Final Results

Capita Group PLC 22 February 2001 Preliminary results for the year ended 31 December 2000 Continued strong growth in all markets Highlights: - Strong growth over the year, leading to record operating profits of £53.1m up 46% on 1999; - Operating margins increased from 10.9% to 12%; - £700m of new major contracts won in 2000, representing a win rate of one out of every two opportunities bid for; - Largest ever contract secured in July - £400m, 10 year contract to set up and administer the Criminal Records Bureau for the Home Office; - Acquisitions of Eastgate and IRG, provide increased opportunities in the private sector; - In January, secured largest ever private sector contract win - £ 323m, 10 year contract to develop and administer general insurance activities for Abbey National. Financial highlights: Year ended 31 December Year ended 31 December Change 2000 1999 Turnover £453m £327m +39% Operating profit* £53.1m £36.4m +46% Pre-tax profit* £51.2m £36.3m +41% Earnings per share* 5.6 pence 4.07 pence** +38% Total dividend per 1.65 pence 1.27 pence** +30% share Operating cashflow £68.9m £34.3m +101% * before amortising goodwill ** restated following bonus issue in August 2000 Rod Aldridge, Executive Chairman of The Capita Group Plc, commented: 'By any measure, the last 12 months have been a particularly successful period for Capita. We are at the forefront of the evolution of business process outsourcing in the UK, helping our customers, both in the public and private sectors, to react positively to the challenges they face in their own markets. 'The record levels of new business secured in 2000 already underpin strong organic growth for 2001. The year has started strongly with current trading materially ahead of the corresponding period last year. 'Our existing markets continue to offer numerous opportunities for profitable growth and the new sectors we are entering will enhance this further. We view the current year, and beyond with considerable confidence.' -Ends- For further information: The Capita Group Plc Tel: 020 7799 1525 Rod Aldridge OBE, Executive Chairman Paul Pindar, Chief Executive Shona Nichols, Group Marketing Director Hogarth Partnership Limited James Longfield/John Olsen Tel: 020 7357 9477 CHAIRMAN'S STATEMENT Introduction By any measure, the last 12 months have been a particularly successful period for Capita, the UK's fast growing professional support services group. Highlights from the year include: - Continued strong growth leading to record profits - Strong operating cash flow - The Group's largest ever public sector contract win, worth £400m - Our largest ever private sector contract win, worth £323m - Two key acquisitions, underpinning significant growth in the financial services market. Capita is at the forefront of the evolution of business process outsourcing in the UK, leading and shaping, not following and replicating. We help our customers, both in the public and private sectors, to react positively to the challenges they face in their own markets. We harness the best of IT and business processes to provide new models and methods of delivering services. We focus on adding value and supporting step changes in organisations by providing new service infrastructures and increasing the flexibility, responsiveness and quality of services. Results In the year ended 31st December 2000, our turnover increased by 39% to £453m (1999: £327m); operating profits before goodwill amortisation rose by 46% to £ 53.1m (1999: £36.4m) and net profits before taxation and amortisation of goodwill increased by 41% to £51.2m (1999: £36.3m). Our operating margins have widened from 10.9% to 12%. Earnings per share before amortising goodwill advanced by 38% to 5.60p (1999: 4.07p, re-stated following a bonus issue in August 2000). The underlying strength of Capita's business is demonstrated by our positive operating cash flow with £68.9m (1999: £34.3m) being generated during the period. We have increased gearing during the year to fund acquisitions which has, in turn, created a more efficient capital structure. Dividend The Board is recommending a final dividend of 1.1p per ordinary share making a total of 1.65p (1999: 1.27p net, re-stated) for the year. This represents a 30% increase on the dividends paid in respect of the 1999 financial year. The total dividend for the year is covered 3.4 times by the earnings per ordinary share, before amortisation of goodwill. The final dividend will be payable on 27th April 2001 to shareholders on the register at the close of business on 30th March 2001. Creating and sustaining growth Three complementary approaches underpin our growth strategy. First, we seek to win major contracts delivering complex projects that utilise our skills across the Group and which generate high quality, recurring revenues. Secondly, each of our individual areas of business is structured to secure incremental revenue through new business wins and the development of existing