Half Year Results
25 July 2012
Capita plc
Half year results for the 6 months to 30 June 2012
Strong H1 performance and a positive outlook
Financial Highlights Half year 2012 Half year 2011 Change
Revenue £1,607m £1,400m + 15%
Underlying operating £216.6m £193.0m + 12%
profit*
Underlying profit before £190.7m £174.0m + 10%
tax*
Underlying earnings per 24.19p 21.95p + 10%
share*
Interim dividend per share 7.9p 7.2p + 10%
* Excludes non-underlying items being: intangible amortisation and acquisition
expenses of £47.4m (H1 2011: £33.8m), the non-cash impact of mark to market
movement on financial instruments of £0.5m credit (H1 2011: £1.2m credit).
After these non-underlying items: reported operating profit is £169.2m (H1 2011
£159.2m), reported profit before tax is £143.8m (H1 2011: £141.4m) and reported
earnings per share is 18.70p (H1 2011: 18.01p).
Key points
Creating profitable growth
* A record £1.3bn of major contract wins secured in H1 2012 (H1 2011: £1.1bn)
* Improving organic growth rate; clear visibility of meeting full year 2012
expectations
* Maintaining win rate of 1 in 2 reflecting our strong client propositions
and operational capability
* High level of sales momentum; bid pipeline replenished well after recent
wins to £4.1bn (February 2012: £4.6bn)
* Enhancing our offering through acquisitions; £642m spent in the 2 years to
December 2011 and a further £129m invested in 10 acquisitions to date in
2012
* £271m raised in equity placing to fund stronger pipeline of potential
acquisition opportunities
Delivering results
* Revenue up 15%, with 2011 & H1 2012 acquisitions contributing 15% and flat
organic growth after attrition on 4 contracts of 5%, most of which related
to activities that ended in H1 2011
* Underlying profit before tax increased by 10% to £190.7m (H1 2011: £174.0m)
* Underlying operating margin of 13.5% (H1 2011: 13.8%)
* Operating cash flow of £201m (H1 2011: £180m) and cash conversion improved
to 93% from 85% at the full year 2011 (H1 2011: 93%)
Paul Pindar, Chief Executive of Capita plc, commented:
"With organic growth returning as expected, cash conversion improving and a
good pipeline of potential acquisitions, Capita is positioned well for further
growth. As a result of stronger major contract sales performance over the past
18 months, together with the contribution from recent acquisitions, we have
clear visibility of revenue growth in 2012. These factors, coupled with the
current buoyant sales environment, underpin our confidence in full year
performance and provide a strong platform for further progression in 2013."
For further information:
Capita plc Tel: 020 7799 1525
Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 020 7654 2152 or 020
7654 2399 out of hours
FTI Consulting Tel: 020 7269 7291
Andrew Lorenz
Analyst presentation
Paul Pindar, Chief Executive of Capita plc, will host an analyst presentation
and conference call in London at 8.30am UK time today.
There will be a conference call and live webcast of the full event. Details can
be found at www.capita.co.uk. (Please dial into the call in time to allow for
registration)
8.30am conference call details below:
Dial-in number: + 44 (0)20 3059 8125
Replay: A replay of the conference call will be available for 7 days by
dialling +44 (0)121 260 4861 (access code is 4749763#).
Half year results for the 6 months to 30 June 2012
Capita, the UK's leading business process outsourcing ("BPO") and professional
services company, has made good progress in the first 6 months of 2012 with
strong major sales performance in our key markets and good operating and
financial results across the majority of the Group's businesses.
The market for outsourcing remains buoyant, particularly across the UK public
sector where we are seeing a high level of sales activity. During H1 2012, we
secured major long term contracts totalling £1.3bn (H1 2011: £1.1bn), of which
74% relates to new contract wins and 26% to contract renewals, maintaining an
average win rate of 1 in 2. We have also actively replenished our bid pipeline
which now stands at £4.1bn (February 2012: £4.6bn), demonstrating the quality
and volume of opportunities across our 9 markets.
We continue to invest in small to medium sized businesses which broaden our
capability and extend our scale, enhancing our sales propositions or providing
entry into a new sector. To date in 2012, we have acquired 10 companies for a
total value of £129m. In April, we raised £271m, net of expenses, through an
equity placing to enable us to pursue our increased acquisition pipeline,
whilst allowing us to maintain a prudent yet efficient balance sheet.
The majority of our underlying businesses are trading well, particularly the
Investor and Banking Services division, customer management services within the
Integrated Services division and the Workplace Services division which includes
the Group's resourcing businesses. The challenging economic environment
continues to adversely hold back performance in 3 distinct areas: our property
consultancy and parts of our IT services and insurance services businesses.
Financial update
Overview - Capita has delivered robust financial results with good growth in
revenue and profits compared to H1 2011 and improved cash conversion compared
to FY 2011.
In the first six months of 2012, revenue increased by 15% to £1,607m (H1 2011:
£1,400m) with acquisitions completed during 2011 and H1 2012 contributing 15%
but flat organic growth, after revenue attrition of 5% relating largely to
contracts and projects that ended in H1 2011. Following this period of higher
attrition, we expect to revert back to the Group's long term attrition rate of
approximately 3% for the full year 2012 and beyond.
