Interim Results

Capita Group PLC 25 July 2000 Interim results for the six months to 30th June 2000 CONTINUED GROWTH AND STRENGTHENED MARKET POSITION Financial highlights: Six months Six months Change 30th June 2000 30th June 1999 Turnover £208m £150m + 38% Operating profit* £19.3m £14.0m + 37% Pre-tax profit* £18.4m £14.1m + 30% Earnings per share* 6.18 pence 4.73 pence + 31% Total dividend per share 1.65 pence 1.2 pence + 38% Operating margins* 9.3% 9.3% - Operating cashflow £19.6m £8.4m + 134% *before amortising goodwill Business highlights: - Continued strong growth across all markets and opportunities remain at record levels; - Largest ever contract announced on 20th July, £400m 10 yr contract to set up and run the Criminal Records Bureau for the Home Office; - Pioneering alliance formed with Local Government Association (LGA), to offer consultancy, managed services and back office functions to Local Education Authorities; - Acquisitions of LHR Education and IRG Plc, further strengthen Capita's market position in education and the private sector; - Bonus share issue proposed, 2 ordinary shares for every 1 share held at the close of business on 18th August 2000. Rod Aldridge, Executive Chairman of The Capita Group Plc, commented: 'The markets in which we are working remain very positive. Organic growth remains strong across all parts of our business and we have been successful in securing a number of major contracts in recent months. The acquisitions of LHR and IRG have further strengthened our service offering to the important Education and private sector markets and our recently announced partnership with the LGA demonstrates the way in which we are helping to shape the markets we serve. 'The Group is trading strongly, has secured a substantial volume of new business and our pipeline of opportunities remains highly encouraging. All major contracts across the Group that were coming up for renewal have been extended and no major contract now falls due until 2002. We believe that shareholders will be very satisfied with the results for the full year and our prospects for continued growth thereafter.' 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 Results The six months to 30th June 2000 have been a highly successful and active period for Capita. The Group has strengthened significantly its position as a market-leading provider of professional support services to the public and private sectors, and is structured to take full advantage of the opportunities going forward. Once again, the company has achieved record profits and, as a consequence of our continued progress, Capita became a FTSE 100 company on 20th March. Group turnover increased by 38% to £208m (half year to 30th June 1999: £150m), operating profits before goodwill amortisation rose by 37% to £19.3m (1999: £14.0m) and net profits before taxation and goodwill amortisation increased by 30% to £18.4m (1999: £14.1m). Earnings per share before amortising goodwill grew by 31% to 6.18p (1999: 4.73p). Our businesses continue to produce strong cash flow with £19.6m generated by operations in the period. Bonus issue The Board is recommending to shareholders a bonus issue of 2 ordinary shares of 2p each for every 1 share held by shareholders at the close of business on 18th August 2000. If approved by shareholders at the EGM on 16th August 2000, the ordinary shares comprising the bonus issue will be allotted on 21st August 2000. The Board believes that the proposed bonus issue will benefit shareholders by enhancing the marketability of shares in Capita. Dividend The Board has declared an interim dividend of 1.65p net per existing share (1999: 1.2p), a 38% increase. (This equates to a payment of 0.55p net per share following the bonus issue). The dividend will be payable on 12th October 2000 to shareholders on the register at the close of business on 8th September 2000. The dividend is covered 3.7 times by earnings per share before amortising goodwill. Delivering growth There are three complementary strands underpinning Capita's strategy for growth. First, we seek to win major contracts to deliver complex projects that utilise our considerable skills across the Group and which generate high quality, recurring revenues. Secondly, each of our individual areas of business is now structured to generate incremental revenue through both new business wins and development of existing accounts. Thirdly, we are continuing our policy of strategic acquisitions to strengthen either the Group's presence within a market or its service capability. I am pleased to report that we have made excellent progress during the period with this strategy. Major contracts In recent months, we have announced major contract wins, including a £50m agreement with the DfEE to administer the introduction of Individual Learning Accounts, which is a policy central to the Government's vision for a new framework for post-16 learning. This contract, which is being run