Outsourcing Giant Capita's Shares Plunge 44 Percent, Just Weeks After Carillion Collapse

Andrew Cummings
February 1, 2018

Under new Chief Executive Jonathan Lewis who arrived in December, Capita said it would raise around 700 million pounds ($992 million) in a rights issue in 2018, scrap the dividend and sell assets to enable it to boost investment, focus on contract profitability, and plug a hole in its pensions scheme.

"Today, Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility", the firm's CEO Jonathan Lewis said in a surprisingly frank statement.

Shares in the FTSE 250 company, which was demoted from the FTSE 100 previous year, fell 45% to 190p; its lowest price since January 2003.

He said: "With a new chief executive now in place, clearly that eventuality can not be completely ruled out, but having met Jon Lewis during the month, we are reassured that decisions around capital structure and the dividend will be informed by a clearer long-term strategy for the business, something we expect to hear more about later this year".

A government spokesman told reporters it was monitoring the health of suppliers: "We do not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion".

He said: "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 said it was undertaking a triennial review of its pension scheme and expected its pension deficit to come in below the £381m announced last summer.

Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. Its current expectation is that the actuarial deficit will be significantly below the last disclosed deficit of 381 million pounds as at June 30, 2017.

A month later it announced the loss of a major contract with pensions giant Prudential PLC (LON:PRU).

TechMarketView research director Marc Hardwick said the update makes "depressing" reading for investors.

Frances O'Grady, the general secretary of the Trades Union Congress (TUC), urged the government to step in to address the issues at Capita to avoid a collapse.

"Too complex, too diverse and just haemorrhaging cash - no we're not talking about Carillion, but fellow outsourcer in a spot of bother, Capita", Neil Wilson, senior market analyst at ETX Capital added.

Lewis dismissed similarities between the firm and other outsourcers on a call with analysts. "It's essential the government completes this quickly and is prepared to bring services and contracts in-house if they are at risk".

Jon Trickett, the shadow minister for the Cabinet Office, said: "The Tories' privatisation dogma risks lurching our public services from crisis to crisis, threatening jobs, taxpayers' money and leaving people without the services they need".

"The government must end its ideological attachment to private profit in public services and instead start putting the public interest first".

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