client relationships. Thirdly, we continue to make strategic acquisitions to strengthen our presence within a market or our service capability. In 2000, we have surpassed the targets that we set ourselves in each of these three areas. Major contracts 2000 was our most successful year ever, with Capita winning £700m of new major contracts, representing one out of every two opportunities we bid. At our Interim Results in July, we reported several key contract wins including a £50m agreement with the DfEE to administer the introduction of Individual Learning Accounts and a £10m contract with the Benefits Agency to deliver the new Winter Fuel Payment Scheme. Most notably, we also announced that the Group had been awarded a 10-year partnership worth £400m to set up and administer the Criminal Records Bureau (CRB), a new Government Agency designed to support safer recruitment to protect children and vulnerable adults from harm. The first two contracts have been implemented during the second half and are running very successfully. The implementation of the CRB contract, which has a longer lead-time, is also progressing well, with distribution of certificates due to commence later this year. Our major contract sales successes have continued in the second half of the year. In October, Blackburn with Darwen Borough Council selected Capita as its preferred partner to deliver a wide range of support services to the Council. The scope and duration of this contract is in the final stages of negotiation. We expect to confirm the outcome of our discussions by the end of March. However, I am able to indicate today that we anticipate the eventual size of the contract will be materially larger than the £80 million over ten years previously announced. In November, we were chosen as strategic partner by Cumbria County Council to manage and develop its Design and Business Services Directorate. This Directorate, as well as providing services to the local authority, has over 500 external clients, including schools, other local authorities, NHS Trusts, Central Government Departments and private sector organisations such as Boots, BT and the Rank Organisation. This is a 7-year partnership valued at £140m, in which 600 staff employed within the Council transferred to Capita on 1st February 2001. 2001 has also started well. Last month, we announced the signing of a 10 year contract with Abbey National Plc worth £323m to develop, manage and administer the systems development and core processing activities of its general insurance business. Capita will introduce a new technology platform, Consumer Direct, jointly developed with Cap Gemini Ernst and Young, and administer all active policies. Work has started on the contract and more than 500 employees will transfer to Capita on 1st March. Whilst we continue to be highly selective, our current sales pipeline across both the public and private sectors remains very strong and we expect to make further announcements in the coming months. We have no major re-bids in 2001. Business development During the year, we substantially strengthened the business development resources we have within each of our 5 areas of business. This investment has been rewarded with strong organic growth coming from both winning more work from existing customers and by attracting a succession of new clients to the Group. Our contract with Westminster City Council for the provision of HR personnel, professional and administrative services has been extended for two years until September 2003. We have also renegotiated our Housing Benefits contracts with Westminster and the London Borough of Bexley to reflect recent changes in regulations, generating further revenue of £10m over the remaining period. The Cabinet Office has extended for two years, until April 2003, our contract for recruitment of fast track civil servants. Contracts with Birmingham City Council, Canterbury City Council, the London Boroughs of Camden and Haringey involving the collection of Council Tax, Non-domestic Rates and road traffic debts have also been extended for periods varying from 2 to 5 years. New pay and pensions contracts have been won with DERA, which is an Agency of the MoD, Texaco and the Simon Group, along with recruitment work supporting several large scale start up and organisational change projects in public sector organisations. Significant consultancy contracts have been undertaken for the Cabinet Office, Foreign and Commonwealth Office, Employment Service, the DfEE and the Millennium Commission. We secured our first major schools infrastructure contract in Bradford as part of the Bovis team. The Government recently announced a 3 year, £4 billion school building investment initiative in England and we expect to win other consultancy work as a part of this programme. For a number of our existing customers, we have also broadened the scope of our relationship. For example, in our contract with the Benefits Agency, we have agreed