Half Year Results
21 July 2011
THE CAPITA GROUP PLC
Half year results for the 6 months to 30 June 2011
SOLID H1 PERFORMANCE & POSITIVE FUTURE OUTLOOK
Highlights Half year Half year Change
2011 2010
Turnover £1,400m £1,361m + 3%
Underlying operating profit* £193.0m £178.4m + 8%
Underlying profit before tax* £174.0m £163.1m + 7%
Underlying earnings per share* 21.95p 19.60p + 12%
Interim dividend per share 7.2p 6.6p + 9%
* excludes intangible amortisation and acquisition costs of £33.8m (H1 2010:
£18.2m), the non-cash impact of mark to market movement on financial instruments
of £1.2m credit (H1 2010: £12.5m charge).
Key points
Major contracts wins and renewals of £1.1bn to date in 2011 (H1 2010: £523m),
including:
£570m over 15 years with Zurich
£149m over 10 years with MetLife
£100m over 5 years with the DVLA
Bid pipeline rapidly replenished to £4.7bn (Feb 2011: £4.7bn)
Win rates of approximately 1:2, operational excellence supporting contract
extensions & expansions
Broadening our operational capability and market reach with £194m invested in
11 acquisitions
Progressing new European service delivery capability and enhancing our Indian
offering
Underlying profit before tax up 7% to £174.0m (H1 2010: £163.1m)
Continued margin progression: up 0.7 percentage points to 13.8% (H1 2010: 13.1%)
EPS up 12% to 21.95p (H1 2010: 19.60p)
9% increase in half year dividend to 7.2p per share
Paul Pindar, Chief Executive of Capita commented:
"Against a backdrop of trading conditions which have continued to be
challenging, the business has progressed in 2011 and we are now experiencing
strong major contract sales performance and high levels of acquisition
activity. We have secured contracts and renewals totalling £1.1bn in the first
half of the year, more than double the value achieved in the first half of
2010. This reflects the increasingly strong demand for outsourcing across the
public and private sectors after a 2 year period of subdued sales activity.
Following our recent contract wins, our bid pipeline has been rapidly
replenished to its previous record level of £4.7bn of opportunities, with
buoyant activity in the local government and life and pensions markets and
growing activity across central government. After strong sales outcomes in the
first half, we expect decisions on a number of bids in the bid pipeline in Q3
and Q4 this year.
Our pipeline of sales prospects, visibility of revenue from long term contracts
and acquisition activity position us well for steady progress in 2011 and
underpin strong growth prospects for 2012 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 2011
Capita, the UK's leading business process outsourcing ("BPO") and professional
services company, has performed well in the first 6 months of 2011, securing
£1.1bn of major new and extended contracts reflecting increasing demand for
outsourcing across our markets and the excellent operational track record of
the Group. Additionally, to date in 2011, we have invested £194m in 11 small to
medium sized businesses which broaden our operational capability, market reach
and scale, enabling us to add value to existing clients and enhance our
propositions for new clients.
In the 6 months ended 30 June 2011, revenue increased by 3% to £1,400m (H1
2010: £1,361m). Underlying operating profit1 rose by 8% to £193.0m (H1 2010:
£178.4m) and underlying profit before taxation1 increased by 7% to £174m (H1
2010: £163.1m). Underlying earnings per share1 grew by 12% to 21.95p (H1 2010:
19.60p). Cash generated from operations was £179.6m (H1 2010: £216.3m). We have
increased our interim dividend by 9% to 7.2p per share (2010: 6.6p).
1 Excludes intangible amortisation and acquisition costs of £33.8m (H1 2010:
£18.2m), the non-cash impact of mark to market movement on financial instruments
of £1.2m credit (H1 2009: £12.5m charge).
Of the growth in revenues in the period, £134m was generated by both 2011
acquisitions and additional revenue from acquisitions completed in 2010. There
was revenue attrition in 4 specific areas totalling £92m, consisting of 2
contracts (National Strategies and Home Access) which we previously announced
were coming to an end and 2 business areas where major project spend was
planned to reduce. This attrition was not fully counterbalanced in the period,
mainly because growth in our resourcing and property consultancy businesses was
more subdued than expected. However, Capita is now enjoying a healthy flow of
new opportunities and the bid pipeline has been replenished to its previous
record level of £4.7bn, providing us with a good platform for stronger progress
in 2012.
Our focus on optimising our operational infrastructure and expanding the
Group's offshore capacity continues to drive margin progression, resulting in
margins increasing to 13.8% (H1 2010: 13.1%). During the period, we have
contained capital expenditure and retained an efficient capital structure.