from three of our established business centres in Coventry, Darlington and Kent, has started well. We expect to administer 10 million enquiries in the first year through our customer call centres and interactive web based services. We have also been awarded a £10m contract by the Benefits Agency to collaborate in the delivery of the new Winter Fuel Payment Scheme to UK citizens aged over 60. This contract will also be run from our Darlington business centre and will encompass handling customer enquiries, issuing claim forms in paper format and on the web, gathering and verifying essential information and determining eligibility. It is expected to involve retrospective payments to 2 million people and annual winter fuel payments to 1.2 million individuals. On 20th July, the Criminal Records Bureau (CRB) announced that it had selected Capita as the preferred bidder to undertake the development of the Information Systems infrastructure and 10 year operation on behalf of the new Bureau. Capita will operate the complete process from receiving applications to issuing certificates. The CRB is being established by the Home Office to improve access to criminal record checks for employment related purposes. In particular, it will support safer recruitment to protect children and vulnerable adults against those who might wish to harm them. The contract is estimated to generate revenues of approximately £400m over 10 years, with registrations commencing in March 2001. New business Across the individual businesses, we have increased our business development resources to match the buoyant demand for our services. Already, this strategy has led to a substantial level of new business being secured at the half year from both new and existing customers. These include the renewal of our revenues and benefits contracts with East Cambridgeshire and West Devon Councils worth £13m in aggregate over 7 and 10 year terms respectively and the signing of a revised payroll processing and administration contract with Kent County Council worth £12m over 5 years. Our HR business has been particularly active in its support of Government initiatives, recruiting over 6,000 staff for the Immigration and Nationality Directorate, the Welsh and London Assemblies, the Probation Service and the Passport Office. Across the private sector, our recruitment, outplacement, payroll and pensions businesses have secured significant new business with clients such as Rolls Royce, Airtours, British Steel Distribution and Elsevier Science. The Property Services business has won a contract to operate the commercial management services for Railtrack during the introduction of the new Virgin cross-country routes. It has also been retained by the Home Office to assist with the delivery of three new detention centres for asylum seekers and is working with the City of Bradford Metropolitan District Council to redesign 109 schools. Work in the telecommunications area has also been very strong with wins from Ericsson, Orange, NTL and BT Cellnet. Within our IT and Systems business, we have developed a relationship with Milk Marque to support its IT infrastructure and have won projects with Norfolk County Council, Derby City Council, Oxfordshire County Council and Sandersons. Columbus, our information system for higher education colleges, has been successfully launched and has already taken orders from 20 colleges. Acquisitions Two significant acquisitions have contributed to the period. In late December 1999, we acquired LHR Education for £12m. Founded in 1990, LHR is one of the leading teacher supply businesses in the UK. Since acquisition, we have merged the business with Capstan (which we also acquired last year) and reorganised the management structure along with the branch network and the back office operations. The combined activities have been integrated into our HR division and we are delighted by the substantial growth in revenue and profits now being generated. Capita holds a prime position in this rapidly expanding market, placing 10,000 supply teachers a week. We will benefit significantly from the major developments taking place within the education sector. In April, we acquired IRG Plc for a consideration of £100m. Now re- branded Capita IRG Plc, this business brings 1,200 new public company clients to the Group. It increases the brand awareness of Capita across the private sector which will help us provide other outsourcing services to this client base. It also gives us a significant position in corporate and employee share administration, a market offering considerable potential. Indeed, we believe the recent budget announcements which encourage employee share ownership will stimulate demand further. Although Capita IRG has only been a part of the Group for three months, we are very pleased by the manner in which it has been integrated within Capita and its subsequent performance. We are already seeing good opportunities to develop the