a range of additional services generating a further £15m over 18 months. Norfolk County Council, where we have a 10 year partnership, has recently been awarded £4m by the DETR for e-government initiatives. We will be working with them on the development and implementation of this strategy. We have also broadened the contract we have with Norwich Union generating further revenue of £10m over the next two years. Acquisitions We have continued our policy of making acquisitions where we believe we can add value for shareholders over both the short and long term. I would like to highlight two significant transactions during the year. In April, we acquired IRG (renamed Capita IRG) for £100m. This shareholder services business brought 1,200 new public company clients to the Group and we have subsequently gained a further 220. Of this client base, only 10% currently buy more than one of Capita IRG's services. There is therefore considerable scope for growth within the business. Capita IRG has acted as the registrar in 80% of the London Stock Market flotations over the past year, a significant increase in its market share. We have also acted in a number of major corporate transactions, including the £4.5bn acquisition of Thames Water by RWE AG. This is 50% bigger than the largest transaction in which Capita IRG acted when it was privately owned. Capita IRG has also increased brand awareness of the Capita Group across the private sector, creating and influencing other outsourcing sales opportunities. We are delighted by the manner in which Capita IRG has been integrated within Capita and its subsequent performance. Underlying revenues are already 18% higher than the corresponding period 12 months ago and we anticipate further growth in the current year. In October, we acquired the remaining 74% of Eastgate Group Limited for an initial consideration of £9m and a deferred consideration of £6m, which will be payable in September 2001. During our 18 months as a minority investor in Eastgate, we reached two clear conclusions. First, the market opportunity for insurance outsourcing services was substantial; secondly, the company required stronger managerial and financial resources to exploit the opportunity. Our first view has already been confirmed by securing the contract with Abbey National in which Capita played a key role. Its announcement has created a substantial pipeline of customers across the finance and insurance sectors keen to explore this service delivery model. We are confident that similar contracts will follow. Secondly, I am delighted by the speed with which Eastgate's business has been materially improved following our acquisition and we have already made substantial efficiencies. We welcome all the employees of our newly acquired businesses into Capita, along with those that have joined us through contract wins or by direct recruitment. Our markets Our core markets of local government, education, central government and the private sector continue to offer a myriad of opportunities. Indeed, we believe that our addressable market in the UK will be worth £30bn per annum within 3 years. All of our markets are active and our key internal decisions remain where to direct our sales resources to conclude the best deals and to make best use of our infrastructure. We do not rely on any one sector for our continued growth and have set no target for the overall mix of our business. Romtec's latest industry survey, Datacenter, Facilities Management and BPO Market 2000, confirms the progress that we have made this year. It states that we are number one in the local government market with 20% share (third in 1999), number three in central government with 7% share (fifth in 1999) and number two overall in the BPO market with 15% share (fifth in 1999). Local Government The pressures on local authorities to enhance and modernise their services continue to fuel the growth of BPO in this market and we are well positioned to continue to benefit from this. Best value became a statutory duty for all local authorities in April 2000 and already there is evidence that authorities are using it to develop new approaches to service delivery and to strategic partnerships with the private sector, clearly demonstrated by our new relationships with Cumbria and Blackburn with Darwen. The other drivers that will influence local government decision-making are the Government's targets for e-government and a desire to improve public access to services. In anticipation of these new market demands, we have been developing a leading edge web enabled software solution named Academy Direct, to provide a single, intelligent gateway for the public to access local authorities' services 24 hours a day and 7 days a week via traditional and all new electronic communications channels. I am pleased to announce that Academy Direct has now secured its first customer, Weymouth Borough Council, and we have had an overwhelming response from other local