Capita shares plummet 43% amid news of “transformation”

Capita shares plummeted nearly 45 percent yesterday following the news it plans to transform its business operations.

Capita shares plummet 43% amid news of “transformation”

Jonathan Lewis, chief executive of Capita, said significant change is needed for the outsourcer  – which addressed its weaknesses as being too complex with too great an emphasis upon short-term performance.

Lewis joined the company two months ago, and in that time, has begun to review Capita, including its structure, leadership, contracts and financial position.

He said significant change is required for Capita’s next stage of development as the company is currently too widely spread across multiple markets and services.

Lewis added: “Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. As our markets have evolved, the group has not responded consistently to new customer demands. Since December, we have continued to experience delays in decision making and weakness in new sales.

“Today, Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility.”

A transformation programme has now been set up, along with the appointment of a chief transformation officer. The “immediate priority” of the programme is to strengthen the balance sheet through a combination of cost savings, non-core disposals and new equity.

Capita has decided to dispose of a number of small businesses including ParkingEye and Constructionline. It said the disposal programmes will be announced shortly, the proceeds of which will be used to reduce the company’s indebtedness.

Capita said that cost savings and non-core disposals alone will not be enough to complete the transformation programme, therefore it will raise equity by way of a rights issue during this year.

The precise amount is yet to be determined, but Capita has entered into a standby underwriting agreement for up to £700m with Citi Global Markets Limited and Goldman Sachs International.