Capita in £701m cash call as it reports £513.1m pre-tax loss

Capita (LSE: CPI.L - news) , the troubled outsourcing company responsible for collecting the TV licence fee, has moved to shore up its finances as annual losses surge.

The firm told the City it was launching a rights issue - raising money from existing shareholders - as it had already signalled, with the aim of securing £701m.

It formed part of a transformation plan under new chief executive Jonathan Lewis that was first outlined in January as the outsourcing sector came under scrutiny amid the demise of Carillion (Frankfurt: 924047 - news) .

:: Capita seeks to learn from Carillion's collapse

Capita confirmed on Monday it had made a pre-tax loss of £513.1m in 2017 as it booked charges totalling £850.7m relating to "specific non-underlying items". Losses the previous year were £89.8m.

But shares in the company, which was relegated from the FTSE 100 last year, rose 13%.

Analysts said it reflected the fact that the company had maintained its profit guidance for the current year.

Capita said the proceeds of its cash call would be used to reduce debt and make investments.

This effort, the company said, would be supported by annual cost savings of up to £175m and £300m from disposals of non-core businesses this year including ParkingEye and Constructionline.

"Capita believes that changes to its operating model under its new strategy will deliver enhanced performance through increased simplification, efficiency, standardisation and focus, " its statement said.

There were no details on the prospect of any job losses among its workforce of more than 70,000 - 50,000 of them in the UK.

But a source close to the company told Sky News the vast majority of the savings this year were expected to come from non-headcount areas of the business.

Mr Lewis told investors: "Today we have announced a new strategy to simplify and strengthen Capita.

"We need to simplify Capita by focusing on growth markets and to improve our cost competitiveness. We need to strengthen Capita and plan to invest up to £500m in our infrastructure, technology and people over the next three years.

"There is a lot to do, but I am confident that the plan is clear and prudent.

"Capita will become more predictable, have stronger operational discipline and consistently delight its clients."

Capita delivers a wide range of services to private and public sector clients which include the NHS, Ministry of Defence, the Co-op Bank and Three, the mobile phone group.

Unlike Carillion, which was largely a construction and facilities management provider, its focus is ‎on high-value, technology-enabled specialist services.

RBC Capital Markets director, Andrew Gibb, said of the company's update: "Whilst 2018 guidance is in line, the need for £70m of cost savings to get there underlines the task ahead for new management.

"All the strategic commentary looks sensible - namely changing divisional structure again and focusing on areas with competitive advantage."