Interim Results

Capita Group PLC 22 July 2004 22 July 2004 THE CAPITA GROUP PLC Interim results for the half year ended 30 June 2004 Financial Highlights Six months ended Six months ended Change 30 June 2004 30 June 2003 Turnover £620m £532m +17% Profit before tax* £63.6m £51.0m +25% Earnings per share* 6.84p 5.38p +27% Interim dividend per share 1.75p 1.3p +35% * Before amortising goodwill and exceptional items Operating Highlights • Four new contract wins worth £293m announced today, including partnership with Salford City Council worth £250m over 12 years • Total of £1.13bn of new contracts won in the first 7 months of 2004 (2003: £286m), 58% private and 42% public sector • Current live bid pipeline of £2.5bn • Margins enhanced to 11.1% up from 10.6% in the same period in 2003 • Strong operating cash flow of £81.9m representing an operating profit to operating cash conversion rate of 119% (2003: 109%) • Free cash flow increased by 30% to £40.3m • Post tax return on average capital employed over last 12 months 15.0% (2003: 13.4%) Rod Aldridge, Executive Chairman of The Capita Group Plc, commented: 'Capita operates a simple, sustainable business model in buoyant and expanding markets. The business is trading strongly, generating healthy profits and cash flow. We are confident in our ability to generate long term value for shareholders, based on a platform of high visibility of future revenues and good prospects for further growth.' For further information: The Capita Group Plc Tel 020 7799 1525 Rod Aldridge, Executive Chairman Paul Pindar, Chief Executive Shona Nichols, Group Marketing Director Press Office 0870 2400 488 Finsbury Tel 020 7251 3801 Morgan Bone Mark Harris Chairman's Statement Results We are pleased by the Group's progress during the six months to 30 June 2004. The Group has delivered another period of encouraging financial results reflecting our strong and developing partnerships with both existing and new customers. These relationships and our profitable and sustainable business model have allowed us to continue to build value for our shareholders. During the period, turnover increased by 17% to £620m (half year to 30 June 2003 : £532m). Operating profits before goodwill amortisation and exceptional items rose by 23% to £69.1m (2003: £56.1m) and net profits before taxation, goodwill amortisation and exceptional items increased by 25% to £63.6m (2003: £51.0m). Earnings per share before goodwill amortisation and exceptional items grew by 27% to 6.84p (2003: 5.38p). Building Value for Shareholders In our results announcement for the 2003 financial year, we set out a number of key measures of our progress in building value for shareholders. During the period, we have met each of our objectives. First, we have continued to enhance our operating margins, which have increased during the period to 11.1% (2003: 10.6%). For the year as a whole, we expect operating margins to be ahead of the level achieved in 2003 of 12.2%. Secondly, the underlying financial strength of Capita is reflected by our excellent cash flow, with £81.9m generated by operations, representing an operating profit to operating cash conversion rate of 119% (2003: 109%). Our free cash flow increased by 30% to £40.3m (2003: £31.1m). Thirdly, we aim to contain capital expenditure at or below 4% of revenue, although there may be rare occasions when we exceed this where our financial strength can be used as a competitive advantage. During the period, we achieved this objective, with capital expenditure being 3.8% of revenue. Fourthly, we have continued with our strategy of acquiring small businesses which complement or extend our current service offering. Further detail is provided later in the Statement. Fifthly, we intend to create shareholder value through a progressive dividend policy. The Board has declared an interim dividend of 1.75p net per ordinary share (2003: 1.3p), a 35% increase. Over the last 5 years, we have grown Capita's annual dividend at a compound rate of 34%. The dividend will be payable on 8 October 2004 to shareholders on the register at the close of business on 10 September 2004. The interim dividend is covered 3.9 times by earnings per share before goodwill amortisation and exceptional items. We intend to reduce annual dividend cover to no more than 3 times by 2006. Sixthly, we have renewed our authority to repurchase up to 10% of our issued share capital, so we can undertake share buybacks in circumstances when market conditions allow us to add further value for shareholders. During the period, the Group bought back 300,000 shares and we remain alert to opportunities for further buybacks in the future. Finally, our activities should drive a steadily increasing return on capital, which in turn should exceed our cost of capital. Over the last 12 months, the post tax return on average capital employed (including debt) has improved to 15% (12 months to 30 June 2003: 13.4%). This compares to our weighted average cost of capital of 8.5%. Creating Organic Growth We have two complementary approaches to creating organic growth. First, our centrally managed 'Big Ticket' team seeks to secure major contracts, typically with a value of £10m or