Shares in Capita PLC tumbled sharply during the session, falling 17.8% to 229.02p after the outsourcer issued a trading update that set out the financial consequences of its troubled handling of the Civil Service Pension Scheme. Management said failures on that contract will cut annual adjusted operating profit by £25 40m and subtract £35 50m from free cash flow in the current year.
The update included a candid acknowledgement from CEO Adolfo Hernandez that service delivery on the Civil Service Pension Scheme had not met expectations. Hernandez specifically cited shortcomings affecting members waiting for bereavement, retirement and quotation case resolutions.
The profit warning crystallises concerns that had been building since a highly critical statement to Parliament on 6 July 2026 from the Paymaster General, who described Capita as "completely unprepared" for the contract. That statement said Capita had been overwhelmed by the task, with a backlog that at its peak reached 120,000 unresolved cases.
Political and commercial pressure on Capita 's pension administration business had been rising before today's update. The government had withheld £9.9m in payments to the company and assigned more than 140 Cabinet Office officials to assist in clearing the backlog, costs it indicated it would seek to recover from Capita. Earlier in the year the government also terminated Capita's contract to run the Royal Mail Statutory Pension Scheme, adding to signs of a deteriorating relationship with its largest public-sector client.
Those negative developments clearly outweighed the positives disclosed in the update. Capita reported that it won £1bn of new contracts in the first half of 2026, delivered adjusted revenue growth of 1.6% year-on-year, and extended its revolving credit facility to £325m through June 2029. Nonetheless, investors focused on the immediate earnings and cash-flow hit from the pension contract.
The wider market offered little comfort. The FTSE 100 was only attempting a modest rebound after a near 1.7% fall in the previous session, with sentiment described as fragile amid escalating geopolitical tensions in the Middle East. Signals that an Iran ceasefire had collapsed pushed oil prices higher and kept risk appetite muted, while the FTSE 250 and smaller-cap indices also faced pressure, depriving Capita of any sector or index tailwind.
Faced with the combination of a damning government narrative, earlier contract termination, withheld government payments and a quantified profit hit of £25 40m, Capita's shares slid to a fresh 52-week low of 223p intraday - significantly below the 52-week high of 415p. The share price reaction reflects investor reassessment of the risks tied to Capita's core public-sector outsourcing operations.
Summary
Capita has disclosed a material financial impact from failures on the Civil Service Pension Scheme contract, warning of a £25 40m reduction in adjusted operating profit and a £35 50m decline in free cash flow for the current year. The announcement follows a critical government statement to Parliament on 6 July 2026, the withholding of £9.9m in payments and prior termination of another government pension contract. While Capita reported £1bn of new wins in H1 2026, 1.6% adjusted revenue growth and an extended £325m revolving credit facility to June 2029, the market reaction was dominated by the earnings and cash-flow warning.
Key points
- Capita warned of a £25 40m annual adjusted operating profit hit and a £35 50m reduction in free cash flow tied to the Civil Service Pension Scheme.
- The government criticised Capita on 6 July 2026 and has withheld £9.9m, while deploying over 140 Cabinet Office staff to help clear a backlog that peaked at 120,000 cases.
- Despite £1bn of new contracts in H1 2026, 1.6% adjusted revenue growth and a £325m revolving credit facility extended to June 2029, the market focused on the pension contract failures, sending the stock to a 52-week low.
Risks and uncertainties
- Further government action or recovery of costs for the backlog could increase financial and operational pressure on Capita - a risk concentrated in the public-sector outsourcing space.
- Ongoing service-delivery failures on pension administration could prolong reputational damage and client disengagement, affecting Capita's public-sector revenue streams.
- Weak investor sentiment in UK markets amid geopolitical-driven risk-off moves could amplify share-price volatility for Capita and other FTSE-listed outsourcing and services companies.