authorities expressing interest in the product. As part of the quest to modernise services, we also anticipate that local authorities will be encouraged to centralise certain services, particularly the collection of Council Tax. We are in a prime position to assist with the delivery and transformation of services in this way through our network of business centres across the UK. Education The education sector continues to provide Capita with further opportunities for significant business growth. Capita is positioned as the leading private sector partner to local education authorities (LEA's) and to schools for support services. In 2000, we have enhanced our education offering by establishing Capita Strategic Education Services, led by a very experienced team recruited from LEA's, Ofsted and other organisations associated with the sector. We also formed an Alliance with the Local Government Association and the Improvement and Development Agency. Capita is now in a position to grow further our business in the education sector with our full range of education support, advisory and managed services. I am pleased to report that Capita has recently been chosen as the preferred bidder to work with Leeds City Council to provide advice to the LEA and support the schools in the city. Initially, this will be consultancy led but will provide opportunities for the Group to offer other services as the relationship develops. We have also won work in Middlesbrough, Thurrock and have been selected by the DfEE to develop new models of service delivery in education for Oxfordshire, West Berkshire, Wokingham and North Somerset. E-services will be increasingly important in education. Our education portal is on target to be launched in the second half of this year and as part of this initiative, we recently launched a new internet based service, the Parents Gateway, which will give parents secure access to information such as the child's timetable and homework requirements, attendance and disciplinary record and their exam results. This will be connected directly into our SIMS software used by 90% of all schools in the country, making it a cost effective service for schools to offer. The education portal provides Capita with a direct channel to deliver the range of its business support, education and human resource services directly to schools. Our network of business centres will enable us to develop regional education support hubs. Central Government The last year has seen much expansion of private sector involvement in central government business. Capita is now seen as a leading player in this market with a strong record in implementing and running new Government initiatives such as the CRB, Individual Learning Accounts and Winter Fuel payments. All political parties have made it clear that they welcome the involvement of the private sector in the development and delivery of public services. The Government is progressing with its Better Quality Services programme across central government and its agencies. This, along with the demanding e-government targets set by the Prime Minister, will create an increasing level of business opportunities. Capita continues to work with Government Departments to shape new ways of delivering services and to foster better understanding of how the private sector can contribute to the transformation of public services. Private sector Demand for our services across the private sector is buoyant. A survey published by Nelson Hall in June 2000 indicated that the potential demand for outsourcing services in HR, back office, administration, billing and customer call centres will more than quadruple over the next three years; key services in which Capita has considerable experience. Our current focus is on the financial services area, where we believe that the increased competition for our clients in this market and the need to introduce e-business solutions will be strong drivers to outsource a wide range of services. Within the insurance market, the Group now has a very strong capability following the acquisition of Eastgate. We provide services for 145 Lloyds syndicates and 70 insurers, dealing with over 5 million assistance calls and approaching 1 million household, motor and travel claims. We are the UK's largest third party insurance claims administrator and the largest provider of insurance help line facilities in the UK. Our depth of insurance administration experience alongside Consumer Direct, positions us as a key partner to clients wishing to transform their organisations. Offering e-commerce, straight through processing and a fully integrated sales and service capability, Consumer Direct enables companies to become virtual insurance organisations. They can efficiently offer their customers general insurance products supported by a panel of risk carriers, under their own brand, through whatever distribution channel they choose, including face to face, call centre, internet access, WAP phone