Capita Faces Up to £40 Million Profit Hit Amid Civil Service Pension Scheme Failures
Outsourcing firm's shares tumble as it reveals significant financial impact from administration errors, leading to payment withholding by the government.
Capita has flagged a potential profit reduction of up to £40 million this year due to failures in administering the civil service pension scheme contract. The company's shares experienced a significant drop in morning trading following this announcement.
Earlier this week, Capita's stock price plummeted after the government withheld £9.9 million in payments. This action was taken because the company failed to meet its commitment to rectify issues within the pension scheme by the June 30 deadline. The administrative failures, which have reportedly caused months-long delays for pensioners and bereaved families, have led to apologies from Capita.
The embattled outsourcing firm stated that while it is implementing measures to mitigate the impact, it anticipates its underlying operating profits will be reduced by £25 million to £40 million. The company's shares fell by an additional 16.5% to 232.5 pence at the market open.
Capita assumed responsibility for administering the civil service pension scheme in December, taking over from previous administrator MyCSP. The company has apologized for the "distress and inconvenience" caused and expressed an expectation to improve service delivery in the latter half of the year.
The failures have also affected Capita's broader pension division, including its "higher margin pension consulting business," with cost efficiencies not meeting previous projections. The firm anticipates a knock-on effect on its free cash flow, estimated to be between £35 million and £50 million.
Chief executive Adolfo Hernandez acknowledged the substandard service on the Civil Service Pension Scheme, stating that the company is working closely with the Cabinet Office and that resolving these issues is its top priority. He added that the wider group continues to perform robustly and expressed confidence in the ongoing efforts to streamline the company.
Hernandez was also required to apologize for the administrative delays during a Public Accounts Committee hearing. He assured MPs that Capita takes its public sector commitments seriously and is committed to addressing the failures.