Politicians have warned “we cannot have another Carillion” as another big government contractor, Capita, was hit by a plunge in the value of its shares following a stark profits warning.
Two week after Carillion went into liquidation, threatening tens of thousands of jobs and a host of government contracts, Capita’s new chief executive Jonathan Lewis said the company needed “significant change” to stay afloat.
The company is suspending its shareholder dividend payout. Lewis added: “Cost savings and non-core disposals alone will not be enough.”
Shares in the company fell more than 44%, on track for its biggest ever one-day loss, after the warning.
Lewis, who took up the job on December 1, said: “We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world class services to our clients every time.”
He said an “immediate priority” was to strengthen the group’s balance sheet, with plans to raise as much as £700 million in a rights issue, as well as slashing costs after finding “significant scope” for savings. It aims to sell off unprofitable businesses.
The collapse of Carillion earlier this month triggered a political row about the handling of outsourcing contracts, a market that is dominated by a handful of large companies.
It left sub-contractors out of pocket - one told HuffPost it was owed more than £200,000 - and apprentices were not going to be paid after January. The government performed a u-turn on paying apprentices after HuffPost UK revealed their plight.
Capita’s outsourced contracts with the government include running the London congestion charge, the Jobseekers Allowance helpline, administering the teachers’ pension scheme and collecting the TV licence for the BBC.
It employs around 73,000 people.
Jon Trickett, Labour’s shadow minister for the Cabinet Office, said: “We cannot afford another Carillion.
“The government must take serious steps to oversee the activities of Capita, which is the third major outsourcing company in the last month to issue profit warnings.
“The Tories’ privatisation dogma risks lurching our public services from crisis to crisis, threatening jobs, taxpayers’ money and leaving people without the services they need.
“The government must end its ideological attachment to private profit in public services and instead start putting the public interest first.”
Lib Dem leader and former business secretary, Vince Cable, said: “Coming only a couple of weeks after Carillion’s collapse, this profit warning highlights concerns over handing outsourcing contracts to just a few big companies, though we note there is a turnaround plan in place.
“We need a proper government review of the outsourcing model and assurances from ministers that they are factoring in any risk on Capita projects.”