and interactive TV. It is a leading edge technology and process platform and has created wide interest in the industry, particularly following Abbey National's decision to be the first customer to use it. Our people During the year we undertook a series of roadshows around the United Kingdom giving us the opportunity to talk directly to and hear from a significant proportion of our staff. We are privileged to have such a strong and growing team of enthusiastic and committed people. We enjoy a positive culture, which places a high priority on delivering what we promise to both colleagues and customers alike, resulting in many commendations from our clients for the manner in which we deliver services. I would like to place on record the Board's thanks to all of our staff who continue to contribute to the Group's progress. In September, we introduced a Sharesave Scheme, available to all employees within the Group. We are delighted by the response to this Scheme with nearly 50% of our staff choosing to participate in its first year of operation. We intend to invite staff to join this Scheme on an annual basis so that existing and new staff can all share in our success. Board changes Derek Fowler CBE, our non-executive Deputy Chairman retired from the Board in November. Derek joined the Board before the Group floated on the USM in 1989. He has been an invaluable source of advice and support to the Board as a whole and to me personally. On behalf of the Board, I extend our sincere thanks for his contribution to Capita and our best wishes for his well-earned retirement. I am delighted to welcome Eric Walters as a non-executive Director. Eric was a Senior Partner of the private equity firm Alchemy Partners, which he joined in 1997 from Schroder Ventures, another leading private equity firm. Eric's extensive management expertise and his breadth of experience across many private sector industries will be invaluable. Prospects The record levels of new business secured in 2000 already underpin strong organic growth for 2001. The year has started strongly with current trading materially ahead of the corresponding period last year. Our existing markets continue to offer many opportunities for profitable growth and we anticipate that the new market sectors we are penetrating will enhance this further. This position, coupled with the depth, calibre and experience of our senior management team, results in the Board viewing the current year and beyond with considerable confidence. Rodney M Aldridge OBE Executive Chairman 21st February 2001 Group Profit and Loss Account for the year ended 31st December 2000 2000 1999 (restated) Before Goodwill Before Goodwill goodwill Amortisation Total goodwill Amortisation Total Notes £000's £000's £000's £000's £000's £000's Turnover 1 Continuing 400,853 - 400,853 327,199 - 327,199 operations Acquisitions 52,495 - 52,495 - - - 453,348 - 453,348 327,199 - 327,199 Cost of sales 309,951 - 309,951 221,815 - 221,815 Gross profit 143,397 - 143,397 105,384 - 105,384 Administrative 88,915 9,815 98,730 69,594 3,044 72,638 expenses Operating profit Continuing 46,986 (5,083) 41,903 35,790 (3,044) 32,746 operations Acquisitions 7,496 (4,732) 2,764 - - - Group 54,482 (9,815) 44,667 35,790 (3,044) 32,746 operating profit Share of operating (loss)/profit (1,358) (1,429) ( 2,787) 639 (1,123) (484) in associates Total operating profit: Group 53,124 (11,244) 41,880 36,429 (4,167) 32,262 and share of associates Net interest (1,906) - (1,906) (114) - (114) payable Profit on ordinary activities 1 51,218 (11,244) 39,974 36,315 (4,167) 32,148 before taxation Tax on profit 14,868 - 14,868 11,273 - 11,273 on ordinary activities Profit on ordinary activities 36,350 (11,244) 25,106 25,042 (4,167) 20,875 after taxation Minority 48 - 48 54 - 54 interest (non- equity) Profit for the 36,302 (11,244) 25,058 24,988 (4,167) 20,821 financial year Dividends 10,763 - 10,763 7,921 - 7,921 Retained 25,539 (11,244) 14,295 17,067 (4,167) 12,900 profit for the year Earnings per 2 5.60p (1.73)p 3.87p 4.07p (0.68)p 3.39p share - Basic - Diluted 2 5.41p (1.66)p 3.75p 3.95p (0.66)p 3.29p Balance Sheets at 31st December 2000 Group Company 2000 1999 2000 1999 (restated) £000's £000's £000's £000's Fixed assets Intangible assets 290,965 96,109 - - Tangible assets 37,155 22,252 714 148 Investments 450 27,340 374,836 205,989 328,570 145,701 375,550 206,137 Current assets Trade investments 3,456 224 2,634 207 Debtors due within one year 109,933 74,863 46,466 19,225 Debtors due beyond one year 2,025 2,867 - - Cash at bank and in hand - 1,710 - - 115,414 79,664 49,100 19,432 Creditors: amounts falling due within one year 188,896 101,074 100,537 32,002 Net current liabilities (73,482) (21,410)(51,437)(12,570) Total assets less current liabilities 255,088 124,291 324,113 193,567 Creditors: amounts falling due after more than one year 4,992 6,562 3,000 4,000 Provisions for liabilities and charges 2,949 987 - - 247,147 116,742 321,113 189,567 