Thursday 8 December 2016 3:38 pm

Capita share price at 10-year low as it issues profit warning and reveals plans to ditch businesses

FTSE 100-listed outsourcing firm Capita today announced plans to offload a number of its businesses and issued a profit warning.

Shares in the group had dropped by more than 12 per cent to a 10-year low of 495p by mid-afternoon.

The company revealed that it expects profit to come in at around £515m, compared with a previous forecast of between £535m and £555m. This is the second time Capita has warned on profits in the last four months – the last time the company reset its forecasts, shares dropped 30 per cent.

The firm is reorganising its 11 divisions into six division, which will then be reduced to five after the disposal of the Capita Asset Services division.

Last year, Capita's pre-tax profit dropped to £112.1m from £292.4m in the previous 12-month period.

Capita said it expects restructuring costs of around £50m will be spent over the final quarter of this year and the first nine months of 2017.


The group added that the headwinds it has faced in the second half of 2016 will continue to affect trading in the first half of next year, but added: "Our long-term contracts provide us with good revenue visibility across the year and the structural and cost reduction actions we are taking now will support progress in the second half of 2017 and into 2018."

The company expects a similar trading performance to 2016 in the full-year 2017.

“We are committed to delivering good returns to shareholders, supported by a strong capital structure and a clear growth strategy," said Capital chief executive Andy Parker.

"In recent months, we have reviewed our management structure, operating model, business portfolio and our leverage to ensure we are in the strongest position to support future profitable growth.

“I am confident that the markets Capita addresses offer long-term structural growth."

Wooden spoon

Accendo Markets' Mike van Dulken noted that Capita investors had been left holding the FTSE wooden spoon after the company delivered its "unwelcome early Christmas present".

"The company said last month that a Brexit inspired slowdown meant it needed to simplify the group to ensure organic growth and improved financial performance, an attempt to stem share price declines triggered by an end-Sept profits warning that saw its market cap plunge," van Dulken added.

"On a downer ever since, the shares have halved in value since the Summer and the company now expects 2016 headwinds to persist and result in ‘similar FY trading performance in 2017’. Not a good message for starters. And while a flat 2016 dividend is understandable, mere ‘hopes’ that it can be maintained in 2017 is not exactly inspiring for those requiring income and/or sitting on big capital losses. Unless you’ve been in the shares for over a decade that is."