Capita CEO announces shake-up as firm issues shock profit warning

Shares in the outsourcing giant Capita plunged by 40% today after the firm issued a shock profit warning and suspended its dividend to shareholders.

The company’s new chief executive, Jonathan Lewis, has also given a harsh assessment of Capita’s finances and is looking to raise £700m from investors in a bid to strengthen the balance sheet after a series of profit warnings last year. 

Today’s announcement follows troubles last year when in March, the firm said its former chief executive Andy Parker was stepping down after it reported a big fall in profits. Bosses then revealed that annual pre-tax profits had fallen 33% to £74.8m. At the time, Parker said 2016 had been “a challenging year” and Capita had “delivered a disappointing performance”. He added that 2017 was likely to be one of transition, with Capita not expected to return to growth until 2018.

Commenting on today’s profit warning, Lewis said: “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.”

The current chief executive has said the firm needs to “change its approach” if it is to turn its fortunes around and only a shift from the current “short-term focus” of operations will see a significant improvement in the performance of the organisation.

The bold and honest statement from Lewis comes just two weeks after outsourcing rival Carillion collapsed earlier this month. Capita is responsible for enforcing the London congestion charge, running the government's Jobseekers Allowance helpline and administers the teachers' pension scheme. It also collects the TV licence fee on behalf of the BBC. It also runs the industry procurement and supply chain management service, Constructionline, which is likely to be sold off to cut costs. 

Lewis who only took charge on 1 December 2017 has announced the wide-ranging overhaul as annual profits are now expected to be between £270m and £300m - well below analyst expectations of £400m. The chief executive has also said he believes that turning around Capita will take two years with the immediate focus on strengthening the balance sheet.

Responding to Capita’s announcement, TUC general secretary, Frances O'Grady, said: “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.”

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