Loss-making and sprawling Capita to ask investors for £700m in revamp

● Shades of Carillion as business admits it expanded too fast on thin margins

Capita, the embattled UK outsourcer, is to tap investors for £700 million to streamline a business that its new boss admits sprawled into an unwieldy operation through acquisitions.

As the group fell half a billion pounds into the red, Jon Lewis, who took over in December, said that Capita was in future going to do “fewer things better”.

As part of the revamp, he said the company had £300m of disposals lined up for 2018.

More asset sales will follow in the next two years before Lewis envisaged the business returning to revenue growth from 2020.

“Capita needs an injection of discipline,” he said in a teleconference yesterday. With echoes of the collapse of outsourcing rival Carillion in January, Capita ran into problems after a downturn and problems on contracts taken following years of acquisitionfuelled growth.

City outsourcing analysts said that Capita, like Carillion, had hit trading difficulties by taking contracts on thin profit margins.

But Lewis dismissed the comparisons. “I get frustrated with that comparison – we are a completely different business,” he said.

“We have £1 billion in liquidity, strong cash flow and a new strategy with investor support. We are not in PFI (private finance initiative) contracts and have nothing like the risk profile.”

Capita employs 70,000 staff, mainly in the UK where it focuses on providing IT services. Lewis added: “We are open for business.

“It’s the end of a difficult chapter but there is a welldefined plan and it’s about executing that plan.”

Shares in the company rose sharply on a good City reception to the proposals to reshape the business.

It came as the group posted a £513.1m loss for 2017, hit by £850.7m of financial impairments and provisions linked to acquisitions.

That is a big deterioration from the £89.8m loss in 2016. Excluding exceptional items, Capita’s profit before tax rose 43 per cent to £383m, while last year’s revenues fell 4 per cent to £4.23bn.

The proceeds of the rights issue will be used to reduce Capita’s debt and make investments. The outsourcer said it was also targeting annualised cost savings of an initial £175m by end-2020.

The restructure will see it focus on software, HR, customer management, government services and IT. Its current public sector contracts include the London congestion charge and the Jobseeker’s Allowance helpline.