Capita Plc (OTC:CTAGY) stocks dropped nearly 50% today on the market, the fastest its fell in 24 years. The U.K based company’s new CEO, Jonathan Lewis, announced the company would halt dividend payouts. This dividend is suspended until the company can generate free cash flow. Between the years of 2011 and 2016, the company paid out more than £1 billion in dividends, while its pension deficit rose from £86 million to £380 million.
Lewis said:
“Significant change is required for Capita’s next stage of development. Capita is too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility.”
With the growing deficit and debt within Capita, the former CEO, Andy Parker, was still awarded lucrative pay. Many of the other top executives were bringing in the top dollars, despite all getting profit warnings. A new CEO, with a fresh outlook, was much needed for the company.
Despite the sharp fall in his company’s stock price today, the new CEO remains positive about his moves. Lewis believes that the company is too spread thin in various markets and services. He saw the company directed towards short-term goals and is now focused on operational discipline and financial flexibility. A CEO usually only get one shot like this to turn a company around and Lewis is taking this opportunity early.
Many analysts believe that the newly appointed CEO striking early gives the business enough time to turn things around. Analyst, David Madden, from CMC Markets said:
“Servicing a relatively high level of debt and nursing a large pension deficit is the main issue here, but if Capita can trim down its liabilities and focus on a handful of profitable businesses it could turn itself around. Carillion collapsed but Capita is still in the game.”
This cost-cutting initiative is sure to bring job loss. Currently, Capita holds 67,000 employees and 50,000 of them reside in the U.K.
Featured Image: Capita
