Capita warns on revenue because it units out drastic shake-up

Javier Stokes
February 1, 2018

A worsening in trading since mid-December's pre-close update, challenging sector trends and unavoidable headwinds mean a warning on 2018 profits.

Outsourcing firm Capita has announced a major shake-up as it warned on profits and said it had to change its approach to succeed.

Shares in Capita were down 39.56 per cent at the time of writing.

"We can not continue to focus on the incredibly broad array of disparate businesses".

A spokeswoman said: "We monitor the financial health of all of our strategic suppliers, including Capita".

Capita operates the London congestion charge and collects the TV licence fee on behalf of the.

It employs around 73,000 people.

The news sent shockwaves through a sector still reverberating from Carillion's demise on January 15.

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

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"Following the recent demise of Carillion, and with Capita also highly exposed to government contracts (Army on-boarding, Teachers pensions, Pensions regulator, HSE, DWP, Cabinet office, MoJ and many more), investors will be quite rightly wondering whether the flood gates are steadily opening to cast light on the risks of government reliance on public-private partnership", Mike Van Dulken, head of research at Accendo Markets said in an email.

Carillion, which built large infrastructure projects, was largely brought down by problems on a number of its construction contracts and not the day-to-day provision of services.

Speaking after the announcement, Mr Lewis said he had identified a "small number" of businesses that could be offloaded.

It provides procurement and supply chain management services to the industry.

Capita's plans were just the beginning of a long road back to recovery, analysts said, but they welcomed the fact that the new boss was acting swiftly.

Field said: "Another day, another outsourcing firm with massive debt, a huge pension deficit, a KPMG audit and the Big Four popping up at every turn in the company's chequered history".

The company had relied too much on acquisitions of other firms to drive growth and had also seen weakness in new sales, he added.

The shake-up would also involve selling non-core businesses, including ParkingEye and Constructionline, with Capita 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. Following today's price slump the company has a market capitalisation of about £1.4bn and net debts of £1.15bn. The dividend would be suspended until the company generated sustainable free cash flow. "Given the political environment and fiasco around Carillion, it is only right that contributions to the pension fund is prioritised which now is in deficit, last standing at a £381m shortfall". Its current expectation is that the actuarial deficit after this review will be significantly below the last disclosed deficit of 381 million pounds as at June 30 2017.

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