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| Capita shares plunge 41% following shock profit warning and cash call - business live | |
| (35 minutes later) | |
| Britain’s trade unions are also alarmed by this latest crisis in the UK outsourcing sector. | |
| TUC General Secretary Frances O’Grady has echoed Labour’s call for the government to act now. | |
| She says: | |
| Today’s profit warning from Capita is really worrying. | |
| “That’s why the TUC is calling for an urgent risk assessment of all large outsourcing firms. It’s essential the government completes this quickly and is prepared to bring services and contracts in-house if they are at risk. | |
| “We can’t afford another Carillion.” | |
| Jon Trickett MP, Labour’s Shadow Minister for the Cabinet Office, has urged the government to put Capita under close review. | |
| Trickett says: | |
| “We cannot afford another Carillion. The Government must take serious steps to oversee the activities of Capita, which is the third major outsourcing company in the last month to issue profit warnings. | |
| “The Tories’ privatisation dogma risks lurching our public services from crisis to crisis, threatening jobs, taxpayers’ money and leaving people without the services they need. | |
| “The Government must end its ideological attachment to private profit in public services and instead start putting the public interest first.” | |
| Capita CEO Jonathan Lewis has been speaking to City analysts. | |
| He warned that overhauling the outsourcing group would take at least two years, admitting there is “much to be done”. | |
| Lewis says he wants to fix the “sins of the past” by pumping more money into IT and automation. Today’s moves are the “first steps” on the road to recovery, he adds. | |
| Capita’s share price is plumbing new debts. It’s now down 41% at just 204p, down from 347p last night. | |
| Earlier this week, the Guardian’s Public Leaders Network warned that local councils were too reliant on major outsourcers. | |
| Joanne Fry, a senior local government officer, wrote: | |
| Carillion mainly ran large private finance initiative contracts – building hospitals, for instance. But firms like Capita, Serco and Veolia run a huge range of different council services, from IT and HR to waste collection, recycling, street cleaning and maintenance. If they were to fail, the risk to councils would be very high. | |
| It has become increasingly clear that the business model around outsourcing – or managed services in local government speak – is fundamentally at fault. | |
| More here: | |
| Capita is also heavily involved in Britain’s pensions industry. It’s been running the UK’s Teacher’s pension scheme since 1996, and last October, it took over the administration of the Royal Mail’s pension fund. | |
| It even has a contract with the UK’s pension regulator, to help roll out automatic enrolment (AE) to small and micro employers. | |
| But closer to home, Capita also faces a pension deficit of its own, of around £380m. | |
| Today’s statement says: | |
| We are currently undertaking a triennial review of the pension scheme. Our current expectation is that the actuarial deficit after this review will be significantly below the last disclosed IAS19 deficit of £381m at 30 June 2017. | |
| In addition to our annual contribution, we are committed to an additional contribution of £21m in 2018. | |
| We will seek to reduce the remaining deficit as a priority. | |
| Earlier this month, my colleague Nick Fletcher ran the rule over the outsourcing industry, following Carillion’s slump into liquidation. | Earlier this month, my colleague Nick Fletcher ran the rule over the outsourcing industry, following Carillion’s slump into liquidation. |
| He wrote: | He wrote: |
| About half of Capita’s annual turnover of £4.9bn comes from central and local government work, ranging from administering the teachers’ pension scheme to providing tech services to the NHS, electronic monitoring services and running the Gas Safe register for the Health and Safety Executive. It has 70,000 UK employees, and a net debt of £1.6bn compared with its market value of £2.8bn. | About half of Capita’s annual turnover of £4.9bn comes from central and local government work, ranging from administering the teachers’ pension scheme to providing tech services to the NHS, electronic monitoring services and running the Gas Safe register for the Health and Safety Executive. It has 70,000 UK employees, and a net debt of £1.6bn compared with its market value of £2.8bn. |
| The company’s shares have lost two-thirds of their value over the past two years after a series of profit warnings and boardroom changes. | The company’s shares have lost two-thirds of their value over the past two years after a series of profit warnings and boardroom changes. |
| Bloomberg points out that Capita doesn’t only run public sector services. It also provides customer service and IT services for some of Britain’s biggest companies. | Bloomberg points out that Capita doesn’t only run public sector services. It also provides customer service and IT services for some of Britain’s biggest companies. |
