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Capita shares hit 15-year low after shock profits warning - business live Capita shares hit 15-year low after shock profits warning - business live
(about 1 hour later)
Here’s our updated story on Capita, by Angela Monaghan and Graeme Wearden:
Nearly £1bn has been wiped off the value of the government contractor Capita after the company issued a shock profit warning, axed its dividend payout to shareholders and said it needed to raise £700m to put its finances back on track.
The grim state of Capita’s financial position emerged just two weeks after the collapse of the construction firm Carillion.
In the latest blow to the outsourcing sector, Capita’s new boss unveiled a radical overhaul of the group’s finances, and gave a damning assessment of the company, which he said had become “too complex” and lacking in discipline.
Jonathan Lewis, who took over as chief executive in December, said the company needed to raise up to £700m through a cash call on shareholders. He also plans to scrap dividend payouts to save £210m and sell parts of the business to raise cash. A cost-cutting programme is expected to result in job losses among the 67,000 Capita employees, 50,000 of whom are in the UK.
The full report is here:
Earlier this month, Capita’s new boss met City analysts and seems to have made a good impression. He put forward his plan to streamline the business, but there does not appear to have been much talk about a fundraising, judging from what was reported afterwards. In a hold note on January 18, Stifel analysts said:
The company hosted an informal meet & greet with new CEO Jon Lewis last night. First impressions are positive. It is still early days in Mr Lewis’s tenure and there is plenty of strategic work for him and his team to undertake but he gave some strong hints regarding the direction of travel: a simpler, more agile business, focused on depth of expertise as opposed to breadth. He signalled core ares of interest could be customer management, HR and software services. Disposals will happen and in time international expansion will be pursued. No doubt, Mr Lewis’s view of what Capita should stand for will evolve as he works his way though the business but as a starting point we welcome any attempts to make the business more streamlined, less opaque and by extension easier to understand.
... The new CEO has sketched out some initial thoughts as to the direction of travel which is helpful but we need to have more information on the future shape of the group to take a view on the potential value that can be created for shareholders.
Numis was so enthused it issued a buy note after the meeting:
We had a positive initial meeting with new CEO, Jonathan Lewis. It is easy to be critical of the past, but his observations on some of the structural and cultural issues at Capita highlighted some fundamental problems, but also material opportunities. We were encouraged by his comments on the need for great focus, cost reductions (whilst also re-investing for growth), and need to focus on cash.
No recovery for Capita. Its shares are now down 46% at 187p.
Just got this email. An unmissable opportunity for outsourcers such as, erm, Capita. pic.twitter.com/9NO2zFue8sJust got this email. An unmissable opportunity for outsourcers such as, erm, Capita. pic.twitter.com/9NO2zFue8s
More from the City on Capita. Analyst Kean Marden at Jefferies called today’s announcement a “kitchen-sink” job by the new chief executive:More from the City on Capita. Analyst Kean Marden at Jefferies called today’s announcement a “kitchen-sink” job by the new chief executive:
Jon Lewis arrived at Capita last September and has issued a stark initial assessment of the company’s shortcomings this morning.Jon Lewis arrived at Capita last September and has issued a stark initial assessment of the company’s shortcomings this morning.
Our initial calculations suggest that 2018 full year consensus earnings per share estimates, once analysts have included rights issue and bonus factor adjustments, could decline by around 40% today. In the medium term, cost savings should help (we think £85-90m could be achievable) but the revenue environment remains lacklustre.Our initial calculations suggest that 2018 full year consensus earnings per share estimates, once analysts have included rights issue and bonus factor adjustments, could decline by around 40% today. In the medium term, cost savings should help (we think £85-90m could be achievable) but the revenue environment remains lacklustre.
Peel Hunt’s Christopher Bamberry said:Peel Hunt’s Christopher Bamberry said:
The focusing of the group on a smaller number of better competitively positioned business, with a strengthened balance sheet, allowing appropriate levels of investment, are welcome steps in the right direction. 2018 pretax profits expectations have been significantly reduced.The focusing of the group on a smaller number of better competitively positioned business, with a strengthened balance sheet, allowing appropriate levels of investment, are welcome steps in the right direction. 2018 pretax profits expectations have been significantly reduced.
Rory McKenzie at UBS said:Rory McKenzie at UBS said:
With a new chief executive in place, 2018 was always going to be a significant transition year for Capita – todays’ announcement however outlines the scale of the challenges ahead...With a new chief executive in place, 2018 was always going to be a significant transition year for Capita – todays’ announcement however outlines the scale of the challenges ahead...
