Capita shares jump as it unveils plans to raise £701m from shareholders to restructure

Rising costs and contract problems have hit the company hard over the past year

Capita investors welcomed news of the restructuring plans (Reuters)

Outsourcing group Capita’s shares rose at the open despite the firm reporting widening losses as it unveiled plans to raise £701m to fund a restructure.

The company, which carries out disability benefit assessments on behalf of the government and also runs the London congestion charge scheme, posted a 4 per cent drop in revenue to £4.12bn from £4.27bn in 2016.

The pre-tax loss widened to £513m from a loss of £90m the year before, and the operating loss also widened to £420m, from £16m. The firm slashed its dividend by 65 per cent to 11.1p, compared with 31.7p in 2016.

The group put its widening losses down to contract difficulties and increased costs, and said it “does not expect to be able to offset these challenges through the benefit of cost actions and new business wins”.

Instead, the group will restructure to “become a more focused and predictable, client-centric company, generating sustainable free cash flow”.

“Capita believes that under its new strategy, through introducing greater discipline in how it operates, together with re-focusing the business on growth markets and improving cost competitiveness, it will deliver enhanced performance through increased simplification, efficiency, standardisation and focus,” the firm said.

The restructuring will be funded via a heavily discounted rights issue. It is offering one million new shares at 70p, which is a 34 per cent discount to the expected post-rights issue price.

Capita was hit hard in the wake of the Carillion collapse earlier this year, and had already been struggling, with the stock down more than 70 per cent over the past 12 months. Shares in the company jumped 13 per cent this morning after it announced its intention of becoming a “more focused and predictable, client-centric company”.

“Key to the share price advance is investor relief that a £701m rights issue is fully underwritten, meaning various investment banks have guaranteed to take any of the new stock unwanted by shareholders, so there isn’t any doubt that it won’t raise all the desired money,” said Russ Mould, investment director at AJ Bell.

“The new cash should help remove financial pressures on the company’s balance sheet and allow management to focus on finding ways to revive Capita’s fortunes. However, the business will still be under pressure to show positive results fairly quickly if it is to keep investors on side.”