Preliminary Results
Capita Group PLC
24 February 2005
24 February 2005
THE CAPITA GROUP PLC
Preliminary Results for the year ended 31 December 2004
Record Results - Record Bid Pipeline
Financial Highlights
Year ended Year ended Change
31 December 2004 31 December 2003
Turnover £1,285m £1,081m +19%
Profit before tax* £148.2m £121.2m +22%
Earnings per share* 16.05p 13.04p +23%
Total dividend per share 5.35p 4.00p +34%
Key points
• Operating margins' enhanced to 12.5% (2003: 12.2%)
• Underlying operating cash flow increased to £200m (2003: £158m)
• £28m returned to shareholders through share buy backs
• Future dividends to be increased in line with earnings growth
• 12 major contracts won in 2004 with a value of £1.36bn, up 122% over 2003
• Major contracts won in first 8 weeks of 2005 total £110m
• Record bid pipeline of £3.8bn, up 41% on corresponding period
* Before amortising goodwill and exceptional items
Rod Aldridge, Executive Chairman of The Capita Group Plc, commented:
'Capita has again returned record results. All our key financial metrics were
strongly ahead and we were especially pleased with the strength of our cash
generation.
'Capita is well placed to make continued progress in 2005. Our existing revenues
are strongly underpinned, our sales pipeline is at a record level and the Group
is trading strongly. We believe that shareholders will be pleased by our
performance in 2005 and beyond.'
For further information:
The Capita Group Plc Tel: 020 7799 1525
Rod Aldridge, Executive Chairman
Paul Pindar, Chief Executive
Shona Nichols, Group Marketing Director
Capita Press Office Tel: 0870 2400 488
Financial Dynamics Tel: 020 7269 7291
David Yates / Richard Mountain
Preliminary Results Statement for the year ended
31 December 2004
Chairman's Statement
Results
Capita made excellent progress during 2004. We have strengthened our position as
the UK's market leader in providing Business Process Outsourcing (BPO) services
to the public and private sectors and have returned record results for our 16th
consecutive year as a public company.
In the year ended 31 December 2004, turnover increased by 19% to £1,285m
(2003: £1,081m), operating profits before exceptional items and goodwill
amortisation rose by 22% to £160.1m (2003: £131.4m) and net profits before
exceptional items, goodwill amortisation and taxation increased by 22% to
£148.2m (2003: £121.2m). Earnings per share before exceptional items and
goodwill amortisation grew by 23% to 16.05p (2003: 13.04p). Underlying operating
cash flow (excluding the exceptional pension contribution referred to below)
remained strong, rising by 26% to £200m (2003: £158m). We have increased
dividends by 34% and returned a further £28m to shareholders through purchasing
our own shares.
We have chosen to make an exceptional pension contribution of £50m into our
final salary pension scheme, where investment returns grow in a tax efficient
environment. This reduces our FRS17 deficit to £16.4m (net of tax) as at 31
December 2004 and provides further security for our staff.
We continue to build and strengthen the Group, delivering sustainable value to
our stakeholders: primarily our shareholders, customers and employees.
Building value for shareholders
To assess our progress in building value for shareholders, we focus on a number
of key measures. We met each of these in 2004, as outlined below.
We have continued to enhance our operating margins, which improved during the
year to 12.5% (2003: 12.2%). This reflects the increasing sophistication and
value of the services we provide to customers, our continued focus on seeking
efficiencies in service delivery and greater internal economies of scale.
The strength of Capita's business model is reflected in our excellent underlying
cash flow, with £200m (2003: £158m) generated by operations in the year,
representing an operating profit to underlying cash conversion rate of 125%
(2003: 120%). Our underlying free cash flow increased by 28% to £106m (2003:
£83m).
We aim to contain capital expenditure at or below 4% of revenue, although there
may be rare occasions when we exceed this where the financial strength of Capita
can be used as a competitive advantage. In 2004, we achieved this objective with
net capital expenditure being 3.6% (2003: 3.4%) of annual revenue.
We also focus on driving a steadily increasing return on capital, which in turn
should exceed our cost of capital. During 2004, the post tax return on average
capital employed (including debt) has improved to 16.2% (2003: 14.6%). This
exceeds our cost of capital which is 8.5%.
We believe these disciplines form an integral part of building value for our
shareholders on a consistent basis, over the long term. Over the 10 years to 31
December 2004, the value of the Group has increased from £89m to £2.4bn. Total
shareholder return in this period has been 22 fold, equivalent to a 36% compound
annual return.
We also intend to create shareholder value through a progressive dividend
policy. The Board is recommending a final dividend of 3.6p per ordinary share,
making a total of 5.35p(2003: 4.0p) for the year. This represents a 34% increase
on dividends paid in respect of the 2003 financial year. Over the 10 years to 31
December 2004, we have grown Capita's annual dividend at a compound rate of 31%.
