Half Year Results
23 July 2009
THE CAPITA GROUP PLC
Half year results for the 6 months to 30 June 2009
STRONG PERFORMANCE
Financial highlights
Half year 2009 Half year 2008 Change
Turnover £1,311m £1,182m +11%
Underlying operating profit* £159.6m £140.6m +14%
Underlying profit before tax* £141.7m £120.2m +18%
Underlying earnings per share* 16.92p 14.46p +17%
Interim dividend per share 5.6p 4.8p +17%
*excludes intangible amortisation of £9.9m (2008: £4.9m) and the non-cash
impact of mark to market positive movement on callable swaps of £3.0m (2008:
Nil)
Key points
* Solid organic growth with major contracts secured up 30% to £814m (6 months
to 30 June 2008: £626m)
* Operating margin increased to 12.2% (6 months to 30 June 2008: 11.9%)
* Strong free cash flow - up 20% to £122m (6 months to June 2008: £102m)
* 17% increase in half year dividend to 5.6p per share
* Demand for outsourcing remains buoyant. Bid pipeline of £3bn (Feb 2009: £
3.1bn)
* 9 acquisitions completed to date in 2009 at a cost of £92.7m.
Paul Pindar, Chief Executive of The Capita Group Plc, commented:
"Capita has made good progress in 2009. The majority of our businesses across
the Group have performed well and we have secured new and renewed major
contracts worth £814m in the first 6 months of the year. Our businesses are
focused on operating at optimum efficiency and harnessing our extensive scale
benefits to enable continued successful growth.
We remain confident regarding our prospects. Our operational performance is
consistently strong providing an excellent background for further expansion.
Demand for outsourcing across our chosen markets continues to be buoyant,
generating an encouraging volume of opportunities. Our successes in 2008 and
progress in the first half of 2009 position us well for a successful year. We
are now focused on building a strong platform for continued growth in 2010 and
beyond."
For further information:
The Capita Group Plc Tel: 020 7799 1525
Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 020 7654 2399
Financial Dynamics Tel: 020 7269 7121
Andrew Lorenz
The Capita Group Plc
Half year results for the 6 months to 30 June 2009
Capita, the UK's leading business process outsourcing ("BPO") and professional
services company, has made good progress in 2009. The majority of our
businesses across the Group have performed well and we have secured new and
renewed major contracts worth £814m in the first 6 months of the year.
In the 6 months ended 30 June 2009, turnover increased by 11% to £1,311m (6
months to 30 June 2008: £1,182m). Of this increase, 8% growth was organic and
3% was generated through acquisitions. Underlying operating profit* rose by 14%
to £159.6m (2008: £140.6m) and underlying profit before taxation* increased by
18% to £141.7m (2008: £120.2m). Underlying earnings per share* grew by 17% to
16.92p (2008: 14.46p).
Underlying operating cash flow** rose by 14% to £198m (2008: £174m). We have
increased our interim dividend by 17% and we propose to pay 5.6p per share.
*underlying profit excludes intangible amortisation of £9.9m (2008: £4.9m) and
the non-cash impact of mark to market positive movement on callable swaps of £
3.0m (2008: Nil)
**underlying cash flow excludes an exceptional additional pension contribution
to the Group Final Salary Pension Scheme of £40m.
Building value for shareholders
To ensure we build value for shareholders on a consistent, long term basis, we
focus on a number of additional key financial measures including:
* Margin - our focus remains on generating steadily improving operating
margin. In the period, operating margin (before amortisation) was 12.2%
(2008: 11.9%). This reflects the added value of the services we deliver to
clients, the efficient use of our operational infrastructure and the
benefits of our scale. These factors underpin our confidence in continuing
to deliver improving margin for the foreseeable future.
* Cash flow - the strength of our business model is reflected in our
excellent underlying cash flow, with £198m (2008: £174m) generated by
operations in the period, representing an operating profit to cash
conversion rate of 124% (2008: 124%). Our underlying free cash flow
increased by 20% to £122m (2008: £102m).
We use surplus cash to add value in 3 main ways - through acquisitions, share
buybacks and dividends:
* Acquisitions - acquisitions help us to enter new markets where we can grow
organically, strengthen existing market positions and build economies of
scale, or access a new customer base. To date in 2009, we have spent £92.7m
on 9 acquisitions. We will continue with our strategy of acquiring small to
medium-sized businesses which are priced at a level which add value for our
shareholders. Current market conditions are fuelling our pipeline of
potential acquisitions and we expect to be active in acquiring suitable
businesses in the second half of the year. We remain highly selective.
