Outsourcer Capita posts first ever profits warning

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Technology reseller business is hit, along with workplace services, as litigation with Co-op Bank looms

Capita has posted its first ever profits warning for the full year in the face of a number of operating difficulties.

The outsourcer said it achieved “good profit growth” in the first half of 2016, “at which time we
expected organic revenue growth of around 4 percent for the full year”.

But, it added: “Subsequently, our performance in the second half of the year to date has been below expectations, as a result of a slow-down in specific trading businesses, one-off costs incurred on the Transport for London (TfL) congestion charging contract, and continued delays in client decision making.”

capitaCapita now expects revenue growth for the full year to be in the range of 4-5 percent, including only “around 1 percent organic growth net of attrition”, and underlying profit before tax to “be in the range of £535 million to £555 million” for the full year to December 2016.

This compares to the previous “company compiled consensus profit before tax estimate” of £614 million.

Capita said the group has been “impacted by a recent slow-down in the IT Enterprise Services
division”, in particular its technology reseller business, and specialist recruitment in the Workplace Services division.

“Since the half year, our expectation for profits from these businesses for the full year has reduced by around £30 million.

“Capita is taking immediate steps to reduce the cost base in the underperforming businesses, which should benefit 2017,” Capita said.

The Solutions division “continues to perform well” but, said Capita, “as referenced at our first
half results, our Asset Services division has seen less activity in the short term, following the EU referendum”.

Capita has experienced delays on the implementation of new IT systems on the Transport for London (TfL) congestion charging contract. As a result, it expects to incur between £20 million and £25 million of one-off costs, which will be included in its underlying results.

The systems have now gone live, the contract is “performing well” operationally and these costs will not recur next year.

The company is also in contractual dispute with the Co-op Bank regarding obligations relating
to the transformation of services. The ongoing mortgage processing being undertaken by Capita is “performing well”. However, there is a “risk of litigation in respect of the transformation”.

Overall, said Capita, “revenue from new major sales in the second half of this year is likely to be lower than expected, due to continued delays in decision making and lower conversion of our pipeline”.

On news of the profit warning, Capita’s share price dropped well over 20 percent this morning.