existing clients of Capita IRG for the benefit of Capita as a whole. We welcome all the employees of our newly acquired businesses into Capita, along with those that have joined us through contract wins. Divisional structure In the light of Capita's continued strong growth, we have recently reviewed our internal structure. The most significant changes we have made are first to merge our Systems and Strategic Services division with our Software Services activities to form one enlarged division. This will offer substantial benefits of scale to our customers while allowing us to consolidate areas of expertise within the company. Secondly, we have introduced a Commercial Services division that will house newly acquired Capita IRG Plc, our recent 31.5% investment in myshares-online and our Treasury and Financial advisory businesses. We will continue to report the results of each of our five divisions to shareholders. We believe that the changes we have made promote a structure which will encourage and nurture some of the exceptional talent we have across the Capita Group. Market review The environment in which we are working remains very positive. In the case of the public sector, we are shaping the market place by constructing new ways of delivering services. It remains important to select carefully which opportunities we pursue and, equally important, which we do not. Central to our approach is to operate through our infrastructure of regional business centres enabling us to provide finance, human resources, IT, administrative services and customer contact activities to a wide range of public bodies and private sector organisations. Currently, we have seven centres and the plan is to increase this further over the next two years. Local government remains a key market to us. The duty of best value became statutory from April 2000 and this requires every authority to undertake a fundamental review of its services and activities over a five- year cycle. These reviews will be subjected to external inspection and are based on the 4 'c's of challenge, consult, compare and compete, with the expectation that authorities will test most services in open competition. This has already led to a number of authorities seeking private sector partners for long term strategic partnerships for a range of business support services - activities which reflect Capita's service portfolio. There is a growing demand for e-government solutions and customer contact centres similar to the one we have established for Hertfordshire County Council. Our ten-year strategic partnership with Norfolk County Council to deliver a range of services is also attracting much interest from Government and is recognised as leading edge in the market. On 24th July, we launched a strategic alliance with the Local Government Association (LGA), the representative body of all local authorities in England and Wales, and the Improvement and Development Agency (IDeA) for local government. This is the first relationship that the LGA has had with the private sector and it chose Capita because it felt that we had the best expertise and experience to make a real difference to standards. Initially, the Alliance will address all 172 local education authorities (LEAs) offering consultancy, managed services of back office functions of education, other business support services and interim management. This market is estimated to spend £3 billion per annum. This relationship further strengthens the Group's position in local government and the education market place. The education sector continues to provide significant opportunities for our integrated support services and individual businesses. In addition, our work with LEAs, the Government's reform of post-16 learning and the introduction of the Learning and Skills Council creates further opportunities for our services. There will be a significant number of new processes, administrative and customer relationship service needs to support these new initiatives. The Teacher Training Agency has quality assured our Learning Network product designed to improve the ICT skills for teachers and we have received high commendation, the only supplier to obtain this. Sales are going well and in some LEAs, more than 75% of primary teachers are booked onto the programme. Our payroll business recently won a contract with a consortium of 53 schools in Hackney and we expect to secure further such contracts. In February, we announced our intention to develop in association with Microsoft a dedicated education internet portal which will co-ordinate and deliver all aspects of e-learning, e-assessment, e-commerce and e- services. This initiative is progressing to plan with a range of new products released. We expect to be in a position to implement the portal by the end of this year. Our central government market is also expanding with the Government continuing to pursue its targets of making all public services electronically