Capita PLC (CPI) slid to a loss last year after sales slid and the government contractor said its efforts to restructure were proving tougher than expected.
The FTSE 250 group, which carries out outsourcing services ranging from overseeing the London Congestion Charge, to managing public services for Department for Work and Pensions and the London borough of Barnet and private companies such as Co-Operative Bank and Southern Water, said adjusted revenue was down 4% to £3.7bn and adjusted profits fell 2% to £275mln.
At the reported level, it swung to a £62.6mln loss before tax, though the previous year had only been in profit thanks to a £309.7mln gain from disposals.
Net debt mushroomed to £1.4bn from £466mln, which management admitted was “at the upper end of our desired range, as a result of lower conversion of profit to cash, and more investment being required to fix contracts and lay the foundations for growth”.
For 2020, guidance for free cash flow was cut from £200mln to £160mln, which was said to be a more “sustainable” level.
Chief executive Jon Lewis, who joined two years ago to try and arrest cash flow problems in the face of thin margins, said “significant progress” had been made with the transformation of the business.
“We have continued to simplify and strengthen the business, fix legacy issues, rebuild trust with clients, take out cost, reduce risk, and invest in our growth capability.
“Transforming an organisation of Capita’s size is a complex challenge; there remains more to do and it is requiring more investment than we had expected in 2018.”
He said he expected 2020 to be the first time in five years that the group would deliver organic revenue growth.
Capita shares fell 18% to 104p on Thursday morning.
Analysts at broker Peel Hunt said the results would lead to “material downgrades”, with profit being short of the consensus £279.8mln forecast.
The analysts cut their 2020 underlying profit forecasts to £214.4mln from £325.4mln.