Capita has i) guided to a 25-33% downgrade to 2018 consensus; ii) suspended the dividend (we think the market was braced for some form of cut already), iii) announced a rights issue planned for 2018 (underwriting in place for up to £700m, i.e up to 30% of pre today’s market cap) and iv) announced a non-core disposal programme over the next 2yrs. Capita aims to come back with a full strategic review in 2018 with more details, but for now the pressures look challenging. Consensus EPS for FY18 could fall around 30-50% including the impact of the rights issue.Capita has i) guided to a 25-33% downgrade to 2018 consensus; ii) suspended the dividend (we think the market was braced for some form of cut already), iii) announced a rights issue planned for 2018 (underwriting in place for up to £700m, i.e up to 30% of pre today’s market cap) and iv) announced a non-core disposal programme over the next 2yrs. Capita aims to come back with a full strategic review in 2018 with more details, but for now the pressures look challenging. Consensus EPS for FY18 could fall around 30-50% including the impact of the rights issue.
Theresa May’s spokesman is trying to calm fears that Capita could be heading the same way as Carillion, the outsourcing firm which fell into liquidation two week ago.Theresa May’s spokesman is trying to calm fears that Capita could be heading the same way as Carillion, the outsourcing firm which fell into liquidation two week ago.
Reuters has the details:Reuters has the details:
The British government monitors the financial health of all its strategic suppliers and does not believe that any, including Capita, are in a comparable position to Carillion, a spokesman for Prime Minister Theresa May said on Wednesday.The British government monitors the financial health of all its strategic suppliers and does not believe that any, including Capita, are in a comparable position to Carillion, a spokesman for Prime Minister Theresa May said on Wednesday.
“Broadly we monitor the financial health of all our strategic suppliers, including Capita, and we are in regular discussions with them regarding their financial position,” the spokesman told reporters, after Capita shares fell sharply on news of a restructuring. “And (I would like) to emphasise we do not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion.”“Broadly we monitor the financial health of all our strategic suppliers, including Capita, and we are in regular discussions with them regarding their financial position,” the spokesman told reporters, after Capita shares fell sharply on news of a restructuring. “And (I would like) to emphasise we do not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion.”
The Guardian’s daily Business Today email gives you the lowdown on Capita, Carillion, VW and much more.The Guardian’s daily Business Today email gives you the lowdown on Capita, Carillion, VW and much more.
Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day.Besides the key news headlines that you’d expect, there’s an at-a-glance agenda of the day’s main events, insightful opinion pieces and a quality feature to sink your teeth into each day.
For your morning shot of financial news, sign up here:For your morning shot of financial news, sign up here:
Here’s further confirmation of Capita’s grip on the outsourcing market:Here’s further confirmation of Capita’s grip on the outsourcing market:
Since January 2015, #Capita has won contracts from 292 distinct public sector buyers - more buyers than any other supplier pic.twitter.com/a5kKQIx53VSince January 2015, #Capita has won contracts from 292 distinct public sector buyers - more buyers than any other supplier pic.twitter.com/a5kKQIx53V
This list shows how Capita holds a wide range of public sector contracts:This list shows how Capita holds a wide range of public sector contracts:
Runs government helplines for: •  The state pension • Jobseeker's Allowance • National Insurance number allocation • Winter fuel allowanceRuns government helplines for: •  The state pension • Jobseeker's Allowance • National Insurance number allocation • Winter fuel allowance
Transport: • Operates London congestion charge • Manages wifi services for Transport for London, including free public access on London Underground • Provides IT infrastructure services for UK air traffic control • Planning for 10km of cycling routes in SalfordTransport: • Operates London congestion charge • Manages wifi services for Transport for London, including free public access on London Underground • Provides IT infrastructure services for UK air traffic control • Planning for 10km of cycling routes in Salford
NHS/health: • Provider of blood transfusion systems to some hospitals • Manages communications between the NHS and its suppliers, vetting firms on data security standards • Provides online payment systems to some NHS trusts NHS/health: • Provider of blood transfusion systems to some hospitals • Manages communications between the NHS and its suppliers, vetting firms on data security standards • Provides online payment systems to some NHS trusts 
 Pensions: • Runs the teachers’ pensions scheme • Works on behalf of the pensions regulator on the automatic enrolment of staff into company pension schemes  Pensions: • Runs the teachers’ pensions scheme • Works on behalf of the pensions regulator on the automatic enrolment of staff into company pension schemes 
 Other: • Army recruitment • Electronic tagging of offenders in England and Wales • Operates the Gas Safe register for the Health and Safety Executive • Carries out disability workplace assessments • Operates the BBC licence fee Other: • Army recruitment • Electronic tagging of offenders in England and Wales • Operates the Gas Safe register for the Health and Safety Executive • Carries out disability workplace assessments • Operates the BBC licence fee
Frank Field MP, Chair of the Work and Pensions Committee, has Capita in his spotlight.Frank Field MP, Chair of the Work and Pensions Committee, has Capita in his spotlight.
