Outsourcing giant Capita is to tap investors for £701 million and embark on a new strategy after booking a hefty annual loss.
The group said on Monday that pre-tax losses for 2017 came in at £513.1 million as the firm counted the cost of impairments and provisions linked to acquisitions.
The figure compares with an £89.8 million loss in 2016 and comes as Capita detailed £850.7 million of “specific non-underlying items” which dragged on its performance.
On an underlying basis, profit before tax rose 43% to £383 million.
Revenue fell 4% to £4.23 billion in the year to December 31 and the firm also announced a £701 million rights issues as part of a transformation strategy under new chief executive Jonathan Lewis.
The proceeds of the rights issue, part of a major overhaul, will be used to reduce Capita’s debt and make investments.
Under the new strategy, the outsourcer is also targeting annualised cost savings of an initial £175 million by the end of 2020 and around £300 million from disposals in 2018.
The group was hammered on the stock market earlier this year after warning over profits, but shares rocketed over 12% in morning trade following the latest update.
Capita’s woes come after construction group and outsourcing rival Carillion collapsed into liquidation in January, leaving the taxpayer on the hook for billions of pounds of projects and pension liabilities.
Mr Lewis told the Press Association that Capita will centralise its procurement, consolidate its UK footprint and exit leases on properties as the chief executive seeks to cut costs.
But he also dismissed comparisons with Carillion.
“I get frustrated with that comparison - we are a completely different business.
“We have £1 billion in liquidity, strong cash flow and a new strategy with investor support. We are not in PFI contracts and have nothing like the risk profile.”
The company restructure will see it focus on five activities - software, HR, customer management, Government services and IT.
Capita operates a raft of public sector contracts such as the London congestion charge, Jobseeker’s Allowance helpline, administers teachers’ pensions and provides an electronic tagging service for the Ministry of Justice.
Capita said 2018 profits would fall short of expectations, at between £270 million and £300 million, as cost actions taken so far would not be enough to offset lost contracts and wider problems in the business.
Mr Lewis added: “Today we have announced a new strategy to simplify and strengthen Capita.
“We need to simplify Capita by focusing on growth markets and to improve our cost competitiveness. We need to strengthen Capita and plan to invest up to £500 million in our infrastructure, technology and people over the next three years.
“There is a lot to do, but I am confident that the plan is clear and prudent. Capita will become more predictable, have stronger operational discipline and consistently delight its clients.”