Final Results
23 February 2012
CAPITA PLC
Preliminary Results for the year ended 31 December 2011
Steady performance in 2011 and a good platform for further progress
in 2012
Financial Highlights
Year ended Year ended Change
31 December 2011 31 December 2010
Turnover £2,930m £2,744m +7%
Underlying operating profit* £427.4m £395.1m +8%
Underlying profit before £385.2m £364.2m +6%
tax*
Underlying earnings per 48.49p 44.98p +8%
share*
Total dividend per share 21.4p 20.0p +7%
* Excludes non-underlying items being: intangible amortisation and acquisition
expenses and release of contingent consideration of £71.9m (2010: £47.8m), the
non-cash impact of mark to market movement on financial instruments of £7.1m
(2010: £6.6m), and £3.3m (2010: £nil) for increased counterparty credit and
currency risk. After these non-underlying items: reported operating profit is
£355.5m (2010: £347.3m), reported profit before tax is £302.9m (2010: £309.8m)
and reported earnings per share is 39.16p (2010: 38.44p).
Key points
- £2.0bn of major contract wins secured in 2011 (2010: £0.8bn), including
£0.9bn new contracts and £1.1bn renewals
- Maintaining win rate of just below 1 in 2 reflecting the strength of our
relationships and track record
- Broadened our operational capability and market reach: £341m spent on 21
acquisitions in 2011
- New service delivery capability established in Continental Europe
- Underlying profit before tax increased by 6% to £385.2m
- Underlying operating margin was 14.59% (2010: 14.40%)
- Operating cash flow before settlements[1] of £364m (2010: £442m)
- £620m major contract sales secured to date in 2012
- Selected this month as Recommended Supplier for the Army's Recruiting
Partnering Project
- Despite a number of recent client decisions, pipeline stands at £4.6bn as at
22 February 2012 (July 2011: £4.7bn)
Paul Pindar, Chief Executive of Capita plc, commented:
"2011 was a challenging year in which we achieved reasonable revenue growth
and maintained our underlying operating margin. However, it was also
a successful year for Capita in respect of major sales wins, with a record
total value of £2.0bn new and extended contracts secured during the
year (2010: £0.8bn). This strong sales performance underlines our continued
ability to present innovative service solutions that deliver quality and cost
benefits to our clients, whilst delivering attractive rewards to Capita. We
also completed a series of acquisitions in 2011 which will play a key role in
extending our capabilities, enhancing our propositions to clients and making a
valuable contribution to our long term growth.
We already have good visibility of stronger revenue growth this year due to
renewed organic growth from our major contract sales performance in 2011
and to date in 2012 and the contribution from acquisitions. This visibility
and the current buoyant sales environment, evidenced by the rapid replenishment
of our bid pipeline, underpin our confidence in good growth prospects and
performance for 2012 and beyond."
[1] Settlements consist of a £17.9m settlement for Arch cru and an additional
pension contribution of £10.0m on the transfer back of the Cumbria County
Council pension scheme.
For further information:
Capita plc Tel: 020 7799 1525
Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 020 7654 2152 or
020 7654 2399 out of hours
FTI Consulting Tel: 020 7269 7291
Andrew Lorenz
2011 was a challenging year in which we achieved reasonable revenue
growth and maintained our margin. However, it was also a successful year for
Capita in respect of major sales wins, with a record total value of £2.0bn new
and extended contracts secured during the year (2010: £0.8bn). This included
£0.9bn from new contract wins and £1.1bn from contract renewals. We also
completed a series of acquisitions in 2011 which play a key role in extending
our capabilities, enhancing our propositions to clients and making a valuable
contribution to our long term growth.
In the full year 2011, revenue increased by 7% to £2,930m (2010: £2,744m).
Underlying operating profit[2] rose by 8% to £427.4m (2010: £395.1m)
and underlying profit before taxation[2] increased by 6% to £385.2m (2010:
£364.2m). Underlying earnings per share[2] grew by 8% to 48.49p (2010: 44.98p).
We have increased our total dividend for the full year 2011 by 7% to 21.4p per
share (2010: 20.0p).
After non-underlying items [2], reported operating profit was £355.5m
(2010: £347.3m) and basic earnings per share were 39.16p (2010: 38.44p). These
figures were impacted by higher amortisation of goodwill arising from
increased levels of acquisitions.
Our performance in 2011 was impacted by the more challenging economic
environment, including a range of austerity measures implemented
across Government. This adversely affected a number of our trading activities,
including our property consultancy and parts of our IT and resourcing
businesses, and also resulted in lower discretionary revenue being generated
from existing clients. As anticipated, we have reported an overall organic
revenue decline of 7% for the full year 2011 due to the combination of these
challenging trading conditions and due to an unusually high level of revenue
attrition. Throughout 2011, we focussed on taking actions to ensure optimum
efficiency across all our businesses going forward.
Despite this background, we have achieved overall revenue growth of 7%,
with good progress across the majority of our businesses and a significant
contribution from acquisitions completed in 2011 and those completed part way
through 2010.
Building value for shareholders
In addition to the financial measures detailed above, we focus on a
number of other key financial metrics to ensure we build value for
shareholders on a consistent basis over the long term:
- Margin - We constantly monitor operating margins and manage operating costs
to ensure that the business is running efficiently and cost effectively. The
valued nature of the services we deliver to clients together with our scale,
in particular our extensive shared service infrastructure, flexible delivery
models and effective procurement, allows us to maintain our margins.
