Capita shares plummet as it ups profit shortfall to £100m
Outsourcing firm plans £50m austerity drive with idea of replacing staff with robots
Capita's shares took another battering yesterday after the British outsourcing company revealed its profit shortfall this year was going to be around £100m.
In September the company endured its worst-ever single day trading performance, shedding 26 per cent after it revealed profits would come in between £535m and £555m, well below the previous forecasts of £614m.
Yesterday it updated markets again and said profits would actually be around £515m. At one point Capita's shares lost 14 per cent, says The Guardian, dropping to a ten-year low.
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The share price eventually recovered to post a four per cent loss for the day – and it's down another two per cent this afternoon to £4.76. Shares are worth a third of what they were at their peak last summer, when they hit a high of £13.20.
Capita said in September that it had lost up to £25m due to its poor implementation of a new IT system for the London congestion charge.
It also said – and reiterated yesterday – that while Brexit is not to blame for its current malaise, the economic uncertainty unleashed by the EU referendum has prompted clients to delay signing off on new business contracts.
To tackle its problems, the company is planning to cut around £50m of costs a year, through what the Guardian describes as a "series of austerity measures" including replacing staff with "proprietary robotic solutions".
Overall it plans to cut 2,000 of its 78,000 staff – and move another 200 to India.
Capita's chief executive Andy Parker said the use of robots "doesn't remove the need for an individual but it speeds up how they work, which means you need less [sic] people to do it."
"The announcement will fuel growing fears that human workers will have to make way for robots, as companies turn to technology to boost profits," says the Guardian, citing similar moves by Amazon, Apple and Samsung supplier Foxconn.
Outsourcing firms have been struggling in general as companies across the economy cut costs. Last month Mitie reported a half-year loss of £100m and announced plans to exit the healthcare sector.
Other businesses such as G4S and Serco have been more insulated from the problems facing UK firms as they have extensive overseas operations that have been boosted by the slump in the pound.
How Brexit and London's congestion charge crushed Capita's shares
29 September
Shares in outsourcing giant Capita are heading for their worst-ever one-day performance today after it became the latest support services firm to reveal a big hit to profits.
Capita announced this morning that pre-tax earnings for the full year to December would be between £535m and £555m, well down on previous guidance of around £614m.
Shares in the group had slumped more than 26 per cent by around 3pm this afternoon, wiping £1.6bn off its market value.
Factors leading to the profit-warning include a one-off cost of £20m-£25m for missing the deadline to implement a new IT system for the London congestion charge, which it collects on behalf of Transport for London.
Bosses also warned of a contractual dispute with Co-operative Bank over mortgage processing services, which could culminate in legal action against the lender to get payments Capita believes it is owed.
But perhaps of greater significance, says The Guardian, is the admission that the uncertainty prompted by the Brexit vote is causing clients to "rein in spending".
This is having an effect in a number of the company's divisions, including its technology reselling, specialist recruitment and financial services teams, says the BBC.
Capita said the congestion charge issues were now resolved and the system is "performing well operationally". Bosses also stressed they "remain confident of the strength of our business model and aim to return the group to profit growth next year".
Investors are clearly spooked, however, especially as this update follows a similarly gloomy trading statement from rival Mitie last week.
Mitie, which provides services ranging from airport baggage handling to health and social care and counts HMRC as a client, warned half-year profits would be "very significantly lower" due to a Brexit-related slowdown in client spending.
Its shares plunged 28 per cent in a day, their worst performance since 1987.
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