Following on from the Carillion collapse another large outsourcing company, Capita, has signalled it needs to reorganise its finances after issuing a profits warning and announcing plans to sell off non-core business and raise up to £700m in a rights issue, after which its share price fell 30%
In an update on its transformation, capital structure, funding and trading, Jonathan Lewis, who joined as chief executive two months ago, said: ‘Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility.
‘We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world class services to our clients every time.
‘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.’
In response, Lewis said he had initiated a transformation programme, appointed a chief transformation officer and formed a new executive committee to drive this change, in a bid to improve performance at the company, which is a major government contractor.
Lewis said: ‘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.
‘We have identified a small number of quality businesses that do not fit with our core skills for which there will be better owners and a process to maximise value will commence shortly.’
The sell-off of business is expected to take two years, and will begin with the disposal of ParkingEye and Constructionline.
However, Lewis said cost savings and non-core disposals alone will not be enough, and announced Capita is to suspend the dividend and seek equity. A rights issue is planned in 2018, with standby underwriting in place for up to £700m.
Lewis also said 2018 underlying pre-tax profits, before significant new contracts and restructuring costs, expected to be between £270m and £300m.
In the update, Lewis said Capita is currently undertaking a triennial review of the pension scheme, and expects the deficit to be ‘significantly below’ the last disclosed IAS19 deficit of £381m at 30 June 2017. The company will be making an additional contribution of £21m in 2018, and Lewis said reducing the remaining deficit was ‘a priority’.
Report by Pat Sweet
