Shares in Capita dropped 35 per cent in early trading today, after the outsourcing firm said it would suspend its dividend and seek equity, based on the findings of an extensive review into the company.
At the end of last year, Capita's shares were hit after the group said the market for outsourcing contracts had remained subdued throughout 2017.
Jonathan Lewis, Capita's chief executive, said the group was too complicated and lacked discipline and flexibility. Lewis, the former boss of Amec Foster Wheeler, took up the chief exec role on 1 December. He replaced Andy Parker, who stood down after a string of profit warnings and poor results.
Today, Capita said it plans to make a series of disposals of non-core businesses, including ParkingEye and Constructionline.
A rights issue is also planned for this year. The group said while the precise quantum is "to be determined as part of the transformation programme", standby underwriting is in place for up to £700m.
“In my first two months I have begun a thorough review of Capita – its structure, its leadership, its contracts and its financial position. There is a lot to be excited about: talented people, a blue-chip customer base, great technology and the ability to deliver value adding services," Lewis said.
"However, significant change is required for Capita’s next stage of development. 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."
Lewis said Capita had underinvested in the business and had put 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," he added.
"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. 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.
"Cost savings and non-core disposals alone will not be enough. We have also taken the significant decision to suspend the dividend and seek equity.
We have the building blocks to create a great business; one that consistently delights its customers, has operational discipline and generates sustainable cash flow. My team and I are now working hard putting in place the plan to deliver it.
As part of the restructuring the group has appointed a chief transformation officer and formed a new executive committee.