(Sharecast News) - Capita's troubles deepened and its share price spiralled again on Thursday as the UK government outsourcer warned profits would be hit by up to £40m as a result of its disastrous handling of the civil service pension contract.
The update follows a slump in Capita's share price earlier in the week after the UK government withheld £9.9m in payments amid a scathing attack on its performance, including a warning that the contract could be taken in-house.
Officials said the company had missed key deadlines and failed to deliver promised AI‑driven technology upgrades, prompting heightened scrutiny of its contract delivery.
Capita added that the wider fallout from the pension scheme issues will weigh heavily on cash generation, with free cash flow set to decline by £35m to £50m this year. The profit hit was estimated to be £25m to £40m.
Shares in the firm slumped 20% in early London trade.
Capita was awarded a contract to administer the 1.7m member scheme in November 2023, and started a two-year transition period. Paymaster General Nick Thomas-Symonds told the House of Commons late on Monday that Capita had given him "explicit, personal assurances" ahead of the handover that it was "fully capable of managing the workload and that they were ready for a successful transition".
However, he said: "The reality is that it was complexly unprepared and its system was overwhelmed, which resulted in a backlog that rocketed to a staggering 120,000 unresolved cases."
Capita had committed to meet two deadlines to clear inherited arrears by April this year - which it has already missed - and to return to standard contractually required levels by June.
Thomas-Symonds confirmed Capita had also missed the June deadline, as well as a later commitment to clear the quotes backlog by Monday.
In response, the government has parachuted in 140 officials to try and clear the backlog, the cost of which would be recovered in full from Capita, Thomas-Symonds confirmed.
Thomas-Symonds said while the service to date had been "dreadful", terminating the contract risked creating an "immediate, catastrophic operational vacuum".
But he warned: "However, I have instructed my officials to bring together a broad range of stakeholders and experts to consider...how scheme members can be best served by a long-term, durable delivery of the scheme. Let no one think that I or the government are accepting the status quo." He also acknowledged that the pension could be a "prime candidate" for insourcing in the future.
Reporting by Frank Prenesti for Sharecast.com