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Capita: Shock Profit Warning Wipes 1bn of Company Value

Publication Date: 01 Feb 2018 - By Market Mogul By Market Mogul
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Equity Fundamental Events Equity UK Technology

£1bn was wiped off the value of public services provider, Capita, after the company issued a shock profit warning on Wednesday.

City analysts had predicted profits of £400m for Capita in 2018, but the group warned that they expected profits to be between £270m-300m.

Capita is now expected to take evasive actions, including axing dividend payments and find means to raise £700m so as to put finances back on track. The company has debts of £1.15bn and a pension deficit of £380m.

At the news, share prices in Capita crashed 45% to £1.90, its lowest price since January of 2003.

(Source: Google Finance)

Jonathan Lewis, Capita’s CEO appointed in December, slammed the company’s byzantine finances and pledged he would undertake a radical overhaul. Lewis plans to sell parts of the business as well as scrapping dividend payments which he estimates will save the company £200m. He has also proposed raising money with a cash call on shareholders.

Lewis said the company was working across too many markets and services, making it too difficult for the company to create or maintain an advantage.

It is likely, but not confirmed, that Capita’s cost-cutting measures will entail job cuts. The company currently employs 67,000 people, of which 50,000 work in the UK.

Capita offers customer management services, which include operating call centres for public and private sector organisations. These include high-street retailers M&S and John Lewis, as well as phone network operator, O2.  In 2013, Capita signed a ten-year deal with O2 which was worth £1.2bn.

Capita runs many publicly-funded schemes, including the London congestion zone charge, operating the Jobseekers helpline as well as administering the pension scheme for teachers. It also provides software to emergency service control rooms, collects the licence fee for the BBC and runs the Ministry of Justice’s electronic monitoring servers for criminal offenders. Last year, the company reportedly won 154 government contracts.

Capita’s announcement comes at an uncomfortable time for Private Finance Initiatives (PFIs), two weeks after the collapse of Carillion, another government contractor, which was involved in major construction and infrastructural projects across the UK.

Photo Credit: By Abmpublicidad (Own work) [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

The post Capita: Shock Profit Warning Wipes £1bn of Company Value appeared first on The Market Mogul.

 

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