Underlying operating profit (1)rose by 12% to £216.6m (H1 2011: £193.0m) and
underlying profit before taxation (1) increased by 10% to £190.7m (H1 2012: £
174.0m). Underlying earnings per share (1) grew by 10% to 24.19p (H1 2011:
21.95p).
(1)Excludes non-underlying items being: intangible amortisation and acquisition
expenses of £47.4m (H1 2011: £33.8m), the non-cash impact of mark to market
movement on financial instruments of £0.5m credit (H1 2011: £1.2m credit).
After these non-underlying items: reported operating profit is £169.2m (H1 2011
£159.2m), reported profit before tax is £143.8m (H1 2011: £141.4m) and reported
earnings per share is 18.70p (H1 2011: 18.01p).
The Board is recommending an interim dividend of 7.9p per ordinary share (H1
2011: 7.2p) representing an increase of 10%. The interim dividend will be
payable on 15 October 2012 to shareholders on the register at the close of
business on 14 September 2012.
Margin - In H1 2012, the Group's underlying operating margin1 was 13.5% (H1
2011: 13.8%). Margins were 30bps lower due to the assimilation in H1 2012 of
certain new large contracts and acquisitions, with their expected initial
transformation and integration costs.
Cash flow - In H1 2012, £201m (H1 2011: £180m) was generated by operations
representing an improved operating profit to cash conversion rate (2) of 93%,
improved from 85% at the full year 2011 (H1 2011: 93%). Operating cash flow, as
previously stated, has been impacted by the one-off effect of the beneficial
payment terms that we had historically secured on certain contracts reverting
on renewal to industry norms and the additional working capital requirements
for certain new major contracts and projects. As these items unwind, we expect
our operating cash to operating profit conversion rate to continue to improve
in 2013.
(2) Defined as cash generated from operations divided by underlying operating
profit for the year.
Free cash flow, defined as operating cash flow, less capital expenditure,
interest and taxation for the half year was £95m (H1 2011: £97m). This decrease
was due to a higher level of capital expenditure on IT infrastructure and new
contracts.
Capital expenditure - We aim to contain capital expenditure at or below 4% of
revenue. In H1 2012, we met this objective, with net capex at 3.4% of annual
revenue (H1 2011: 2.8%). There are currently no indications of significant
capex increases in our business forecasts or bid pipeline.
Return on capital employed - We focus on driving a healthy return on capital.
During H1 2012, our post-tax return on average capital employed was 16.3% (H1
2011: 18.8%). This compares to our estimated post-tax WACC which is 7.2%. We
would expect returns to increase as recent acquisitions deliver their full
profitability and organic growth continues to strengthen.
Debt profile - As at 30 June 2012, we have £1,151m of private placement debt of
which only £99m matures before August 2015, with the remainder gradually
maturing over the 9 years to 2021. In addition, we have £185m of bank debt
under a 2 year term loan facility, offset by £186m of cash held on deposit.
Our aim continues to be to keep the ratio of net debt to EBITDA in the range of
2 to 2.5 over the long term and we would be unlikely to incur borrowings which
would reduce interest cover below 7 times. At 30 June 2012, our annualised net
debt to EBITDA ratio was 2.2 (H1 2011: 2.1) with annualised interest cover at 9
times (H1 2011: 11 times).
Generating profitable growth
We generate profitable growth by winning business from new and existing
customers and through acquiring organisations that broaden our capability,
scale and market reach.
Major contract wins
We have made a strong start to 2012, securing 24 new and extended major
contracts with a total value of £1.3bn (H1 2011: 12 contracts totalling £1.1bn)
representing a win rate of 1 in 2. This includes:
* Recruiting Partnering Project (RPP) - partnering with the MOD to deliver
RPP for the Army, and the enabling ICT for the Royal Navy and the Royal Air
Force, in a contract valued at approximately £50m per annum over 10 years.
The project represents a major investment in the transformation of military
recruiting. While the Army retains ownership of recruitment policy, entry
criteria and assessment standards, RPP will jointly deliver the entire
process for the attraction and recruitment of soldiers and officers to the
Regular and Territorial Army. It will also provide a tri-service digital
ICT platform to underpin recruitment for the Royal Navy, Army and Royal Air
Force.
This is our first significant partnering contract in the defence sector. Our
ability to secure the contract was a result of the Group's experience and
proven track record in the UK BPO market combined with our established presence
in the resourcing market, which has been built up over 16 years via strategic
acquisitions and organic growth.
* Civil Service Learning agreement - selected by the Cabinet Office to manage
exclusively the provision of training across the Civil Service in a contract
that is expected to generate revenues of at least £50m per annum to Capita over
2 years, with the option to extend for a further 2 years. The contract
commenced in April 2012 following a short procurement process. Capita will
deliver just under half of the training directly through our learning and
development business and will be responsible for managing the balance of 51%
through a network of small and medium sized (SME) training providers, with all
revenue flowing through Capita. The contract is expected to make a significant
contribution to the projected £90m per annum savings which Civil Service
Learning, the Government's training agency, is tasked to deliver.
