UPDATE 1-Britain's Capita plans rights issue after cutting profit forecasts

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LONDON, Jan 31 (Reuters) - Outsourcing group Capita said it hoped to raise around 700 million pounds ($993 million) through a rights issue and would suspend its dividend after it slashed 2018 profit forecasts.

Capita said underlying pretax profit, before significant new contracts and restructuring costs, were expected to be between 270 million and 300 million pounds ($426 million), compared with analysts' average forecast of 406 million pounds, according to Reuters data.

The drastic action is being taken by Jonathan Lewis, the company's new chief executive who took over in December, tasked with the job of rebuilding a company that issued several profit warnings last year.

Lewis said Capita, which operates primarily in Britain and is one of the nation's biggest employers, was spread across too many markets and services. "Capita needs to change its approach," he said.

"An immediate priority is to strengthen the balance sheet through a combination of cost savings, non-core disposals and new equity."

The news is likely to send shivers through a sector still reeling from the collapse of Carillion, an outsourcing and construction group which went into liquidation earlier this month after its banks pulled the plug.

Capita forecast net debt at the 2017 year-end to be in the region of 1.15 billion pounds. It said the dividend would be suspended until the company generated sustainable free cash flow.

The firm is currently undertaking a triennial review of its pension scheme. Its current expectation is that the actuarial deficit after this review will be significantly below the last disclosed deficit of 381 million pounds as at June 30 2017. ($1 = 0.7051 pounds) (Reporting by Kate Holton, editing by James Davey)