Capita Drubbed as Clients Cut Back Amid Brexit ‘Belt-Tightening’

  • Stock falls as much as 14% in London, most intraday this year
  • 2017 ‘all about transition to new leadership,’ Greatorex says

Capita Plc had its worst slump of 2017, falling as much as 14 percent in London trading, as the U.K. contractor that’s missing a permanent leader said Brexit concerns are leading clients to further reduce spending.

Capita reported a 54 percent drop in major contract wins to 403 million pounds ($544 million) in the first six months of the year, reflecting “belt-tightening” across a number of the company’s corporate clients, Nick Greatorex, who was named interim chief executive earlier this month, said in a telephone interview.

“What we haven’t seen is a loosening of that belt,” said Greatorex. “We were hoping by now that some of those corporate customers would have increased their spend a little.”

The company, based in London, said first-half adjusted revenue fell 3 percent year-on-year though underlying earnings per share climbed 42 percent. Capita expects a moderate rise in second-half profit compared with the first half. Greatorex is in charge until Capita announces a replacement for Andy Parker, who left after failing to reassure investors he could turn the company around.

Parker’s successor will be the first time the company has had an external CEO, Greatorex said on a conference call, without giving a timeframe for an appointment.

Thursday’s statement was “very messy,” indicating a likely downgrade in earnings forecasts, said Andrew Brooke, an analyst at RBC Europe. “Overall, the outlook has moderated a touch, with cost savings pushed slightly out to the right, and it is clear the market is tough,” Brooke, who has a sector perform rating on the stock, said in a note.

The shares were down 13 percent at 561 pence as of 2:27 p.m., shrinking this year’s gain to 5.7 percent. The stock lost more than half its value last year amid a slowdown in orders triggered in part by Britain’s vote to leave the European Union.

Corporate Confidence

Capita’s largest corporate client is Telefonica S.A.’s O2, providing call center operations and customer engagement functions for the telecommunications company. It also manages online sales and customer complaints procedures for retailers Marks & Spencer Group Plc and John Lewis Partnership Plc.

Corporate clients have cut down on services including travel, recruitment, training, employee benefits and property services, Greatorex said. “I do think there’s an issue in corporate confidence around those more discretionary spend areas,” he said.

The slowdown has been offset, to some extent, by the performance of Capita’s IT services unit. “Our IT services business has had quite a significant inflow of activity, particularly in the networks business where there seems to be a lot of investment by customers,” Greatorex said. He expects cost-reduction programs within that business to also take effect in the coming months.

“This year has all been about transition to new leadership,” Greatorex said. “Myself and the board are really looking forward to someone coming in and helping us take this business forward.”

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