UK's Capita warns on profit as civil service pension crisis deepens

July 9 (Reuters) - Britain's Capita warned on Thursday that failures on its civil service pension contract would cut annual profit by up to £40 million ($54 million), as the government threatens to recoup costs incurred fixing the troubled scheme.

The profit warning comes days after Capita's shares plunged when the UK government withheld £9.9 million in payments, citing missing contractual deadlines and the outsourcing firm's failure to deliver on AI-led technology improvements.

Capita shares fell more than 15% in early trade.

"We recognise the service on Civil Service Pension Scheme has not been good enough, we are working closely with the Cabinet Office on all aspects of the scheme, and this remains our number one priority," Capita CEO Adolfo Hernandez said in a statement.

The disclosed impact puts further pressure on Capita, which provides support services to UK public and private sectors, after UK Paymaster General Nick Thomas-Symonds publicly criticised the company.

Capita on Thursday said it would incur a number of additional costs due to the pension contract issues, including the hiring of temporary staffing and remediation costs.

The London-based firm also delayed its positive free cash flow target by a year to 2027, with the pension contract problems expected to hurt its free cash flow by £35 million to £50 million this year.

Despite the pension problems, Capita said its broader business continued to gain momentum, securing contracts with a total contract value of £998 million in the first half of 2026, up 15% year-over-year in its strongest first-half sales performance in its public services division since 2021.

($1 = 0.7461 pounds)

(Reporting by Yamini Kalia in Bengaluru; Editing by Mrigank Dhaniwala, Sonia Cheema and Tom Hogue)