Capita Shares Plunge After Profit Warning on Pension Contract Failures

Shares in Capita PLC (LSE:CPI) plummeted on Thursday after the British outsourcing company issued a profit warning linked to operational failures in a key government contract.

Financial Impact

Capita announced that problems with its flagship civil service pension scheme contract would reduce its annual adjusted operating profit by £25 million to £40 million. The company also projects a negative impact on its free cash flow for the year of between £35 million and £50 million.

These revisions represent a significant blow to the company's financial outlook, directly tying operational shortcomings to a material decline in expected earnings and liquidity.

Market Reaction

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Investors reacted swiftly to the news, sending the company's stock down by 18% to 229 pence in morning trading. The sharp decline reflects market concern over the scale of the contract issues and their impact on Capita's profitability and reputation.

Management Acknowledges Shortcomings

In a statement, CEO Adolfo Hernandez conceded the company's performance on the contract was inadequate. "We recognise the service on Civil Service Pension Scheme has not been good enough, we are working closely with the Cabinet Office on all aspects of the scheme, and this remains our number one priority," Hernandez said.

The warning places a spotlight on the execution risks inherent in large-scale public sector contracts and the challenges facing the new leadership in stabilizing the business.