* Share buybacks - opportunistic share buybacks help us to maintain an
efficient capital structure and minimise our long term cost of capital. In
the period to 30 June 2009, the Group has not bought back any shares as we
have concentrated on the flow of interesting acquisition opportunities. We
will however continue to buy back shares if and when opportunities arise.
Shareholders renewed the Group's authority to purchase up to 10% of issued
share capital at our AGM in May 2009.
* Interim dividend - the Board has declared an interim dividend of 5.6p per
ordinary share (2008: 4.8p), representing an increase of 17%. The dividend
will be payable on 12 October 2009 to shareholders on the register at the
close of business on 4 September 2009.
* Capital expenditure - we aim to contain capital expenditure at or below 4%
of revenue. During the period, we met this objective with net capital
expenditure at 2.7% (2008: 2.8%) of revenue.
* Return on capital employed - we focus on driving a steadily increasing
return on capital. Over the last 12 months, the post tax return on average
capital employed (including debt) has improved to 20.4% (12 months to 30
June 2008: 20.0%). This compares to our estimated weighted average cost of
capital which is 7.9%.
Additional financial information
Pension payment - As reported in February 2009, following our latest tri-annual
funding valuation, we decided to make an exceptional additional pension
contribution of £50m into the Group Final Salary Pension Scheme. £10m was paid
in December 2008 and the remaining £40m was paid in January 2009.
Debt profile - We aim to maintain both a conservative balance sheet and
substantial borrowing headroom. Following repayment of £100m in June 2009, we
have £579m of private placement debt which matures between 2012 and 2018.
Alongside this, we have a substantially unused revolving credit facility of £
245m.
Our marketplace
We remain the clear leader in the overall UK BPO market which continues to
generate strong growth opportunities. Industry analysts estimate the total
potential market at £94.2bn per annum with only 6% of this market outsourced in
2008 (£5.6bn).*
We are seeing high levels of interest across both the private and public
sectors as organisations seek alternative and more efficient service delivery
models. Fiscal pressure across government in particular is generating a strong
focus on efficiency. There is considerable potential for private and third
sector organisations to play a larger role in delivering high quality, cost
effective services and to help address the £13bn of efficiency savings - across
back office operations, IT and collaborative procurement - identified in the
Government's recent Operational Efficiency Programme.
Across our bid pipeline, our most active markets remain local government, life
and pensions and the wider financial sector. Additionally, there are a number
of interesting central government, health and defence opportunities. Sitting
behind our bid pipeline are buoyant prospects and suspects lists, the fuel for
potential outsourcing contracts in future years.
Generating profitable growth
We generate profitable growth by winning business from new and existing
customers in the UK and Ireland and supplement this by acquiring businesses
that broaden our skill base and extend our market reach.
Organic growth: Each of our businesses employs sales teams focused upon
securing growth from both existing and new customers. Solid performance has
been achieved across the Group in the first half of the year, particularly in
our life and pensions, local government, resourcing and IT services businesses.
*Source: Ovum 2008
Our centrally managed Major Sales Team pursues complex, long term contracts
worth over £10m which require a wide range of the Group's skills and generate
high quality, recurring revenues. Securing and renewing major contracts remains
an important component of our growth.
Our sales performance to date in 2009 has been good. In the first 6 months, we
have secured 10 new and renewed major contracts with a total value of £814m (6
months to 2008: £626m). These include:
* AXA Sun Life - to administer 3.2 million life and pensions policies. The
contract, worth £523m over 15 years, started on 1 June with 1,150 employees
in the UK transferring to Capita. We are seeing strong levels of service in
the first few weeks of service delivery. On 1 September 2009, 550 people
are due to transfer from AXA in India to Capita, following our acquisition
of part of the AXA business providing servicing to AXA Sun Life business
from India.
* Learning and Skills Council (LSC) - to manage the administration of a range
of allowances to support learners, including the Education Maintenance
Allowance (EMA) and the Adult Learning Grant (ALG). The contract, worth £
68m over 4 years until 2013, with an option to extend for a further 2
years, follows on from our announcement in November 2008 that Capita was to
take over the service with immediate effect, after the ending of the LSC's
contract with its previous provider.
* Office for National Statistics (ONS) - to recruit and train all the
temporary ONS workers who will work as field staff for the 2011 Census of
Population and Housing in England and Wales, and to administer their pay.
The contract will be worth £25m over 2 and a half years.