above, to deliver complex, integrated projects that require a wide range of the Group's skills and which generate high quality recurring revenues. Secondly, each of our businesses employs sales teams focused upon securing growth from both existing and new customers. Across the Group, we have more than 20,000 customers and our retention rate remains excellent. Organic Growth: Major Contracts Major contracts are an important component of our growth. In the past 12 months, we have invested significantly in this area, both to enlarge the size of our sales team and also to refine our processes. Our objective is to stimulate a consistent flow of opportunities and to maximise our win rate, thereby underpinning above average growth for the Group. Our performance in the first 7 months has been strong. This year, we have already announced £835m of major contracts, comprising a 2 1/2 year contract with the Department of Trade & Industry, a 7 year contract with the Department for Work and Pensions, a 5 year contract with Dixons Group Plc, a 10 year contract with Winterthur Life and a 20 year contract with The Children's Mutual. Our win rate during the period has been better than one in two, comfortably ahead of our long term average. We continue to enjoy a buoyant period of activity and I am pleased to report today 4 further major contract wins totalling £293m, of which £260m are new contracts and £33m are extensions to existing contracts. Consequently, the total value of major contracts won in the first 7 months of 2004 is £1.13bn (2003: £286m). I am delighted to announce that we have been selected by Salford City Council as its preferred strategic partner to contribute to the regeneration of the City through a programme of continuous service enhancement across property, engineering and highways services and associated support services. With a service contract estimated to generate revenues to Capita of £250m over an initial contract period of 12 years, Salford City Council and Capita will join together to form a new joint venture, in association with Morrison (part of AWG Plc). The JV will deliver services to the Council and create further business growth for the partners by selling services to external organisations. Capita will provide property, engineering and highways design and professional maintenance services through our property consultancy business, Capita Symonds. Morrison will support both partners, providing blue collar, highway construction services. I am also pleased to announce that we have signed a contract to manage the run-off services of Hill House Hammond, Norwich Union's national broker, worth £10m over the next 2 years. Capita will be dealing with all aspects of the run-off for Hill House Hammond including IT, policy administration, claims management and customer enquiries through a central administration centre in Bristol. 300 staff will transfer to Capita in two phases, this month and next. In the period, we have extended and expanded two major public sector contracts that use our IT and business process transformation skills to improve customers' experiences of public services. Capita has been reappointed by the Driving Standards Agency (DSA) to provide information services throughout the DSA network in a contract valued at £22m over 6 years. Capita was originally awarded a 7 year contract in 1997 to support the DSA's IT infrastructure, successfully developing and implementing the technology platform behind today's driving test appointment control system. The new agreement includes the continued management of this infrastructure, as well as the development of a new system to manage the registration of driving instructors. Our partnership with Derby City Council has been extended in a new contract worth £11m over the next 4 1/2 years. The original contract, awarded in 1998, was to support and develop the council's core IT infrastructure. The new contract focuses on delivering an innovative, accessible e-government solution to assist the authority in delivering improved services for Derby's citizens. In the 4 1/2 years to 31 December 2008, we have only 3 material contracts (defined as having annual revenue in excess of 1% of 2003 turnover) due for renewal. There are no material contracts due for renewal until 2005. Our major contract bid pipeline continues to be buoyant. Notwithstanding the recent successes announced above, we are continuing to replenish our pipeline at a healthy rate and we are currently working on live major bids with a total value of £2.5bn across the public and private sectors. This total only includes bid situations in which Capita is short listed with three or fewer competitors. All of our markets are active, but the financial services sector is generating opportunities at an exceptional rate. Similarly, the Government's 2004 Spending Review and the Review of Public Sector Efficiency published earlier in the month will provide further stimulus to the public sector markets in which Capita operates. The drivers to outsource services and to engage with the Group's wide range of integrated services remain strong in both the public and private sectors. Organic Growth: Divisions Our focus on enhancing