accessible by 2005. This plays to our strengths in customer relationship management and the application of IT. We expect a significant number of new business opportunities to be created as the 'Modernisation of Government' agenda is developed with a number of activities currently provided by government departments or agencies being the subject of public-private partnerships. Our people Paul Pindar and I have recently concluded a series of Roadshows around the United Kingdom where we have had an opportunity to talk directly to and hear from a significant proportion of our 7,500 staff. We were enormously gratified by the level of enthusiasm and commitment to Capita that we encountered throughout our presentations. An open and positive culture has developed within the Group which places a high priority on delivering what we promise to both colleagues and customers alike. One of the products of this culture is the high level of operational success that our teams achieve. In virtually all cases, the level of service we are delivering exceeds the level that we inherited and in many cases is materially ahead. This gives great confidence to our customers enabling them to achieve a step change in service delivery. I would like to place on record the Board's thanks to all the staff who continue to contribute to the Group's progress. We believe the business is well placed to grow significantly in the future and we would like to give all employees the opportunity to participate in this success. Accordingly, we will be asking shareholders at the EGM on 16th August to approve the introduction of a Sharesave scheme, available to all employees within the Group and to those who subsequently join it. Not only do we hope that this will provide direct benefit to colleagues within the Group, we also believe that the adoption of such a scheme will provide significant competitive advantage to Capita when bidding for major outsourcing contracts. In the event of being successful with a bid, staff joining the Group will feel a part of it from the outset, confirming the style of company that we are and the partnership approach that we adopt with our customers. Prospects During the period, the Group has secured a substantial volume of new business and the future pipeline of opportunities remains highly encouraging. All major contracts across the Group coming up for renewal have been extended. No major contract now falls due until 2002. The Group is trading strongly and we believe that shareholders will be very satisfied with the results for the full year and our prospects for continued growth thereafter. R.M. Aldridge OBE Executive Chairman THE CAPITA GROUP PLC SUMMARY INTERIM RESULTS FOR THE SIX MONTHS TO 30TH JUNE 2000 Six months Six months to 30th June 2000 to 30th June 1999 (As restated) Before Goodwill Total Before Goodwill Total Goodwill amort- Goodwill amort- isation isation Notes £'000's £'000's £'000's £ '000's £'000's £'000's Turnover 1 Continuing 193,831 - 193,831 150,227 - 150,227 operations Acquisitions 13,972 - 13,972 - - - ------------------------------------------------------ 207,803 - 207,803 150,227 - 150,227 ====================================================== Operating profit Continuing 17,300 (2,517) 14,783 13,965 (1,146) 12,819 operations Acquisitions 1,898 (1,357) 541 - - - ------------------------------------------------------ Group 19,198 (3,874) 15,324 13,965 (1,146) 12,819 operating profit Share of 102 - 102 82 - 82 operating profit in associates Amortisation - (773) (773) - (385) (385) of goodwill arising on acquisition of associate ------------------------------------------------------ Total 1 19,300 (4,647) 14,653 14,047 (1,531) 12,516 operating profit: Group and share of associate Net interest (882) - (882) 16 - 16 (payable) / receivable Profit on - - - 52 - 52 disposal of fixed asset investments ------------------------------------------------------ Profit 18,418 (4,647) 13,771 14,115 (1,531) 12,584 before taxation Taxation 5,305 - 5,305 4,526 - 4,526 ------------------------------------------------------ Profit after 13,113 (4,647) 8,466 9,589 (1,531) 8,058 taxation Minority 24 - 24 22 - 22 interest ------------------------------------------------------ Profit for 13,089 (4,647) 8,442 9,567 (1,531) 8,036 the period Dividends 3,578 - 3,578 2,481 - 2,481 ------------------------------------------------------ Retained 9,511 (4,647) 4,864 7,086 (1,531) 5,555 profit for the period ====================================================== Earnings per 3 6.18p (2.19)p 3.99p 4.73p (0.76)p 3.97p share ====================================================== Diluted 3 6.01p (2.13)p 3.88p 4.59p (0.73)p 3.86p earnings per share ====================================================== Dividend per 4 1.65p 1.20p share ======== ======== THE CAPITA GROUP PLC SUMMARY BALANCE SHEET AS AT 30TH JUNE 2000 30th June 30th June 2000 1999 (As restated) £'000's £'000's Fixed assets Intangible assets 201,569 61,210 