Capita's New CEO Seeks Turnaround With Cutbacks, Disposals

(Bloomberg) -- British outsourcing firm Capita Plc’s shares pared some of this year’s heavy losses, rising as much as 14 percent in London, after the company announced a restructuring aimed at saving hundreds of millions of pounds.

Capita, which provides customer-service functions for the likes of Marks & Spencer Group Plc and is responsible for collecting BBC license fees, is targeting annualized cost savings of 175 million pounds ($245 million) by the end of 2020, it said Monday. The company also announced the terms of a deeply discounted rights offering to help fund a turnaround.

Capita's New CEO Seeks Turnaround With Cutbacks, Disposals

The employer of about 70,000 people expects a “modest” reduction in headcount, according to Chief Executive Officer Jon Lewis, who is six months into his role.

The stock rose 13 percent to 179.95 pence at 10:30 a.m. in London, but remains down about 56 percent year-to-date following a profit warning in January. The rights shares will be offered to existing shareholders on a three-for-two basis at 70 pence each, raising about 701 million pounds.

The outsourcing model deployed widely in the U.K. leaves many private and public organizations dependent on the services of external companies like Capita and its Berkshire-based peer Interserve Plc, whose shares have fallen 9.6 percent since the start of the year after a 72 percent drop in 2017. Outsourcers have been under intense scrutiny since the collapse of Carillion Plc in January, which left behind debts of 1.6 billion pounds and saw the government scrambling to find companies that could pick up the construction giant’s contracts.

Capita, along with several of its peers, has cited Britain’s decision to quit the European Union for the uncertainty that’s led to a greater reluctance to award contract work.

Asset Sales

The London-based company has reorganized its divisions around five markets of software, human resources, customer management, government services and IT services, bringing its HR unit under a single division called people solutions, it said in Monday’s statement.

The rights offering will underpin Capita’s strategy to get back to a top-line and bottom-line growth trajectory over the next three years, Lewis said in an interview.

The CEO said he’s committed to reinstating the dividend -- halted in January -- when free cash flow allows. Capita has received “very considerable” private equity interest for some assets, he also said, while adding that the assets don’t form a substantial part of the business and that any earnings dilution would be limited. The company expects to achieve proceeds of about 300 million pounds from non-core disposals this year.

“We have no gun against our head with regard to the need to sell these businesses,” Lewis said. “When we believe we can get fair value for them in the market, we will do so.”

Capita's New CEO Seeks Turnaround With Cutbacks, Disposals

The company reported a full-year loss before tax of 513.1 million pounds, mainly due to a 551.6 million-pound impairment partly explained by a slowdown in its private sector partnerships division that was flagged in January. That included losing an administration contract for Prudential Plc’s life and pensions business -- around 2 percent of Capita’s revenue.

About 50 percent of Capita’s contracts are from the U.K. government, according to Lewis. It has a “very healthy” order book of about 8.2 billion pounds, he said.

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