Field says:Field says:
“Another day, another outsourcing firm with massive debt, a huge pension deficit, a KPMG audit and the Big Four popping up at every turn in the company’s chequered history.“Another day, another outsourcing firm with massive debt, a huge pension deficit, a KPMG audit and the Big Four popping up at every turn in the company’s chequered history.
Sadly, Capita goes on the growing list of firms we are investigating to see if their conduct has endangered current and future pensioners’ rights.”Sadly, Capita goes on the growing list of firms we are investigating to see if their conduct has endangered current and future pensioners’ rights.”
Field’s committee, which has previously examined the collapse of BHS, opened an investigation into Carillion two weeks ago.Field’s committee, which has previously examined the collapse of BHS, opened an investigation into Carillion two weeks ago.
Ian King, Sky News’s business presenter, has written an interesting blog post on Capita’s profits warning.Ian King, Sky News’s business presenter, has written an interesting blog post on Capita’s profits warning.
He makes two points:He makes two points:
The first is that this is textbook stuff from an incoming chief executive.The first is that this is textbook stuff from an incoming chief executive.
Jon Lewis, who has only been in the job for two months, has seized the opportunity to re-set expectations for the business while the blame can still be pinned on his predecessor, Andy Parker, who stepped down last September, after three and a half years in the job following a string of profits warnings.Jon Lewis, who has only been in the job for two months, has seized the opportunity to re-set expectations for the business while the blame can still be pinned on his predecessor, Andy Parker, who stepped down last September, after three and a half years in the job following a string of profits warnings.
No-one will blame Mr Lewis for today’s announcement.No-one will blame Mr Lewis for today’s announcement.
Instead, while the news has cratered the share price, Mr Lewis will earn brownie points with investors for taking tough remedial action to sort out Capita’s problems.Instead, while the news has cratered the share price, Mr Lewis will earn brownie points with investors for taking tough remedial action to sort out Capita’s problems.
The company has, in the past, taken on more work than it can handle and, accordingly, has become, as the new boss notes, too complex.The company has, in the past, taken on more work than it can handle and, accordingly, has become, as the new boss notes, too complex.
The second conclusion, which is difficult to avoid, is that Mr Lewis has observed recent events at Carillion and is now seeking to avoid similar risks.The second conclusion, which is difficult to avoid, is that Mr Lewis has observed recent events at Carillion and is now seeking to avoid similar risks.
More here:More here:
Some thoughts from me on today's profits warning from @CapitaPlc https://t.co/FNNzhh8oCWSome thoughts from me on today's profits warning from @CapitaPlc https://t.co/FNNzhh8oCW
Andrew Brooke, analyst at Royal Bank of Canada, has chewed through Capita’s profit warning - and concluded that it’s “clearly a mess”.Andrew Brooke, analyst at Royal Bank of Canada, has chewed through Capita’s profit warning - and concluded that it’s “clearly a mess”.
He adds:He adds:
Too many uncertainties for us and it’s tough to raise money when you don’t have a strategy yet.Too many uncertainties for us and it’s tough to raise money when you don’t have a strategy yet.
Over at parliament, Labour MP Ian Mearns has raised the issue of Carillion’s collapse two weeks ago, at Prime Minister’s Questions.Over at parliament, Labour MP Ian Mearns has raised the issue of Carillion’s collapse two weeks ago, at Prime Minister’s Questions.
Mearns says Carillion workers and apprentices in his Gateshead constituency face an uncertain future following the company’s collapse.Mearns says Carillion workers and apprentices in his Gateshead constituency face an uncertain future following the company’s collapse.
He asks the government to act to prevent future “corporate theft” where “pirate directors” siphon off money that should have gone into pension funds and using it to pay dividends and bonuses.He asks the government to act to prevent future “corporate theft” where “pirate directors” siphon off money that should have gone into pension funds and using it to pay dividends and bonuses.
Cabinet Office minister David Lidington (who has stepped in as Theresa May is in China) says good progress is being made in finding new position for former Carillion apprentices.Cabinet Office minister David Lidington (who has stepped in as Theresa May is in China) says good progress is being made in finding new position for former Carillion apprentices.