The final dividend will be paid on 6 May 2005 to shareholders on the register at
the close of business on 8 April 2005. Last year, we stated our intention to
reduce annual dividend cover to no more than 3 times by 2006. Our confidence in
Capita's business model and resultant cash flow is such that we have now met our
objective of 3 times cover in 2004.
There may also be circumstances in which market conditions allow us to add
further value for shareholders through share buybacks, thus ensuring we have an
efficient capital structure which will minimise our long term cost of capital.
During 2004, the Group bought back 8.9m shares (representing 1.3% of the issued
share capital) at an average price of £3.07. The Group has authority to
repurchase up to 10% of its issued share capital and we plan to seek renewal of
this authority at the AGM.
Our marketplace
The UK BPO market is buoyant across our chosen markets with strong drivers for
continued future growth. Industry analysts are predicting compound annual growth
rates of 11% to 13% for the total UK BPO market until 2008(1). Organisations in
both the public and private sectors are seeking to improve productivity and to
enhance customer service. Capita is well placed to assist in meeting these
challenges by working with customers on a long term basis to deliver change.
We work across 8 markets, being local government, central government, education,
transport, health, life & pensions, insurance and other private sector
organisations (including financial services). Capita remains ranked as the no.1
provider of BPO services in the UK, with an increased market share by annual
value of contracts of 26.4% (2003: 24.3%). We have also maintained our no.1
rankings in local government and finance (including insurance and life &
pensions), and achieved a no.1 ranking in central government for the first time,
increasing our market share in each of these sectors(2).
Creating organic growth
We have 2 complementary approaches to creating organic growth. The first, our
centrally managed major sales team, seeks to secure contracts typically with a
value of £10m or above. These contracts are 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.
Organic growth: major contracts
Major contracts are a key component of our growth. Over the past year, we have
continued to invest in this area, both to strengthen the sales team and the
sales support team who are integral to our bidding process.
Our sales performance in 2004 was excellent. We secured 12 major contracts with
an aggregate value of £1.36bn, an increase of 122% over 2003. Significant new
contracts won include a 2 1/2 year contract with the Department of Trade and
Industry, a 10 year contract with Winterthur Life, a 5 year contract with Dixons
Group plc, a 7 year contract with the Department for Work and Pensions ('DWP'),
a 20 year contract with The Children's Mutual, a 5 year contract to deliver
National Strategies for the Department for Education and Skills ('DfES') and a
12 year partnership with Salford City Council.
2005 has started well. In January, we announced that we had signed a 3 year
contract worth £14m with eircom. Capita will support and assist in growing
eircom's broadband and added value telephone services through the management of
200 call centre staff, based in Dublin.
We continue to enjoy a buoyant period of activity and I am pleased to report
today 3 further major contract wins totalling £96m, of which £40m is a new
contract and £56m are extensions to existing contracts. Consequently, the total
value of major contracts won in the first 8 weeks of 2005 is £11om.
The new contract is with Chester Street Insurance Holdings Limited to administer
their liability claims run-off. Chester Street is in a Scheme of Arrangement and
the Scheme Administrators are Dan Schwarzmann and Mark Batten of
PricewaterhouseCoopers. The contract is anticipated to generate revenues to
Capita of approximately £40m over a 10 year term. The contract commences in mid
May 2005 and will involve the transfer to Capita of some 50 members of staff
based in Leeds.
We have also extended 2 of our major existing relationships, reflecting our high
levels of operational performance and customer service. Our contract to run a
range of key office services for the DWP has now been extended until December
2006, with total revenues of £44m over the additional 21 month period. Our contract to
manage Norwich Union's Clubline, first awarded in 1995, has been extended for a
further 3 years. The contract will cover existing services and additional volume
growth following the recently formed General Insurance partnership between
Norwich Union and Barclays. Based on estimated volumes, the contract is
anticipated to generate revenues of £12m over the term of the contract.
Our contract to deliver Transport for London's ('TfL') Central London Congestion
Charging Scheme has now completed its second year of operation. Half of the 27
million payments made each year are now received via the web or SMS texting,
providing a convenient and efficient charge payment service. TfL is considering
the possibility of exercising its option to extend the contract for an
additional year to February 2009 which, under the terms of the existing
contract, would yield estimated additional revenues of circa £38m. We have also
recently entered into a supplemental agreement with TfL to extend certain
existing services as part of the proposed Western Extension Zone, subject to the
outcome of a public consultation and confirmation of the necessary scheme orders
by the Mayor of London.
As a consequence of this activity, we will have no material contracts (defined
as having annual revenue in excess of 1% of 2004 turnover) due for renewal in
2005 and only one in both 2006 and 2007.
Our major contract bid pipeline continues to be buoyant. We are currently
working on a record level of major bids with a total value of £3.8bn across
both the private and public sectors, a 41% increase on the corresponding period.
This total only includes bid situations in which Capita is short listed as one
of 4 or fewer competitors and caps our largest bids at £500m.