* Department for Children, Schools and Families (DCSF) - the contract for the
management of the National Strategies has been extended by 1 year from the
end of March 2010, when the current 5 year contract is due to end. The DCSF
has indicated that the minimum value of the 1 year contract extension will
be £64m. The recently published Schools White Paper has signalled a new
approach to school accountability and improvement support, one where there
will be less reliance on centrally delivered support arrangements and
greater focus on the development of school to school support and quality
assured providers. As a result, the National Strategies' contract will not
be re-tendered and will end on 31 March 2011. The National Strategies have
played a key role in building local capacity and will continue to do so
throughout the remaining period of the contract. Capita will also be well
placed to respond to the proposed new support arrangements from 2011
onwards.
In addition we have won major contracts and renewals with Breckland District
Council, Charnwood Borough Council, eircom, Threadneedle and the Driving
Standards Agency.
The first half of the year has seen a healthy level of sales activity resulting
in the contract wins listed above. Our bid pipeline has been actively
replenished and reflects the continued quality of business opportunities across
our markets. The pipeline currently stands at £3bn (February 2009: £3.1bn) and
only includes bid situations in which Capita is shortlisted and caps the
largest bids at £500m. Behind this is an active prospect list of opportunities
which are yet to reach a shortlist stage.
We now have no material rebids of our contracts (defined as having annual
revenue in excess of 1% of 2008 turnover) until 2012.
Stimulating growth through acquisition: A key element of our growth is the
acquisition of small to medium sized companies which extend our presence in
existing marketplaces or provide a footprint in a new market. We have
substantial experience of integrating acquired businesses and achieving
synergies with our existing operations. In the current climate we are seeing
many interesting opportunities, particularly in financial services and IT. To
date in 2009, we have acquired 9 businesses for a total consideration of £92.7m
including:
* CHKS and NHS Membership Services - CHKS Limited, a healthcare intelligence
business, and NHS Membership Services, which provides membership services
and engagement programmes for over 50 NHS foundation trusts, add further
strength to our position in the health market. The 2 businesses were
acquired for an aggregate consideration of £13.6m.
* Hero Insurance Services - a personal lines broker primarily offering
insurance for cars and motorbikes, acquired in March for £15m. We are in
the process of integrating Hero with our existing Insurance Distribution
businesses (BDML, Lancaster Insurance and Thornside) and will achieve
significant efficiency improvements through cost management and driving
through synergy savings.
* Capmark Services Europe - acquired for £10m in June, Capmark provides
administration services for CMBS securitisations, commercial mortgages,
commercial property loans and asset managers from offices based in the UK,
Ireland and Germany.
* Carillion IT Services Ltd ("CITS") - an IT services business, acquired for
£36m in June, which offers outsourcing, managed services and network
infrastructure solutions to external clients. The acquisition significantly
enhances and expands Capita's position in the IT services market,
increasing our scale, customer base and reach across the UK. There will be
significant operational and cost synergies by bringing together CITS and
Capita IT Services.
IBS OPENSystems: At the beginning of June, the Competition Commission reported
that Capita's acquisition of IBS OPENSystems did not raise competition issues
in the market for social housing software systems, but that it would result in
a substantial lessening of competition in the market for local authority
revenues and benefits software systems. The Competition Commission concluded
that Capita should divest the Revenue and Benefits business unit of IBS, but
said that if this partial divestiture were not achieved within a reasonable
period, it would review the position. Discussions with interested parties are
at an advanced stage and the Competition Commission has agreed with Capita a
consultation draft of the divestiture undertakings to be provided by Capita.
The draft will be open to public comment until 28 July 2009, after which Capita
anticipates gaining all approvals required to complete the partial
divestiture.
Continued growth and strong operational performance across our businesses
Our life and pensions operation continues to grow strongly. We now administer
25 million policies in total, an estimated 22% of all policies in force in the
UK. We have considerable scale enabling us to realise our plans for significant
synergies across our operations. We are aiming to achieve greater efficiencies
through establishing a common IT infrastructure across our operations and we
are currently rolling out the latest version of our main life and pensions
administration platform, Elixir. The life and pensions market is presenting a
strong pipeline of bid opportunities as potential clients come under increasing
pressure to control costs and to implement new regulatory requirements, such as
those following the FSA's Retail Distribution Review. We are well positioned to
take advantage of these opportunities and to build upon our leading position in
this sector.
Our operations in India are growing swiftly. In September, we begin operating
from an additional site in Bangalore which, along with our Pune site, will
support our AXA contract. It is our aim to have 3,700 full time employees
across our 5 sites in India by the end of the year. This will add further scale
to our offshore operations and provide us with a compelling offer for the
benefit of our clients as they seek further cost savings and efficiencies.