He says the government won’t pre-empt the Official Receiver’s inquiry into Carillion, but adds that the government will publish proposals later this year to stop directors “siphoning off” pension funds.He says the government won’t pre-empt the Official Receiver’s inquiry into Carillion, but adds that the government will publish proposals later this year to stop directors “siphoning off” pension funds.
My colleague Andrew Sparrow is tracking all the PMQs action:My colleague Andrew Sparrow is tracking all the PMQs action:
Capita’s problems mean local and national procurement officers face a tricky decision.Capita’s problems mean local and national procurement officers face a tricky decision.
They might be tempted to shy away from the company, following today’s profit warning.They might be tempted to shy away from the company, following today’s profit warning.
But Sky News’s Adam Parsons points out, such a policy would leave councils and government departments with nowhere to turn:But Sky News’s Adam Parsons points out, such a policy would leave councils and government departments with nowhere to turn:
On Capita: Government can't stop giving infrastructure contracts to everyone who delivered a profits warning. The whole process would grind to a halt, the industry would collapse.Carillion wasn't just warning - it was dyingOn Capita: Government can't stop giving infrastructure contracts to everyone who delivered a profits warning. The whole process would grind to a halt, the industry would collapse.Carillion wasn't just warning - it was dying
Matt Cockbill, head of the IT and digital leadership practice at Berwick Partners, argues that Capita’s team are making some “radical overhauls”.Matt Cockbill, head of the IT and digital leadership practice at Berwick Partners, argues that Capita’s team are making some “radical overhauls”.
“Change is an accepted part of business and we need only look at Carillion as an example of where action was taken too late in the day.“Change is an accepted part of business and we need only look at Carillion as an example of where action was taken too late in the day.
“Any organisation that recognises that it’s position is weakening and takes proactive and pragmatic steps to understand why - before filling the voids, assessing market impacts and managing the risks will prosper. In some cases this calls for the help of change leaders, and while Capita is in the early stages, its chiefs seem to be taking steps in the right direction.”“Any organisation that recognises that it’s position is weakening and takes proactive and pragmatic steps to understand why - before filling the voids, assessing market impacts and managing the risks will prosper. In some cases this calls for the help of change leaders, and while Capita is in the early stages, its chiefs seem to be taking steps in the right direction.”
Capita was founded in 1984 when ex- local government officer Rod Aldridge led a management buyout of the business from the Chartered Institute of Public Finance and Accountancy. At the time it had 33 employees.Capita was founded in 1984 when ex- local government officer Rod Aldridge led a management buyout of the business from the Chartered Institute of Public Finance and Accountancy. At the time it had 33 employees.
The company joined the stock market in 1991 and became a member of the FTSE 100 in 2006.The company joined the stock market in 1991 and became a member of the FTSE 100 in 2006.
In the same year Aldridge resigned as executive chairman after it was revealed he had lent the Labour party £1m. He denied suggestions the loan had any influence on the company winning government contracts but said he would step down to avoid any further controversy.In the same year Aldridge resigned as executive chairman after it was revealed he had lent the Labour party £1m. He denied suggestions the loan had any influence on the company winning government contracts but said he would step down to avoid any further controversy.
He was replaced by Paul Pindar who became one of Britain’s best paid businessmen, earning £2.5m in 2012. He stepped down from the group in 2014 to move into private equity.He was replaced by Paul Pindar who became one of Britain’s best paid businessmen, earning £2.5m in 2012. He stepped down from the group in 2014 to move into private equity.
Capita grew largely through acquisitions, but a series of profit warnings saw it lose its place in the FTSE 100 in March 2017.Capita grew largely through acquisitions, but a series of profit warnings saw it lose its place in the FTSE 100 in March 2017.
• Employees: 67,000 (About 50,000 based in the UK)• Employees: 67,000 (About 50,000 based in the UK)
• Revenue (2016): £4.9bn• Revenue (2016): £4.9bn
• Pre-tax profit (2016): £475m• Pre-tax profit (2016): £475m
• Proportion of business in public sector: 47%• Proportion of business in public sector: 47%
• Dividend payout (2016): £210m• Dividend payout (2016): £210m
• Net debt (expected at end of 2017): £1.15bn• Net debt (expected at end of 2017): £1.15bn
• Pension deficit: £381m• Pension deficit: £381m
• Share price peak: £13.26 July 2015• Share price peak: £13.26 July 2015
• Share price now: 196p• Share price now: 196p
• Market capitalisation at peak: £8.8bn• Market capitalisation at peak: £8.8bn
• Market capitalisation now: £1.3bn• Market capitalisation now: £1.3bn
Few City experts had spotted the full state of the problems at Capita.Few City experts had spotted the full state of the problems at Capita.