* 3 major private sector contracts - our expanded customer management
offering has secured 3 major new and extended contracts in H1 2012, worth
in aggregate £161m over 3 to 5 years, including a full customer management
service for Debenhams plc, another major UK retailer and Scottish Power.
Combining the expertise and infrastructure of Capita with the recently acquired
Ventura and Vertex Private Sector enables us to offer compelling customer
management propositions and to identify and bid for large scale opportunities.
This would not previously have been possible as separate entities. This is a
particularly buoyant area for Capita where we have a strong pipeline of
opportunities, predominantly in the private sector with an increasing level of
interest from public sector organisations. Capita also has the scope to expand
these customer management relationships by providing further services to this
private sector client base. We expect to see a high level of activity in this
area going forward.
* West Sussex County Council Support Services partnership - selected to
deliver a range of services including HR and payroll, finance, office
services, online service delivery, procurement and pensions administration.
The 10 year relationship is scheduled to commence in September and is
expected to generate approximately £154m new revenues to Capita over the
life of the contract. Our existing IT Services contract that commenced in
2010 has also been extended concurrent with the new contract bringing
additional revenues of £18m over an additional 2 years to 2022.
* Contracts worth between £10-50m - The Group secured 17 new contracts and
extensions in this range with an aggregate value of £325m over 2 to 10
years including:
* 8 customer management contracts in the motor, retail and utilities markets
worth in aggregate £124m over 2 to 5 years
* a property consultancy contract for Capita Symonds to support Carillion's
partnership with Oxfordshire County Council worth approximately £42m over 10 years
* preferred bidder for contact management services, worth up to £30m over 4
years, to support the UK Border Agency in the management of the "overstayer" backlog.
Bid pipeline & market update
Bid pipeline: Our bid pipeline includes all bids worth £10m or above, capped at
£500m and where we have been shortlisted to the last 4 or fewer. We announce
the value of the pipeline twice a year at our half and full year results and it
is therefore a snapshot at a specific point in time. The pipeline has been
replenished well after recent wins and now stands at £4.1bn (February 2012: £
4.6bn) and comprises 33 bid situations across our target markets with an
average length of 7 years. The most active markets are central government,
defence, local government and the wider private sector.
Behind the bid pipeline is an active prospect list of opportunities including a
number of bids which are expected to reach shortlist stage shortly.
Contract rebids: Over the next 7 years to 31 December 2019, we have only 3
material contracts (defined as having annual revenue in excess of 1% of 2011
turnover) due for rebid: Criminal Records Bureau (CRB) in 2013, where the bid
process is at an advanced stage, and Civil Service Learning in 2014, which has
a 2 year extension option, with the next material renewal not until 2019,
relating to our Phoenix contract.
Market dynamics: The current economic climate is encouraging interest in
outsourcing and the benefits it can deliver to organisations, as demonstrated
by our strong major sales wins and pipeline over the previous 18 months. The
public sector is particularly buoyant, with significant activity across central
government departments, notably the Ministry of Justice, Department for Work
and Pensions and the Ministry of Defence, and also across local government, the
emergency services and health markets.
There has been some good progress in the Government's streamlining of its
procurement timelines and processes, evidenced by the increased use of
procurement frameworks which support a more efficient approach for public
sector organisations to source services. Capita has successfully secured places
on a wide range of frameworks including: the Health and Disability AssessmentS
ervices framework to support the Department for Work and Pensions and other
public authorities including the Department of Social Development in Northern
Ireland; Information Management and Learning Services framework for use by
schools, academies, consortia and local authorities to purchase both management
information systems and learning services; the Radio Services framework to
deliver services to the Metropolitan Police and the Public Services Network
(PSN) framework agreements to supply connectivity and related services across
the public sector.
In the private sector, we are seeing a high level of demand for customer
management services, particularly from retail and utilities organisations, and
increasing interest from financial services, especially banking organisations.
However, large outsourcing opportunities in the life and pensions sector are
currently quieter.
Acquisitions
The acquisition of small to medium sized businesses is a key part of Capita's
business model and has consistently enhanced shareholder value by both building
platforms for future organic growth and by generating excellent returns on
investment. Throughout the Company's history, acquisitions have provided
capability and scale to support our BPO propositions as well as providing entry
into new market areas. This is evidenced by a number of our recent major
contracts, including the RPP and Civil Service Learning contracts, being
secured as a direct result of the combination of capabilities from companies
acquired in previous years and Capita's wider expertise.
Since January 2010, we have had a particularly strong period of making
acquisitions, with £642m spent in the 2 years to 31 December 2011 and a further
£129m on 10 acquisitions to date in 2012. In April 2012, we considered it
appropriate to raise fresh equity to fund the pursuit of our pipeline of
acquisitions, while allowing us to maintain a prudent yet efficient balance
sheet. We undertook an equity placing which raised net proceeds of
approximately £271m. A total of 40m ordinary shares were placed at 685 pence
per share, representing 6.5% of the Company's share capital prior to the
placing. Our acquisition pipeline remains active and we currently anticipate
spending a total of £200m to £250m on acquisitions in 2012.
We have a strong track record of integrating acquired businesses well and
achieving synergies with our existing operations and corporate functions.
