Good morning: Capita, the outsourcer, has announced that it is to suspend its dividend, warning that profits will be significantly lower than the City expects for the coming financial year.
The company now expects to make between £270 million and £300 million of profits in its 2018 financial year. Before this morning’s unscheduled update analysts had pencilled in profits of £400 million.
Alongside the dividend suspension — “until the company is generating sustainable free cashflow” — Capita has announced plans for a £700 million rights issue and the disposal of non-core businesses.
Jonathan Lewis, chief executive of Capita, who joined the business two months ago, said: “Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. As our markets have evolved, the group has not responded. Today, Capita is too complex. It is driven by a short-term focus and lacks operational discipline and financial flexibility.”
Ouch. Shares in Capita have fallen by 30 per cent over the past year. No doubt they will fall a lot further today.
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Markets snap
In a scheduled trading statement SSE, the FTSE 100 utility, has nudged up City forecasts. It says that its plans to spin off its energy supply businesses and combine them into a new independent utility giant with Npower remain on track. We also have trading updates from Britvic, the drinks manufacturer, and Dairy Crest, producer of Country Life butter and Cathedral City cheese.
Consumers and businesses started the year with more optimism, with confidence rebounding sharply in January, according to surveys published overnight.
The GfK consumer confidence index rose four points from December to -9, the largest one-month increase since September 2016. Separately, Lloyds Bank’s business barometer found that confidence among companies had jumped by seven points to a nine-month high of 35 per cent.
On Tuesday Yougov and the Centre for Economics reported that confidence among consumers was rising at the fastest pace in a year. Philip Aldrick, our economics editor, explains that the income squeeze is easing but that although things may have improved the broader picture is that households are not confident.
The US earnings season steps up a pace with the social media group Facebook and the technology giant Microsoft among those slated to update Wall Street later. The Federal Reserve concludes its latest rate-setting meeting at 7pm UK time, the last chaired by Janet Yellen.
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