In a brutally honest update on the firm’s position, chief executive Jonathan Lewis described the government contractor as “too complex” and “driven by a short-term focus”, adding it “lacks operational discipline and financial flexibility”.
Capita said the rights issue is planned to take place this year with standby underwriting in place for up to £700m ($986.5m, €796m).
It also said dividends had been suspended until the company begins to generate sustainable free cashflow.
Meanwhile, in addition to its regular annual contribution, the firm has committed to pay £21m into the pension scheme in 2018 with the aim of reducing the deficit as a priority.
Capita said underlying profits for 2018 would be between £270m and £300m, falling short of analysts’ predicted £400m.
Too widely spread
Lewis, who was appointed to the role two months ago, admitted the company has underinvested in the business and needed to change its approach.
He said: “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. 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.”
Fund manager hits
The fall in share price will have dealt another blow to star managers Neil Woodford and Mark Barnett of Invesco Perpetual, both of whom are holders of the stock and have suffered other stock-specific falls with the likes of Provident Financial, Astrazeneca, and Allied Minds.
Under Lewis’s leadership, Capita has committed to a transformation programme involving a thorough review of the company’s structure, leadership, contracts and financial position.
Lewis said he has appointed a chief transformation officer and formed a new executive committee to drive this change.
Helal Miah, investment research analyst at The Share Centre, said: “While the group maintained that 2017 performance was in-line with guidance, the trading conditions since its December announcement has deteriorated, and the guidance for full year 2018 underlying pre-tax profits has been lowered to between £270m – £300m, thus the changes.
“As a result, the shares have plunged by 35% this morning, and now trade at roughly £2.18 a share, compared to around £11 less than two years ago when it was a member of the elite FTSE 100.
“Investors should note that further capital will be raised through a rights issue, the dividend has been suspended and assets will be sold, all to improve the balance sheet. Given the political environment and fiasco around Carillion, it is only right that contributions to the pension fund is prioritised which currently is in deficit, last standing at a £381m shortfall.”
Carillion, the UK’s second largest construction company, collapsed in December with a pension deficit in excess of £587m.