Capita shares plummet 40% on firm's 'lack of operational discipline'

In a statement, the firm's chief executive Jonathan Lewis said "significant change" to the business was required.

Capita, like Carillion, which collapsed earlier in January, has numerous government contracts.

Shares in Capita were down 39.56 per cent at the time of writing.

"An immediate priority is to strengthen the balance sheet through a combination of cost savings, non-core disposals and new equity".

The company, which has a turnover of £4.9bn, makes half its income from running public services, including pension schemes for teachers and Royal Mail workers and London's Congestion Charge. The firm has also said it won't pay a dividend to shareholders this year.

But a Downing Street spokesman dismissed such suggestions, insisting that the government does "not believe that any of our strategic suppliers including Capita are in a comparable position to Carillion", which did much outsourcing for the United Kingdom government.

The "announcement by government outsourcer Capita of a potential £700-million rights issue, a suspension of the dividend and a profits warning had the entirely predictable response of seeing the share price nosedive by over 40 percent to their lowest levels since 2003", said Michael Hewson, chief market analyst at CMC Markets UK.

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Jon Trickett, Labour's shadow minister for the Cabinet Office, said: "We can not afford another Carillion".

"We need a proper government review of the outsourcing model and assurances from ministers that they are factoring in any risk on Capita projects".

It is braced for a "significant" blow to profits, with the troubles expected to be felt particularly across its private sector partnerships arm - in both insurance services and customer management - as well as its public services partnerships and IT services divisions.

The shake-up would also involve selling non-core businesses, including ParkingEye and Constructionline, with Capita warning that the cost measures would not be enough to help shore up 2018 full-year profits which were now forecast to come in between £270m and £300m.

He added that the company was "too widely spread", had under-invested and there had been "too much emphasis on acquisitions to drive growth".

"Similarities with Carillion are all too clear but action, however painful, is better than fudging numbers", said Neil Wilson, senior market analyst at ETX Capital. Mr Lewis aims to bring the leverage ratio down to, between 1.0 and 2.0 times net debt to EBITDA, and it is now in the region of 2.9.

Capita's problems had been sown over a long period, said Lewis, who has a reputation for turning around firms, such as oil services company Amec Foster Wheeler, where he cut costs to boost profitability.

(Copyright © 2015. All Rights Reserved.)

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