Organic growth: Group businesses
Group businesses have continued to perform strongly, building their market
shares in both the private and public sectors.
Private Sector
In the private sector, we have developed strong positions by building on core
contracts and acquisitions that provided us with initial footprints in this
market.
Capita Registrars and Capita Financial Group have expanded rapidly since our
original entrance into this market in April 2000, with the acquisition of IRG.
Capita Registrars is now the UK's leading share registrar with the greatest
number of client relationships. Capita Financial Group, following its recent
contract to administer a range of savings products on behalf of Canada Life, is
now positioned as a significant player in its field, administering aggregate
funds of £9bn.
The acquisition of 2 specialist insurance services companies, combined with our
ability to win BPO contracts, has enabled Capita to rapidly position itself as a
comprehensive insurance utility, providing specialist services and outsourcing
solutions to the insurance market. We are once again rated as the no. 1
insurance BPO & IT provider in 2004.2 Capita Insurance Services is now the
largest claims handler in the country, administering £11bn of liabilities on
behalf of our clients. Our specialist and added value services, such as
corporate and complex loss adjusting, London Markets, legal services and medical
helplines, continue to perform well. The volume loss adjusting market remains
challenging, but with the introduction of our new SAP technology platform and
our exclusive license to deploy the leading voice-risk analyser, we are better
placed to differentiate ourselves in this market.
Capita Life & Pensions has performed well. Since signing our landmark contract
with Lincoln Financial in 2002, the business is now established as a leading
administrator of both open and closed books. We have delivered the highest
levels of service, increasing policy retention whilst also providing significant
savings, often exceeding 25%, to our clients in the UK and Ireland. Our
evergreen contract with Lincoln Life has been expanded through Lincoln
outsourcing further customer services to Capita, resulting in an uplift in
annual revenues of 10%.
Our Child Trust Fund ('CTF') operation, set up to administer the Government's
new voucher savings scheme for children, has started smoothly. We are now
providing administration services for 28 approved CTF partners, representing a
40% plus potential market share. The cost effective IT platform and business
processes that we have established to support CTFs, position us well to support
other charge-capped products. We are now applying this model to our
Self-Invested Personal Pensions ('SIPP') operation, where we currently hold a
20-25% market share. This will enable us to capitalise on new opportunities in
the run up to pensions simplification in 2006.
Public Sector
Public sector organisations continue to seek our support to assist them in meeting
challenging Government targets for improved efficiency and customer service.
We focus on streamlining and enhancing existing services, as well as designing,
constructing and managing service infrastructures for new initiatives.
A key element of re-engineering services is the more effective use of
technology. Following the success of our automated 24 hour telephone and
internet payment service, we have now developed a mobile payments solution which
allows councils to carry out rent collection via a handheld device. It is
estimated that up to 2 hours will be saved per collection. There is also
considerable scope to roll this product out across other services to reduce
costs and increase customer service.
For local authorities seeking sustainable productivity and flexible service
delivery models, we have established 6 local government shared services centres.
The centres initially serviced one host client and now contain expert teams who
service multiple clients. Each centre provides either revenue processing,
benefits administration or customer contact services. More than 30 local
authorities are now benefiting from the economies of scale and high levels of
service that these centres are delivering. Mirroring this model, the central
records storage operation that we are developing for the DWP, will not only be
used to drive through productivity and service improvements for the Department,
but will also provide Capita with a state of the art facility to support
additional customers.
In 2004, our education businesses performed strongly. Capita Education Services
has enhanced its software products to assist in reducing the administrative
burden on schools and further education establishments. This year's product
innovations included software enhancements to support the increasing need to
tackle truancy and provide personalised learning. Capita Strategic Education
Services has had a particularly strong year. In October 2004, the team was
instrumental in securing the contract to support the delivery of National
Strategies, in relation to Primary and Key Stage 3, on behalf of the DfES. Its
work assisting Local Education Authorities (LEAs) to raise standards in learning
has continued to grow. Education Leeds, our strategic partnership with Leeds
City Council, received positive recognition from both OFSTED and the Audit
Commission this year. Education Leeds was established in 2001 following a
critical inspection report which judged the LEA as 'poor'. The recent inspection
report noted significant progress and rated the LEA as 'highly satisfactory'
with good capacity for further improvement.
We have also continued to deliver strong operational support for central
government education initiatives in 2004. In partnership with the DfES, we have
delivered the service infrastructure and administered the first year of the
Government's new Education Maintenance Allowance ('EMA'). Capita assesses
applications for EMA, receives payment instructions from schools and colleges
and transfers funds to students' bank accounts, as well as delivering telephone
and internet information services. The service was introduced smoothly and has
resulted in over 284,000 young people receiving EMA payments this academic year,
totalling some £136m.