We continue to win and successfully develop partnerships across the local
authority market where the demands for greater efficiency across public
services act as a driver for outsourcing. Our contract with Sheffield City
Council, worth over £200m over 7 years, commenced on 5 January following a
smooth transition of employees and operations. Our newest contract with
Breckland Council in Norfolk, valued at £40m over 15 years, to provide planning
and building control services to the Authority, commenced at the end of June.
The deal, involving the transfer of 50 of the Council's planning and building
control employees to Capita Symonds, is expected to generate substantial
savings to Breckland over the course of the partnership. Capita will build on
the operation based in East Dereham, Norfolk, to create a shared services hub
able to offer planning and building control services to other Local Authorities
across East Anglia and the South East of England.
Capita Children's Services, our education software services business, has
performed very strongly due to the successful introduction of innovative
products to support the changing requirements of education establishments,
teachers, students and parents. The DCSF's requirement for schools to provide
information online to parents and carers by 2010 (secondary schools) and 2012
(primary schools) is helping to drive sales of our SIMS Learning Gateway
product that provides parents with data on their children, including
attendance, assessment and behaviour. With students increasingly receiving
education across a number of learning establishments, our award winning SIMS
Partnership Xchange product allows data to be securely shared across all
locations.
Our property and infrastructure consultancy, Capita Symonds, is trading
steadily in a challenging market with strong long term partnerships in local
government, infrastructure and the wider public sector. In June, the company
won a contract to design the Royal Oak Portal on the £15.9bn Crossrail scheme.
The contract was the first to be awarded by Crossrail via the Crossrail Design
Consultant Framework, the contracting mechanism being used to deliver the
designs for all infrastructure in the central tunnel section of the scheme.
Capita Symonds won a place on the framework late last year for 3 lots -
tunnels, portals and central stations. Due to open in 2017, Crossrail will be
the largest transport scheme seen in London and the South East for 50 years, as
well as being the biggest construction project in Europe.
Against a background of continued market weakness, trading across our financial
services businesses is mixed. Our trust administration business is performing
well and Capita Registrars has made good progress in the first half of the
year. Our Registration business won 17 new contracts this year, a record number
since acquiring the business in 2000, including contracts with Stagecoach Plc,
Northern Foods Plc and most notably Standard Life Plc which has in excess of
1.5 million shareholders. Capita Registrars has also benefited from a
significant number of equity fund raising transactions during the first half of
the year, supporting M&A activity, rights issues and scrip dividends. We are
currently upgrading the IT systems across our financial services businesses in
order both to introduce greater efficiencies and to provide a materially
enhanced customer experience. This development is progressing well.
Capita's collectives and investment trust administration business, which has
annual revenues of approximately £50m, is however feeling the effects of the
lower valuations across the stock market as our fees are connected to the value
of funds under administration. Concurrently, we are finalising the upgrade of
our IT infrastructure and seeing a sharply rising cost of regulatory
compliance. We are also involved in reviewing and resolving the suspension, due
to a lack of liquidity, of 2 OEIC funds we administer. This has required extra
resources and is expected to continue adversely impacting this business in the
second half.
We remain confident that the areas across the Group that could potentially be
affected by the current weaker economy represent less than 10% of our Group
revenues and this risk has been factored into our business plans for 2009.
Future prospects
We remain confident regarding our prospects. Our businesses are focused on
operating at optimum efficiency and harnessing our extensive scale benefits to
enable continued successful growth. Demand for outsourcing across our chosen
markets continues to be buoyant, generating an encouraging volume of
opportunities. Our operational performance is consistently strong providing an
excellent background for further expansion.
Our successes in 2008 and progress in the first half of 2009 position us well
for a successful year. We are now focused on building a strong platform for
continued growth in 2010 and beyond.
-Ends-
The Capita Group Plc is the UK's leading provider of BPO and integrated
professional support service solutions. With 36,000 people at more than 300
sites, including 59 business centres across the UK, Ireland, the Channel
Islands and India, the Group uses its expertise, infrastructure and scale
benefits to transform its clients' services, driving down costs and adding
value. Capita is quoted on the London Stock Exchange (CPI.L), and is a
constituent of the FTSE100 with revenues for 2008 of £2,441m.
