When Serco (SRP) and G4S (GFS) were hit by contract scandals and a deluge of provisions three years ago, Capita (CPI) seemed like the last of the UK-listed outsourcing giants still standing. In fact, in 2014 Capita posted its highest level of organic growth since the financial crisis. However, a profit warning just over a week ago means full-year earnings expectations have been cut.
Underlying pre-tax profits are expected to be between £535m and £555m for the 12 months to December, compared with a consensus £614m expected at July's half-year results. Problems have arisen during the second half, some of which were flagged during the summer, including referendum-related delays to client decision-making. This includes planned work to install a new IT system for Transport for London, the delay to which has led to one-off costs of £20m-£25m. More concerning are the troubles in its IT enterprise services division, particularly its technology reseller business and specialist recruitment in its workplace services division. A slowdown here means full-year profits from these businesses is predicted to be £30m lower.