* Capita sees FY profit as much as 13 pct lower than
* Says clients delaying investment decisions
* Shares plunge
(Adds reaction, share details)
By Kate Holton
LONDON, Sept 29 Outsourcing group Capita
warned on Thursday that delays in decision making by customers
after Britain's vote to leave the European Union would hit its
2016 profit, wiping $2.3 billion off its shares in their worst
day of trading.
Capita, which provides services to banks, the national
health service, retailers and utilities, said it was seeing
weaker demand for IT products, recruitment services and
reluctance from clients to sign off on major contracts.
Britain's economy has held up better than expected since the
June 23 vote but the problems at Capita show how uncertainty
over Brexit is feeding through to investment decisions and is
also having a knock-on impact on sales and profits.
It also highlights tougher competition in the outsourcing
arena where two of Capita' biggest rivals - G4S and
Serco - are recovering from several years of problems
related to the failure to deliver on some high-profile
Capita, the biggest outsourcer in Britain, has outperformed
its rivals in the past few years but it is the second major
outsourcing company to warn on profits in as many weeks after
Mitie cut its outlook.
"Revenue from major sales in the second half of the year is
likely to be lower than expected due to continued delays in
decision making," Andy Parker, chief executive since 2014, told
"Also, we're seeing a lower conversion of our pipeline. We
are taking immediate action to reduce the cost base."
Capita said in July that clients were taking longer to make
decisions and on Thursday it gave more detail, saying fewer fund
launches and flotations had hit its asset services division
which manages share registers.
The group also said it had failed to introduce on time a new
IT system for London's congestion charge which it runs. It also
said it was in contractual dispute with the Co-op Bank over the
transformation of services that could lead to litigation.
The delay to the congestion charge had materialised since
the company last reported in July, meaning it was unable to
predict the hit to its sales.
Shares in the firm fell 29 percent following the unscheduled
statement, its biggest one-day drop ever, and knocked the stock
prices of rival groups.
"As seen at Mitie ... the UK outsourcing market is weak with
low levels of contract awards and pressure on discretionary
revenues," analysts at UBS said in a note to clients.
Capita employs 75,000 staff in the United Kingdom, Europe,
South Africa and India. It now expects underlying profit before
tax to be in the range of 535 million pounds to 555 million
pounds for the year to December 2016, compared to a consensus
forecast of 614 million pounds ($800 million).
It expects full-year organic revenue growth of about 1
percent net of attrition, down from a July forecast of around 4
percent organic growth.
Rival Mitie cut its profit forecast on Sept. 19 after
customers delayed investments, meaning some large new contracts
had not come through as expected.
Analysts at Shore Capital said they feared there could be
more negative news to come, as client indecision following
Brexit was likely to continue for several quarters, and that was
not Capita's only issue.
"We have also commented for some time over the
sustainability of operating margins in an evolving environment
with ever greater competition from more capable peers," Shore's
Robin Speakman said in a note.
($1 = 0.7682 pounds)
(Reporting by Kate Holton; editing by David Clarke and Jane