Further information on The Capita Group Plc can be found at: http://www.capita.co.uk
Half year statement
Half year condensed consolidated income statement
for the 6 months ended 30 June 2009
30 June 30 June
2009 2008
Underlying Amortisation Total Underlying Amortisation Total
and callable and callable
swaps swaps
Notes £m £m £m £m £m £m
Continuing
operations:
Revenue 3 1,310.7 - 1,310.7 1,182.5 - 1,182.5
Cost of sales 944.0 - 944.0 852.4 - 852.4
Gross profit 366.7 - 366.7 330.1 - 330.1
Administrative 207.1 9.9 217.0 189.5 4.9 194.4
expenses
Operating 3 159.6 (9.9) 149.7 140.6 (4.9) 135.7
profit
Finance costs (17.9) 3.0 (14.9) (20.2) - (20.2)
Investment - - - (0.2) - (0.2)
loss
Profit before 141.7 (6.9) 134.8 120.2 (4.9) 115.3
tax
Income tax (38.0) 1.9 (36.1) (32.5) 1.4 (31.1)
expense
Profit for the 103.7 (5.0) 98.7 87.7 (3.5) 84.2
period
Attributable
to:
Equity holders 103.7 (5.0) 98.7 87.7 (3.5) 84.2
of the parent
Earnings per 4
share
- basic 16.92p (0.81)p 16.11p 14.46p (0.58)p 13.88p
- diluted 16.74p (0.80)p 15.94p 14.29p (0.57)p 13.72p
Half year condensed consolidated statement of comprehensive income
for the 6 months ended 30 June 2009
30 June 30 June
2009 2008
£m £m
Profit for the period 98.7 84.2
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension (8.3) (0.5)
schemes
Exchange differences on translation of foreign (3.0) 0.8
operations
Losses on cash flow hedges (26.0) (21.8)
Tax relating to components of other comprehensive 2.7 7.5
income/(expense)
Other comprehensive expense for the period net of (34.6) (14.0)
tax
Total comprehensive income for the period net of 64.1 70.2
tax
Attributable to:
Equity holders of the parent 64.1 70.2
Half year condensed consolidated balance sheet
at 30 June 2009
30 June 31 December
2009 2008
£m £m
Non-current assets
Property, plant and equipment 245.2 238.3
Intangible assets 992.3 907.0
Financial assets 166.8 332.4
Trade and other receivables 9.6 8.1
Employee benefits 34.7 -
Deferred taxation - 3.0
1,448.6 1,488.8
Current assets
Financial assets 0.5 5.2
Trade and other receivables 664.2 583.6
Cash - 86.7
664.7 675.5
Total assets 2,113.3 2,164.3
Current liabilities
Trade and other payables 770.1 690.4
Financial liabilities 89.7 116.5
Provisions 3.9 2.3
Income tax payable 44.2 40.4
907.9 849.6
Non-current liabilities
Trade and other payables 13.0 9.6
Financial liabilities 741.6 882.7
Provisions 0.3 1.0
Deferred taxation 6.6 -
Employee benefits 23.0 24.5
784.5 917.8
Total liabilities 1,692.4 1,767.4
Net assets 420.9 396.9
Capital and reserves
Issued share capital 12.9 12.8
Share premium 423.8 410.4
Employee benefit trust (0.2) (0.2)
Capital redemption reserve 1.8 1.8
Foreign currency translation 3.6 6.6
Net unrealised gains reserve (0.2) 18.5
Retained earnings (20.8) (53.0)
Equity shareholders' funds 420.9 396.9
Included in aggregate financial liabilities is an amount of £711.3m (31
December 2008: £953.1m) which represents the fair value of the Group's bonds
which should be considered in conjunction with the aggregate value of the
currency and interest rate swaps of £132.7m, included in financial assets (31
December 2008: £274.3m included in financial assets). Consequently, this gives
an effective liability of £578.6m (31 December 2008: £678.8m).
