Shares in outsourcing firm Capita plunged more than 40 per cent today after it warned that profits for 2018 would be much lower than expected and that drastic measures were need to turn the business around.
New chief executive Jonathan Lewis, who took up the role on December 1, said ‘significant change’ was needed at Capita and announced a wide-ranging overhaul of the business after launching a transformation programme two months ago.
Plans include a cash-call to investors, cost cutting and a sell off of unprofitable business. Dividend payouts to shareholders will also be suspended.
The bombshell comes two weeks after fellow contracting giant Carillion went into liquidation after a string of profit warnings, leaving 57 construction and engineering contracts – many of which were for public sector, government or infrastructure – in limbo.
Capita is suspending dividend payouts to shareholders as it pulls together a transformation plan for the struggling business
CEO Jonathan Lewis (pictured) began a root and branch turnaround of Capita when he joined the firm in December 2017
Today’s news sparked more concerns about the safety of government and public sector contracts, which account for half of Capita’s annual turnover.
Its contract work ranges from administering the teachers’ pension scheme to providing tech services to the NHS, electronic monitoring services and running the Gas Safe register for the Health and Safety Executive.
It has 70,000 UK employees, and a net debt of £1.6billion compared with its market value of £2.8billion.
Boss Lewis said an ‘immediate priority’ was to strengthen the group’s balance sheet, with plans for a rights issue due this year, as well as cost actions after finding ‘significant scope for cost efficiencies’.
‘We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world class services to our clients every time,’ he said.
‘Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. As our markets have evolved, the Group has not responded consistently to new customer demands.
A second Carillion?: Half of Capita’s £4.9bn annual turnover comes from central and local government work such as running London’s congestion charge zone
‘Since December, we have continued to experience delays in decision making and weakness in new sales.’
Capita warned full-year profits for 2018 would be between £270million and £300million as cost actions taken so far would not be enough to offset lost contracts and wider woes in the business.
Previous estimates put profits for the year at between £417million.
Helal Miah, investment research analyst at The Share Centre, said investors should be wary of the company.
‘This could become another hot political issue as Capita is heavily reliant on outsourcing for others, including the government.
‘The government have already placed other companies on watch after the Carillion fiasco; no doubt some will say that Capita should be on that list too.
‘The sector in general hasn’t had a great few years and this has been exacerbated by Brexit where contract awards have been delayed due to uncertainty.’
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