Capita shares slump 13% on profits fall

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Shares in Capita have slumped after profits at the outsourcing giant tumbled following moves to offload unwanted businesses.

The group said reported pre-tax profits sank by 26% to £28 million in the six months to the end of June, down from £37 million for 2016.

It was driven by an exit from its specialist recruitment arm and part of its Capita Europe business, while its events operation was shut down.

Investors took a dim view of the half-year update, with shares on the London Stock Exchange falling 13% in afternoon trading.

However, underlying pre-tax profits made for brighter reading, lifting 46% to £195 million thanks in part to a £16 million boost from reorganising a contract with the Ministry of Defence.

Underlying revenues eased back 3% to £2.1 billion, with weak real estate and the part-loss of a Civil Service Learning contract being offset by a new deal with Tesco Mobile and the expansion of Department for Work and Pensions PIP assessments.

Interim chief executive Nick Greatorex said: “In the first half of 2017, we made good progress on executing the plans laid out at the end of last year to reposition the group: we announced the sale of our asset services businesses, completed the disposal of our specialist recruitment business and commenced a number of cost initiatives.

“We remain confident that these actions are making Capita a simpler business, well positioned for the future under new leadership.”

The FTSE 250 firm said the £888 million sale of its asset services business to Link Group was on track to be completed by the fourth quarter of this year.

It said efforts to drive down costs – including cutting staff, moving some IT operations abroad and making its property estate more efficient – would benefit the firm to the tune of £57 million by the end of next year.

Ken Odeluga, market analyst at City Index, said: “Sentiment on Capita began to deteriorate again over the summer, so the outsourcing giant’s latest setbacks have resulted in another thumping for its shares.

“The group on Thursday reported let-downs on revenues and outlook in the half year.

“In fact though, from the perspective of a dire last few years, things were looking up.

“And looking at the stock’s 33% rise in the year til end-June, the market agreed.

“In June the group announced it had secured £318 million contracts and extensions, with potential for more, including a possible customer services partnership with British Airways.

“The stock’s slump by as much as 14% on Thursday reflects worries that a business rebound from a post-Brexit vote downturn could falter.”

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