Capita PLC (LSE:CPI) has cut its financial guidance after warning that problems on the Civil Service Pension Scheme contract will have a bigger hit to profits and cash flow than previously expected.
The outsourcing group said it now expects the issues on the contract, together with the knock-on effect on its wider Pension Solutions division, to reduce adjusted operating profit by £25-40 million this year, after mitigating actions across the business.
It also expects a £35-50 million impact on free cash flow this year, leading it to push back its target of becoming free cash flow positive from this year to next.
The update follows the government's criticism of Capita's handling of the scheme, with the Paymaster General saying on Monday that ministers had withheld £9.9 million in payments and would recover the cost of deploying Cabinet Office staff to help clear the backlog.
Capita said it had made "significant progress" on the contract and now had 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, while performance penalties and disruption to its wider pensions business have also weighed on expectations.
Elsewhere, trading was said to have remained resilient, with adjusted revenue rising 1.6% in the first half and the company securing contracts worth £998 million, its strongest first-half public service performance since 2021.
Capita also extended and increased its revolving credit facility to £325 million until June 2029 and said the disposal of its private sector contact centre business remained on track to complete before its half-year results on 4 August.
