THE £1BN SACRIFICE
Capita investors suffer 48pc share crash so new boss can overhaul outsourcer to stop it becoming the next Carillion
MORE than £1bn was wiped off the value of outsourcing giant Capita after bosses revealed plans to overhaul the company and stop it from becoming the next Carillion.
In a profit warning that sent shares crashing 47.5pc, chief executive Jonathan Lewis, who took over last month, said the firm had spread itself too thin and needed a major overhaul.
The 56-year-old announced a £700m cash call from shareholders and suspended the dividend. He also launched a fresh cost-cutting drive and vowed to sell parts of the business.
It came just weeks after rival contractor Carillion dramatically collapsed with debts of up to £5bn. Computer service provider Capita had a pension scheme deficit of £381m and debts of about £1.6bn in June.
Lewis said the company had focused too much on acquisitions to fuel growth, and that its sprawling set of contracts made it less competitive.
He added: ‘Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility... It needs to change its approach.’
Capita admitted its finances had worsened since a previous update in November, blaming weak sales and slow decision-making.
It said profits were now expected to be between £270m and £300m in 2018 – well below analyst expectations of £400m. After the announcement, shares plummeted with its biggest ever one-day fall. They closed last night at 182.5p after falling 165.3p, a 20-year low. Worried investors also ditched shares in other outsourcers, including Serco.
It left analysts red-faced, with only two of 16 polled by Bloomberg giving Capita a ‘Sell’ rating before yesterday. Three had given it a ‘Buy’ rating.
Fund manager Neil Woodford was one of those hit by the slump, with his firm’s stake losing more than £88m in value. Meanwhile, hedge funds who bet the stock would fall raked in millions. AQR Capital Management had the biggest short position, at 2.91pc.
Russ Mould, of AJ Bell, said Lewis appeared to be ‘clearing the decks’ and added: ‘New management often takes the opportunity to re-base expectations, but it is rare for their actions to be quite as drastic as this... Today’s news is likely to lead to renewed focus on the wider outsourcing sector after Carillion’s collapse.’
Some analysts cautioned comparisons to Carillion, pointing out Capita did more work for the private sector than the Government, but its involvement in the public sector is still wide-ranging.
It runs government helplines, recruits for the Army, collects the BBC licence fee and provides computer services to the NHS and UK air traffic control.
However, a spokesman for Prime Minister Theresa May played down suggestions Capita was in serious trouble.
‘We do not believe any of our strategic suppliers, including Capita, are in a comparable position to Carillion,’ he said.