Across our Resourcing businesses we have generated revenue growth of 7%, but as
a consequence of market contraction in certain sectors, particularly central
government high volume campaigns, margins have been under pressure. During 2004,
we recruited new management into these businesses and believe that the prospects
going forward are more encouraging.
Acquisitions
Although we continue to review a good volume of acquisition opportunities, our
approach remains cautious and selective. Our focus remains firmly on small
transactions, priced at a level which adds value for shareholders. In the
current pricing environment, we anticipate activity in this area will be
relatively low. During 2004, we completed 7 transactions, investing a total of
£47.6m (net of cash acquired).
Of this sum, £30.6m (£27.7m net of cash acquired) was used to acquire the
Symonds Group (Holdings) Ltd. Symonds has been integrated with Capita's existing
property consultancy. The enlarged company, Capita Symonds Ltd, provides
consultancy, management and design services to the property and infrastructure
markets and is now ranked as the 7th largest multidisciplinary consultancy in
the UK. We are pleased by the progress of the company.
In July, we completed the acquisition of PPML from Winterthur Life for £9m
(£7.7m net of cash acquired). Our focus over the last 8 months has been to
upgrade materially the quality of service in order to maximise the opportunities
arising from pension simplification in 2006. The team at PPML has done an
excellent job in this regard and we are excited by the opportunities for growth
in the SIPP market.
In November, we acquired Brownsword Ltd, a leading provider of claims
investigation services to the insurance market, paying an initial consideration
of £5m and assuming debt of £3.5m. A potential deferred consideration of up to
£5m may be payable upon the achievement of certain targets. The acquisition and
a separate 10 year license agreement with Digilog, enable Capita to use a market
leading voice-risk analyser across the finance, insurance and public sectors in
the UK and Ireland. The technology enables valid claims to be processed more
swiftly, whilst claims requiring further investigation are diverted through
additional verification processes. In the insurance sector, it has already
improved the speed of claims processing for valid claimants, enhancing customer
satisfaction and delivering significant savings. It also acts as a major
deterrent for individuals who consider making fraudulent claims.
This month, we paid £307,000 to increase our interest in our Capita Mastek BPO
joint venture in India from 60% to 90%. This operation will now trade as Capita
Offshore Services Limited. We view the opportunities for developing an offshore
BPO operation with increasing optimism and as BPO is Capita's core business, we
felt it was appropriate to take greater control over the development of this
operation.
Disposals
During the year, the Group disposed of its print business, CTD Capita and its
primary healthcare operation which was acquired with AON Health Solutions in
April 2004. The Group received an aggregate cash consideration of £3.1m, giving
rise to an exceptional loss of £1.9m.
New International Financial Reporting Standards ('IFRS')
IFRS will be adopted in Capita's consolidated accounts for the year ending 31
December 2005. The Group will publish accounts under IFRS from our 2005 Interim
results and restate 2004 figures for comparative purposes.
There are three key impacts for Capita:
* Share Based Payments (SBPs) will result in a charge to the 2005 profit and
loss account of circa £5m (2004 comparator circa £4m).
* The expense of the Group's final salary pension schemes on Capita's profit
and loss account will be similar to that using the current accounting
standard. However, any pension scheme surplus or deficit will need to be
shown on the balance sheet.
* The amortisation of goodwill arising from acquisitions will cease, but
will be held on the balance sheet subject to an annual impairment test.
Board changes
From 1 January 2005, we announced the appointment of Martina King as a
Non-Executive Director of the Group. Martina joins Capita following a career at
Yahoo!, where she was initially Managing Director of Yahoo! UK and more recently
Managing Director for Europe. We welcome her to the Board and believe she will
make a significant contribution to the Group's strategy.
At the end of February, Robert Alcock will be standing down as a Non-Executive
Director, after serving the company for over 11 years. We are very grateful for
the wisdom and assistance that Robert has given us during this period.
We have also taken the opportunity to strengthen the Executive Management Board
which is responsible for running Capita's divisional operations. With effect
from 1 January, Bill Dye and Dermot Joyce have become Divisional Executive
Directors. Both Bill and Dermot have made significant contributions to Capita's
growth to date and we congratulate them on their new appointments.
Valuing our people
The principal reason that Capita consistently delivers value for its
shareholders and customers is the energy and passion our staff contribute to the
Group's progress. We enjoy the benefits of a stable and consistent management
team, a low turnover of senior people and an outstanding team spirit and
attitude. These virtues are an important and valued factor when clients decide
to work with Capita.
We would like to thank all our staff for the important part they play in
Capita's continued success and welcome the 5,000 employees who have joined us
since the beginning of 2004. We now employ 23,000 people.
Future prospects
Capita operates within strongly growing markets across the private and public
sectors, enabling us to maintain a high degree of selectivity regarding the
contracts for which we bid.
The Group is well placed to make continued progress in 2005. Our existing
revenues are strongly underpinned, our sales pipeline is at a record level and
the company is trading strongly. We believe that shareholders will be pleased by
our performance in 2005 and beyond.
