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By | Paul Kunert 29th September 2016 10:58

Market pulls chain on Crapita share price after first ever profit warning

Reselling slumps, TfL contract woes and possible Co-op 'litigation' looms

Capita’s share price went into freefall this morning after its first ever profit warning, with troubles at the tech reselling and recruitment services units blamed, as well as costly delays to its Transport for London contract.

Turnover grew four per cent in the first half of the year, but Capita confirmed “subsequently, our performance in the second half of the year to date has been below expectations.”

The group said it had been hit by a “recent slow-down in the IT Enterprise Services division (ITES), in particular our technology reseller business, and specialist recruitment in the Workplace Services division.”

Since the halfway point of the calendar year, the expectations for “profits for these businesses for the full year has reduced by round £30m”, it added.

Capita has hoovered up multiple resellers over the years, including Computerland, Rameses, Sold State Solutions, Pervasive, and most recently Trustmarque.

Earlier this year, Capita waved bye-bye to Peter Hands, boss of its ITES.

The Digital and Software Solutions division in ITES was one area that continued to "perform well" - this is where Trustmarque is housed.

In other troubles, the contract to provide new IT systems under Transport for London’s congestion charging contract, awarded in January 2014, was experiencing implementation "delays".

“As a result, we expect to incur between £20m to £25m of one-off costs, which will be included in our underlying results. The systems have now gone live, the contract is performing well operationally and these costs will not recur next year.”

Capita also revealed it is in a “contractual dispute” with the Co-op Bank concerning “obligations relating to the transformation of services” and warned “there is a risk of litigation in respect of the transformation”.

The Asset Services division was “performing well” said Capita, but the firm admitted it had seen “less activity” following the EU referendum. It is the second company to this week play the Brexit card following Alternative Networks’ trading update.

All this means that Capita now says it will make an underlying profit before tax of between £535m and £555m for the full year to 31 December, which is way below the company-compiled census forecast of £614m. Ouch.

Staff might now be braced for higher cutlery prices in the staff canteen, assuming they don't feature in the cost-cutting drive.

The share price collapsed by nearly 30 per cent after Capita issued it trading update, and were down 26.82 per cent to 255.50 pence at the time of writing. ®

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