In 2011, the Group's underlying operating margin[2] was 14.59% (2010:
14.40%). In 2011, operating profit was impacted by a number of notable items
including: unusually high restructuring costs (including redundancies) and the
settlement of certain historic captive insurance claims. This adverse impact
was offset by a past pension service credit of £23.9m which includes the
change to indexation benefits from RPI to CPI.
- Cash flow - In 2011, £364m (2010: £442m) was generated by
operations representing an operating profit to cash conversion rate (defined
as cash generated from operations before settlements divided by underlying
operating profit[2] for the year) of 85% (2010: 112%).
[2] Excludes non-underlying items being: intangible amortisation and
acquisition expenses and release of contingent consideration of £71.9m (2010:
£47.8m), the non-cash impact of mark to market movement on financial
instruments of £7.1m (2010: £6.6m), and £3.3m (2010: £nil) for increased
counterparty credit and currency risk. After these non-underlying items:
reported operating profit is £355.5m (2010: £347.3m), reported profit before
tax is £302.9m (2010: £309.8m) and reported earnings per share is 39.16p
(2010: 38.44p).
As previously highlighted, operating cash flow before settlements[3] has been
impacted by the conclusion of the National Strategies programme and additional
working capital requirements for new and expanded contracts, in particular our
Building Schools for the Future projects, Service Birmingham and certain life
and pensions contracts.
Due to the recent more challenging economic conditions, the
beneficial payment terms that we have historically secured from certain
clients are more difficult to obtain and this inevitably impacts our working
capital profile as these payment terms revert to industry norms. However, we
expect that our operating cash to operating profit conversion rate will
improve in 2012 and again in 2013.
Free cash flow defined as operating cash flow before settlements[3],
less capital expenditure, interest and taxation for the year was £157m (2010:
£241m). This decrease was due to the movement in working capital noted above.
(3) Settlements consist of a £17.9m settlement for Arch cru and an additional
pension contribution of £10.0m on the transfer back of the Cumbria County
Council pension scheme.
After meeting the requirements of the business, we use surplus cash
to add value in 3 main ways: through acquisitions, dividends and share
buybacks:
- Acquisitions - Acquisitions have consistently added value to our
client propositions and been a key driver for enhancing value to our
shareholders by both building platforms for future organic growth and by
generating excellent returns on capital. Over the 4 years to 31 December 2011,
we estimate our acquisitions have delivered a post tax return of approximately
14%. As a result of a favourable acquisition environment in 2011, we enjoyed a
particularly active year for the Group with £341m invested in 21 transactions.
Our focus is now on achieving the successful integration of these businesses
and realising synergies. We expect our acquisition activity to reduce going
forward in 2012 and to revert to historic levels.
- Regular dividends - The Board is recommending a final dividend of
14.2p per ordinary share (2010: 13.4p), making a total of 21.4p (2010: 20.0p)
for the year. This represents an increase of 7%. The final dividend will be
payable on 28 May 2012 to shareholders on the register at the close of
business on 20 April 2012. Including the proposed final dividend, Capita's
total dividend will have grown at a compound annual rate of 19% over the 5
years to 31 December 2011. Dividend cover is 2.27 times for 2011.
- Share buybacks - Opportunistic share buybacks help us to maintain
an efficient capital structure and minimise our long term cost of capital. We
did not complete any share buybacks in 2011 due to the higher level of
acquisition spend. We will continue to evaluate any attractive opportunities
as they arise and balance this against our other uses of cash. Shareholders
renewed the Group's authority to purchase up to 10% of issued share capital at
our AGM in May 2011.
- Capital expenditure - We aim to contain capital expenditure at or
below 4% of revenue. In 2011, we met this objective, with net capex at 3.5% of
annual revenue (2010: 3.6%). There are currently no indications of significant
capex requirements in our business forecasts or bid pipeline.
- Return on capital employed - We focus on driving a healthy return
on capital. During 2011, our post-tax return on average capital employed was
17.2% (2010: 20.6%). This compares to our estimated post-tax WACC which is
7.5%. We expect returns to improve as recent acquisitions deliver their full
profitability and organic growth returns.
Debt profile
During 2011, we issued £340m of private placement notes with maturities
between 7 and 10 years. Following these issuances, we have £1,176m of private
placement debt of which £123m matures between now and August 2015, with the
remainder gradually maturing until 2021. In February 2012, we raised a further
£285m of bank debt under a 2 year term loan facility to further increase
liquidity headroom.
Our aim continues to be to keep the ratio of net debt to EBITDA at or below
2.5 over the long term and we would be unlikely to incur borrowings which
would reduce interest cover below 7 times.
During the year, our net debt to EBITDA ratio increased to 2.5 (2010: 1.6) as
a result of taking advantage of a higher level of acquisition opportunities in
2011 and higher working capital requirements. Interest cover for the year
ended 31 December 2011 was 10.2 times.
Generating profitable growth
We generate profitable growth by winning business from new and
existing customers and through acquiring businesses that broaden our
propositions, capability and market reach.
Major contract wins
In 2011, we secured 26 new and extended major contracts with a
total value of £2.0bn (2010: 18 contracts totalling £0.8bn) representing a win
rate of just below 1 in 2. This includes:
- Teachers' Pension Scheme: Appointed preferred supplier for a 7
year contract worth £80m to administer the Teachers' Pensions Scheme (TPS),
the second largest public sector pension scheme in England and Wales, with
more than 1.6 million members. Capita has been administering TPS since 1996
and this will be our 3rd consecutive contract.