Acquisitions made in the last 4 years have delivered an estimated post tax
return on capital of approximately 14% and we believe that the acquisitions in
our current pipeline are capable of delivering similar returns.
To date in 2012, we have acquired 10 businesses in key market areas including:
* Health
Aviva's occupational health business, a provider of a complete range of
occupational health services to more than 500 organisations, acquired for £
2.5m. The acquisition adds further expertise and capacity to Capita's health
and wellbeing business and provides it with an entry into a number of new
client sectors, including transport and logistics.
Medicals Direct Holdings (`MDG'), a provider of medical screening services, for
£13.2m. MDG provides more than 150,000 medical screenings every year, primarily
to the life and pensions sector. The acquisition extends Capita's capabilities
in this area, including the addition of home-based screening expertise which
enhances our existing portfolio of clinic and mobile unit screening services.
These 2 businesses strengthen our position in the medical assessments and
disability support marketplace, an area where there are currently significant
opportunities.
Clinical Solutions Holdings, a provider of clinical decision support and
clinical content products for healthcare professionals, for a cash
consideration of £20m. Its products comprise patient management software,
clinical content and decision support technology, which have been used to
triage and manage over 70 million clinical calls over the past 10 years in the
UK and abroad. The acquisition adds further expertise to Capita's existing
services for the NHS which include support services for health providers and
commissioners, clinical performance management services, health informatics and
a range of finance, procurement, estates, IT and HR solutions.
* Pensions administration
Bluefin Corporate Consulting, a provider of employee benefits consultancy to
medium and large corporations, acquired for £50m. Bluefin has also developed
award-winning benefits management technology which is used by more than 150
clients with over 80,000 employees. This acquisition extends the capability of
our corporate pensions and actuarial consultancy business, complements other
Capita employee and corporate support services and brings a number of private
sector and banking clients to the Group.
* Emergency services
Fortek Computers Ltd (`Fortek'), a provider of command, control and
communications systems to emergency services, for a cash consideration of £
3.5m. Its solutions deliver the full range of functionalities that support all
control room operations from call taking, resource availability and incident
management through to fielding out data securely to front line staff despatched
to an incident.
The acquisition complements the other businesses recently acquired by Capita in
this area and enhances our existing command, control and communication
solutions. Capita and Fortek have worked closely together for a number of
years, most recently on a successful programme in Wales to provide a resilient,
networked solution to the 3 Welsh Fire and Rescue Services control rooms. By
joining together our next generation solutions we are well-placed to support
shared service models and enable inter-agency communications and data exchange.
* Insurance
Fish Administration, acquired for £21m, has added greater capacity and valuable
new expertise to Capita's specialist insurance broking business. Fish is the
market leader in the field of providing insurance broking services to the
independent living and disability markets, with specialist insurance products
including cover for adapted vehicles, travel, and mobility scooters. Alongside
our existing specialist insurance broking business, we anticipate opportunities
for growth in the motor, travel, independent living and carer insurance
markets.
* Offshore
Full Circle, acquired for £1m, is a leading contact centre solutions business
based in Cape Town, South Africa. Since 2005, Full Circle has been directly
involved in assisting international clients to offshore their operations
successfully to South Africa. It has been associated with some of the most
notable offshore projects in the region and will enable Capita to provide a
full range of offshored services in South Africa to our clients, including
outsourced customer service and fully-hosted contact centre solutions. The
South African operation broadens our existing international delivery capability
and complements our operations in India and Poland. We expect to have over
4,350 employees across our offshore operations by the year end, including 200
in South Africa.
Future prospects
With organic growth returning as expected, cash conversion improving and a good
pipeline of potential acquisitions, Capita is positioned well for further
growth. As a result of stronger major contract sales performance over the past
18 months, together with the contribution from recent acquisitions, we have
clear visibility of revenue growth in 2012. These factors, coupled with the
current buoyant sales environment, underpin our confidence in full year
performance and provide a strong platform for further progression in 2013.