| For example, earlier this month it won a new five-year contract with Marks & Spencer; last August, it extended a mortgage outsourcing deal with Tesco Bank. | For example, earlier this month it won a new five-year contract with Marks & Spencer; last August, it extended a mortgage outsourcing deal with Tesco Bank. |
| Today’s share price tumble means Capita is now worth just £1.4bn -- or barely twice the £700m it hope to raise from the City later this year. | Today’s share price tumble means Capita is now worth just £1.4bn -- or barely twice the £700m it hope to raise from the City later this year. |
| Capita now trading down 38%. Market cap now down to £1.43 billion with a £700 million rights issue ahead of it to deleverage balance sheet. New world post Carillion | Capita now trading down 38%. Market cap now down to £1.43 billion with a £700 million rights issue ahead of it to deleverage balance sheet. New world post Carillion |
| Natalie Bennett, former leader of the Green Party, says Capita’s problems show that essential public services shouldn’t be run by companies. | Natalie Bennett, former leader of the Green Party, says Capita’s problems show that essential public services shouldn’t be run by companies. |
| #Capita #privatisationfail - essential services are not safe in private hands. We've been shovelling money into tax havens, cutting pay & conditions of workers & quality of services, now this... https://t.co/LFsJWw8Oqw | #Capita #privatisationfail - essential services are not safe in private hands. We've been shovelling money into tax havens, cutting pay & conditions of workers & quality of services, now this... https://t.co/LFsJWw8Oqw |
| The Spectator’s Fraser Nelson sees a trend emerging.... | The Spectator’s Fraser Nelson sees a trend emerging.... |
| First, Carillion hit the rocks. Now... https://t.co/Aon2pBKWj6 | First, Carillion hit the rocks. Now... https://t.co/Aon2pBKWj6 |
| Patrick Smith of BuzzFeed fears that Capita workers could be axed as the company races to cut costs. | Patrick Smith of BuzzFeed fears that Capita workers could be axed as the company races to cut costs. |
| Very frank profit warning from Capita CEO Jonathan Lewis, who only joined two months ago. "Cost-savings and disposals" doesn't sound like good news for staff. https://t.co/H6tNidPwbW pic.twitter.com/LdKhY2k3C1 | Very frank profit warning from Capita CEO Jonathan Lewis, who only joined two months ago. "Cost-savings and disposals" doesn't sound like good news for staff. https://t.co/H6tNidPwbW pic.twitter.com/LdKhY2k3C1 |
| It’s not for the faint-hearted, but you can read Capita’s announcement online, here: | It’s not for the faint-hearted, but you can read Capita’s announcement online, here: |
| Update on Capita’s transformation, capital structure, funding and trading outlook | Update on Capita’s transformation, capital structure, funding and trading outlook |
| Capita’s shares have crashed to their lowest level since 2004 this morning! | Capita’s shares have crashed to their lowest level since 2004 this morning! |
| It’s a staggering fall from grace; back in 2015 Capita’s shares were worth over £13, now they are worth just £2.35. | It’s a staggering fall from grace; back in 2015 Capita’s shares were worth over £13, now they are worth just £2.35. |
| Capita shares plunge 34%, their biggest fall on record, after company issues profit warning, suspends dividend and announces rights issue. pic.twitter.com/A3nJQTEy4M | Capita shares plunge 34%, their biggest fall on record, after company issues profit warning, suspends dividend and announces rights issue. pic.twitter.com/A3nJQTEy4M |
| Capita’s financial problems will send ‘fresh tremors’ through the outsourcing sector, says Neil Wilson of ETX Capital. | Capita’s financial problems will send ‘fresh tremors’ through the outsourcing sector, says Neil Wilson of ETX Capital. |
| He writes: | He writes: |
| “Too complex, too diverse and just haemorrhaging cash – no we’re not talking about Carillion, but fellow outsourcer in a spot of bother, Capita. | “Too complex, too diverse and just haemorrhaging cash – no we’re not talking about Carillion, but fellow outsourcer in a spot of bother, Capita. |
| New CEO Jonathan Lewis is having a proper clear out to fix the business before it heads the way of its erstwhile peer. He says the business is ‘too widely spread across multiple markets and services’, and that there has been ‘too much emphasis on acquisitions to drive growth’. | New CEO Jonathan Lewis is having a proper clear out to fix the business before it heads the way of its erstwhile peer. He says the business is ‘too widely spread across multiple markets and services’, and that there has been ‘too much emphasis on acquisitions to drive growth’. |
| Wilson adds: | Wilson adds: |
| Signs of problems have been building. In December the shares took a dive as the first clear signs of weakness in 2018 were laid bare, although trading in the second half had just about held firm. The pipeline of new work had fallen to just £2.5bn from £3.1bn in September. | Signs of problems have been building. In December the shares took a dive as the first clear signs of weakness in 2018 were laid bare, although trading in the second half had just about held firm. The pipeline of new work had fallen to just £2.5bn from £3.1bn in September. |