- MetLife: Selected to deliver an extended and expanded life and
pensions administration contract worth approximately £149m over 10 years.
Capita will provide customer servicing, policy administration, claims activity
and related IT support to underpin the long-term UK growth strategy of MetLife
Europe Ltd.
- Zurich Financial Services Group: A new contract to support the
development of Zurich Global Life's European and international administration
hubs for a 15 year period. Also an extension of the current contract to
deliver operational services for Zurich's UK life business operations (from
2015 to 2026). The contract extension and expansion will generate
approximately £570m in revenues to Capita.
- Driver and Vehicle Licensing Agency (DVLA): A new contract to
provide a national Vehicle Excise Duty (VED) service that includes provision,
at the DVLA's option, for a Continuous Insurance Enforcement (CIE) service.
The 5 year contract has an estimated value of £100m.
- London Borough of Lambeth: A contract to form a collaborative
partnership to deliver a range of services including the existing revenue
collection administered by Capita as well as additional Council services. For
the core services, the contract is expected to be worth £50m over 10 years
(with the option to extend for a further 5 years) and the commissioning
programme allows for the opportunity to widen the scope of the contract.
- The Pensions Regulator: A contract to support its direct
communications with employers for automatic enrolment of staff into workplace
pension schemes which will be phased in from October 2012. The 7 year contract
has an option for the regulator to extend it for a further 3 years and has an
estimated value of £105m.
- BBC: Selected by the BBC to administer TV Licensing for an 8 year
term under a new contract expected to be worth approximately £560m. Capita
will re-engineer the current service delivery model and harness advances in
technology and analytics to increase the TV Licensing revenues collected,
while also reducing the current servicing costs. The contract is due to
commence on 1 July 2012.
Contracts worth between £10-50m: The Group secured 19 new contracts
and extensions in this range with an aggregate value of £397m. Contracts
include:
- Secured a contract to administer revenue and benefits for the London Borough
of Brent worth £15m over 5 years
- Appointed to deliver transactional HR and payroll services for 10 NHS trusts
in North Merseyside in a contract estimated to be worth £22m over 7 years
- Selected by West Sussex County Council to manage core data and applications
in a contract estimated to be worth £26m over 6 years
- Awarded a shared services contract for the London Boroughs of Bromley and
Lewisham worth £18m over 5 years
- Agreed a 1 year extension with BAE Systems Maritime - Submarines, supporting
over 5,500 users
- Secured extension to our NHS Choices contract for a further 15 months,
valued at approximately £16m.
In 2012 to date, we have been selected as recommended supplier or signed new
and extended major contracts estimated in aggregate to be worth approximately
£620m, comprising recommended supplier to partner with the MOD to deliver the
Recruiting Partnering Project (RPP) to the Army and the enabling ICT for the
Royal Navy and the Royal Air Force, the Civil Service training agreement and 3
customer management contracts.
Our bid pipeline includes all bids worth £10m or above, capped at
£500m and where we have been shortlisted to the last 4 or fewer. We announce
the value of the pipeline twice a year at our half and full year results and
it is therefore a snapshot at a specific point in time. Despite an extremely
active few months in terms of client decisions, the pipeline has been
replenished and now stands at £4.6bn (July 2011: £4.7bn) and comprises 35 bid
situations across our target markets, with the highest value of bids being in
central government, followed by defence, local government and life and
pensions. Behind this is an active prospect list of opportunities, including a
number of bids which are expected to reach shortlist stage shortly.
Contract rebids: Over the next 7 years to 31 December 2019, we only
have 2 material contracts (defined as having annual revenue in excess of 1% of
2011 turnover) due for rebid - the Criminal Records Bureau (CRB) contract in
2013, where the bid process is now underway, and the Phoenix contract in 2019.
Stimulating growth through acquisition
Acquisitions play a key role in Capita's business model and we have
secured some excellent opportunities in 2011 which add value to our
proposition and make a valuable contribution to our growth. We focus on
acquiring small to medium sized companies which widen our skill base and
knowledge, enhance our client propositions, extend our presence in existing
markets or provide a foothold in a new market. We have substantial experience
of integrating acquired businesses and swiftly achieving synergies with our
existing operations. In 2011, we completed 21 acquisitions for a total
consideration of £341m, in the following key areas:
- Customer management: Ventura and the private sector division of
Vertex acquired for a combined total of £105.5m, enhancing our existing
customer management offering and opening up new market opportunities in the
private sector
- IT services: Cedar HR Software and Beat Systems acquired for a
combined consideration of £23m which provide further skills and relationships
in Capita's newest target market, emergency services
- Financial services: AIB Group's international financial services
and trust services businesses acquired for a combined consideration of £41.5m,
further strengthening our existing offering in this sector
- Pensions administration: NorthgateArinso's pensions
administration and software business acquired for £27.5m, bringing new
expertise and capacity to Capita Hartshead, the UK's leading administrator of
occupational pension schemes
- Health: Acquisitions of Team24, a specialist healthcare
recruitment company, for £24m and the health and government divisions of
Tribal, for £16.5m, adding established relationships and key new capabilities
and scale to the range of services Capita provides to the NHS and wider
healthcare and government markets
- Document management: Right Document Solutions acquired for £30m,
building upon Capita's existing design, bulk print and document management
capabilities and providing a good strategic fit with a number of our
professional services businesses
- Translation services: Applied Language Solutions and Salmat
Speech Solutions UK operations, providers of translation and interpreting
services to the public and private sectors, acquired for a combined
consideration of £7.6m.
