Capita PLC (LON:CPI) shares fell after reporting a decline in its bidding pipeline and saying the market for major contracts remained subdued, particularly in the public sector.
The British outsourcing company which issued a string of profit warnings in the second half of last year, said in a trading update for the year to date, that its 2017 results would include a number of one-off costs.
The one-off costs include a settlement with the Financial Conduct Authority over its connection to the collapsed Connaught Income Series 1 fund, an impairment for a contract with a major life and pensions client as well as a number of asset write downs and impairments in relation to past acquisitions that have experienced difficult trading.
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In early afternoon trading, Capita shares had dropped 12.4%, or 57.9p to 408p.
The bid pipeline stood at £2.5bn, compared to the £3.1bn reported in September.
The group warned that a higher level of contract and volume attrition could impact the performance of its public sector partnerships division in 2018.
The IT services division improved on the back of cost cuts but profits are expected to be slightly lower in the second half due to the non-recurrence of a £9mln one-off supplier settlement.
The end of two major software licences in the second half of last year is expected to lead to a decline in profits in the digital and software solutions unit.
Second half estimates unchanged
Capita said it still continues to expect underlying profits, excluding new contracts and restructuring costs, to rise modestly in the second half of this year.
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The company secured major contracts with an aggregate total value of £471mln in the year to date.
Jonathan Lewis, who replaced Andy Parker as chief executive this month, said he plans to “focus the business and allocation of capital and resources on the markets which offer the best growth prospects.”
He added the company would work to improve cost competitiveness and recharge its sales performance.
Capita said it will incur restructuring charges of around £18mln this year but expects £57mln in cost savings by the end of 2018.
What analysts think
UBS said the restructuring costs will hit consensus forecasts for pre-tax profit of £401mln in 2017.
The bank also sees market estimates for 2018 pre-tax profit of £417mln, falling by mid-single digits as the market remains challenging with new contract wins and the bid pipeline reducing. It left its rating at 'neutral' with a target price of 466p.
Shore Capital repeated a 'sell' rating and target price of 465p, citing a "challenging environment".
"We see little positive in Capita’s full year update this morning, with only ‘thin’ guidance for the likely performance of the group for FY2018F," said ShoreCap analyst Robin Speakman.
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