the revenue recognition over the life of the contract ie £669m will be released to revenue in 2022 and beyond. In fact, Weller said in the webcast he expected a spike in cash from public sector (March/April) as the new public sector budget cycle begins.
CPI also just received £118m for the trustmarque sale and already banked additional £95m disposal proceeds since 2021 year end (Sybex £23m and SSS £72m). I think there is additional cash to be received for Speciality Insurance disposal also (amount as yet undisclosed).
So, cashflow shouldnt spring any surprises imo. Debt clearly going to reduce materially again this year.
News on the pipeline will make this fly imo
£9.4Bn unweighted pipeline in 2022
BBC TV licensing -WON
Utilities sector - H1
Technology business - H1
NHS England - H1
Financial services - H1
Financial services - H2
DWP - H2
NHS Scotland - H2
66% of client contracts include inflation linked escalators
22% are fixed price with indexation assumptions built into contracts
12% of revenues are transactional so naturally hedged by updated pricing
GLA and aimo