Our focus is now on achieving the successful integration of these businesses
and realising synergies. We expect our acquisition activity to slow going forward
in 2012 as organic growth regains momentum.
Our market opportunities
Leading independent industry analysts, IDC, estimate that the total
market for BPO in the UK in 2011 was £8.1bn (2010: £7.8bn) with Capita
remaining the clear market leader, maintaining 23% market share (2010: 23%).
The overall market potential for BPO in the UK is estimated at £117bn a year
demonstrating the substantial capacity for long term growth. In 2011, we
gained business across both the public and private sectors and the sector
split of our revenues currently stands at 52% private/48% public (2010:
50%/50%).[4]
[4] IDC 2010 and 2011
Drivers for outsourcing in 2012
In the current economic climate, where organisations are facing
difficult decisions about how best to allocate resources to protect their
frontline activities and long term sustainability, outsourcing is seen as an
essential part of a cost efficient operating model. By moving from in-house
service provision to a specialist third party provider, government and
commercial entities can benefit from economies of scale and flexible delivery
options that fit their service requirements, enabling them to focus on their
core activities. With our wealth of experience of transforming processes,
people management and effective ICT, together with our flexible delivery
network, we are well positioned in this marketplace.
Private sector: Commercial organisations are facing continued
pressure to maintain their competitive position by driving down operational
costs and introducing new products to market faster whilst maintaining high
levels of customer service. Organisations can clearly benefit from the higher
productivity, enhanced operational capabilities and flexible capacity that an
experienced outsourcing partner can provide. We saw sales activity pick up in
2011 following the delay in decisions experienced in 2009 and 2010 and we
expect to see further progress in 2012. We are particularly active in the UK
life and pensions and wider financial services markets. Several of our recent
acquisitions bring with them high level relationships across a wide range of
industries, including retail, utilities and telecoms and we are actively
looking to grow these relationships.
Public sector: The ongoing pressure to reduce budgets whilst
maintaining frontline services is creating a steady pipeline of opportunities
in the public sector, particularly across local government and increasingly in
central government. The 2011 Open Public Services White Paper confirmed the
Government's commitment to reform and open service provision to a wide range
of suppliers and to explore a spectrum of engagement models, such as joint
ventures, mutuals and other employee ownership and cooperative models. We have
a strong track record of developing bespoke service delivery models that meet
the long term needs of our clients and the current and future expectations of
the public.
Increasing our resources and infrastructure
The strength of our offering is a result of our proactive
development of the Group's capability and infrastructure, ensuring that we
have the right resources in place to deliver tailored service solutions for
our clients. We harness the extensive skills and resources that we have
internally across the Group and work with partners, SMEs and third sector
organisations to meet each client's specific needs.
By offering clients onshore, nearshore, offshore or blended service
delivery options over a timeframe that suits their organisational objectives,
we can offer maximum flexibility, quality and cost savings. In 2011, we
established a new European business centre in Krakow, Poland, which extends
our flexible service delivery network. The centre is now operational and will
be servicing the expanded Zurich relationship as well as a number of Capita's
existing clients in English and other core European languages. The centre in
Krakow is located close to the city centre and the university and can
therefore access a skilled, multi-lingual workforce. We have a 550 seat
capacity and expect to expand as we transition some existing operations from
the UK.
Our employees join us through direct recruitment, contracts or
acquisitions and their commitment and enthusiasm play a vital role in helping
us to meet client expectations and sustain our growth. Against a backdrop of
challenging market conditions during 2011, the effort made by our 46,500
employees has been outstanding. In the year, we further strengthened our
management teams to prepare us for our next stage of growth and to ensure we
have the strongest operational team in place to maintain our track record of
quality service delivery to our clients. We attracted some excellent new
senior people, employing approximately 100 new managers and specialists, and
also promoted talent from within our existing workforce. The Board would like
to take this opportunity to thank all our people for their continued hard work
and dedication which underpins Capita's performance.
Group Board
Capita Non-Executive Director Paddy Doyle has decided to retire
from Capita and will be stepping down from the Board at the end of March 2012.
Paddy joined Capita in 1992, was appointed to the Board as an Executive
Director in 1994 and became a Non-Executive Director in 2010.
The Board has valued Paddy's insight and guidance and the
significant contribution he has brought to Capita throughout his career. The
Board and his Capita colleagues wish him the very best.
Future prospects
We already have good visibility of stronger revenue growth in 2012
due to renewed organic growth from our major contract sales performance in
2011 and to date in 2012 and the contribution from 2011 acquisitions. This
visibility and the current buoyant sales environment, evidenced by the rapid
replenishment of our bid pipeline, underpin our confidence in good growth
prospects and performance for 2012 and beyond.
