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Capita warns on profit as it sets out drastic shake-up Capita shares plunge after warning on profits
(about 1 hour later)
Outsourcing firm Capita's shares have plunged over a third after it announced a major shake-up and warned on profits. Capita shares have plunged 40% after the outsourcing firm warned on profits and announced a major shake-up.
New chief executive Jonathan Lewis said the firm had become "too complex" and "driven by a short term focus" and needed to change its approach. New chief executive Jonathan Lewis said the company had become "too complex" and "driven by a short-term focus" and needed to change its approach.
The firm, which issued several profit warnings last year, has once again cut its profit forecast and detailed plans to raise £700m via issuing new shares. Capita, which issued a series of profit warnings last year, has again cut its profit forecast and revealed plans to raise £700m by issuing new shares.
The move comes after outsourcing rival Carillion collapsed earlier this month.The move comes after outsourcing rival Carillion collapsed earlier this month.
Capita operates the London congestion charge and collects the TV licence fee on behalf of the BBC. Capita operates the London congestion charge, runs the government's Jobseekers Allowance helpline and administers the teachers' pension scheme. It also collects the TV licence fee on behalf of the BBC.
Shares in the firm were trading 37% lower after the announcement. A Cabinet Office spokeswoman said as a "strategic supplier" Capita was always monitored by the government.
Mr Lewis, who took the helm two months ago, has been charged with turning around the firm's fortunes. Mr Lewis, who took over two months ago, said a review had found the company worked across too many markets and services, meaning it was difficult to "maintain a competitive advantage" in every business.
He said "a thorough review" of the firm had shown it worked across too many markets and services meaning it was difficult to "maintain a competitive advantage" in every business. Capita had relied too much on acquisitions to drive growth and had also seen weakness in new contracts, he added.
The company had relied too much on acquisitions of other firms to drive growth and had also seen weakness in new sales, he added. Analysis by Today business presenter Dominic O'Connell
Balance sheet priority A calamitous fall in the share price - off by over one-third, reducing the company's stock market value by £800m - looks the worst possible news for Capita.
Mr Lewis said his initial priority was to "strengthen the balance sheet". But if Carillion had made an announcement like this a few years ago - raising money to pay off debt, admitting a slow-down in the market, owning up to both underinvestment and an over-reliance on buying other companies to find growth - then it might still be with us now, rather than languishing in the arms of a liquidator.
He has outlined a wide-ranging overhaul including cost cutting, and a programme to sell-off unprofitable businesses. The firm has also said it won't pay a dividend to shareholders this year. Instead, Capita's new boss, Jonathan Lewis, has decided to evasive action early.
The firm is expecting full-year profits for this year of between £270m and £300m, well below analyst expectations of £400m. Chief executives are normally afforded only one chance to hit the reset button in their time at the top, and the smart ones take it early, and hit the button hard.
That is what Mr Lewis has done.
His diagnosis of Capita's woes could have been taken from one of the many Carillion post-mortems; and by taking harsh financial medicine now he has probably ensured that the company does not suffer Carillion's fate.
The market seems to think so; while the share price fall is sharp, it is roughly in line with the dilution of existing shareholders implied by the £700m rights issue.
In other words, investors are giving Mr Lewis the benefit of the doubt.
Mr Lewis plans a wide-ranging overhaul including cost cutting and selling unprofitable businesses. The firm will not pay a dividend to shareholders this year.
Annual profits are now expected to be between £270m and £300m - well below analyst expectations of £400m.
In a conference call after the announcement, Mr Lewis said overhauling Capita would take at least two years, but he refused to say how long it would take for the group to recover.
There was "much to be done", but Wednesday's announcements were the "first steps on the road to recovery".
Neil Wilson, senior analyst at ETX, said signs of problems had been building at the firm, including the loss of "a lucrative and profitable contract with the Prudential" in January.Neil Wilson, senior analyst at ETX, said signs of problems had been building at the firm, including the loss of "a lucrative and profitable contract with the Prudential" in January.