23rd Apr 2018 09:01
LONDON (Alliance News) - FTSE 250-listed outsourcing firm Capita PLC on Monday proposed to raise GBP701.0 million through a rights issue, in line with its plan to simplify and strengthen its business.
Shares in Capita were up 8.9% at 174.00 pence on Monday.
The rights issue will involve three new shares for each two already held. The fully underwritten issue of 1.00 billion shares will be at a price of 70.0 pence each, reflecting a 56% discount to the stock's closing price of 159.8 pence on Friday.
Proceeds from the issue will go towards supporting the delivery of the group's new strategy, investing further in the business, and reducing its indebtedness to achieve a target leverage ratio of between 10x to 2.0x of adjusted net debt to earnings before interest, tax, depreciation and amortisation.
The rights issue is underwritten by Citigroup Global Markets Ltd and Goldman Sachs International as joint global coordinators, sponsors and bookrunners, with Barclays Bank PLC and Banco Santander SA acting solely as bookrunners.
In line with its aim to simplify its business, Capita has reorganised its divisional structure around five markets, which is software, human resources, customer management, government services and IT services, and has formed a new sixth division, Specialist Services.
The group is targeting cost savings of GBP175.0 million by the end of 2020, as well a double-digit Ebit within three years.
Currently, Capita is expecting underlying pretax profit for 2018 to be in the range of GBP270 million and GBP300 million, down from GBP383.0 million in 2017 as contract and volume attrition as well as increased cost items are expected to beat out cost savings and new business wins.
For 2017, which Capita is reporting under the International Financial Reporting Standard 15, reported pretax loss widened significantly to GBP513.1 million from GBP89.8 million, on revenue that dropped to GBP4.23 billion from GBP4.37 billion the year before, mainly due to a GBP551.6 million impairment of goodwill, coming from attrition and contract terminations.
Due to the level of indebtedness and bleak short-term outlook, Capita has not recommended the payment of a final dividend, leaving a total dividend for 2017 of 11.1 pence per share, down 65% from 31.7p in 2016.
"Today we have announced a new strategy to simplify and strengthen Capita. The rights issue is a key component of this new strategy and will give Capita a stronger capital base to invest in its business and support its clients and operations. We are also reiterating our expectations for 2018 financial performance," said Chief Executive Officer Jon Lewis.
"There is a lot to do, but I am confident that the plan is clear and prudent. Capita will become more predictable, have stronger operational discipline and consistently delight its clients. We expect to deliver annualised cost savings of GBP175 million, double-digit margins and at least GBP200 million of sustainable free cash flow in 2020. I truly believe that the strategy announced today will position Capita for sustainable success," Lewis added.
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