OUTSOURCED . . .

How companies responsible for building homes, roads and hospitals lost £7BILLION for investors in just six months

BRITAIN’S biggest Government contractors have lost billions of pounds in value since the summer amid increasing concerns about their financial stability.

Analysis by The Mail on Sunday shows that the collapse of Carillion and a series of profit warnings from six rival Government outsourcing firms have wiped £7billion off the value of their shares.

Last week, Capita – the outsourcer that deals with everything from collecting the BBC licence fee to running services for local councils – was the latest to feel the pain after another major profit warning. That forced it to scrap its dividend and draw up plans to raise £700 million through a rights issue.

New chief executive Jon Lewis said the firm was ‘too widely spread’ across different markets and too focused on acquisitions to drive growth. The company’s share price almost halved in one day as investors panicked in the wake of Carillion’s failure.

Investors, including celebrated fund manager Neil Woodford, who had recommended the stock just two weeks earlier, were unnerved by Lewis’s radical action and many hurried to sell their shares.

Capita quickly sought to calm the market and Government fears. But its share price slump is the latest in a string of shocking updates from outsourcers in recent months.

Since July, Capita’s share price has slumped nearly 80 per cent, wiping £3.5billion off its market value.

The collapse of Carillion – which was worth £800million in the summer – has left its shareholders with nothing. Babcock, the engineering support services firm, has lost £1billion in value over the same period, while Serco and G4S, both of which run prisons for the Government among other things, have together lost more than £1 billion.

Interserve, a support services firm that works on Government contracts, has lost two-thirds of its value over the same period as it shrank by £230 million.

Kier, the construction firm, has lost nearly £200million.

‘The nature of the problems for the main outsourcers Capita, Carillion and Mitie was just poor management,’ said one City analyst.

‘If there is anything linking them together, it’s companies being a little optimistic about some of the accounting. It really comes down to management being able to price contracts properly and being able to have a hold of conservative accounting.’

But he added a note of optimism, saying: ‘I don’t think any of the other companies are headed in the same direction as Carillion.’

However, The Mail on Sunday revealed last month that short-sellers were circling other firms, betting a total of £500 million that their share prices would tumble.

Interserve is the most shorted outsourcer, with 13 per cent of its shares on loan to hedge funds, while 8 per cent of Capita’s shares were in the hands of short-sellers.

Cabinet officials met Capita’s bosses on Wednesday and moved to play down comparisons with Carillion, which went bust last month.

Outsourcers have become known for booking sales in advance on long-term contracts. Mitie is being investigated by City watchdog the Financial Conduct Authority after restating its accounts for 2016. An internal review found that its accounting was ‘less conservative’ than that of its rivals.

Last year, Capita also moved to the new accounting standard known as IFRS 15. Sources said contracts were previously booked as revenue ‘earlier than was prudent’. Capita is understood to be hatching a plan that could wipe out its £381million pension deficit.

Lewis, who arrived shortly before Christmas, has already told staff of the plan that will include using some money from the sale of assets.

Capita’s directors have also said they plan to raise £700million in new funds to help shore up the balance sheet.

Investigations into the collapse of Carillion are ongoing.

Its former executives, including former chief executive Richard Howson, face a grilling from MPs on Tuesday over the firm’s woes.