Capita: Improving performance across Group but the Contact Centre business has had a negative impact on profits

Capita is a modern outsourcer, helping clients across the public and private sectors run complex business processes more efficiently, and is listed on the premium segment of the London Stock Exchange. The company is a constituent of the FTSE All Share index and has a market capitalisation of £330m.

Full year results to 31 December 2025 were published on 10 March and we were delighted to welcome CEO Adolfo Hernandez and CFO Pablo Andres, to a Yellowstone webinar to talk about these results and the strategy and outlook for 2026 and beyond.

Group revenue declined by 1.2%, reflecting structural declines in contact centres, offset by 4.5% growth in both Public Service and Pension Solutions. Operating margin improved by 140bps, supported by delivery of the £250m cost savings programme. Profit before tax increased by 84% to £74.5m. Operating cash conversion improved to 74%, with free cash outflow reduced to £54m. Management expects a return to positive free cash flow in 2026.

Public Services delivered strong growth, with margin exceeding targets at 8.3% and strong cash conversion. Revenues grew 4.5% to £1,450m and operating profit grew 36% to £121m.

Pension Solutions returned to growth with a 96% contract win rate and margins reaching 16%. Revenues grew 4.5% to £187m and operating profit grew 6.4% to £29.9m.

Contact Centres remain the key underperformer, although is now only 24% of group revenue which fell 17.5% and continued operating losses driven by legacy contracts, offshoring transition and underutilised property costs.

The transformation programme continues to focus on technology modernisation, cost efficiency and operational improvement. Capita has removed £250m of costs, reinvesting in AI, automation and data capabilities. The business is shifting from traditional BPO towards AI-enabled, outcome-based services, improving productivity, customer experience and long-term competitiveness.

Customer satisfaction has improved, with Net Promoter Score reaching +31, the highest since 2018. The company has also resolved several legacy issues including the ICO settlement and the Closed Book Life & Pensions business. Significant improvements have been made in the Civil Service Pension Scheme, with service levels stabilising following operational challenges at transition.

Management acknowledged that the contact centre business remains a drag on group performance. Structural issues include legacy high-cost locations, contract losses and underutilised leases. However, operational improvements are being delivered through offshoring and AI-enabled productivity gains. A plan is in place to return the division to profitability during 2026, alongside strategic optionality.

Capita expects free cash flow of £20–40m in 2026, with the potential to rise to c.£80m in 2027 as restructuring costs fall away and legacy accounting headwinds unwind. Net debt is expected to reduce accordingly. Growth is expected to be driven by Public Services and Pension Solutions, while margins may face short-term pressure from mobilisation costs and continued investment.

Are we on the final lap of the transformation? Well there is certainly still work to be done in the contact centre business but both Pubic Service and Pension Solutions are performing well and arguably through their transformation phase. Combined those businesses generate £1737m of revenue and £150.9m of operating profits in 2025. If this was a separate business or even owned by PE I suspect it would be valued on at least 8-10x those operating profits., suggesting plenty of upside from here.

Few management teams have been as active buying shares in their company as Adolfo and Pablo have been over the last year. They’ve also been funding the income tax and national insurance liability on options they’ve exercise – another rare occurrence. This behaviour is a pretty good indicator of their confidence in the future performance of the company.

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