Mark Whitehead 23 April 2018

Outsourcing giant Capita warns of £500m losses

Capita - the outsourcing company responsible for providing services to local authorities throughout the UK - has reported losses of more than £500m.

Capita says it wants to raise £701m through a rights issue to fund a major reorganisation of its business which is currently £1.7b in debt.

Its profit was wiped out by one-off costs totalling £850.7m mainly from writing down the value of acquisitions made under previous management.

The company, born from a buyout of the Chartered Institute of Public Finance and Accountancy's computer services arm in 1987, has become the UK's biggest outsourcing company.

Nearly half its £4.2bn income last year was accounted for by work in the public sector including central government and the NHS as well as councils where it provides software and management services in several areas including payroll, HR, social care, housing and education.

Its customers are mainly in the UK and Ireland but it also has operations in India, South Africa and Dubai.

Chief executive Jonathan Lewis today dismissed any comparison to Carillion, the services and outsourcing group that went bust earlier this year.

'I get frustrated with that comparison - we are a completely different business,' he told journalists. 'We have £1bn in liquidity, strong cash flow and a new strategy with investor support. We are not in PFI contracts and have nothing like the risk profile.'

In its latest annual report published today the company's chairman Sir Ian Powell says: 'Capita has lacked a clear strategy and operated with a short-term focus.

'This focus has resulted in short-term decisions to pursue near-term growth and in-year profitability at the expense of planning for long-term sustainability.

'Capita has taken on too many low-margin/ high risk contracts and has amassed too much debt in support of acquisition-led growth.

'At the same time, it has under-invested in its infrastructure (especially in those functions that provide the oversight that a business of Capita’s complexity requires) and as a result has made insufficient investments in financial and operational controls for a business of its scale.'

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