Capital and reserves Called up share capital 13,065 4,176 13,065 4,176 Shares to be issued 4,440 630 4,440 630 Share premium account 232,813 131,283 232,813 131,283 Merger reserve - - 22,884 20,893 Profit and loss account (net of goodwill (3,771) (20,022) 47,911 32,585 written off) Shareholders' funds (equity) 246,547 116,067 321,113 189,567 Minority interest (Non-equity) 600 675 - - 247,147 116,742 321,113 189,567 Group Statement of Total Recognised Gains and Losses for the year ended 31st December 2000 2000 1999 (restated) £000's £000's Profit attributable to the members of the parent 25,058 20,821 undertaking Exchange adjustments (35) (46) Total recognised gains and losses 25,023 20,775 Prior year adjustment 934 Total recognised gains and losses since last annual report 25,957 Group Cash Flow Statement for the year ended 31st December 2000 2000 1999 £000's £000's £000's £000's Cash flow from operating activities 68,910 34,349 Returns on investments and servicing of finance Dividends paid to minorities in subsidiaries (48) (43) Interest received 885 513 Interest element of finance lease payments (55) (48) Interest paid (1,400) (822) Net cash outflow from returns on investments and servicing of finance (618) (400) Taxation paid (11,331) (10,864) Capital expenditure and financial investment Purchase of tangible fixed assets (17,178) (12,283) Purchase of trade investments (2,500) (63) Purchase of fixed asset investments - (6,500) Proceeds on sale of fixed assets 284 1,695 Net cash outflow from capital expenditure and financial investment (19,394) (17,151) Acquisitions and disposals Purchase of subsidiary undertakings (73,276) (24,815) Sale of subsidiary undertakings - 120 Overdraft acquired with subsidiary (4,024) (1,925) undertakings Cash sold with subsidiary undertaking - (519) Purchase of business (2,534) - Purchase consideration paid by subsidiary (3,118) - undertaking Pre-acquisition deferred consideration paid by subsidiary undertaking (3,000) (950) Purchase of interest in associated (2,176) (20,647) undertaking Sale of interest in associated undertaking - 100 Net cash outflow from acquisitions and disposals (88,128) (48,636) Equity dividends paid (9,013) (6,252) Net cash outflow before use of financing (59,574) (48,954) Financing Issue of ordinary share capital 103,322 48,076 Share issue costs (1,617) (855) Factored debt (1,186) - Capital element of finance lease rental (828) (199) payments Repayment of long term loans (44,997) - Net cash inflow from financing 54,694 47,022 Decrease in cash in the period (4,880) (1,932) Notes to the Accounts for the year ended 31st December 2000 (1) Segmental information (a) Turnover and profit on ordinary activities before taxation Class of Business Software, Systems Human and Strategic Customer Resources Commercial Property Services Services Services Services Services Total £000's £000's £000's £000's £000's £000's Turnover 2000 Continuing 90,436 152,229 7,404 51,885 124,666 426,620 operations Acquisitions 8,167 12,371 31,957 - - 52,495 98,603 164,600 39,361 51,885 124,666 479,115 Inter-segment (1,332) (1,596) - (1,134) (21,705)(25,767) sales Third party 97,271 163,004 39,361 50,751 102,961 453,348 sales 1999 Continuing 80,091 105,553 7,150 43,205 106,871 342,870 (restated)operations Inter-segment (108) (1,345) - (256) (13,962)(15,671) sales Third party 79,983 104,208 7,150 42,949 92,909 327,199 sales Profit before tax 2000 Continuing 8,623 16,902 1,227 6,154 14,080 46,986 operations Acquisitions 214 954 6,328 - - 7,496 Segment 8,837 17,856 7,555 6,154 14,080 54,482 profit Associated (1,358) undertakings Interest (1,906) payable Goodwill (11,244) amortised Total 39,974 1999 Continuing 5,709 11,919 729 5,323 12,110 35,790 (restated) operations Associated 639 undertakings Interest (114) payable Goodwill (4,167) amortised Total 32,148 Net assets 2000 Continuing 1,501 (8,087) 4,080 9,116 (604) 6,010 operations Acquisitions (40,242) 1,198 12,121 - - (26,927) (38,741) (6,889) 16,201 9,116 (604)(20,917) Associated undertakings 75 Goodwill 290,965 Non-operating liabilities (22,976) liabilities 247,147 1999 (restated) Continuing 2,296 1,109 1,924 6,478 4,048 15,855 operations Associated undertakings 20,145 Goodwill 96,109 Non-operating liabilities (15,367) 116,742 The results of the Group are now reported under five divisions, which differ from those reported in the accounts for the year ended 31st December 1999. Software Services and Systems and Strategic Services have been merged to take advantage of the synergies within the businesses. The Commercial Services Division, a new division formed after the acquisition of IRG Plc, includes some businesses previously reported under Systems and Strategic Services. The effect of this adjustment has been to increase the 1999 Commercial Services Division, and correspondingly reduce Software, Systems and Strategic Services division by turnover of £7,150,000, operating profit of £729,000 and net assets of £1,924,000. Notes to the