| But it looks like things have got worse. In January there was more bad news as it lost a lucrative and profitable contract with the Prudential. | But it looks like things have got worse. In January there was more bad news as it lost a lucrative and profitable contract with the Prudential. |
| Capita’s shares have plunged by 30% at the start of trading, following this morning’s announcement. | Capita’s shares have plunged by 30% at the start of trading, following this morning’s announcement. |
| The City is reeling from the triple-whammy of a profits warning, dividend suspension, and a looming £700m cash call. | The City is reeling from the triple-whammy of a profits warning, dividend suspension, and a looming £700m cash call. |
| This could be nasty... | This could be nasty... |
| drumroll please as we await the opening share price for Capita | drumroll please as we await the opening share price for Capita |
| This is why Capita’s financial problems are a big deal..... | This is why Capita’s financial problems are a big deal..... |
| Just in case you wanted to know what work Capita does for the public sector: teachers' pensions, electronic monitoring, Jobseekers' Allowance phone lines, even the gas safety register... https://t.co/kLjAd9k9fp pic.twitter.com/Jmp6fPSuMw | Just in case you wanted to know what work Capita does for the public sector: teachers' pensions, electronic monitoring, Jobseekers' Allowance phone lines, even the gas safety register... https://t.co/kLjAd9k9fp pic.twitter.com/Jmp6fPSuMw |
| Newsflash: Outsourcing group Capita has stunned the City this morning by announcing a big profits warning, and suspending its dividend to shareholders. | Newsflash: Outsourcing group Capita has stunned the City this morning by announcing a big profits warning, and suspending its dividend to shareholders. |
| The company’s new chief executive, Jonathan Lewis, is also planning to raise £700m from investors to strengthen Capita’s balance sheet after a series of profit warnings last year. | The company’s new chief executive, Jonathan Lewis, is also planning to raise £700m from investors to strengthen Capita’s balance sheet after a series of profit warnings last year. |
| In a brutally honest statement, Lewis says ‘significant changes are needed’ at Capita, which is one of the UK’s largest employers, providing a a wide range of public services in the UK. | In a brutally honest statement, Lewis says ‘significant changes are needed’ at Capita, which is one of the UK’s largest employers, providing a a wide range of public services in the UK. |
| In a damning assessment of the company, Lewis says: | In a damning assessment of the company, Lewis says: |
| Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. As our markets have evolved, the Group has not responded consistently to new customer demands. Since December, we have continued to experience delays in decision making and weakness in new sales. | Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. As our markets have evolved, the Group has not responded consistently to new customer demands. Since December, we have continued to experience delays in decision making and weakness in new sales. |
| Today, Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility. | Today, Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility. |
| Capita needs to change its approach. I have initiated a transformation programme, appointed a Chief Transformation Officer and formed a new executive committee to drive this change. I believe that this transformation programme can significantly improve the performance of Capita. | Capita needs to change its approach. I have initiated a transformation programme, appointed a Chief Transformation Officer and formed a new executive committee to drive this change. I believe that this transformation programme can significantly improve the performance of Capita. |
| Capita now expects to make underlying pretax profits of between £270m and £300m in 2018, way below analysts’ average forecast of around £400m. | Capita now expects to make underlying pretax profits of between £270m and £300m in 2018, way below analysts’ average forecast of around £400m. |
| Lewis only took over at Capita on 1 December, and has clearly decided that wide-ranging and urgent action is needed. | Lewis only took over at Capita on 1 December, and has clearly decided that wide-ranging and urgent action is needed. |
| As well as freezing payments to shareholders, and holding a cash call, he also plans to sell non-core operations and push hard for cost efficiencies. | As well as freezing payments to shareholders, and holding a cash call, he also plans to sell non-core operations and push hard for cost efficiencies. |
