Overhaul at Capita as it warns on 2018 profits

Just weeks after the collapse of Carillion, Capita’s shares have plunged 35% after the outsourcer warned on profits and announced a transformation plan to shore up its finances.

The group – which ditched its chief executive last year following a string of profit warnings and demotion from the FTSE 100 – said his replacement was demanding “significant change” as the business had become too complicated and burdened by costs.

Jonathan Lewis, who took charge in December, said the “immediate priority” was to strengthen the balance sheet.

Mr Lewis took over at Capita in late 2017. Pic: Capita

Image: Mr Lewis says cost savings and disposals will not be enough to transform the business. Pic: Capita

He warned there was “significant scope for cost efficiencies” – raising the threat of job losses among the company’s 75,000 staff – with full details to follow at a later date.

The shake-up would also involve selling non-core businesses, including ParkingEye and Constructionline Capita said, warning that the cost measures would not be enough to help shore up 2018 full-year profits which were now forecast to come in between £270m and £300m.

Mr Lewis said he would also move to launch a rights issue – raising more money from shareholders.

The company’s dividend, he confirmed, would also be suspended.

He told investors: “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.

“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. Since December, we have continued to experience delays in decision making and weakness in new sales.”

He added: “Cost savings and non-core disposals alone will not be enough. We have also taken the significant decision to suspend the dividend and seek equity.”

Capita has not been alone in facing a series of challenges in the outsourcing sector.

Badly-performing contracts and tough trading have combined to hurt rivals – with Carillion becoming a casualty on 15 January.

Carillion Crane Construction London

Image: Carillion went bust earlier this month

Commenting on Capita’s update Neil Wilson, senior market analyst at ETX Capital, said: “New CEO Jonathan Lewis is having a proper clear out to fix the business before it heads the way of its erstwhile peer.”

He added: “Non-core units are set for the axe with ParkingEye and Constructionline to be sold off.

“A more focussed approach can only help – all these outsourcers have suffered from the same scattergun approach.

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“Enough, similarities with Carillion are all too clear but action, however painful, is better than fudging numbers.

“A rights issue to shore up the balance sheet – up to £700m, or about a third of the market cap before today – should certainly help.”