-Ends-
Preliminary Statement
Consolidated income statement
for the year ended 31 December 2011
2011 2010
Non- Non-
Underlying underlying Total Underlying underlying Total
Notes £m £m £m £m £m £m
Continuing operations:
Revenue 1 2,930.2 - 2,930.2 2,744.0 - 2,744.0
Cost of sales 2,094.7 - 2,094.7 1,950.4 - 1,950.4
Gross profit 835.5 - 835.5 793.6 - 793.6
Administrative expenses 2 408.1 71.9 480.0 398.5 47.8 446.3
Operating profit 1 427.4 (71.9) 355.5 395.1 (47.8) 347.3
Net finance costs 3 (42.0) (10.4) (52.4) (31.8) (6.6) (38.4)
Investment (expense)/income (0.2) - (0.2) 0.9 - 0.9
Profit before tax 385.2 (82.3) 302.9 364.2 (54.4) 309.8
Income tax expense (90.5) 25.6 (64.9) (89.2) 14.4 (74.8)
Profit for the year 294.7 (56.7) 238.0 275.0 (40.0) 235.0
Attributable to:
Equity holders of the parent 294.7 (56.7) 238.0 275.0 (40.0) 235.0
Earnings per share 4
- basic 48.49p (9.33)p 39.16p 44.98p (6.54)p 38.44p
- diluted 48.38p (9.31)p 39.07p 44.48p (6.47)p 38.01p
Preliminary Statement
Consolidated statement of comprehensive income
for the year ended 31 December 2011
2011 2011 2010 2010
£m £m £m £m
Profit for the year 238.0 235.0
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension schemes (104.4) (14.1)
Income tax effect 24.1 2.7
(80.3) (11.4)
Exchange differences on translation of foreign operations 2.1 1.1
(Losses)/gains on cash flow hedges arising during the year (16.5) 2.8
Reclassification adjustments for gains included
in the income statement (5.0) (2.0)
Income tax effect 5.6 (0.2)
(15.9) 0.6
Other comprehensive expense for the year net of tax (94.1) (9.7)
Total comprehensive income for the year net of tax 143.9 225.3
Attributable to:
Equity holders of the parent 143.9 225.3
Preliminary Statement
Consolidated balance sheet
at 31 December 2011
2011 2010
£m £m
Notes
Non-current assets
Property, plant and equipment 330.2 291.4
Intangible assets 1,828.9 1,416.0
Financial assets 293.8 237.4
Trade and other receivables 65.8 66.8
2,518.7 2,011.6
Current assets
Financial assets 3.0 6.0
Funds receivables* 7 98.0 100.0
Trade and other receivables 846.3 704.2
Cash 71.5 38.5
1,018.8 848.7
Total assets 3,537.5 2,860.3
Current liabilities
Trade and other payables 936.5 836.5
Financial liabilities 36.5 115.8
Funds payables* 7 107.1 117.0
Provisions 6 17.0 26.3
Income tax payable 47.0 42.9
1,144.1 1,138.5
Non-current liabilities
Trade and other payables 20.0 54.0
Financial liabilities 1,695.9 1,084.6
Deferred taxation 21.0 31.8
Provisions 6 46.7 31.3
Employee benefits 85.7 24.6
1,869.3 1,226.3
Total liabilities 3,013.4 2,364.8
Net assets 524.1 495.5
Capital and reserves
Issued share capital 13.0 13.0
Share premium 459.4 454.9
Employee benefit trust & treasury shares (0.4) (0.5)
Capital redemption reserve 1.8 1.8
Foreign currency translation reserve 7.5 5.4
Net unrealised gains reserve (7.5) 8.4
Retained earnings 50.3 12.5
Equity shareholders' funds 524.1 495.5
Included in aggregate financial liabilities is an amount of £1,432.2m (2010:
£1,016.4m) which represents the fair value of the Group's bonds which should
be considered in conjunction with the aggregate value of currency and interest
rate swaps of £256.8m included in financial assets and £0.9m included in
financial liabilities (2010: £194.3m included in financial assets and £11.4m
included in financial liabilities). Consequently, this gives an effective
liability of £1,176.3m (2010: £833.5m).
* These balances are related to investors' purchase or redemption of units in
Investment Funds of which Capita Financial Managers Limited, our unit trust
administration business, is an Authorised Corporate Director. The comparatives
have been restated - see note 7.
Preliminary Statement
Consolidated statement of changes in equity
for the year ended 31 December 2011
Employee Foreign Net
benefit Capital currency unrealised
Share Share trust redemption Retained translation gains Total
capital premium shares reserve earnings reserve reserve equity
£m £m £m £m £m £m £m £m
At 1 January 2010 12.9 435.2 (0.2) 1.8 4.4 4.3 7.8 466.2
Profit for the year - - - - 235.0 - - 235.0
Other comprehensive expense - - - - (11.4) 1.1 0.6 (9.7)
Total comprehensive
income for the year - - - - 223.6 1.1 0.6 225.3
Share based payment - - - - 10.2 - - 10.2
Purchase of own shares - - (0.3) - (115.9) - - (116.2)
Income tax deduction on
exercise of stock options - - - - 4.0 - - 4.0
Deferred income tax relating
to share based payments - - - - (4.7) - - (4.7)
Shares issued 0.1 19.7 - - - - - 19.8
Equity dividends paid - - - - (109.1) - - (109.1)
At 1 January 2011 13.0 454.9 (0.5) 1.8 12.5 5.4 8.4 495.5
Profit for the year - - - - 238.0 - - 238.0
Other comprehensive expense - - - - (80.3) 2.1 (15.9) (94.1)
Total comprehensive
income for the year - - - - 157.7 2.1 (15.9) 143.9
Share based payment - - - - 8.3 - - 8.3
Income tax deduction on
exercise of stock options - - - - (3.8) - - (3.8)
Deferred income tax relating
to share based payments - - - - 0.7 - - 0.7
Shares issued - 4.5 0.1 - (0.1) - - 4.5
Equity dividends paid - - - - (125.0) - - (125.0)
At 31 December 2011 13.0 459.4 (0.4) 1.8 50.3 7.5 (7.5) 524.1
Preliminary Statement
Consolidated cash flow statement
for the year ended 31 December 2011
2011 2010
£m £m
Cash flows from operating activities
Operating profit on continuing activities
before interest and taxation 355.5 347.3
Depreciation 70.2 70.3