-Ends-
Half year condensed consolidated income statement for the 6 months ended 30 June 2012
30 June 30 June
2012 2011
Notes Underlying Non-underlying Total Underlying Non- Total
underlying
£m £m £m £m £m £m
Continuing operations:
Revenue 3 1,607.3 - 1,607.3 1,399.9 - 1,399.9
Cost of sales (1,140.6) - (1,140.6) (989.8) - (989.8)
Gross profit 466.7 - 466.7 410.1 - 410.1
Administrative (250.1) (47.4) (297.5) (217.1) (33.8) (250.9)
expenses
Operating profit 3 216.6 (47.4) 169.2 193.0 (33.8) 159.2
Net finance costs (25.9) 0.5 (25.4) (19.0) 1.2 (17.8)
Profit before tax 3 190.7 (46.9) 143.8 174.0 (32.6) 141.4
Income tax expense (40.0) 12.7 (27.3) (40.9) 8.7 (32.2)
Profit for the period 150.7 (34.2) 116.5 133.1 (23.9) 109.2
Attributable to:
Equity holders of the 150.7 (34.2) 116.5 133.1 (23.9) 109.2
parent
Earnings per share 4
- basic 24.19p (5.49)p 18.70p 21.95p (3.94)p 18.01p
- diluted 24.08p (5.47)p 18.61p 21.66p (3.89)p 17.77p
Half year condensed consolidated statement of comprehensive income for the 6 months ended 30 June 2012
30 June 30 June
2012 2011
£m £m £m £m
Profit for the period 116.5 109.2
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension (41.1) (1.2)
schemes
Income tax effect 9.0 0.1
(32.1) (1.1)
Exchange differences on translation of (2.2) 4.0
foreign operations
Losses on cash flow hedges (11.0) (3.1)
Reclassification adjustments for gains (0.7) (2.7)
included in the income statement
Income tax effect 2.7 1.6
(9.0) (4.2)
Other comprehensive expense for the period (43.3) (1.3)
net of tax
Total comprehensive income for the period net 73.2 107.9
of tax
Attributable to:
Equity holders of the parent 73.2 107.9
Half year condensed consolidated balance sheet
at 30 June 2012
30 June 31
2012 December
2011
£m £m
Non-current assets
Property, plant and equipment 346.0 330.2
Intangible assets 1,911.0 1,828.9
Financial assets 292.7 293.8
Trade and other receivables 54.7 65.8
2,604.4 2,518.7
Current assets
Financial assets 9.2 3.0
Funds receivables 143.1 98.0
Trade and other receivables 969.9 846.3
Cash 185.7 71.5
1,307.9 1,018.8
Total assets 3,912.3 3,537.5
Current liabilities
Trade and other payables 985.8 936.5
Financial liabilities 56.6 36.5
Funds payables 153.0 107.1
Provisions 18.8 17.0
Income tax payable 51.4 47.0
1,265.6 1,144.1
Non-current liabilities
Trade and other payables 8.9 20.0
Financial liabilities 1,672.9 1,695.9
Deferred taxation 0.7 21.0
Provisions 45.8 46.7
Employee benefits 125.7 85.7
1,854.0 1,869.3
Total liabilities 3,119.6 3,013.4
Net assets 792.7 524.1
Capital and reserves
Issued share capital 13.8 13.0
Share premium 732.6 459.4
Employee benefit trust and treasury shares (0.4) (0.4)
Capital redemption reserve 1.8 1.8
Foreign currency translation reserve 5.3 7.5
Net unrealised gains reserve (16.5) (7.5)
Retained earnings 56.1 50.3
Equity shareholders' funds 792.7 524.1
Included in aggregate financial liabilities is an amount of £1,415.4m (31
December 2011: £1,432.2m) which represents the fair value of the Group's bonds
which should be considered in conjunction with the aggregate value of currency
and interest rate swaps of £264.4m (31 December 2011: £256.8m) included in
financial assets and £nil (31 December 2011: £0.9m) included in financial
liabilities. Consequently, this gives an effective liability of £1,151.0m (31
December 2011: £1,176.3m).
Half year condensed consolidated statement of changes in equity for the 6 months ended 30 June 2012
Share Share Employee Capital Retained Foreign Net Total
capital premium benefit redemption earnings currency unrealised equity
trust reserve translation gains
reserve reserve
£m £m £m £m £m £m £m £m
At 1 January 2011 13.0 454.9 (0.5) 1.8 12.5 5.4 8.4 495.5
Profit for the period - - - - 109.2 - - 109.2
Other comprehensive - - - - (1.1) 4.0 (4.2) (1.3)
income/(expense)
Total comprehensive - - - - 108.1 4.0 (4.2) 107.9
income/(expense) for the
period
Share based payment - - - - 5.6 - - 5.6
Deferred income tax - - - - (0.7) - - (0.7)
relating to share based
payments
Shares issued - 2.7 - - - - - 2.7
Equity dividends paid - - - - (81.2) - - (81.2)
At 30 June 2011 13.0 457.6 (0.5) 1.8 44.3 9.4 4.2 529.8
At 1 January 2012 13.0 459.4 (0.4) 1.8 50.3 7.5 (7.5) 524.1
Profit for the period - - - - 116.5 - - 116.5
Other comprehensive - - - - (32.1) (2.2) (9.0) (43.3)
income/(expense)
Total comprehensive - - - - 84.4 (2.2) (9.0) 73.2
income/(expense) for the
period
Share based payment - - - - 4.8 - - 4.8
Income tax deduction on - - - - 0.5 - - 0.5
exercise of share
options
Deferred income tax - - - - 2.8 - - 2.8
relating to share based
payments
Shares issued 0.8 273.2 - - - - - 274.0
Equity dividends paid - - - - (86.7) - - (86.7)
At 30 June 2012 13.8 732.6 (0.4) 1.8 56.1 5.3 (16.5) 792.7
Half year condensed consolidated cash flow statement for the 6 months ended 30 June 2012
Notes 30 June 30 June
2012 2011
£m £m
Cash flows from operating activities
Operating profit on continuing activities before 169.2 159.2
interest and taxation
Depreciation 38.5 34.0
Amortisation of intangible assets 41.2 28.3
Share based payment expense 4.8 5.6
Pensions (5.5) (6.0)
Movement in provisions (0.4) (8.8)
Movement in receivables and payables (46.5) (32.7)
Cash generated from operations 201.3 179.6
Income tax paid (29.5) (26.5)
Net interest paid (22.8) (17.7)
Net cash inflow from operating activities 149.0 135.4
Cash flows from investing activities
Purchase of property, plant and equipment (55.0) (38.7)
Proceeds from sale of property, plant and equipment 1.0 0.3
Investment loan - 0.5
Acquisition of subsidiary undertakings and businesses (106.2) (120.4)
Cash acquired with subsidiary undertakings 0.2 2.0
Debt repaid on acquisition of subsidiary undertakings (42.2) (16.9)
Net cash outflow from investing activities (202.2) (173.2)
