Capita Issues Profit Warning on Pension Contract Costs Despite Revenue Growth

Capita plc announced on Thursday that significant costs related to its Civil Service Pension Scheme contract will negatively impact its full-year earnings, a development that has overshadowed a period of revenue growth and strong contract acquisition.

Pension Woes Hit Profit Outlook

The company disclosed that service issues with the pension contract will reduce its 2026 adjusted operating profit by £25 million to £40 million. It also anticipates a negative impact on free cash flow of between £35 million to £50 million for the year.

Capita attributed the costs to the need for surge resources and remediation efforts to address a backlog of cases, particularly for members awaiting bereavement and retirement services. As a result of these financial pressures, the company now projects it will achieve positive free cash flow in 2027, excluding the impact of business disposals.

Revenue Growth and Contract Wins

Despite the profit warning, Capita reported a 1.6% increase in adjusted revenue for the first half of 2026 compared to the same period in 2025. The firm secured new contracts valued at £1 billion, marking its strongest first-half performance in Public Services since 2021.

Ad

Divisional performance was mixed, with Public Service revenue growing 2.4% and the Pension Solutions division seeing a significant 24.7% revenue increase. Chief Executive Officer Adolfo Hernandez noted the company's "good progress in the first half, with strong momentum in contract extensions and wins," and highlighted the use of technology and AI to improve client delivery.

Corporate and Financial Restructuring

Capita also provided updates on its financial position and strategic initiatives. The company has extended its revolving credit facility to £325 million through June 2029, enhancing its liquidity. It also reported making progress on its cost-saving program, delivering £8 million in annualized savings toward a target of £40 million by the end of 2027.

Additionally, the company confirmed that the disposal of its private sector contact centre business is progressing as planned and is expected to be completed before its half-year results announcement on August 4.