Outsourcing company Capita Group issued a profit warning this morning, causing stocks to fall 27 percent.
Capita told investors that full-year pre-tax profit would range between £535 million to £555 million for 2016, down from the £614 million previously forecast.
The FTSE 100 company supply government agencies with contract staff, including both the NHS and The Army. Capita also operate the London Congestion charge system.
Capita are currently in the midst of an on-going dispute with The Co-op Bank group, after agreeing to take-over The Co-op’s mortgage staff. This is part of a 10-year negotiated deal with The Co-Op’s mortgage administration business, Western Mortgage Services.
The move was instigated in an effort to help The Co-Op to comply with Section 166 of the Financial Services and Markets Act. The Act allows financial regulators to monitor company activities, as well as IT and infrastructure.
Capita’s Chief Executive, Andy Parker, said:
“We’ve seen a significant downturn in our expectations that we’re calling out today,”. He notably highlighted the “high degree of risk” of litigation with Co-op Bank following contract delays over its role in assisting to administer mortgages.
“This is a specific issue around this client…We were the answer to Section 166 but at the moment we’re not able to proceed because they don’t want us to.”
Disappointing profit numbers have also been attributed to the group’s failure to deliver a new IT system, in accordance within an allocated deadline, for Transport for London (TFL). Failure to promptly deliver the service resulted in the racking up of around £20-25 million in penalties.
Capita secured the £145 million five-year deal in 2014. The deal puts the firm in charge of London congestion charge centres, as well as various customer services offices.
Nevertheless, Capita has negotiated a total of £949m of contracts this year, which have yet to come into economic fruition. This includes a recent deal for the group to provide customer support to mobile network Three.
