Capita CEO steps down as IT services division eats into profit again

IT services blamed for profit drop of nearly £100m

Capita CEO Andy Parker is to leave later this year after the firm again blamed its IT services division for its struggling financials, with full-year profits plummeting almost £100m.

For the 12 months ending 31 December Capita saw year-on-year revenue up five per cent to £4.9bn, but underlying operating profit fell 15 per cent from £639m to £541.3m.

In its financial statement Capita blamed the decline on a £25m payment it had to make for failing to deliver an IT system for Transport for London's congestion charging system on time and, more broadly, "weak trading" in technology solutions and IT enterprise services.

It also highlighted changes to its contract with O2 and struggles in its property and Capita Europe divisions as contributing factors.

Parker will leave when a replacement CEO is found.

"2016 was a challenging year and Capita delivered a disappointing performance," he said. "We are determined to turn this performance around.

"We have taken quick and decisive action to reduce our cost base, increase management accountability, simplify the business, strengthen the balance sheet, and return the group to profitable growth. We remain very confident that our target markets continue to offer long-term structural growth.

"Capita is well placed in these markets with our unique set of complementary capabilities and the talent of our people. The bid pipeline of major contract opportunities remains active, and we are also seeing success in providing additional new, high-value, replicable services to clients."

Parker added that 2017 will be a "transition year" for Capita as it moves forward with the proposed sales of its asset services and specialist recruitment businesses, and adjusts to a new structure internally.

Capita announced a restructuring of the company in November and a new managerial hierarchy, which came into force in January.

One of these new divisions is IT services - which houses specialist network solutions, IT management and infrastructure services, and IT equipment solutions.

CEO steps aside

In a statement separate to the final results, Parker said that following the company's restructuring, the time is right for a new leader to take the helm.

"It is a huge privilege to lead all the talented, hardworking, and enthusiastic people at Capita," he said.

"The group's past and continued success is due to their efforts and commitment. 2016 has been a difficult year for Capita but the company is now a simpler, more focused group with a clear service offering and growth strategy, and a plan to achieve a stronger balance sheet.

"We have achieved a great deal but going forward it is time for a new leader to take Capita through the next steps to renewed and sustainable organic growth."

John O'Brien, research director at TechMarketView, highlighted that this is the first time Capita's operating profits have declined.

"Capita's CEO Andy Parker has fallen on his sword, after Capita's worst ever performance during the past 12 months," he said. "Parker's exit is the first public ejection of a Capita CEO, and has been driven by pressure from angry investors who have seen Capita's shares tumble almost 50 per cent since September.

"Capita is also being ejected from the FTSE100, a coveted spot it has held since 2006.

"Also for the first time, Capita's full-year operating profits have gone into reverse - nose-dived, in fact."