Amortisation of other intangible assets
(treated as depreciation) 0.2 0.2
Amortisation of intangible assets
recognised on acquisition 67.7 41.3
Share based payment expense 8.3 10.2
Pensions (33.3) (21.4)
Loss on sale of property, plant
and equipment 0.7 0.8
Movement in provisions (9.2) 7.5
Net movement in payables
and receivables (96.1) (13.8)
Cash generated from operations
before settlements 364.0 442.4
Settlement of Arch Cru (17.9) -
Settlement of Cumbria pension deficit (10.0) -
Cash generated from operations 336.1 442.4
Income tax paid (62.6) (70.8)
Net interest paid (42.0) (31.8)
Net cash inflow from operating activities 231.5 339.8
Cash flows from investing activities
Purchase of property, plant and equipment (102.3) (98.5)
Purchase of intangible assets (8.0) -
Proceeds from sale of property,
plant and equipment 0.1 0.1
Acquisition of subsidiary undertakings
and businesses (352.2) (208.5)
Debt repaid on acquisition of subsidiaries (22.3) (95.7)
Overdraft acquired with subsidiary
undertakings (9.6) (7.2)
Purchase of financial assets (0.2) (1.1)
Investment loan - 0.5
Return on investment in joint venture 0.3 0.5
Net cash outflow from investing activities (494.2) (409.9)
Cash flows from financing activities
Issue of ordinary share capital 4.5 19.8
Share buybacks - (115.7)
Share transaction costs - (0.5)
Dividends paid (125.0) (109.1)
Capital element of finance
lease rental payments (1.0) (0.6)
Instalment debtor movement 14.2 6.6
Asset based securitised financing (11.7) (5.4)
Repayment of loan notes and long term debt - (217.4)
Proceeds on issue of debt 339.8 252.9
Revolving credit facility 178.0 -
Financing arrangement costs (3.2) (2.3)
Net cash inflow/(outflow)
from financing activities 395.6 (171.7)
Net increase/(decrease) in
cash and cash equivalents 132.9 (241.8)
Cash and cash equivalents at the
beginning of the period (60.3) 181.5
Impact of movement in exchange rates (1.1) -
Cash and cash equivalents at 31 December 71.5 (60.3)
Cash and cash equivalents comprise:
Overdrafts - (98.8)
Cash at bank and in hand 71.5 38.5
Total 71.5 (60.3)
Preliminary Statement
Notes to the preliminary statement
for the year ended 31 December 2011
1 Segmental information
The Group's operations are organised and managed separately
according to the nature of the services provided, with each segment
representing a strategic business unit offering a different package of related
services across the Group's markets. The information disclosed below
represents the way in which the results of the businesses are reported to the
Group Board. The comparative figures have been restated due to a
reorganisation of the Group's business segments during the year and a
consequent change in the way in which the results of the businesses are
reported to the Group Board.
Before eliminating sales between business units on consolidation,
the Group accounts for sales between business units as if they were to a third
party at market rates.
The tables below present revenue and result for the Group's
business segments for the years 2011 and 2010.
All operations are continuing.
Year ended 31 December 2011
General Investor IT Life &
Health Property Insurance & Banking Integrated Services & Pensions Professional Workplace
Underlying Services Services Services Services Services Consulting Services Services Services Total
segment
revenue £m £m £m £m £m £m £m £m £m £m
Total segment
revenue 162.0 275.9 183.5 223.5 333.4 749.0 639.3 503.8 310.9 3,381.3
Inter-segment
revenue (29.0) (20.0) - (10.6) (5.7) (148.7) (94.2) (114.8) (28.1) (451.1)
Third party
revenue 133.0 255.9 183.5 212.9 327.7 600.3 545.1 389.0 282.8 2,930.2
Underlying
segment result
Result after
depreciation 26.2 13.4 29.0 55.5 63.2 56.0 56.9 97.3 38.2 435.7
Share based
payment (0.3) (0.6) (0.7) (0.6) (2.0) (0.5) (1.0) (1.6) (1.0) (8.3)
Underlying
operating
profit 25.9 12.8 28.3 54.9 61.2 55.5 55.9 95.7 37.2 427.4
Non-underlying
Intangible
amortisation (8.5) (3.7) (7.4) (6.5) (2.9) (18.6) (5.9) (8.4) (5.8) (67.7)
Acquisition
costs (1.7) (0.3) (0.8) (2.0) (3.2) (3.8) - (2.8) (0.8) (15.4)
Contingent
consideration
movement - 13.2 2.5 (4.5) - - - - - 11.2
Operating
profit 15.7 22.0 22.6 41.9 55.1 33.1 50.0 84.5 30.6 355.5
Net underlying finance costs (42.0)
Financial instruments - mark to
market (7.1)
Investment
expense (0.2)
Currency swaps' counterparty risk -
mark to market (3.3)
Profit before
tax 302.9
Corporation taxation (64.9)
Profit after
tax 238.0
Year ended 31 December 2010
General Investor IT Life &
Health Property Insurance & Banking Integrated Services & Pensions Professional Workplace
Underlying Services Services Services Services Services Consulting Services Services Services Total
segment
revenue £m £m £m £m £m £m £m £m £m £m
Total segment
revenue 115.2 328.5 184.9 191.6 266.2 598.2 621.1 572.6 305.7 3,184.0
Inter-segment
revenue (28.3) (19.5) - (10.4) (5.6) (145.0) (91.9) (112.1) (27.2) (440.0)
Third party
revenue 86.9 309.0 184.9 181.2 260.6 453.2 529.2 460.5 278.5 2,744.0
Underlying
segment result
Result after
depreciation 16.0 26.9 25.1 42.9 50.6 57.5 59.6 91.5 35.2 405.3
Share based
payment (0.2) (1.3) (1.8) (0.7) (2.4) (0.6) (0.9) (1.1) (1.2) (10.2)
Underlying
operating
profit 15.8 25.6 23.3 42.2 48.2 56.9 58.7 90.4 34.0 395.1
Non-underlying
Intangible
amortisation (4.7) (3.4) (5.5) (6.4) - (10.0) (4.9) (5.1) (1.3) (41.3)
Acquisition
