Photographer: Chris Ratcliffe/Bloomberg

U.K.’s Capita to Sell Units, Cut 2,000 Jobs as Brexit Weighs

  • Congestion-charge operator to sell financial outsourcing unit
  • Clients reduce spending on ‘discretionary elements,’ CEO says

U.K. outsourcing company Capita Plc plans to sell a division that serves financial firms and cut more than 2,000 jobs as a Brexit-fueled slowdown weighs on orders.

The planned disposal comes amid growing uncertainty among U.K.-based financial-services companies about the terms of the U.K.’s departure from the European Union. That has made clients reluctant to sign new deals, compounding problems stemming from internal missteps, Capita said. 

“We’ve not performed as well as we’d have liked in recent months,” Chief Executive Officer Andy Parker said in an interview. “This is partly because of challenging market conditions, as we’ve seen clients cut back on what we’d describe as discretionary elements, but also because of some structural issues we’ve seen inside our business.”

Capita shares were down 9 percent at 511.50 pence as of 11:45 a.m. in London.

Last month the company, which operates London’s traffic congestion charging system, announced it would reorganize 11 divisions to six. That will drop to five with the planned sale of the asset-services division, which works with fund companies and other financial clients. The changes are aimed at reducing debt and simplifying operations, the company said.

India, Automation

Other cost-cutting measures include the moving of some IT operations to India and the introduction of more automation over the next two years, the company said. That will reduce Capita’s headcount, which totaled about 69,000 as of December 2015, by roughly 3 percent, Parker said. The job cuts do not include asset sales, a spokesman said.

Capita’s stock plunged in September after the company reported financial results that missed estimates. In its trading update Thursday, it said it continues to face headwinds.

“Since Capita last updated the market in September, trading has remained challenging across some of our divisional businesses,” the company said. “Specifically, performance in our IT enterprise services division has weakened further.”

The company reduced its guidance for full-year underlying pretax profit, saying it would be at least 515 million pounds ($652 million), down from a range of 535 million to 555 million pounds provided in September. That was already reduced from a previous forecast of 614 million pounds.

In addition to the asset services division, Capita plans to sell several smaller operations.  
The businesses for sale are expected to generate operating profit of as much as 70 million pounds this year, the company said. As Brexit hits U.K. operations, Capita sees continental European countries such as Germany and Switzerland as a growth opportunity, Parker said.

Other U.K. outsourcing providers have also reported Brexit-related slowdowns. Mitie Group Plc, which provides office cleaners, baggage handlers and social workers, slumped in September.

‘Good Businesses’

In February, Capita highlighted the strengths of its asset-services division in a company presentation. The report cited the “high returns and growth potential” of the unit, whose businesses include mortgage servicing.

“Nothing’s changed from what we talked about in February, in terms of those businesses,” Parker said on a call with analysts. “They are very good businesses. However, it doesn’t fit with where the board has focused on what our core strengths are, and that’s technology-enabled BPO,” or business process outsourcing.

“If we didn’t own this asset,” he added, “and we had the opportunity to buy it, would we as a board look at buying this today? And the answer to that is probably not, because it does sit on the outer edge of our risk profile.”

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