the capacity of our divisional sales forces and our introduction of a more formal process to share information and resources across the businesses, has resulted in a stronger and higher quality sales pipeline. Market penetration continues to increase through the provision of enhanced and innovative, new services across Group businesses. Pleasingly, Capita Hartshead was recently named 'Pensions Administrator of the Year' at the 2004 UK Professional Pensions Awards, which honour excellence and outstanding contributions to the industry. Capita Hartshead has become a leading service provider through a combination of continuous development of its core administration services and innovative use of technology to provide advanced administration systems. The business has experienced strong growth across both the public and private sectors in the period, with new contracts and extensions secured with clients such as GUS, T-mobile and NAAFI, worth an aggregate of £3m in 3 to 5 year contracts. Capita Registrars continues to grow its market share substantially, winning over 50% of the 101 company flotations to the end of May, representing a 73% market share of flotations by market capitalisation. The business has also reached agreement to extend existing contracts with BAA plc, Viridian Group plc, Morrison (Wm) Supermarkets plc and Kelda Group plc. Revenues from existing relationships have been increased through the provision of added value services such as share dealing, company secretarial, voting and web based services. We remain market leader in Share Incentive Plan (SIP) administration with 120 live clients, thereby administering 1 in every 3 live plans. Significant new wins this year include providing share plan administration for Coca Cola, Arriva and Halfords. Local Authorities are benefiting from Capita's range of alternative service delivery models, from full outsourcing partnerships to off-site delivery of single services. New contracts for our off-site processing and customer services business worth £2.3m in aggregate have been secured in the period with clients such as Bristol, Edinburgh and Leicester City Councils. Our local government and social housing software business, Capita Software Services, is performing strongly, securing £5.5m of additional business in the period from new and existing customers including Herefordshire Council, Luton Borough Council and the London Borough of Lewisham. New clients include Carlisle City Council, where we are designing and developing a customer contact centre which will be operated by council staff. Built around Capita's CRM (Customer Relationship Management) and e-government solution, the contract has also brought incremental work to other Capita businesses, such as the provision of strategic consultancy support, property services and technology and telephony infrastructure development. Capita Software Services is also enjoying accelerated growth in the use of its 24 hour Managed Services products, whereby organisations can outsource their payment processing requirements through an internet or touch tone payments solution. Capita will process in excess of £100m of payments per annum via these systems. Capita Education Services, providers of software and support services to schools, further education establishments and Local Education Authorities (LEAs), has developed some new, innovative services. For St. Helens LEA, Capita is providing an integrated solution to tackle truancy in its secondary schools. The solution combines lesson attendance monitoring with systems providing rapid alerts for parents if their children are absent without prior explanation. A cluster of 6 Hampshire schools has recently started using Capita Education Services' Learning Platform, an eLearning system that delivers personalised learning to individual pupils. This approach to education is a growing requirement and Capita is positioned strongly in this market both with Learning Platform and IEP Writer, the leading Individual Education Planning tool owned by Capita and used by over 16,000 schools. We continue to experience growth across the financial services sector. Our entry into the new Children's Trust Fund administration market is progressing well. We have secured significant market share, supporting The Children's Mutual and other organisations, such as Norwich Union, who will be offering this new product from next year. Activity in the life and pensions market is buoyant. In our recently formed Dublin operation, we have won an additional evergreen contract worth £3m to administer a closed book of 4,000 policies for St. James's Place Capital. In our insurance business, we have won significant new business across our London Markets operation and Legal and Medical helplines. We are continuing the refocusing of our volume loss adjusting services into higher value added propositions utilising our newly implemented SAP technology. We remain at the forefront of the major loss sector of the market and have recently strengthened this position by our appointment to a major insurer's loss adjusting panel. Some of our Resourcing businesses have experienced challenging trading conditions in the period, leading to some