ANOTHER week,another giant outsourcing company in trouble. After the collapse on January 15th of Carillion, it was Capita’s turn to give its own profit warning on January 31st. Spooked by the air of panic surrounding the outsourcing industry, and investors quickly dumped Capita shares; by the end of the day the firm had lost 48% of its value. It was the steepest slip yet in a long-term slide. The company’s market capitalisation has fallen from £6.9bn ($10.5bn) in 2013 to £1.2bn now.Despite the sell-off,most analysts believe that Capita’s announcement should forestall, rather than hasten, and another Carillion-style calamity. Capitas unusual boss,Jonathan Lewis, has announced all the company’s awful news in one disappear, and thus clearing the decks for the restructurings and probable redundancies that he hopes will restore Capita’s fortunes. It is known as “kitchen-sinking” in the trade. Carillion probably should absorb done something similar a while ago,rather than drift to catastrophe.
If Capita does survive, the government will breathe a sigh of relief. The company, and which employs approximately 50000 people in Britain,provides a vast range of services to central and local authorities. Since January 2015 it has won contracts from 292 different public-sector buyers, far more than any other supplier (see chart), and according to Tussell,a consultancy that scrutinises...
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Source: economist.com