Accounts for the year ended 31st December 2000 (1) Segmental Information (continued) Included in turnover from acquisitions is £8,167,000 in respect of Eastgate Group Limited, £31,957,000 in respect of Capita IRG Plc, and £12,371,000 in respect of Social Housing (London) Limited. Other minor acquisitions during the year have been completely integrated within existing businesses of the Group. Accordingly it is not possible to determine their post acquisition results. Included in 'Continuing operations' above within the Property Services Division is £1,739,000 (1999: £2,070,000) of turnover generated in Europe, and £9,000 loss before tax (1999: £387,000 loss before tax) generated in Europe. These operations have ceased in the year. All other turnover and profit before tax was generated within the United Kingdom. The net assets of the Group are all based in the United Kingdom, except for net liabilities of £389,000 (1999: net liabilities of £259,000) in Europe. Non-operating liabilities comprise taxation and dividend liabilities. (2) Earnings per share Earnings per share is calculated on the basis of earnings of £25,058,000 (1999: £20,821,000 restated) and on the weighted average of 648,030,000 (1999: 614,472,000 restated for the bonus issue) shares in issue during the year, excluding the shares held in the Employee Benefit Trust. The diluted profit for the year is based on profit for the year of £25,106,000 (1999: £20,875,000), being profit for the year after adjusting for dividends payable of £48,000 (1999: £54,000) on the convertible preference shares of a subsidiary undertaking. The number of ordinary shares of 672,478,000 (1999: 633,969,000 restated) is calculated as follows: 2000 1999 (restated) 000's 000's Basic weighted average number of shares 648,030 614,472 Dilutive potential ordinary shares: Employee share options 21,037 16,503 Shares to be issued in respect of deferred 888 156 consideration Convertible preference shares of a subsidiary 2,523 2,838 undertaking 672,478 633,969 The additional earnings per share figures shown on the profit and loss are calculated based on earnings before the impact of goodwill amortisation. They are included as they provide a better understanding of the underlying trading performance of the Group. (3) Reconciliation of operating profit to net cash inflow from operating activities 2000 1999 (restated) £000's £000's Operating profit before interest 44,667 32,746 Depreciation charge 9,379 6,757 Amortisation of goodwill 9,815 3,044 Provision against trade investments 73 75 Employee Benefit Trust amortisation 1,001 533 Loss/(Profit) on sale of fixed assets 75 (35) Utilisation of provisions (463) (1,226) (Increase)/Decrease in debtors (11) 4,926 Increase/(decrease) in creditors 4,374 (12,471) 68,910 34,349 Notes to the Accounts for the year ended 31st December 2000 (4) Reconciliation of net cash flow to movement in net funds/(debt) Net debt at Acquisitions Non-cash Net Debt 1st Jan in 2000 Cash Flow Flow at 31 Dec 2000 (exc cash) Movements Movements 2000 £000's £000's £000's £000's £000's Cash at 1,710 - (1,710) - - bank and in hand Overdrafts - - (3,170) - (3,170) 1,710 - (4,880) - (3,170) Factored (1,186) - 1,186 - - debts Loan notes (16,128) (50,378) 18,870 - (47,636) Long term - (26,127) 26,127 - - loans Finance (811) (1,183) 828 (367) (1,533) leases Total (16,415) (77,688) 42,131 (367) (52,339) Net funds at Acquisitions Non-cash Net Debt 1st Jan in 1999 Cash Flow Flow at 31 Dec 1999 (exc cash) Movements Movements 1999 £000's £000's £000's £000's £000's Cash at 3,642 - (1,932) - 1,710 bank and in hand Factored - (1,186) - - (1,186) debts Loan - (16,128) - - (16,128) notes Finance (413) (424) 199 (173) (811) leases Total 3,229 (17,738) (1,733) (173) (16,415) (5) Preliminary Announcement The preliminary announcement is prepared on the same basis as set out in previous year's annual accounts, except for the adoption UITF 27 'Revisions to estimates of the useful economic life of goodwill and intangible assets' during the year. Opening balances and comparatives have been restated where applicable. A duly appointed and authorised committee of the Board of Directors approved the preliminary announcement on 21st February 2000. The announcement represents non statutory accounts within the meaning of S240 of the Companies Act 1985. The statutory Annual Accounts for the year ended 31st December 2000, upon which an unqualified audit opinion has been given and which did not contain a statement under section 235, 237(2) or 237(3) of the Companies Act 1985, will be sent to the Registrar of Companies. Copies of the announcement can be obtained from the Company's registered office at 71 Victoria Street, Westminster, London SW1H 0XA. It is intended that the Annual Report and Accounts will be posted to shareholders on 20th March 2000 and will be available to members of the public at the registered office of the Company from that date.

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