Rodney M Aldridge OBE
Executive Chairman
(i) Ovum Holway: Market Trends Preview 2005
(ii) HI Europe: UK BPO & IT Report 2005
Group profit and loss account
for the year ended 31 December 2004
2004 2003
Before Goodwill
goodwill
amortisation amortisation
and and Before
exceptional exceptional goodwill Goodwill
item item Total amortisation amortisation Total
Notes £m £m £m £m £m £m
---------------- ------ ---------- -------- -------- -------- -------- ------
Turnover 1
Continuing
operations 1,214.8 - 1,214.8 1,072.8 - 1,072.8
Acquisitions 67.4 - 67.4 - - -
---------------- ------ ---------- -------- -------- -------- -------- ------
1,282.2 - 1,282.2 1,072.8 - 1,072.8
Discontinued
operations 2.9 - 2.9 7.8 - 7.8
---------------- ------ ---------- -------- -------- -------- -------- ------
1,285.1 - 1,285.1 1,080.6 - 1,080.6
Cost of sales 958.8 - 958.8 804.8 - 804.8
---------------- ------ ---------- -------- -------- -------- -------- ------
Gross profit 326.3 - 326.3 275.8 - 275.8
Administrative
expenses 166.2 29.3 195.5 144.4 27.7 172.1
---------------- ------ ---------- -------- -------- -------- -------- ------
160.1 (29.3) 130.8 131.4 (27.7) 103.7
Operating
profit 1
Continuing
operations 156.6 (28.1) 128.5 130.0 (27.0) 103.0
Acquisitions 3.8 (1.2) 2.6 1.6 (0.7) 0.9
---------------- ------ ---------- -------- -------- -------- -------- ------
160.4 (29.3) 131.1 131.6 (27.7) 103.9
Discontinued
operations (0.3) - (0.3) (0.2) - (0.2)
---------------- ------ ---------- -------- -------- -------- -------- ------
160.1 (29.3) 130.8 131.4 (27.7) 103.7
Loss on
disposal of
businesses 2 - (1.9) (1.9) - - -
Net interest
payable (11.9) - (11.9) (10.2) - (10.2)
---------------- ------ ---------- -------- -------- -------- -------- ------
Profit on
ordinary
activities
before taxation 148.2 (31.2) 117.0 121.2 (27.7) 93.5
Taxation on
profit on
ordinary
activities (41.6) - (41.6) (34.1) - (34.1)
---------------- ------ ---------- -------- -------- -------- -------- ------
Profit on
ordinary
activities
after taxation 106.6 (31.2) 75.4 87.1 (27.7) 59.4
Minority
interest
(equity) 0.2 - 0.2 (0.1) - (0.1)
---------------- ------ ---------- -------- -------- -------- -------- ------
Profit for the
financial year 106.8 (31.2) 75.6 87.0 (27.7) 59.3
Dividends 3 35.4 - 35.4 26.7 - 26.7
---------------- ------ ---------- -------- -------- -------- -------- ------
Retained
profit for the
year 71.4 (31.2) 40.2 60.3 (27.7) 32.6
---------------- ------ ---------- -------- -------- -------- -------- ------
Earnings per
share
- Basic 4 16.05 (4.69) 11.36 13.04 (4.15) 8.89
---------------- ------ ---------- -------- -------- -------- -------- ------
- Diluted 4 15.84 (4.63) 11.21 12.95 (4.12) 8.83
---------------- ------ ---------- -------- -------- -------- -------- ------
Balance sheets
at 31 December 2004
Group Company
2004 2003 2004 2003
£m £m £m £m
----------------------------- ------ ------ ------- ------- -------
Fixed assets
Intangible assets 470.2 451.2 - -
Tangible assets 129.1 111.7 7.7 5.0
Investments - - 254.7 500.8
----------------------------- ------ ------ ------- ------- -------
599.3 562.9 262.4 505.8
Current assets
Trade investments 0.2 5.2 0.1 0.1
Debtors due within one year 248.1 211.8 331.3 127.4
Debtors due after more than one year 56.1 11.9 0.1 -
Cash at bank and in hand - 19.8 - -
----------------------------- ------ ------ ------- ------- -------
304.4 248.7 331.5 127.5
Creditors: amounts falling
due within one year 376.9 299.7 85.9 128.5
----------------------------- ------ ------ ------- ------- -------
Net current (liabilities)/assets (72.5) (51.0) 245.6 (1.0)
----------------------------- ------ ------ ------- ------- -------
Total assets less current
(liabilities)/assets 526.8 511.9 508.0 504.8
Creditors: amounts falling due
after more than one year 148.3 152.3 147.4 149.2
Provisions for liabilities
and charges 17.9 17.4 - -
----------------------------- ------ ------ ------- ------- -------
360.6 342.2 360.6 355.6
----------------------------- ------ ------ ------- ------- -------
Capital and reserves
Called up share capital 13.4 13.3 13.4 13.3
Share premium account 248.1 242.7 248.1 242.7
Capital redemption reserve 0.1 0.1 0.1 0.1
Merger reserve - - 44.6 44.6
Profit and loss account 98.6 86.0 54.4 54.9
----------------------------- ------ ------ ------- ------- -------
Shareholders' funds (equity) 360.2 342.1 360.6 355.6
Minority interest (equity) 0.4 0.1 - -
----------------------------- ------ ------ ------- ------- -------
360.6 342.2 360.6 355.6
