29th Sep 2016 13:39
LONDON (Alliance News) - Capita PLC shares lost a quarter of their value Thursday after the company issued a profit warning for 2016, hit by a slowdown in its divisions, costs on a Transport of London contract and delays in clients awarding new work.
Capita said it now expects its underlying pretax profit for 2016 to be GBP535 million to GBP555 million, compared to the current company-compiled consensus of GBP614.0 million. This outlook excludes the cost of potential restructuring the group may undertake and is subject to a dispute with the Co-op Bank being resolved in a satisfactory manner, a matter to which Co-op Bank subsequently responded.
It added it anticipates its organic revenue growth for the full year, net of attrition, will be around 1.0%, compared to its previous forecast of 4.0% following a solid first half of the year.
Capita shares were down 26% at 704.50 pence Thursday, easily the worst blue-chip performer.
The FTSE 100 company said its IT Enterprise Services unit has been hit by a slowdown in activity, in particular in its technology reseller business, while its Workplace Services division has suffered from weakness in its specialist recruitment work. The slowdown seen in these two divisions has reduced profit expectations by a combined GBP30.0 million for 2016, Capita said.
Capita said it was taking "immediate steps" to try to cut the cost base for these divisions, which should bring benefits in 2017.
Capita added that its Digital & Software arm has continued to perform well, but its Asset Services business has seen a short-term slowdown too in the wake of the UK's European Union referendum.
Beyond these divisional woes, Capita said it has faced delays in implementing new IT systems for Transport for London, the body which handles transport services in the UK capital, related to the congesting charging contract the company holds. This will result in Capita incurring GBP20 million to GBP25 million in one-off costs in 2016.
It is also in a dispute with the Co-op Bank regarding its obligations under a contract with the UK lender. Capita confirmed at the end of July it had signed a mortgage servicing contract worth GBP325.0 million over a decade with the Co-op Bank.
The Co-op Bank released a statement later Thursday saying it "strongly refutes" the suggestion by Capita that the outsourcer has delivered an element of the contract for which the lender has not paid. In addition, the Co-op Bank said it believes Capita owes it money.
The Co-op Bank said it will continue to work on the issues around the contract and said the existing outsourcing mortgage processing for its customers with Capita is on track.
Meanwhile, Capital said revenue from major contract sales in the second half has been weak, due to continued delays in client decision-making, which have resulted in a lower conversion rate for its order pipeline. In the year to date, it has won GBP949.0 million of new contracts.
Capita said it remains confident of its business and will aim to return to profit growth in 2017.
By Sam Unsted; [email protected]; @SamUAtAlliance
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