According to Reuters data, nine analysts rated Capita as a ‘hold’, while just two recommended selling the company.According to Reuters data, nine analysts rated Capita as a ‘hold’, while just two recommended selling the company.
One had it as a ‘buy’, while two optimists reckoned Capita was a ‘strong buy’ (they presumably have some explaining to do this morning).One had it as a ‘buy’, while two optimists reckoned Capita was a ‘strong buy’ (they presumably have some explaining to do this morning).
Even star investor Neil Woodford has been caught out. He recently increased his holding in Capita, having spotted the potential for “significant value creation”. Morning Star has more details.Even star investor Neil Woodford has been caught out. He recently increased his holding in Capita, having spotted the potential for “significant value creation”. Morning Star has more details.
Panmure Gordon called it right, though:Panmure Gordon called it right, though:
Michael Donnelly, @PanmureGordon support services analyst has had a sell on Capita since January 2016 when price was £11.60. Today trading at £2.25. I know sell-side get a bad rep but 👏👏Michael Donnelly, @PanmureGordon support services analyst has had a sell on Capita since January 2016 when price was £11.60. Today trading at £2.25. I know sell-side get a bad rep but 👏👏
There may be champagne corks popping in Mayfair today.There may be champagne corks popping in Mayfair today.
Capita (like Carillion) had been a target for hedge funds who had bet against the company by ‘shorting’ its stock (by borrowing it, selling it, and planning to buy it back at a profit).Capita (like Carillion) had been a target for hedge funds who had bet against the company by ‘shorting’ its stock (by borrowing it, selling it, and planning to buy it back at a profit).
Any speculator who shorted Capita in recent months will be sitting on a decent profit.Any speculator who shorted Capita in recent months will be sitting on a decent profit.
#Capita short sellers are in heaven today... short interest about 8% of free float https://t.co/PYhWYC1e7X @markets pic.twitter.com/eBo5LbUp8N#Capita short sellers are in heaven today... short interest about 8% of free float https://t.co/PYhWYC1e7X @markets pic.twitter.com/eBo5LbUp8N
Capita’s profits warning has hit shares in other outsourcing companies:Capita’s profits warning has hit shares in other outsourcing companies:
Outsourcing sector wobbles slightly after Capita slumps 43%: Serco (-3.9%); Interserve (-1.9%) Kier (-1.3%); G4S (-1.1%)Outsourcing sector wobbles slightly after Capita slumps 43%: Serco (-3.9%); Interserve (-1.9%) Kier (-1.3%); G4S (-1.1%)
In today’s statement, CEO Jonathan Lewis warns that Capita has seen “delays in decision making and weakness in new sales” since December; a sign that the market is deteriorating?In today’s statement, CEO Jonathan Lewis warns that Capita has seen “delays in decision making and weakness in new sales” since December; a sign that the market is deteriorating?
Helal Miah, investment research analyst at The Share Centre, says Capita’s new boss, Jonathan Lewis, is trying to avoid suffering Carillion’s fate.Helal Miah, investment research analyst at The Share Centre, says Capita’s new boss, Jonathan Lewis, is trying to avoid suffering Carillion’s fate.
Miah writes:Miah writes:
“Another government contractor appears in trouble, but at least Capita are making drastic changes before it’s too late. With a new CEO in place for less than two months, it should be no surprise that the troubled group has today announced a deep restructuring programme.“Another government contractor appears in trouble, but at least Capita are making drastic changes before it’s too late. With a new CEO in place for less than two months, it should be no surprise that the troubled group has today announced a deep restructuring programme.
This comes after a review of the business by the new management which found that the group has underinvested, has a short term focus, is too focussed on acquisitions to drive growth as well as lacks operational discipline and financial flexibly.This comes after a review of the business by the new management which found that the group has underinvested, has a short term focus, is too focussed on acquisitions to drive growth as well as lacks operational discipline and financial flexibly.
Miah add that Capita could become another “hot political issue”, given its critical role in local and central government.Miah add that Capita could become another “hot political issue”, given its critical role in local and central government.
The government have already placed other companies on watch after the Carillion fiasco; no doubt some will say that Capita should be on that list too. The sector in general hasn’t had a great few years and this has been exacerbated by Brexit where contract awards have been delayed due to uncertainty.The government have already placed other companies on watch after the Carillion fiasco; no doubt some will say that Capita should be on that list too. The sector in general hasn’t had a great few years and this has been exacerbated by Brexit where contract awards have been delayed due to uncertainty.