Capita shares sink as government insists contractor is not another Carillion

Oktoberfest 2014 - Day 3 Through 15
Capita shares fell almost 50 per cent today on a raft of problems (Source: Getty)

Almost £1bn was wiped off Capita’s stock market valuation today after the FTSE 100 firm ditched its dividend amid profit fears.

Capita announced a major operational shake-up and has plans in place for a mammoth £700m rights issue.

Shares plummeted almost 50 per cent, with Carillon’s failure fresh in investors' memories.

A Cabinet Office spokesperson said officials were in “regular discussions” with Capita, one of its 28 strategic suppliers, over their financial health.

“We do not believe that any of our strategic suppliers are in a comparable position to Carillion,” the spokesperson said.

Capita’s woes will come as a blow to two of Britain’s biggest fund managers, Woodford and Invesco. The duo have already shouldered over £700m of losses backing doorstep lender Provident Financial. Today, they lost £220m from major shareholdings in Capita.

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.

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.

Read more: Capita shares fell 45 per cent this morning: Here's how the City reacted

"Not enough"

Capita said it plans to make a series of disposals of non-core businesses, including ParkingEye and Constructionline.

"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,” said Lewis.

Analysts at Shore Capital said they welcomed the news that Capita plans to make serious changes, however, they added that the group "still faces significant challenges in its core UK market on contract pricing and with continuing hiatus in public sector services".

Meanwhile, the chair of the Work and Pensions Committee Frank Field warned Capita’s audit sign-offs could be rolled into a wider probe in the wake of Carillion’s failure.

“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,” he said.

Read more: Capita's been ordered to pay £66m of compensation (but swerved a huge fine)

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