Plunge in Capita shares sparks fresh doubt in outsourcers weeks after Carillion collapse

Shares in Capita plunged as much as 40% after the outsourcing giant warned on profits and said it would need to raise £700m from investors.

The fall came just weeks after rival Carillion collapsed, casting doubts over whether long-term government contracts should continue to be handed to the private sector.

Capita - one of the pioneers of the outsourcing industry - runs London's congestion charge, operates the government's Jobseekers Allowance, and collects the BBC TV licence fee among its hundreds of contracts.

The FTSE 100 business slumped to 190p in morning trading from an opening of 347.8p after it said it expected its annual pre-tax profit would range from £270m to £300m next year - well below analyst expectations of £400m.

The announcement knocked £800m off the firm's shares, leaving it with a market value of £1.3bn. Four years ago the business commanded a market value of £6.9bn.

New chief executive Jonathan Lewis said: "Capita is too complex. It is driven by a short-term focus and lacks operational discipline and financial flexibility."

Lewis, who took charge in December, added that the firm had also been dogged by "delays in decision-making and weakness in new sales".

He said the firm would sell non-core businesses. And he added that there was "significant scope for cost efficiencies" - raising the threat of job losses among the company's 75,000 staff.

'We can't afford another Carillion'

Capita would also suspend its dividend. By contrast Carillion continued to pay generous dividends to investors and bonuses to directors despite issuing a series of profit warnings in 2017.

Lewis said: "We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world-class services to our clients every time.

"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."

CMC Markets chief market analyst Michael Hewson said: "This is a bold move by new chief executive Jonathan Lewis and the fact that he thinks that this sort of restructuring is necessary speaks volumes to the current sentiment around the outsourcing industry in the wake of Carillion's insolvency."

A Cabinet Office spokeswoman added that as a "strategic supplier" Capita was always monitored by the government.

Frances O'Grady, the general secretary of the TUC, said: "Today's profit warning from Capita is really worrying. We can't afford another Carillion.

"The TUC is calling for an urgent risk assessment of all large outsourcing firms. It's essential the government completes this quickly and is prepared to bring services and contracts in-house if they are at risk."

The Labour Party said earlier this month it would take action to bring a number of public-private partnership contracts back into the public sector.