Half year condensed consolidated statement of changes in equity
for the 6 months ended 30 June 2009
Share Share Employee Capital Retained Foreign Net Total
capital premium benefit redemption earnings currency unrealised equity
trust reserve translation gains
reserve reserve
£m £m £m £m £m £m £m £m
At 1 January 12.6 374.9 - 1.8 (62.2) 0.7 4.0 331.8
2008
Total - - - - 85.1 0.8 (15.7) 70.2
comprehensive
income/
(expense) for
the period
Share based - - - - 3.7 - - 3.7
payment
Purchase of - - (0.2) - (66.0) - - (66.2)
own shares
Share - - - - (0.4) - - (0.4)
transaction
costs
Shares issued 0.1 16.6 - - - - - 16.7
Equity - - - - (48.8) - - (48.8)
dividends
paid
At 30 June 12.7 391.5 (0.2) 1.8 (88.6) 1.5 (11.7) 307.0
2008
At 1 January 12.8 410.4 (0.2) 1.8 (53.0) 6.6 18.5 396.9
2009
Total - - - - 85.8 (3.0) (18.7) 64.1
comprehensive
income/
(expense) for
the period
Share based - - - - 5.2 - - 5.2
payment
Shares issued 0.1 6.8 - - - - - 6.9
Share options - 6.6 - - - - - 6.6
satisfied
from EBT
Equity - - - - (58.8) - - (58.8)
dividends
paid
At 30 June 12.9 423.8 (0.2) 1.8 (20.8) 3.6 (0.2) 420.9
2009
Half year condensed consolidated cash flow statement
for the 6 months ended 30 June 2009
30 June 30 June
2009 2008
Notes £m £m
Cash flows from operating activities
Operating profit on continuing activities before interest 149.7 135.7
and taxation
Depreciation 27.9 25.4
Amortisation of intangible assets 9.9 4.9
Share based payment expense 5.2 3.7
Pension charge 10.3 9.2
Pension contributions (14.8) (13.0)
Movement in provisions (0.2) (1.7)
Movement in receivables and payables 9.8 9.6
Cash generated from operations before exceptional 197.8 173.8
additional pension contribution
Income tax paid (20.7) (18.8)
Exceptional additional pension contribution (40.0) -
Net interest paid (18.7) (20.2)
Cash generated from operations after income tax, 118.4 134.8
exceptional additional pension contribution and interest
Net cash used in investing activities
Purchase of property, plant and equipment (35.5) (33.0)
Investment loan 3.4 (2.0)
Acquisition of subsidiary undertakings and businesses (98.6) (66.0)
Cash acquired with subsidiary undertakings 0.6 13.5
Proceeds on sale of financial assets 1.6 -
(128.5) (87.5)
Net cash used in financing activities
Issue of ordinary share capital 13.4 16.7
Share buybacks - (66.2)
Share transaction costs - (0.4)
Dividends paid 5 (58.8) (48.8)
Capital element of finance lease rental payments 7 - (0.1)
Asset based securitised financing arrangement (1.0) 0.6
Repayment of bonds and loan notes 7 (101.1) (0.4)
(147.5) (98.6)
Net decrease in cash and cash equivalents (157.6) (51.3)
Cash and cash equivalents at the beginning of the period 86.7 (45.3)
Cash and cash equivalents at 30 June (70.9) (96.6)
Cash and cash equivalents comprise:
Overdraft 7 (70.9) (109.0)
Cash at bank and in hand 7 - 12.4
Total (70.9) (96.6)
Notes to the half year condensed consolidated financial statements
for the 6 months ended 30 June 2009
1. Corporate information
The Capita Group Plc is a public limited company incorporated in England and
Wales whose shares are publicly traded. The half year condensed consolidated
financial statements of the company and its subsidiaries (`the Group') for the
6 months ended 30 June 2009 were authorised for issue in accordance with a
resolution of the Directors on 22 July 2009.
2. Basis of preparation and accounting principles
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2009 have been prepared in accordance with the Disclosure and
Transparency Rules (DTR) of the Financial Services Authority and with IAS 34
Interim Financial Reporting.
The half year condensed consolidated financial statements do not include all
the information and disclosures required in the annual financial statements and
should be read in conjunction with the Group's annual financial statements as
at 31 December 2008, which have been prepared in accordance with IFRSs as
adopted by the European Union.
This condensed consolidated half year financial information does not comprise
statutory accounts within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2008 were approved by the
Board of Directors on 25 February 2009 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
The half year condensed consolidated financial statements for the 6 months to
30 June 2009 have not been audited or reviewed by auditors pursuant to the
Auditing Practices Board guidance on Review of Interim Financial Information.
(b) Significant accounting policies
The accounting policies adopted in the preparation of the half year condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2008, except for the adoption of the new standards and interpretations
as of 1 January 2009, noted below.
IFRS 2 Share-based Payment - Vesting Conditions and Cancellations The standard
has been amended to clarify the definition of vesting conditions and to
prescribe the accounting treatment of an award that is effectively cancelled
because a non-vesting condition is not satisfied. The adoption of this
amendment did not have any impact on the financial position or performance of
the Group.
IFRS 7 Financial Instruments: Disclosures The amended standard requires
additional disclosure about fair value measurement and liquidity risk. Fair
value measurements are to be disclosed by source of inputs using a three level
hierarchy for each class of financial instrument. In addition, a reconciliation
between the opening and closing balance for Level 3 fair value measurements is
now required, as well as significant transfers between Level 1 and Level 2 fair
value measurements. The amendments also clarify the requirements for liquidity
risk disclosures. As IFRS 7 is a disclosure standard, there is no impact of
that change in accounting policy on the half year condensed consolidated
financial statements. Full details of the change will be disclosed in the
annual report for the year ended 31 December 2009.