Cash flows from financing activities
Issue of ordinary share capital 276.6 2.7
Share transaction costs (2.6) -
Dividends paid 5 (86.7) (81.2)
Capital element of finance lease rental payments 9 (1.1) (0.3)
Asset based securitised financing arrangement 9 - (7.8)
Instalment debtor movement - 9.4
Proceeds on issue of debt 9 185.0 100.8
Revolving credit facility 9 (178.0) -
Financing arrangement costs (1.1) (0.1)
Repayment of loan notes and long term debt 9 (24.7) -
Net cash inflow from financing activities 167.4 23.5
Net increase/(decrease) in cash and cash equivalents 114.2 (14.3)
Cash and cash equivalents at the beginning of the 71.5 (60.3)
period
Cash and cash equivalents at 30 June 185.7 (74.6)
Cash and cash equivalents comprise:
Overdraft 9 - (116.4)
Cash at bank and in hand 9 185.7 41.8
Total 185.7 (74.6)
Notes to the half year condensed consolidated financial statements for the 6 months ended 30 June 2012
1 Corporate information
Capita plc is a public limited company incorporated in England and Wales whose
shares are publicly traded. The half year condensed consolidated financial
statements of the Company and its subsidiaries (`the Group') for the 6 months
ended 30 June 2012 were authorised for issue in accordance with a resolution of
the Directors on 24 July 2012.
2 Basis of preparation, accounting policies, principal risks and uncertainties
and going concern
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2012 have been prepared in accordance with the Disclosure and
Transparency Rules (DTR) of the Financial Services Authority and with IAS 34
Interim Financial Reporting.
The half year condensed consolidated financial statements do not include all
the information and disclosures required in the annual financial statements and
should be read in conjunction with the Group's annual financial statements as
at 31 December 2011, which have been prepared in accordance with IFRSs as
adopted by the European Union.
This condensed consolidated half year financial information does not comprise
statutory accounts within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2011 were approved by the
Board of Directors on 22 February 2012 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under Section 498 of the Companies Act 2006.
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2012 have not been audited or reviewed by auditors pursuant to
the Auditing Practices Board guidance on Review of Interim Financial
Information.
(b) Significant accounting policies
The accounting policies adopted in preparation of the half year condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2011, except for the adoption of the new standard as of 1 January
2012, noted below.
IFRS 7 Financial Instruments: Disclosures - Transfers of Financial Assets
(Amendment)The IASB issued an amendment to IFRS 7 that enhances disclosures for
financial assets. These disclosures relate to assets transferred (as defined
under IAS 39). If the assets transferred are not derecognised entirely in the
financial statements, an entity has to disclose information that enables users
of financial statements to understand the relationship between those assets
which are not derecognised and their associated liabilities. If those assets
are derecognised entirely, but the entity retains a continuing involvement,
disclosures have to be provided that enable users of financial statements to
evaluate the nature of, and risks associated with, the entity's continuing
involvement in those derecognised assets. The effective implementation date is
for annual periods beginning on or after 1 July 2011 with no comparative
requirements. The adoption of this revised standard did not have any impact on
the financial position or performance of the Group.
(c) Principal risks and uncertainties and going concern
The Directors have considered the principal risks and uncertainties affecting
the Group's financial position and prospects in 2012. As described on pages 33
and 34 of the Group's Annual Report for 2011, the Group continues to be exposed
to a number of risks and has well established systems and procedures in place
to identify, assess and mitigate those risks. The risks faced by the Group have
not changed significantly over the first 6 months of 2012 and are not expected
to change materially in the remaining 6 months.
The principal risks include those arising from: failure to meet service level
agreements, possible loss of contracts and damage to brand reputation;
counterparty failure including disruption to supply chains or service
interruption; failure to achieve planned synergies in acquisitions; weaker
economic conditions are a key driver for outsourcing but extreme economic
uncertainty may result in delays in purchasing decisions and reduced
discretionary spend in some market segments; regulatory changes in different
jurisdictions may impact businesses in those locations; failure to attract and
maintain key staff; failure to secure sensitive or confidential data; and
failure to comply with complex laws and regulations.
The Directors have considered the issues raised in the FRC's "Update for
directors of listed companies: Responding to heightened country and currency
risk in interim financial reports" and can report that, although the Group is
not directly exposed to significant overseas sovereign and currency risks, it
is exposed indirectly to increased counterparty risk. The Group attempts to
mitigate this risk by counterparty monitoring and the avoidance of
concentrations of counterparty risk.
The Group has considerable financial resources together with long term
contracts with a wide range of public and private sector clients and suppliers.
As a consequence, the Directors believe the Group is well placed to manage its
business risks successfully.