----------------------------- ------ ------ ------- ------- -------
The accounts were approved by the Board of Directors on 23 February 2005 and
signed on its behalf by:
R M Aldridge OBE
Executive Chairman
G M Hurst
Group Finance Director
Group cash flow statement
for the year ended 31 December 2004
2004 2003
Note £m £m £m £m
Cash flow from operating activities
before additional
pension contribution 5 200.0 158.2
Exceptional additional pension
contribution (50.0) -
---------------------------- ------ ------- ------- ------- --------
Cash flow from operating activities 150.0 158.2
Returns on investments and
servicing of finance
Interest received 0.2 0.8
Interest element of finance lease
payments - (0.1)
Interest paid (11.9) (10.9)
---------------------------- ------ ------- ------- ------- --------
Net cash outflow from returns on
investments and servicing of finance (11.7) (10.2)
Taxation paid (36.0) (28.0)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (46.2) (38.2)
Purchase of intangible fixed assets (8.0) -
Proceeds on sale of current asset
investments 4.9 0.6
Proceeds on sale of fixed assets 3.3 1.0
---------------------------- ------ ------- ------- ------- --------
Net cash outflow from capital
expenditure and financial investment (46.0) (36.6)
Acquisitions and disposals
Proceeds on sale of business 3.1 -
Purchase of subsidiary undertakings and
businesses (51.4) (27.9)
Cash acquired with subsidiary
undertakings 3.8 2.0
Accrued deferred consideration paid (5.0) (1.7)
---------------------------- ------ ------- ------- ------- --------
Net cash outflow from
acquisitions and disposals (49.5) (27.6)
Equity dividends paid (29.6) (22.1)
---------------------------- ------ ------- ------- ------- --------
Net cash (outflow)/inflow before
use of financing (22.8) 33.7
Financing
Issue of ordinary share capital 5.5 2.9
Share repurchase (27.7) (12.2)
Capital element of finance lease rental
payments (0.3) (0.8)
Repayment of loan notes and long term
loans (11.5) (2.8)
---------------------------- ------ ------- ------- ------- --------
Net cash outflow from financing (34.0) (12.9)
---------------------------- ------ ------- ------- ------- --------
(Decrease)/Increase in cash in the
period (56.8) 20.8
---------------------------- ------ ------- ------- ------- --------
Group statement of total recognised gains and losses
for the year ended 31 December 2004
2004 2003
£m £m
-------------------------------------- ---------- ----------
Profit attributable to the members of the Parent company 75.6 59.3
Exchange adjustments 0.1 -
---------- ----------
Total recognised gains and losses 75.7 59.3
---------- ----------
Reconciliation of movements in shareholders' funds
for the year ended 31 December 2004
2004 2003
£m £m
-------------------------------------- ---------- ----------
Total recognised gains and losses 75.7 59.3
Dividends (35.4) (26.7)
-------------------------------------- ---------- ----------
40.3 32.6
New share capital subscribed 5.5 4.7
Share repurchase (27.7) (12.2)
-------------------------------------- ---------- ----------
Net movement to shareholders' funds 18.1 25.1
Opening shareholders' funds 342.1 317.0
-------------------------------------- ---------- ----------
Closing shareholders' funds 360.2 342.1
-------------------------------------- ---------- ----------
Notes to the preliminary statement
for the year ended 31 December 2004
1 Segmental information
(a) Turnover and profit on ordinary activities before taxation
Business Commercial Integrated Professional
Services Services Services Services Total
£m £m £m £m £m
------- ------------------- ------- -------- -------- --------- ---------
Turnover
2004 Continuing
operations 307.0 364.4 290.0 368.5 1,329.9
Acquisitions 46.1 21.3 - - 67.4
------- ------------------- ------- -------- -------- --------- ---------
353.1 385.7 290.0 368.5 1,397.3
Discontinued
operations - 1.0 1.9 - 2.9
------- ------------------- ------- -------- -------- --------- ---------
353.1 386.7 291.9 368.5 1,400.2
Inter-segment
sales (18.4) (22.1) (2.2) (72.4) (115.1)
------- ------------------- ------- -------- -------- --------- ---------
Third party sales 334.7 364.6 289.7 296.1 1,285.1
------- ------------------- ------- -------- -------- --------- ---------
2003 Continuing
operations 278.1 293.1 266.5 336.3 1,174.0
Restated Discontinued
operations - - 7.8 - 7.8
------- ------------------- ------- -------- -------- --------- ---------
278.1 293.1 274.3 336.3 1,181.8
Inter-segment
sales (9.1) (7.3) (16.8) (68.0) (101.2)