IFRS 8 Operating Segments This standard requires disclosure of information
about the Group's operating segments and replaces the requirement to determine
primary (business) and secondary (geographical) reporting segments of the
Group. Adoption of this standard did not have any effect on the financial
position or performance of the Group. The Group determined that the operating
segments were the same as the business segments previously identified under IAS
14 Segment Reporting.
IAS 1 Revised Presentation of Financial Statements The revised standard
separates owner and non-owner changes in equity. The statement of changes in
equity includes only details of transactions with owners, with non-owner
changes in equity presented as a single line. In addition, the standard
introduces the statement of comprehensive income: it presents all items of
recognised income and expense, either in one single statement, or in two linked
statements. The Group has elected to present two statements.
IAS 23 Borrowing Costs (Revised) The standard has been revised to require
capitalisation of borrowing costs on qualifying assets and the Group has
amended its accounting policy accordingly. In accordance with the transitional
requirements of the standard, this has been adopted as a prospective change
from the commencement date of 1 January 2009. No change has been made for
borrowing costs incurred prior to this date that have been expensed. Since
adoption, the Group has incurred no borrowing costs on qualifying assets which
are required to be capitalised.
IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial
Instruments and Obligations Arising on Liquidation The standards have been
amended to allow a limited scope exemption for puttable financial instruments
to be classified as equity if they fulfil a number of specified criteria. The
adoption of these amendments did not have any impact on the financial position
or performance of the Group.
Improvements to IFRSs In May 2008 the International Accounting Standards Board
issued its first omnibus of amendments to its standards, primarily with a view
to removing inconsistencies and clarifying wording. The adoption of these
amendments, which are effective from 1 January 2009, did not have any impact on
the financial position or performance of the Group.
IFRIC 13 Customer Loyalty Programmes This interpretation requires customer
loyalty credits to be accounted for as a separate component of the sales
transaction in which they are granted. A portion of the fair value of the
consideration received is allocated to the award credits and deferred. This is
then recognised as revenue over the period that the award credits are redeemed.
The Group does not operate any customer loyalty programmes and therefore the
adoption of this IFRIC did not have any impact on the financial position or
performance of the Group.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation This interpretation
provides guidance on the accounting for a hedge of a net investment. It
provides guidance on identifying the foreign currency risks that qualify for
hedge accounting in the hedge of a net investment, where within the Group the
hedging instruments can be held in the hedge of a net investment and how an
entity should determine the amount of foreign currency gain or loss, relating
to both the net investment and the hedging instrument, to be recycled on
disposal of the net investment. The Group has no hedges of net investments in
foreign operations and consequently the adoption of this interpretation did not
have any impact on the financial position or performance of the Group.
3. Segmental information
6 months to 6 months to
30 June 30 June
2009 2008
Analysis of segment £m £m
revenue
HR Solutions 138.2 117.8
Property Consultancy 128.2 126.2
Insurance Services 117.3 117.2
Investor Services 80.0 80.3
Integrated Services 195.4 191.0
ICT and Partnership 223.1 169.8
Services
Life & Pensions 255.4 229.4
Professional Services 173.1 150.8
1,310.7 1,182.5
6 months to 6 months to
30 June 30 June
2009 2008
Analysis of segment result £m £m
HR Solutions 12.8 11.5
Property Consultancy 9.1 10.1
Insurance Services 12.9 12.7
Investor Services 13.9 17.8
Integrated Services 28.6 22.9
ICT and Partnership 26.4 19.2
Services
Life & Pensions 27.5 23.8
Professional Services 28.4 22.6
159.6 140.6
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 better manage the growth in the business and to enhance service
provision across the Group. The Group's ongoing operations are not subject to
seasonal variations.
4. Earnings per share
The average number of shares in issue during the period was 612.8m (30 June
2008: 606.7m). The diluted earnings per share have been calculated on the
profit for the period of £98.7m (30 June 2008: £84.2m) and an average diluted
number of shares of 619.3m (30 June 2008: 613.7m). As at 22 July 2009, there
were 614.0m shares in issue.
5. Dividends paid and proposed
The interim dividend of 5.6p (2008: 4.8p) per share (not recognised as a
liability at 30 June 2009) will be payable on 12 October 2009 to ordinary
shareholders on the register at the close of business on 4 September 2009. The
dividend disclosed in the cash flow statement represents the final ordinary
dividend of 9.6p (2008: 8.0p) per share as proposed in the 31 December 2008
financial statements and approved at the Group's AGM (not recognised as a
liability at 31 December 2008).
