Capita plans rights issue after £513m pre-tax loss
Struggling FTSE 250 outsourcer, Capita, has announced plans to riase £700m through a rights issue to reorganise the business after it was revealed that the company suffered a £515.1m pre-tax loss in 2017
23 Apr 2018
Proceeds from the rights issue will go towards supporting the delivery of the company’s new strategy and investing in the business.
In an attempt to simplify the business Capita has reorganised its divisional structure around five sectors, inclusing software, human resources, customer management, government services and IT services, and has formed a new sixth division, Specialist Services.
The company aims to save £175m by the end of 2020. Currently, Capita is expecting underlying pre-tax profit for 2018 to be in the range of £270m and £300m, down from £383m in 2017.
For 2017 the company’s pre-tax loss increased to £513.1m from £89.8m on revenue that dropeed to £4.23bn from £4.37bn the year before. This drop in revenue was due to a £551.6m impairment of goodwill, coming from attrition and contract terminations.
Jon Lewis, CEO of Capita said: ‘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.
‘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 £175m, double-digit margins and at least £200m of sustainable free cash flow in 2020. I truly believe that the strategy announced today will position Capita for sustainable success.’
Capita dropped out of the FTSE 100 market last year however shares were up 8.9% on 23 April due to the announcement of plans to restructure the company.
At the end of January 2018, Capita issued a profits warning and announced plans to sell off non-core business. This came shortly after Carillion, another outsourcing giant, which collapsed on 15 January 2018.
In September 2017, Capita had to reinstate its profits of £481m to £335m after it adopted IFRS 15 Revenue from Contracts with Customers.
Report by Amy Austin