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UPDATE 2-Britain's Capita misses profit target again, CEO to step down
March 2, 2017 / 7:32 AM / in 9 months

UPDATE 2-Britain's Capita misses profit target again, CEO to step down

(Adds further details, debt, share price)

By Elisabeth O‘Leary

LONDON, March 2 (Reuters) - Capita’s chief executive Andy Parker resigned on Thursday, after the British outsourcing group reported a bigger than expected drop in profits and said it would take until 2018 before it could return to growth.

Parker said 2016 had been a “challenging year and Capita delivered a disappointing performance”.

Capita, which specialises in providing IT-enabled business services to banks and investors, the National Health Service, retailers and utilities, has issued a string of profit warnings in the last year as clients delay awarding major deals in the wake of Britain’s vote to leave the European Union.

It reported a 19 percent fall in its underlying pre-tax profit to 475.3 million pounds ($585 million) in 2016, missing the recently reduced target for at least 515 million pounds.

The shares, down 47 percent in the last six months, fell a further 8 percent to 520 pence on Thursday, when the stock was relegated from Britain’s FTSE 100 share index because of its recent decline in market value.

“Comfort around the sustainability of the underlying business and a route towards growth is required before the shares will rerate significantly, in our view” said Matt Walker, analyst at Canaccord Genuity.

“We expect 2017 to be a transitional year for the business, as we complete our disposals, bed down the structural changes inside the business, and re-position Capita for a return to growth in 2018,” Parker said.

The company is pressing ahead with a decision to sell its prized asset management services arm Capita Asset Services, with the sale expected to be completed in the second half of the year, Parker said.

He told Reuters in an interview that dividends were sustainable and a rights issue was not a necessity. The business strategy, which was decided by the board and not by the CEO, would remain unchanged, he said.

The total dividend payout for 2016 was maintained at 31.7 pence a share.

But analysts said the company’s direction would continue to be questioned, as it reported a marked slowdown in its contract wins last year, securing 1.3 billion pounds worth of new work in 2016, compared with 1.8 billion pounds in 2015.

Capita is trying to become “leaner and simpler”, after years in which acquisitions were the main driver of revenue and its structure was considered by many analysts to have become unwieldy.

Meanwhile a “comprehensive and detailed” review and overhaul of contract profitability was being undertaken, management told an analysts’ presentation.

Its gearing of net debt to adjusted core earnings (EBITDA) stood at 2.9 times at the end of last year, which the company said was within its relevant ratios.

Capita said Parker, who joined Capita in 2001 and became chief executive three years ago, will leave the company later this year after helping the board to find a successor. ($1 = 0.8145 pounds) (Editing by Kate Holton, Greg Mahlich)

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