margin pressure. We have recently strengthened management in this area. We continue to be successful in securing longer term managed services contracts across the private sector and extending these relationships with clients such as BNP Paribas, BAA and NATS. Through our executive search and selection business, Veredus, we have established longer term relationships with clients such as the London Borough of Waltham Forest, the new National Assessment Agency, NHS Direct and the Serious Organised Crime Agency. We have also focused on securing valuable positions on supplier frameworks. Capita Education Resourcing has been awarded preferred supplier status through the Government Office for London on a framework for supply teachers for all 33 London LEAs, alongside 6 other agencies. We have also been awarded a place by Birmingham City Council's Education Department on a similar framework to support all Birmingham's schools. In the first contract of its type, the business was appointed by the Department for Education & Skills (DfES) as master vendor to pilot the central supply of permanent secondary teacher candidates for the London Challenge inner city schools. Acquisitions Whilst we continue to see a healthy flow of acquisition opportunities, our focus remains firmly on small transactions, priced at a level which adds value for the Group's shareholders and which supports our objective of achieving an increasing return on capital for the Group. During the period, we completed 4 acquisitions, investing a total of £31.4m (net of cash acquired). Of this sum, £29.9m (£25.8m, net of cash acquired) was used to acquire the Symonds Group (Holdings) Ltd. A further £1m may be payable upon the achievement of certain targets. Symonds is a leading provider of consultancy, project management and design services for the property and infrastructure markets. Symonds has been integrated with Capita's existing multi-disciplinary property business. The enlarged company, Capita Symonds Limited, is now a leading player in the industry, with proforma annual revenues exceeding £160m. We are delighted by the manner in which the two businesses have been integrated and we are impressed by the calibre of management we have acquired from Symonds, many of whom have taken senior roles in the enlarged business. Our People The principal ingredient of Capita's success is the talent and commitment of our 22,000 staff. I would like to thank them for their contribution to our success and their intensity of effort. We welcome into Capita the 5,000 employees who have joined the Group since 1 January 2004, through our contract wins, recent acquisitions and direct recruitment. Future Prospects Capita is fortunate to enjoy a combination of buoyant, expanding markets and a simple, sustainable business model. We have built an excellent platform to create value for our shareholders over the long term. The business is trading strongly, generating healthy profits and excellent cash flow. We are confident that shareholders will be pleased by Capita's results for 2004. Rodney M Aldridge OBE Executive Chairman THE CAPITA GROUP PLC SUMMARY INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2004 Six months Six months to 30 June to 30 June 2004 2003 Before Goodwill Goodwill amortisation amortisation and exceptional and exceptional Before Goodwill item item Total Goodwill amortisation Total Notes £m £m £m £m £m £m Turnover 1 620.2 - 620.2 531.6 - 531.6 -------- -------- -------- -------- -------- -------- Group operating profit 1 69.1 (14.5) 54.6 56.1 (13.7) 42.4 Non Operating exceptional item 2 - (1.0) (1.0) - - - Net interest payable (5.5) - (5.5) (5.1) - (5.1) -------- -------- -------- -------- -------- -------- Profit before taxation 63.6 (15.5) 48.1 51.0 (13.7) 37.3 Taxation 17.9 (0.3) 17.6 15.0 - 15.0 -------- -------- -------- -------- -------- -------- Profit after taxation 45.7 (15.2) 30.5 36.0 (13.7) 22.3 Minority interest - - - 0.1 - 0.1 -------- -------- -------- -------- -------- -------- Profit for the period 45.7 (15.2) 30.5 35.9 (13.7) 22.2 Dividends 11.7 - 11.7 8.7 - 8.7 -------- -------- -------- -------- -------- -------- Retained profit for the period 34.0 (15.2) 18.8 27.2 (13.7) 13.5 -------- -------- -------- -------- -------- -------- Earnings per share 4 6.84p (2.27)p 4.57p 5.38p (2.06)p 3.32p -------- -------- -------- -------- -------- -------- Diluted earnings per share 4 6.54p (2.17)p 4.37p 5.07p (1.94)p 3.13p -------- -------- -------- -------- -------- -------- Dividend per share 5 1.75p 1.30p -------- -------- -------- -------- -------- -------- THE CAPITA GROUP PLC SUMMARY BALANCE SHEET AS AT 30 JUNE 2004 30 June 30 June 2004 2003 £m £m Fixed assets Intangible assets 468.5 462.2 Tangible assets 119.5 103.4 ------- ------- 588.0 565.6 ------- ------- Current assets Trade investments 0.4 5.5 Debtors 267.6 220.9 Cash at bank 4.8 - ------- ------- 272.8 226.4 ------- ------- Creditors: Amounts falling due within one year 328.8 294.4 ------- ------- Net current liabilities (56.0) (68.0) ------- ------- Total assets less current liabilities 532.0 497.6 Creditors: Amounts falling due after more than one year 151.7 157.1 Provision for charges and liabilities 16.5 