After making enquiries and in accordance with the FRC's "Going Concern and
Liquidity Risk: Guidance for Directors of UK Companies 2009", the Directors
have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the half year condensed
consolidated financial statements.
3 Segmental information
The following tables present revenue and profit information regarding the
Group's operating segments for the six months ended 30 June 2012 and 2011
respectively.
6 months ended 30 June 2012 2011
Total Inter- External Total Inter- External
revenue segment revenue revenue segment revenue
revenue revenue
Analysis of segment £m £m £m £m £m £m
revenue
Investor & Banking 119.1 (9.0) 110.1 98.5 (9.7) 88.8
Services
General Insurance 75.6 - 75.6 97.0 - 97.0
Life & Pensions 325.0 (31.4) 293.6 312.0 (33.9) 278.1
Services
Integrated Services 256.0 (6.9) 249.1 114.7 (7.5) 107.2
Professional 237.8 (51.1) 186.7 258.3 (55.1) 203.2
Services
IT Services & 381.4 (63.6) 317.8 356.3 (68.2) 288.1
Consulting
Health 105.9 (9.7) 96.2 77.9 (10.5) 67.4
Property Services 133.2 (13.1) 120.1 139.5 (14.1) 125.4
Workplace Services 170.4 (12.3) 158.1 157.9 (13.2) 144.7
Total segments 1,804.4 (197.1) 1,607.3 1,612.1 (212.2) 1,399.9
Analysis of segment profit 6 months 6 months
to 30 to 30
June June
2012 2011
£m £m
Investor & Banking Services 27.1 21.6
General Insurance 9.6 12.8
Life & Pensions Services 28.9 26.4
Integrated Services 36.7 17.2
Professional Services 45.7 49.3
IT Services & Consulting 28.8 29.0
Health 13.1 11.6
Property Services 8.1 8.6
Workplace Services 18.6 16.5
Total underlying segment profit 216.6 193.0
Net underlying finance costs (25.9) (19.0)
Underlying profit before tax 190.7 174.0
Intangible amortisation (41.2) (28.3)
Acquisition costs (6.2) (5.5)
Financial instruments - mark to market 0.5 1.2
Profit before tax 143.8 141.4
4 Earnings per share
The average number of shares in issue during the period was 622.9m (30 June
2011: 606.4m). The diluted earnings per share have been calculated on the
profit for the period of £116.5m (30 June 2011: £109.2m) and an average diluted
number of shares of 625.8m (30 June 2011: 614.4m). As at 24 July 2012, there
were 650.6m shares in issue.
5 Dividends
The interim dividend of 7.9p (2011: 7.2p) per share (not recognised as a
liability at 30 June 2012) will be payable on 15 October 2012 to ordinary
shareholders on the register at the close of business on 14 September 2012. The
dividend disclosed in the cash flow statement represents the final ordinary
dividend of 14.2p (2011: 13.4p) per share as proposed in the 31 December 2011
financial statements and approved at the Group's AGM (not recognised as a
liability at 31 December 2011).
6 Business combinations
The Group has made a number of acquisitions in the period which are shown in
aggregate below:
Provisional
fair value
to Group
£m
Property, plant and equipment 4.1
Intangible assets 18.9
Deferred tax (1.9)
Debtors - gross 32.5
Provision for doubtful debts (2.8)
Cash and cash equivalents 0.2
Creditors (11.5)
Provisions (1.3)
Long term debt (42.2)
Net liabilities (4.0)
Goodwill arising on acquisition 98.9
94.9
Discharged by:
Cash 94.9
The full exercise to determine the fair value of intangible assets acquired is
still to be completed, thus the above numbers are provisional; this exercise
will be finalised for the full year financial statements. Further cash
consideration was paid in respect of previous acquisitions of £5.1m.
The performance of these acquisitions post their inclusion in the Group cannot
be ascertained as they have been fully integrated within existing offerings.
7 Provisions
Insurance Property Arch Other Total
captive provision Cru
provision
£m £m £m £m £m
At 1 January 2012 20.3 40.4 0.6 2.4 63.7
Utilisation (0.4) (5.3) (0.1) (0.2) (6.0)
Additional provisions in the period 4.1 1.5 - - 5.6
Provisions acquired - 1.3 - - 1.3
At 30 June 2012 24.0 37.9 0.5 2.2 64.6
The insurance provision is made in relation to the Group's Professional
Indemnity, Motor and Employee Liability exposures. The Group uses a captive
insurer to reduce the cost of providing this cover for its operations; claims
that are in excess of the Captive's liability are reinsured with a number of
large insurance underwriters. The Group makes provision when a claim has been
made where it is more probable than not that an insured loss will occur. These
provisions are reassessed regularly to ensure that the level of provisioning is
consistent with the claims that have been reported.
The property provision includes a discounted provision for the difference
between the market value of the property leases acquired in 2011 with Ventura
and Vertex and the lease obligations committed to at the date the leases were
signed by the previous owners. This is in accordance with IFRS 3 (revised)
which requires the use of fair value measurement. The remaining property
provision is made on a discounted basis for the future rent expense and related
cost of leasehold property (net of estimated sub-lease income) where the space
is vacant or currently not planned to be used for ongoing operations. The
expectation is that this expenditure will be incurred over the remaining
periods of the leases which range from 1 to 15 years.
