Public Services > Central Government

Whitehall plays down fears for Capita’s financial health after business shake-up and profits warning

David Bicknell Published 31 January 2018

Cabinet Office insisted it monitors the health of all its strategic suppliers, but said it “did not believe that any of our strategic suppliers are in a comparable position to Carillion"

 

In the wake of the Carillion collapse and today’s investor concerns over the health of Capita which saw its share price fall 45% on a profits warning, the government has refused to see Capita’s own worries about its complexity and the stock market’s sell off as comparable to the fallout from Carillion.

A government spokesperson said today, "We monitor the financial health of all of our strategic suppliers, including Capita. We are in regular discussions with all of these companies regarding their financial position. We do not believe that any of our strategic suppliers are in a comparable position to Carillion."

It follows a statement to the Stock Exchange this morning by Capita’s chief executive Jonathan Lewis, which provided an “update on Capita’s transformation, capital structure, funding and trading outlook” in which he said, “We have now completed the budgeting process for 2018 from which we have set a prudent plan. Since our December update, we have also decided to invest in people, sales and our transformation programme for the long-term benefit of the Group.

He went on, “….significant change is required for Capita’s next stage of development. 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,” he said. “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. Capita needs to change its approach. I have initiated a transformation programme, appointed a Chief Transformation Officer and formed a new executive committee to drive this change. I believe that this transformation programme can significantly improve the performance of Capita.

“An immediate priority is to strengthen the balance sheet through a combination of cost savings, non-core disposals and new equity. My initial review of our cost base highlights that over the next few years there is significant scope for cost efficiencies across a number of areas but also the need to spend more where there has been underinvestment. We have identified a small number of quality businesses that do not fit with our core skills for which there will be better owners and a process to maximise value will commence shortly.”

In its Stock Exchange statement, Capita said the transformation programme would encompass its strategy, cost competitiveness, sales, IT and its capital structure, in order to improve the company’s performance over the medium-to-long term.

As part of its transformation programme, Capita said it wanted to simplify the company and increase the focus of its resources on a smaller number of markets with the best prospects and where the Group has the capability and potential to create value. It said it had identified a small number of businesses that are considered non-core to the Group, including ParkingEye and Constructionline, with a disposal programme due to commence shortly.

Responding to details of Capita’s profits warning and transformation programme, a spokesperson for one of Capita’s highest profile customers, Barnet Council, said, “The Council regularly reviews the financial status of its major suppliers as part of its contract management and contingency planning  arrangements. This is what any responsible local authority would do." The Local Government Association said it had no immediate plans to issue any statement about the impact of Capita’s financial statement.








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