------- ------------------- ------- -------- -------- --------- ---------
Third party sales 269.0 285.8 257.5 268.3 1,080.6
------- ------------------- ------- -------- -------- --------- ---------
Profit before taxation
2004 Continuing operations 18.8 51.1 43.8 42.9 156.6
Acquisitions 3.8 - - - 3.8
------- ------------------- ------- -------- -------- --------- ---------
22.6 51.1 43.8 42.9 160.4
Discontinued operations - (0.2) (0.1) (0.3)
------- ------------------- ------- -------- -------- --------- ---------
Segment profit before
goodwill amortised 22.6 50.9 43.7 42.9 160.1
Goodwill amortised (8.1) (17.9) (0.9) (2.4) (29.3)
------- ------------------- ------- -------- -------- --------- ---------
Segment profit after
goodwill amortised 14.5 33.0 42.8 40.5 130.8
Exceptional item - (0.2) (1.7) - (1.9)
------- ------------------- ------- -------- -------- --------- ---------
Segment profit after
goodwill amortised and
exceptional item 14.5 32.8 41.1 40.5 128.9
------- ------------------- ------- -------- -------- --------- ---------
Net interest payable (11.9)
------- ------------------- ------- -------- -------- --------- ---------
Total 117.0
------- ------------------- ------- -------- -------- --------- ---------
2003 Continuing operations 21.7 36.7 36.5 36.7 131.6
Restated Discontinued operations - - (0.2) - (0.2)
------- ------------------- ------- -------- -------- --------- ---------
21.7 36.7 36.3 36.7 131.4
Goodwill amortised (7.2) (17.3) (0.9) (2.3) (27.7)
------- ------------------- ------- -------- -------- --------- ---------
Segment profit after
goodwill amortised 14.5 19.4 35.4 34.4 103.7
------- ------------------- ------- -------- -------- --------- ---------
Net interest payable (10.2)
------- ------------------- ------- -------- -------- --------- ---------
Total 93.5
------- ------------------- ------- -------- -------- --------- ---------
The comparative figures have been restated due to a minor reorganisation of the
Group's business divisions during the period.
Notes to the Preliminary statement
for the year ended 31 December 2004
1 Segmental information (continued)
Included within turnover is £46.1m in respect of the acquisition of Symonds
Group (Holdings) Limited, £12.7m in respect of Capita Personal Pension
Management Limited (PPML) and £8.6m in respect of the Healthcare Solutions business of
AON Health Solutions. 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.
Business Commercial Integrated Professional
Services Services Services Services Total
£m £m £m £m £m
------------------------- -------- -------- -------- -------- --------
Net assets
2004 Continuing
operations 59.4 13.0 28.5 31.1 132.0
Acquisitions - 0.5 - - 0.5
------------------------- -------- -------- -------- -------- --------
Net operating assets
excluding intangible
assets 59.4 13.5 28.5 31.1 132.5
Intangible assets 133.8 283.2 14.3 38.9 470.2
------------------------- -------- -------- -------- -------- --------
Net operating assets
including intangible
assets 193.2 296.7 42.8 70.0 602.7
------------------------- -------- -------- -------- -------- --------
Non-operating
liabilities (242.1)
------------------------- -------- -------- -------- -------- --------
360.6
------------------------- -------- -------- -------- -------- --------
Business Commercial Integrated Professional
Services Services Services Services Total
£m £m £m £m £m
------------------------- -------- -------- -------- -------- --------
Net Assets
2003 Continuing
operations 32.3 8.1 7.8 19.1 67.3
Restated Discontinued
operations - - 4.5 - 4.5
------------------------- -------- -------- -------- -------- --------
32.3 8.1 12.3 19.1 71.8
Goodwill 119.7 279.7 12.9 38.9 451.2
------------------------- -------- -------- -------- -------- --------
Net operating
assets including
goodwill 152.0 287.8 25.2 58.0 523.0
------------------------- -------- -------- -------- -------- --------
Non-operating
liabilities (180.8)
------------------------- -------- -------- -------- -------- --------
342.2
------------------------- -------- -------- -------- -------- --------
Non-operating liabilities comprise taxation, including deferred taxation,
dividend liabilities and net debt.
2 Exceptional items
During the year the Group disposed of its print business and its primary
healthcare business which was acquired with AON Health Solutions in April 2004.
The Group sold fixed assets of £0.6m, net assets of £4.4m and received cash
consideration of £3.1m. No tax relief has currently been claimed on the
exceptional loss of £1.9m.
