Capita rocks City with profit warning and cash call – business live

This is why Capita’s financial problems are a big deal…..

(@JonLYeomans)

Just in case you wanted to know what work Capita does for the public sector: teachers’ pensions, electronic monitoring, Jobseekers’ Allowance phone lines, even the gas safety register… https://t.co/kLjAd9k9fp pic.twitter.com/Jmp6fPSuMw

Newsflash: Outsourcing group Capita has stunned the City this morning by announcing a big profits warning, and suspending its dividend to shareholders.

The company’s new chief executive, Jonathan Lewis, is also planning to raise £700m from investors to strengthen Capita’s balance sheet after a series of profit warnings last year.

In a brutally honest statement, Lewis says ‘significant changes are needed’ at Capita, which is one of the UK’s largest employers, providing a a wide range of public services in the UK.

In a damning assessment of the company, Lewis says:

Today, Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility.

Capita needs to change its approach. I have initiated a transformation programme, appointed a Chief Transformation Officer and formed a new executive committee to drive this change. I believe that this transformation programme can significantly improve the performance of Capita.

Capita now expects to make underlying pretax profits of between £270m and £300m in 2018, way below analysts’ average forecast of around £400m.

Lewis only took over at Capita on 1 December, and has clearly decided that wide-ranging and urgent action is needed.

As well as freezing payments to shareholders, and holding a cash call, he also plans to sell non-core operations and push hard for cost efficiencies.

This comes just two weeks after Capita’s rival, Carillion, lurched into liquidiation…

Reaction to follow….

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The market are nervous this morning. After two days of selling on Wall Street, investors are wondering whether they’re seeing a healthy pullback, or the start of a more serious decline.

Yesterday the FTSE 100 shed 83 points, or over 1%, in a flurry of profit-taking and worries that government bond prices are also dipping.

Fiona Cincotta, senior market analyst at City Index, says the prospect of higher interest rates is hitting the bond market [bonds give a fixed return, so are more attractive in a low interest rate environment]

Cincotta explains:

Last night, Donald Trump used the State of the Union to applaud himself for the state of the US economy. As in Davos last week, he tried to sound statesman-like with talk of common ground and unity. As in Davos last week, he also attracted some boos – over immigration.

But he avoided any serious attacks on America’s rivals, which should reassure traders.

As Jasper Lawler of London Capital Group says:

Investors are also waiting to hear from America’s central bank, and Janet Yellen’s final meeting as chair of the Federal Reserve. The Fed isn’t expected to raise interest rates today, but Yellen hint about how the Fed sees the economic landscape.

7am GMT: German retail sales

10am GMT: Eurozone unemployment for December

10am GMT: Eurozone ‘flash’ CPI inflation for January

7pm GMT: US Federal Reserve statement on monetary policy