Tangible assets 27,980 20,165 Investments 31,178 28,097 -------------------------- 260,727 109,472 -------------------------- Current assets Trade investments 254 299 Debtors 97,103 85,297 Cash at bank 30,945 3,593 -------------------------- 128,302 89,189 -------------------------- Creditors: Amounts falling due within one 159,468 93,199 year -------------------------- Net current liabilities (31,166) (4,010) -------------------------- Total assets less current liabilities 229,561 105,462 Creditors: Amounts falling due after more 4,773 6,183 than one year Provision for charges and liabilities 973 1,889 -------------------------- 223,815 97,390 ========================== Shareholders' funds Called up share capital - Ordinary 4,337 4,133 Share premium and other reserves 218,878 92,582 Minority interests 600 675 -------------------------- 223,815 97,390 ========================== THE CAPITA GROUP PLC SUMMARY GROUP CASH FLOW FOR THE SIX MONTHS TO 30TH JUNE 2000 Six months Six months to 30th June to 30th June 2000 1999 £'000's £'000's Cashflow from operating activities 19,558 8,373 Returns on investment and servicing of (657) 24 finance Taxation paid (3,103) (539) Capital expenditure and financial investment (8,412) (6,300) Subscription for loan notes - (6,500) Acquisitions and disposals (74,201) (38,017) Equity dividends paid (5,426) (3,761) --------------------------- Net cash flow before financing (72,241) (46,720) Financing 101,476 46,671 --------------------------- Increase / (Decrease) in cash in the period 29,235 (49) =========================== GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS TO 30TH JUNE 2000 Six months Six months to 30th June to 30th June 2000 1999 (As restated) £'000's £'000's Profit attributable to the members of the 8,442 8,036 parent undertaking Exchange adjustment (2) 1 ---------------------------- Total recognised gains and losses 8,440 8,037 ============================ THE CAPITA GROUP PLC NOTES TO THE FINANCIAL STATEMENTS 1. Analysis of turnover by division: Six months Six months to 30th June to 30th June 2000 1999 (As restated) £'000's £'000's Continuing Customer Services 37,205 40,981 Activities Human Resources 76,860 40,377 Property Services 26,352 20,496 Software, Systems and 49,830 43,767 Strategic Services Commercial Services 3,584 4,606 Acquisitions Human Resources 3,766 - Commercial Services 10,206 - ------------------------- 207,803 150,227 ========================= Analysis of operating profit (before goodwill amortisation): Continuing Customer Services 2,812 2,713 Activities Human Resources 6,189 4,035 Property Services 2,627 2,131 Software, Systems and 4,976 4,635 Strategic Services Commercial Services 696 451 Acquisitions Human Resources 281 - Commercial Services 1,617 - Associated 102 82 undertakings ------------------------- Operating 19,300 14,047 profit ========================= The results of the Group are reported under five divisions which differ from those reported in the full year accounts. Software Services and Systems and Strategic Services have been merged to take advantage of the synergies available within the businesses. The Commercial Services division, a new division formed after the acquisition of IRG, 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 reduced Software, Systems and Strategic Services division by turnover of £4,606,000 and operating profit of £451,000. 2. The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's 1999 statutory accounts. The statements were approved by a duly appointed and authorised committee of the Board of Directors on 24th July 2000. The full year accounts, on which the auditors gave an unqualified report have been filed with the Registrar of Companies. The figures for the six months to 30th June 1999 and 2000 are unaudited. 3. Earnings per share have been calculated on an average number of shares in issue during the period of 211,753,000 (30th June 1999: 202,252,000). The diluted earnings per share have been calculated on the diluted profit for the period of £8,466,000 (30th June 1999 (restated): £8,058,000) and an average diluted number of shares of 218,227,000 (30th June 1999: 208,862,000). As at 24th July 2000, there were 216,848,000 shares in issue. 4. The interim dividend of 1.65p per share will be payable on the 12th October 2000 to Ordinary shareholders on the register at the close of business on 8th September 2000. 5 As reported in the 1999 Annual report and accounts the Group changed its accounting policy for goodwill arising on acquisitions made on or after 1st January 1998. Consequently the comparative figures for the period to 30th June 1999 have been restated. The impact of these changes for the period to 30th June 1999 is to reduce reported profit before tax for the period to 30th June 1999 by £1,531,000, and shareholders' funds as at 30th June 1999 from that previously reported by £2,517,000. END c IR USORRRARBUUR

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