| An immediate priority is to strengthen the balance sheet through a combination of cost savings, non-core disposals and new equity. My initial review of our cost base highlights that over the next few years there is significant scope for cost efficiencies across a number of areas but also the need to spend more where there has been underinvestment. | An immediate priority is to strengthen the balance sheet through a combination of cost savings, non-core disposals and new equity. My initial review of our cost base highlights that over the next few years there is significant scope for cost efficiencies across a number of areas but also the need to spend more where there has been underinvestment. |
| This comes just two weeks after Capita’s rival, Carillion, lurched into liquidiation... | This comes just two weeks after Capita’s rival, Carillion, lurched into liquidiation... |
| Reaction to follow.... | Reaction to follow.... |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| The market are nervous this morning. After two days of selling on Wall Street, investors are wondering whether they’re seeing a healthy pullback, or the start of a more serious decline. | The market are nervous this morning. After two days of selling on Wall Street, investors are wondering whether they’re seeing a healthy pullback, or the start of a more serious decline. |
| Yesterday the FTSE 100 shed 83 points, or over 1%, in a flurry of profit-taking and worries that government bond prices are also dipping. | Yesterday the FTSE 100 shed 83 points, or over 1%, in a flurry of profit-taking and worries that government bond prices are also dipping. |
| Fiona Cincotta, senior market analyst at City Index, says the prospect of higher interest rates is hitting the bond market [bonds give a fixed return, so are more attractive in a low interest rate environment] | Fiona Cincotta, senior market analyst at City Index, says the prospect of higher interest rates is hitting the bond market [bonds give a fixed return, so are more attractive in a low interest rate environment] |
| Cincotta explains: | Cincotta explains: |
| Sentiment has been low across the board as prospect of rising interest rates is starting to weigh on the global optimism story, a story which had been boosting stocks to record high after record high. | Sentiment has been low across the board as prospect of rising interest rates is starting to weigh on the global optimism story, a story which had been boosting stocks to record high after record high. |
| The fear that interest rates may have to rise faster than markets had initially priced in amid concerns of faster inflation is starting to weigh on trading decisions. | The fear that interest rates may have to rise faster than markets had initially priced in amid concerns of faster inflation is starting to weigh on trading decisions. |
| Last night, Donald Trump used the State of the Union to applaud himself for the state of the US economy. As in Davos last week, he tried to sound statesman-like with talk of common ground and unity. As in Davos last week, he also attracted some boos - over immigration. | Last night, Donald Trump used the State of the Union to applaud himself for the state of the US economy. As in Davos last week, he tried to sound statesman-like with talk of common ground and unity. As in Davos last week, he also attracted some boos - over immigration. |
| But he avoided any serious attacks on America’s rivals, which should reassure traders. | But he avoided any serious attacks on America’s rivals, which should reassure traders. |
| As Jasper Lawler of London Capital Group says: | As Jasper Lawler of London Capital Group says: |
| There was no criticism of China or Russia and Trump even hinted at a willingness to work across parties. | There was no criticism of China or Russia and Trump even hinted at a willingness to work across parties. |
| However, in typical Trump style, there were few details on a potential $1 trillion infrastructure spend, which was a blessing in reality, because elaborating on this could have pushed the already high bond yields, higher. | However, in typical Trump style, there were few details on a potential $1 trillion infrastructure spend, which was a blessing in reality, because elaborating on this could have pushed the already high bond yields, higher. |
| Investors are also waiting to hear from America’s central bank, and Janet Yellen’s final meeting as chair of the Federal Reserve. The Fed isn’t expected to raise interest rates today, but Yellen hint about how the Fed sees the economic landscape. | Investors are also waiting to hear from America’s central bank, and Janet Yellen’s final meeting as chair of the Federal Reserve. The Fed isn’t expected to raise interest rates today, but Yellen hint about how the Fed sees the economic landscape. |
| Here’s the agenda: | Here’s the agenda: |
| 7am GMT: German retail sales | 7am GMT: German retail sales |
| 10am GMT: Eurozone unemployment for December | 10am GMT: Eurozone unemployment for December |
| 10am GMT: Eurozone ‘flash’ CPI inflation for January | 10am GMT: Eurozone ‘flash’ CPI inflation for January |
| 7pm GMT: US Federal Reserve statement on monetary policy | 7pm GMT: US Federal Reserve statement on monetary policy |