costs (0.8) (0.5) (0.7) (0.9) - (2.2) (0.7) (0.4) (0.3) (6.5)
Operating
profit 10.3 21.7 17.1 34.9 48.2 44.7 53.1 84.9 32.4 347.3
Net underlying finance costs (31.8)
Financial instruments - mark to
market (6.6)
Investment gain 0.9
Profit before
tax 309.8
Corporation taxation (74.8)
Profit after
tax 235.0
2 Administrative expenses
Included within Administrative expenses, disclosed in the column
headed 'Non-underlying', are the following:
2011 2010
£m £m
Intangible amortisation 67.7 41.3
Professional fees re acquisitions 13.3 5.5
Stamp duty paid on acquisitions 2.1 1.0
Contingent consideration released (11.2) -
Total 71.9 47.8
In 2011, underlying profit was impacted by a number of notable
items: higher restructuring costs (including redundancies) of £8.0m, higher
insurance captive claims of £14.0m offset by a past service credit of £23.9m
which includes the reduction in pension liabilities due to the move from RPI
to CPI.
3 Net finance costs
Included within net finance costs, disclosed in the column headed
'Non-underlying' are the following:
2011 2010
£m £m
Callable swaps - mark to market 7.2 6.6
Foreign exchange forward contracts
(non-hedged) - mark to market (0.1) -
Currency swap's counterparty risk
- mark to market* 3.3 -
10.4 6.6
*The mark to market movement on currency swaps represents the extent to which
the fair value of these instruments has been affected by the perceived change
in the creditworthiness of the counterparties to those instruments. The Group
is comfortable that the risk attached to those counterparties is not
significant and believes that the currency swaps continue to act as an
effective hedge against the movements in the fair value of the Group's issued
US$ denominated bonds.
4 Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year plus
the weighted average number of ordinary shares that would be issued on the
conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
2011 2010
£m £m
Net profit attributable to ordinary equity
holders of the parent from operations 238.0 235.0
2011 2010
million million
Weighted average number of ordinary shares
(excluding trust and treasury shares)
for basic earnings per share 607.7 611.3
Dilutive potential ordinary shares:
Employee share options 1.4 7.0
Weighted average number of ordinary shares
(excluding trust and treasury shares)
adjusted for the effect of dilution 609.1 618.3
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of completion of these
financial statements.
The following additional earnings per share figures are calculated based on
underlying earnings attributable to ordinary equity holders of the parent of
£294.7m (2010: £275.0m) and, after underlying costs, earnings of £238.0m
(2010: £235.0m). They are included as they provide a better understanding of
the underlying trading performance of the Group.
2011 2010
p p
Basic earnings per share: - Underlying 48.49 44.98
- After non-underlying 39.16 38.44
Diluted earnings per share: - Underlying 48.38 44.48
- After non-underlying 39.07 38.01
5 Dividends paid and proposed
2011 2010
£m £m
Declared and paid during the year
Ordinary shares (equity):
Final for 2010 paid: 13.4p per share
(2009: 11.2p per share) 81.2 69.1
Interim for 2011 paid: 7.2p per share
(2010: 6.6p per share) 43.8 40.0
125.0 109.1
Proposed for approval at AGM
(not recognised as a liability at 31 December)
Ordinary shares (equity):
Final for 2011: 14.2p per share
(2010: 13.4p per share) 86.4 81.2
6 Provisions
Insurance
captive Property
provision provision
£m £m Arch cru Other Total
£m £m £m
At 1 January 2011 27.0 9.3 18.5 2.8 57.6
Utilisation (23.9) (1.5) (17.9) (1.8) (45.1)
Additional provisions in the year 17.2 (0.6) - 1.4 18.0
Provisions acquired - 33.2 - - 33.2
At 31 December 2011 20.3 40.4 0.6 2.4 63.7
The insurance provision is made in relation to the Group's Professional
Indemnity, Motor and Employee Liability exposures. The Group uses a captive
insurer to reduce the cost of providing this cover for its operations; claims
that are in excess of the Captive's liability are reinsured with a number of
large insurance underwriters. The Group makes provision when a claim has been
made where it is more probable than not that an insured loss will occur. These
provisions are reassessed regularly to ensure that the level of provisioning
is consistent with the claims that have been reported. In the year the Group
has settled a number of insurance liabilities which it had provided for in
previous years. Additionally it has made provision for new claims and
increased or decreased existing provisions where more information on the
progress of the claim has become available.
Within the provisions acquired in the year is included a discounted provision
for the difference between the market value of the property leases acquired
with Ventura and Vertex and the lease obligations committed to at the date the
leases were signed by the previous owners. This is in accordance with IFRS 3
(revised) which requires the use of fair value measurement. The remaining
property provision is made on a discounted basis for the future rent expense
and related cost of leasehold property (net of estimated sub-lease income)
where the space is vacant or currently not planned to be used for ongoing
operations. The expectation is that this expenditure will be incurred over the
remaining periods of the leases which range from 1 to 15 years.