3 Dividends
2004 2003
£m £m
------------------------------------------------------ ---- ----
Ordinary shares (equity) - Interim - paid 11.6 8.7
- Final - proposed 23.8 18.0
------------------------------------------------------ ---- ----
35.4 26.7
------------------------------------------------------ ---- ----
Final dividend of 3.60p per share (2003: 2.70p per share) to be paid on 6 May
2005 to ordinary shareholders on the register on 8 April 2005. This gives a
total dividend for the year of 5.35p per share (2003: 4.00p per share).
Notes to the Preliminary statement
for the year ended 31 December 2004
4 Earnings per share
Earnings per share is calculated on the basis of earnings of £75.6m (2003:
£59.3m) and on the weighted average of 665.4m (2003: 667.1m) shares in issue
during the year, excluding the shares held in the Employee Benefit Trust and
those held as Treasury shares.
The diluted profit for the year is based on profit for the year of £75.6m (2003:
£59.3m). The number of ordinary shares of 674.3m (2003: 671.8m) is calculated as
follows:
2004 2003
Number million Number million
----------------------------------- ----------- ------------
Basic weighted average number of shares 665.4 667.1
Dilutive potential ordinary shares:
Employee share options 8.9 *4.7
----------------------------------- ----------- ------------
674.3 671.8
----------------------------------- ----------- ------------
*The comparative figure for dilutive potential ordinary shares - employee share
options has been restated.
2004 2003
p p
--------------- ---------------------------------------------- -------- --------
Basic earnings
per share - before goodwill amortisation and exceptional
item 16.05 13.04
- after goodwill amortisation and exceptional
item 11.36 8.89
--------------- ---------------------------------------------- -------- --------
Diluted
earnings per
share - before goodwill amortisation and exceptional
item 15.84 12.95
- after goodwill amortisation and exceptional
item 11.21 8.83
--------------- ---------------------------------------------- -------- --------
The additional earnings per share figures shown here and on the profit and loss
account are calculated based on earnings before the impact of goodwill
amortisation and exceptional items. They are included as they provide a better
understanding of the underlying trading performance of the Group.
5 Reconciliation of operating profit to net cash inflow from operating
activities
2004 2003
£m £m
------------------------------------------------------ -------- ------------
Operating profit 130.8 103.7
Depreciation charge 27.9 24.4
Amortisation of other intangible asset (treated as
depreciation) 2.9 -
Amortisation of goodwill 29.3 27.7
Profit on sale of fixed assets - (0.6)
Amounts owed on fixed asset disposals - (1.6)
Loss on sale of current asset investment 0.1 0.4
Utilisation of provisions (3.4) (1.6)
Increase in provisions 2.8 1.4
Increase in debtors (14.1) (21.3)
Increase in creditors 23.7 25.7
------------------------------------------------------ -------- ------------
200.0 158.2
------------------------------------------------------ -------- ------------
Notes to the Preliminary statement
for the year ended 31 December 2004
6 Reconciliation of net cash flow to movement in net funds/(debt)
Net debt Net debt
at Acquisitions Non-cash at
1 January in 2004 Cash flow flow 31 December
2004 (exc cash) Movements Movements 2004
£m £m £m £m £m
Cash at bank
and in hand 19.8 - (19.8) - -
Overdrafts - - (37.0) - (37.0)
----------------- -------- -------- -------- -------- ---------
Cash 19.8 - (56.8) - (37.0)
Loan notes (33.0) (0.4) 6.3 - (27.1)
Long term debt - (5.2) 5.2 - -
Bonds (124.6) - - (0.1) (124.7)
Finance leases (0.5) - 0.3 - (0.2)
----------------- -------- -------- -------- -------- ---------
Total (138.3) (5.6) (45.0) (0.1) (189.0)
----------------- -------- -------- -------- -------- ---------
Net debt Net debt
at Acquisitions Non-cash at
1 January in 2003 Cash flow flow 31 December
2003 (exc cash) Movements Movements 2003
£m £m £m £m £m
Cash at bank
and in hand - - 19.8 - 19.8
Overdrafts (1.0) - 1.0 - -
----------------- -------- -------- -------- -------- ---------
Cash (1.0) - 20.8 - 19.8
Loan notes (34.1) (1.7) 2.8 - (33.0)
Bonds (124.5) - - (0.1) (124.6)
Finance leases (0.9) - 0.8 (0.4) (0.5)
----------------- -------- -------- -------- -------- ---------
Total (160.5) (1.7) 24.4 (0.5) (138.3)
----------------- -------- -------- -------- -------- ---------
7 Preliminary announcement
The preliminary announcement is prepared on the same basis as set out in the
previous years annual accounts.
A duly appointed and authorised committee of the Board of Directors approved the
preliminary announcement on 23 February 2005.
The announcement represents non-statutory accounts within the meaning of section
240 of the Companies Act 1985. The statutory annual accounts for the year ended
31 December 2004, 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 30 March 2005 and will be available to members of the public at
the registered office of the Company from that date.
--------------------------
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