16.8 ------- ------- 363.8 323.7 ------- ------- Shareholders' funds Called up share capital - Ordinary 13.4 13.3 Share premium and other reserves 350.1 310.3 Minority interests 0.3 0.1 ------- ------- 363.8 323.7 ------- ------- THE CAPITA GROUP PLC SUMMARY GROUP CASH FLOW FOR THE SIX MONTHS ENDED 30 JUNE 2004 Six months Six months to 30 June to 30 June 2004 2003 Notes £m £m Cashflow from operating activities 6 81.9 61.3 Returns on investment and servicing of finance (5.5) (5.1) Taxation paid (12.4) (8.5) Capital expenditure and financial investment (23.7) (16.6) Acquisitions and disposals (31.4) (26.2) Equity dividends paid (18.0) (13.4) -------- -------- Net cash flow before financing (9.1) (8.5) Financing - Share Buyback (0.9) (9.3) - Other Financing (5.0) (1.7) -------- -------- Decrease in cash in the period (15.0) (19.5) -------- -------- GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS ENDED 30 JUNE 2004 Six months Six months to 30 June to 30 June 2004 2003 £m £m Profit attributable to the members of the parent undertaking 30.5 22.2 Exchange adjustment - - --------- -------- Total recognised gains and losses 30.5 22.2 --------- -------- THE CAPITA GROUP PLC NOTES TO THE FINANCIAL STATEMENTS 1. Analysis of turnover by Restated division: Six months Six months to 30 June to 30 June 2004 2003 £m £m Continuing activities Business Services 147.0 138.9 Commercial Services 168.2 145.2 Integrated Services 142.0 118.0 Professional Services 142.9 129.5 Acquired activities Business Services 20.1 - ---------- ---------- 620.2 531.6 ---------- ---------- Analysis of operating profit before goodwill amortisation and exceptional item: Continuing activities Business Services 9.3 11.3 Commercial Services 20.1 15.0 Integrated Services 19.5 14.6 Professional Services 18.1 15.2 Acquired activities Business Services 2.1 - ---------- ---------- Operating profit before goodwill amortisation and exceptional item 69.1 56.1 ---------- ---------- The comparative figures have been restated due to a reorganisation of the Group's business divisions during the period. The directors decided this was necessary to best manage the growth in the business and to enhance service provision across the Group. The effect of the changes on the 2003 comparatives mentioned above is disclosed in the table below: Operating profit before goodwill amortisation and exceptional Turnover item £m £m Business Services (12.2) (8.1) Commercial Services (1.6) 5.9 Integrated Services 20.0 2.2 Professional Services (6.2) - -------------------------- - - -------------------------- 2. Non-operating exceptional item During the period the Group disposed of its printing business realising a non operating loss on the transaction of £1m. 3. The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's 2003 statutory accounts. The statements were approved by a duly appointed and authorised committee of the Board of Directors on 21 July 2004. 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 30 June 2003 and 2004 are unaudited. 4. Earnings per share have been calculated on an average number of shares in issue during the period of 667.7m (30 June 2003: 667.9m). The diluted earnings per share have been calculated on the diluted profit for the period of £45.7m (30 June 2003: £35.9m) and an average diluted number of shares of 698.4m (30 June 2003: 708.3m). As at 21 July 2004, there were 669.7m shares in issue. 5. The interim dividend of 1.75p per share will be payable on 8 October 2004 to Ordinary shareholders on the register at the close of business on 10 September 2004. 6. Reconciliation of operating profit to net cash inflow from operating activities Six months Six months to 30 June to 30 June 2004 2003 £m £m Operating profit 54.6 42.4 Depreciation charge 16.7 11.8 Amortisation of goodwill 14.5 13.7 Utilisation of provisions (0.5) (0.8) Increase in debtors (36.4) (22.8) Increase in creditors 33.0 17.0 ---------- ---------- 81.9 61.3 ---------- ---------- 7. Reconciliation of net cash flow to movement in net debt Net debt at Acquisitions 1 January in 2004 Cashflow Non-cashflow Net debt at 30 2004 (exc.cash) movements movements June 2004 £m £m £m £m £m -------- -------- -------- ---------- ---------- Cash in bank 19.8 - (15.0) - 4.8 -------- -------- -------- ---------- ---------- 19.8 - (15.0) - 4.8 Loan notes (33.0) - 5.9 - (27.1) Bonds (124.6) - - - (124.6) Finance leases (0.5) - 0.2 - (0.3) -------- -------- -------- ---------- ---------- (138.3) - (8.9) - (147.2) -------- -------- -------- ---------- ---------- Net debt at Acquisitions 1 January in 2003 Cashflow Non-cashflow Net debt at 30 2003 (exc.cash) movements movements June 2003 £m £m £m £m £m -------- -------- -------- ---------- ---------- Overdrafts (1.0) - (19.5) - (20.5) -------- -------- -------- ---------- ---------- (1.0) - (19.5) - (20.5) Loan notes (34.1) (0.9) 1.7 - (33.3) Bonds (124.5) - - - (124.5) Finance leases (0.9) - 0.5 (0.4) (0.8) -------- -------- -------- ---------- ---------- (160.5) (0.9) (17.3) (0.4) (179.1) -------- -------- -------- ---------- ---------- This information is provided by RNS The company news service from the London Stock Exchange

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