Capita in £700m bid to pay its debts

Capita is raising £700m from investors to stop the rot at the outsourcing company that CE Jon Lewis said had failed to adequately control costs, had grown unwieldy through acquisitions and had too much debt.

The cash should give the British company breathing space in a tough market, which saw Carillion collapse under the weight of poorly performing contracts and debt in January.

Capita, like Carillion, is one of a number of British service companies to have run into problems by chasing contracts on slim margins.

Lewis, who took over in December after working for oil services company Amec Foster Wheeler, said many of Capita’s problems were self-inflicted and could be tackled by doing “fewer things better”.

“Capita needs an injection of discipline,” he told analysts.

He launched his new strategy after Capita’s full-year pretax loss ballooned to £513.1m from a £89.8m loss in 2016 as it saw a deterioration in new business opportunities and some contracts were terminated.

The group, which employs 70,000 staff primarily in Britain where it focuses on providing IT services, ran into problems on contracts after years of acquisition-led growth.

Capita, which runs the London congestion charge and collects BBC licence fees, has issued a series of profit warnings, which have lopped off twothirds of its market value to £1bn in the past year.

Lewis said he had lined up £300m of disposals for 2018 and more in 2019 and 2020, before it returns to revenue growth from 2020.

Rationalising costs after years of acquisitions and a short-term approach to cost management will deliver an initial £175m in annual cost savings by 2020.

Capita shares were trading up 11% at 177.3p just before noon on Monday in London.

RBC Capital Markets analyst Andrew Gibb said there was some relief the rights issue was underwritten and trading was no worse than feared. “However, a very complicated and costly transformation plan needs to be executed in market conditions that will remain tough.”

Lewis said he needed help to deliver his plan, which was why Capita was asking shareholders to support the rights issue that would underpin transformation.

The three-for-two issue, announced three days ahead of expectations on Monday, will raise £662m in net proceeds, partly to pay off about £1bn in net debt.