Arch cru Funds - On 21 June 2011, Capita Financial Managers Limited ("CFM")
agreed with the FSA to contribute to and administer a package for investors
holding shares in sub funds of Arch Cru investments. Under the terms of the
agreement, CFM along with the depositaries to the funds voluntarily
contributed to the establishment of a £54m payment scheme. CFM's contributions
to this payment scheme were already provided for within the 2009 accounts. The
Directors anticipate that no further provisions are required.
Other relates to provisions in respect of potential claims arising due to the
nature of some of the operations that the Group provide. These are likely to
unwind over a period of 1 to 3 years.
7 Funds receivables and payables
2011 2010
£m £m
Funds receivables 98.0 100.0
Funds payables (107.1) (117.0)
These balances relate to investors' purchase or redemption of units in
Investment Funds of which Capita Financial Managers Limited, our unit trust
administration business, is an Authorised Corporate Director. The balances are
due to and from the investors and Investment Funds. The parties to the trade
are permitted to take advantage of a four day settlement period between
initiation and settlement of the trade. Historically, the Group has not
presented these balances gross, as they believed that the impact on the Group
accounts was immaterial. However, as these balances have become more
significant, management has taken the decision to present them separately in
the consolidated balance sheet.
8 Reconciliation of net cash flow to movement in net funds/(debt)
Net Debt Net debt
at 1 Acquisitions Non-cash at 31
January in 2011 Cash flow flow December
2011 (exc. cash) movements movements 2011
£m £m £m £m £m
Cash 38.5 - 34.1 (1.1) 71.5
Overdraft and bank loans (98.8) - 98.8 - -
Cash and cash equivalents (60.3) - 132.9 (1.1) 71.5
Loan notes (2.3) - - - (2.3)
Bonds †(1,016.4) - (339.2) (76.6) (1,432.2)
Revolving credit facility - - (175.4) (0.7) (176.1)
Currency swaps in relation to
US$ denominated bonds †178.5 - - 63.9 242.4
Interest rate swaps in relation to
GBP denominated bonds †4.4 - - 9.1 13.5
Long term debt - (22.3) 22.3 - -
Finance leases (2.4) - 1.0 (1.7) (3.1)
Underlying net debt (898.5) (22.3) (358.4) (7.1) (1,286.3)
Asset based securitised finance* (11.7) - 11.7 - -
Callable swaps (37.5) - - (7.2) (44.7)
(947.7) (22.3) (346.7) (14.3) (1,331.0)
The aggregate bond fair value above of £1,432.2m (2010: £1,016.4m) (included
in aggregate Financial liabilities) includes the GBP value of the US$
denominated bonds at 31 December 2011. To remove the Group's exposure to
currency fluctuations it has entered into currency swaps which effectively
hedge the movement in the underlying bond fair value. The interest rate swap
is being used to hedge the exposure to changes in the fair value of GBP
denominated bonds.
†The sum of these items held at fair value equates to the underlying value of
the Group's bond debt of £1,176.3m (2010: £833.5m).
*The asset based securitised finance movement represents the net movement on
the underlying balances with customers.
Net Debt Net debt
at 1 Acquisitions Non-cash at 31
January in 2010 Cash flow flow December
2010 (exc. cash) movements movements 2010
£m £m £m £m £m
Cash 181.5 - (143.0) - 38.5
Overdraft and bank loans - - (98.8) - (98.8)
Cash and cash equivalents 181.5 - (241.8) - (60.3)
Loan notes (2.6) - 0.7 (0.4) (2.3)
Bonds †(720.5) - (252.9) (43.0) (1,016.4)
Term debt (198.0) - 200.0 (2.0) -
Currency swaps in relation to
US$ denominated bonds †136.0 - - 42.5 178.5
Interest rate swaps in relation to
GBP denominated bonds †3.3 - - 1.1 4.4
Long term debt (2.8) (109.6) 112.4 - -
Finance leases (1.4) (1.6) 0.6 - (2.4)
Underlying net debt (604.5) (111.2) (181.0) (1.8) (898.5)
Asset based securitised finance* (17.1) - 5.4 - (11.7)
Callable swaps (30.9) - - (6.6) (37.5)
(652.5) (111.2) (175.6) (8.4) (947.7)
9 Preliminary announcement
The preliminary announcement is prepared in accordance with
International Financial Reporting Standards as adopted by the European Union.
A duly appointed and authorised committee of the Board of Directors approved
the preliminary announcement on 22nd February 2012. The announcement
represents non-statutory accounts within the meaning of the Companies Act
2006. The statutory accounts for the year ended 31 December 2011, upon which
an unqualified audit opinion has been given and which did not contain a
statement under Section 498 (2) or 498 (3) of the Companies Act 2006, 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, or on
the Company's corporate website
www.capita.co.uk/investors/Pages/Investors.aspx.
It is intended that the Annual Report and Accounts will be posted to
shareholders in April 2012. It will be available to members of the public at
the registered office and on the Company's Corporate website
www.capita.co.uk/investors/Pages/Investors.aspx from that date.
10 Statement of Directors responsibilities
The Directors confirm that, to the best of their knowledge the
consolidated financial statements in this report, which have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the European Union, IFRIC interpretations and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS, give a true and fair
view of the assets, liabilities, financial position and profit of the Group
taken as a whole and that the management report contained in this report
includes a fair review of the development and performance of the business.
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