Capita, the British outsourcer, ousted its chief executive Andy Parker on Thursday as it blamed a 33 per cent drop in pre-tax profits on a slowdown in contract wins since Britain’s decision to leave the EU.
The group, which was hit by a series of profit warnings towards the end of last year, has also faced problems with existing work, including the delayed implementation of a new IT system for London’s congestion charge.
But Mr Parker said the recent slowdown was caused by a “scarcity of deals rather than the wheels coming off the train”.
“The political and economic uncertainty has affected the speed of decision making. Clients have been deferring decisions and we didn’t see the contracts coming to fruition that we would have expected in 2016,” he added.
Mr Parker, who joined Capita in 2001 and has been chief executive for three years, will leave when a replacement is found later this year. His departure follows pressure from the board under new chairman Ian Powell, a former chair of PwC who was appointed in September.
This week Lord Hall, BBC director-general, demanded urgent answers from Capita after it was accused of using aggressive behaviour with customers over a contract collecting television licences for the BBC. Mr Parker said on Thursday that the company had launched an investigation into the allegations but added that “some people don’t want to pay their TV licences”.
Last year Capita was criticised by NHS England for its performance on a 10-year £1bn contract it took over in September 2015 to deliver back-office services such as the delivery of patient records and equipment such as syringes for GPs.
On Thursday the company warned that it did not expect sustainable profit growth before 2018. It reported a marked slowdown in contract wins in both the public and private sectors last year, securing £1.3bn of new work in 2016, compared with £1.8bn in 2015. The company said it won one in three of the major contracts it bid for.
Full-year pre-tax profits for 2016 fell by a third to £74.8m on revenues that grew just 1 per cent, to £4.9bn, missing the company’s targets.
Underlying profits fell 19 per cent to £475.3m in 2016, sharply lower than the £614m analysts had expected before September’s profit warning.
Capita’s share price, already down 40 per cent in the past year, tumbled a further 8 per cent to 520p on Thursday — a 10-year low. The company has already been told it will be relegated from the UK’s FTSE 100 share index this month because of the sharp decline in its market value.
The group’s sprawling operations range from carrying out disability assessments for the Department of Work and Pensions to army recruitment for the Ministry of Defence, as well as back-office processing for local authorities nationwide. In the private sector Capita provides real estate services for Santander UK and customer service helplines for banks and telephone companies.
Analysts at the US investment bank Jefferies said the fall in new contract wins would “revive discussion regarding whether Capita needs to shrink back to a higher quality core”.
Mr Parker denied that the contract scandals that have hit rival outsourcers such as G4S and Serco — which are still rebuilding themselves in the wake of the electronic tagging saga — had played a role in its troubles.
Capita’s chairman has already sanctioned a restructuring of the business, which employs 69,000 staff predominantly in the UK. This involves the loss of 2,000 jobs, the introduction of robotics and automation to parts of the business, and the outsourcing of some jobs to India, where the group already provides back-office processing services for UK companies.
Capita is also reorganising into six divisions, each led by an executive who will be responsible for that unit’s growth prospects and financial performance. A sale of its asset management services arm, Capita Asset Services, which could net £700m, is expected to be completed in the second half of the year, the company said.
Mr Parker insisted that Capita was not the only outsourcing company to struggle with a slowdown in new contracts after the Brexit vote. Mitie, a rival FTSE 250 outsourcer, lost its chief executive, Ruby McGregor-Smith, last year.
“Nobody is coming out and saying that they are having a great time,” Mr Parker said. “We’ve got a huge amount of faith that the market remains there and will return.”