6. Business combinations
The Group has made a number of acquisitions in the period, which are shown in
aggregate below:
Book Fair value Provisional
values adjustments fair value to
Group
£m £m £m
Intangible assets 21.1 (21.1) -
Property, plant and equipment 1.6 (0.9) 0.7
Debtors 35.1 (1.7) 33.4
Cash and short term deposits 0.6 - 0.6
Creditors (22.7) (2.0) (24.7)
Provisions (0.2) (0.9) (1.1)
Corporation tax (1.1) - (1.1)
Net assets 34.4 (26.6) 7.8
Goodwill arising on acquisition 95.2
103.0
Discharged by:
Cash 98.0
Deferred consideration accrued 5.0
103.0
The full exercise to determine the intangible assets acquired is still to be
completed, thus the above numbers are provisional; this exercise will be
finalised for the full year financial statements. Further cash consideration
was paid in respect of previous acquisitions of £0.6m with an equivalent impact
on goodwill.
The performance of these acquisitions post their inclusion in the Group cannot
be ascertained as they have been fully integrated within existing offerings.
7. Movement in net debt
Net debt at Cash flow Non-cash Net debt at
1 January movements flow 30 June
2009 movements 2009
£m £m £m £m
Cash and cash equivalents 86.7 (86.7) - -
Overdrafts - (70.9) - (70.9)
Cash 86.7 (157.6) - (70.9)
Loan notes (3.7) 0.8 - (2.9)
Bonds* (953.1) 100.3 141.5 (711.3)
Currency swaps* 269.6 - (140.1) 129.5
Interest rate swaps* 4.7 - (1.5) 3.2
Sub-total net debt (595.8) (56.5) (0.1) (652.4)
Callable swaps (32.0) - 3.0 (29.0)
Asset based securitised (10.4) (4.7) - (15.1)
finance
(638.2) (61.2) 2.9 (696.5)
Net debt at Cash flow Non-cash Net debt at
1 January movements flow 30 June
2008 movements 2008
£m £m £m £m
Cash and cash equivalents 0.8 11.6 - 12.4
Overdrafts (46.1) (62.9) - (109.0)
Cash (45.3) (51.3) - (96.6)
Loan notes (1.7) 0.4 (4.9) (6.2)
Bonds* (461.1) - (2.1) (463.2)
Currency swaps* (18.1) - 2.6 (15.5)
Interest rate swaps* 0.1 - (0.5) (0.4)
Finance leases (0.2) 0.1 - (0.1)
Sub-total net debt (526.3) (50.8) (4.9) (582.0)
Asset based securitised (9.7) 1.4 - (8.3)
finance
(536.0) (49.4) (4.9) (590.3)
The aggregate bond fair value above of £711.3m (30 June 2008: £463.2m) includes
the GBP value of the US$ denominated bonds at 30 June 2009 (30 June 2008). 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 £578.6m (30 June 2008: £479.1m).
8. Capital commitments
At 30 June 2009, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment amounted to £
nil (2008: £nil).
9. Related party transactions
Transactions between the company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. The only related party transactions requiring disclosure are details of
key management personnel compensation (including Directors of the parent
company). These details are set out in the table below.
Compensation of key management personnel (including Directors of parent
company)
6 months to 6 months to
30 June 30 June
2009 2008
£m £m
Short term employment 1.6 1.5
benefits
Post employment benefits 0.1 0.1
Share based payments 2.2 2.3
3.9 3.9
Gains on share options exercised in the period by key management personnel
totalled £3.8m (2008: £8.7m).
10. Competition Commission ruling on acquisition of IBS
The Group's acquisition in 2008 of IBS OPENSystems Limited (formerly IBS
OPENSystems plc) was the subject of a referral to the Competition Commission
(CC) under section 22(1) of the Enterprise Act 2002. On 4 June 2009 the CC
announced its decision. The CC determined that the acquisition by the Group of
IBS resulted in a lessening of competition in the market for revenue and
benefit software systems and that the corrective measure required was the sale
of the element of IBS that provides this product and service. Consequently, the
Group is actively seeking to dispose of this part of the business.
The results of this business activity which contributed revenue of £3.1m and
profit before tax and amortisation of £1.3m (6 months to 30 June 2008: £0.5m
and £0.1m respectively) are included in these financial statements.
Statement of Directors' Responsibilities
The Directors confirm, to the best of their knowledge, that this condensed set
of financial statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the Half year Management Report includes a fair
review of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of the
Disclosure and Transparency Rules of the United Kingdom Financial Services
Authority.
The names and functions of the Directors of The Capita Group Plc are as listed
in the Group's Annual Report for 2008. A list of current directors is
maintained on the Group website: www.capita.co.uk.
By order of the Board
P R M Pindar G M Hurst
Chief Executive Group Finance Director
22 July 2009
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