Other relates to provisions in respect of potential claims arising due to the
nature of some of the operations that the Group provides. These are likely to
unwind over a period of 1 to 3 years.
8 Share capital
The Company completed a placing of shares in April 2012 for 40m ordinary shares
at a price of 685 pence per share. The gross proceeds to the Company from the
placing of the new ordinary shares were £274m. The new ordinary shares issued
in the placing, representing approximately 6.5 per cent of the Company's issued
share capital prior to the placing, were credited as fully paid and rank pari
passu in all respects with the existing ordinary shares.
9 Movement in net debt
Net debt Acquisitions Cash flow Non-cash Net debt
at 1 in 2012 movements flow at 30
January movements June 2012
2012
£m £m £m £m £m
Cash and cash equivalents 71.5 0.2 114.0 - 185.7
Cash 71.5 0.2 114.0 - 185.7
Loan notes (2.3) - - (0.6) (2.9)
Bonds* (1,432.2) - 24.7 (7.9) (1,415.4)
Term debt - - (185.0) - (185.0)
Revolving credit facility (176.1) - 178.0 (1.9) -
Currency swaps in relation to US 242.4 - - 7.5 249.9
$ denominated bonds*
Interest rate swaps in relation 13.5 - - 1.0 14.5
to GBP denominated bonds*
Long term debt - (42.2) 42.2 - -
Finance leases (3.1) - 1.1 - (2.0)
Underlying net debt (1,286.3) (42.0) 175.0 (1.9) (1,155.2)
Fixed interest rate swaps (44.7) - - (0.6) (45.3)
(1,331.0) (42.0) 175.0 (1.9) (1,200.5)
* The aggregate bond fair value above of £1,415.4m (30 June 2011: £1,092.6m)
includes the GBP value of the US$ denominated bonds. To remove the Group's
exposure to currency fluctuations it has entered into currency swaps which
effectively hedge the movement in the underlying bond fair value. The interest
rate swaps are being used to hedge the exposure to changes in the fair value of
GBP denominated bonds. The sum of these items held at fair value equates to the
underlying value of the Group's bond debt of £1,151.0m (30 June 2011: £934.3m).
Net debt Acquisitions Cash flow Non-cash Net debt
at 1 January in 2011 movements flow at 30
2011 movements June 2011
£m £m £m £m £m
Cash and cash equivalents 38.5 - 3.3 - 41.8
Overdraft (98.8) - (17.6) - (116.4)
Cash (60.3) - (14.3) - (74.6)
Loan notes (2.3) - - - (2.3)
Bonds* (1,016.4) - (100.7) 24.5 (1,092.6)
Long term debt - (16.9) 16.9 - -
Currency swaps in relation to US 178.5 - - (24.8) 153.7
$ denominated bonds*
Interest rate swaps in relation 4.4 - - 0.2 4.6
to GBP denominated bonds*
Finance leases (2.4) - 0.3 - (2.1)
Underlying net debt (898.5) (16.9) (97.8) (0.1) (1,013.3)
Fixed interest rate swaps (37.5) - - 1.2 (36.3)
Asset based securitised finance (11.7) - 7.8 - (3.9)
(947.7) (16.9) (90.0) 1.1 (1,053.5)
10 Capital commitments
At 30 June 2012, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment amounted to £
1.0m (2011: £3.2m).
11 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
Pursuant to the Company's share placing which completed on 24 April 2012, funds
managed by Invesco Limited, a substantial shareholder in the Company and
therefore a related party of the Company (in each case, for the purposes of the
Listing Rules of the UK Listing Authority), subscribed, pro rata to their
previously existing holdings, for an additional 8,000,000 shares in the Company
at the placing price of 685p representing an aggregate further investment of £
54.8 million.
Compensation of key management personnel (including Directors of parent
company)
6 months 6 months
30 June 30 June
2012 2011
£m £m
Short term employment benefits 2.1 2.0
Post employment benefits 0.1 0.1
Share based payments 1.0 2.5
3.2 4.6
Gains on share options exercised in the period by key management personnel
totalled £4.9m (2011: £4.9m).
12 Contingent liabilities
The Group has provided, through the normal course of its business, performance
bonds and bank guarantees of £49.0m (31 December 2011: £47.6m).
Further consideration may be due, dependent on certain performance criteria, on
acquisitions completed by the Group since 2010 up to a maximum of £130.5m of
which £57.2m has been provided. The Group expects that these payments, if
ultimately due, will be satisfied by the end of 2016.
Statement of Directors' responsibilities
The Directors confirm, to the best of their knowledge, that this condensed set
of financial statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the Half Year Management Report includes a fair
review of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of the
Disclosure and Transparency Rules of the United Kingdom Financial Services
Authority.
The names and functions of the Directors of Capita plc are as listed in the
Group's Annual Report for 2011. A list of current Directors is maintained on
the Group website: www.capita.co.uk.
By order of the Board
P R M Pindar G M Hurst
Chief Executive Group Finance Director
24 July 2012
Friday, 22nd November 2024
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