Delivering shareholder value
To ensure that we continue to build long term value for shareholders, we focus
on a number of key financial measures including:
Margin - our focus remains on generating a steadily improving operating margin.
In H1 2011, operating margin (before acquired amortisation) was 13.8% (H1 2010:
13.1%). Our continued margin progression is due to our focus on operating at
optimum efficiency across the Group, our ability to drive out benefits from our
extensive scale, in particular through IT rationalisation, property
consolidation and effective procurement, and the sophistication and added value
of the services we deliver to clients.
Cash flow - £180m was generated by operations in the period (H1 2010: £216m),
representing an underlying operating profit to cash conversion rate of 93% (H1
2010: 121%). Our underlying free cash flow was £97m (H1 2010: £140m). Operating
cash flow has been impacted by additional working capital required for new and
expanded contracts and for our Building Schools for the Future projects. These
factors will continue to impact cash flow for the remainder of the year.
Thereafter, cash flow is expected to revert to more usual levels.
We use surplus cash to add value in 3 main ways - through acquisitions, share
buybacks and dividends. We deliver value to shareholders through steadily
growing dividends, acquiring businesses which meet our strict criteria and are
priced attractively, and undertaking share buybacks when attractive market
opportunities arise. Weighing these 3 elements, our current balance is to focus
more strongly than usual on the healthy pipeline of acquisition opportunities;
a decision which we believe will generate significant value to shareholders.
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. Current market conditions are fuelling our pipeline of
potential acquisitions and to date in 2011, we have invested £194m in 11
transactions. We expect to acquire further suitable businesses in the second
half of the year alongside our focus on integrating our recently acquired
companies into the Group.
Share buybacks - opportunistic share buybacks help us to maintain an efficient
capital structure and minimise our long term cost of capital and we will
continue to buy back shares if attractive opportunities arise. Shareholders
renewed the Group's authority to purchase up to 10% of issued share capital at
our AGM in May 2011. No share buybacks were undertaken in H1 2011.
Interim dividend - the Board has declared an interim dividend of 7.2p per
ordinary share (2010: 6.6p), representing an increase of 9%. The dividend will
be payable on 12 October 2011 to shareholders on the register at the close of
business on 2 September 2011.
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 2.8% (H1 2010: 2.8%) of revenue and anticipate maintaining these levels for
the full year.
Return on capital employed - we deploy our capital carefully and focus on
driving a healthy return on capital. Over the last 12 months, the post tax
return on average capital employed (including debt) was 18.8% (12 months to 30
June 2010: 20.2%). This compares to our estimated weighted average cost of
capital which is 7.8%.
Balance sheet gearing - in January 2011, we issued £101m of 8½ year private
placement notes and in July 2011, we have issued a further £208m of 7 and 10
year private placement notes. The proceeds of the new issues were used to repay
monies drawn down on the Group's revolving credit facility. Following these
issuances, we have £1,142m of private placement debt of which £123m matures
between June 2012 and August 2015 and the remainder then gradually matures
until 2021.
Generating profitable growth
We generate profitable growth by winning business from new and existing clients
principally in the UK, Ireland and Continental Europe and supplement this by
acquiring businesses that broaden our skill base and extend our market reach.
Organic growth
Following a relatively subdued 2009 and 2010, we are seeing increasingly
buoyant conditions for outsourcing in 2011, as demonstrated by the significant
year on year increase in new contract awards and extensions. To date in 2011,
we have secured 12 new contracts and extensions with an aggregate value of
£1.1bn (H1 2010: 17 contracts totalling £523m). This includes life and pensions
contracts with Zurich Financial Services Group and MetLife, a contract to
administer vehicle tax and insurance evasion on road enforcement for the DVLA
and a collaborative partnership with the London Borough of Lambeth:
MetLife: Selected to deliver an extended 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.
Teachers' Pension Scheme: A 7 year contract worth £80m to administer the
Teachers' Pension 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 third consecutive contract.
Zurich Financial Services Group: Extension of the current contract to deliver
operational services for Zurich's UK life business operations (from 2015 to
2026) and to support the development of Zurich Global Life's European and
international administration hubs for a 15 year period. The contract extension
and expansion will generate approximately £570m in revenues to Capita.
Driver and Vehicle Licensing Agency (DVLA): 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 five-year
contract, with an option to extend for a further two years, has an estimated
value of £100m.
London Borough of Lambeth: Appointed as preferred bidder to form a
collaborative partnership to deliver a range of Council services including the
existing revenue collection administered by Capita and additional services
including management of the Council's call centre operations, ICT support
services and a benefits resilience service. For the core services, the contract
is expected to be worth £60m over 10 years with the option to extend for a
further five years. The commissioning programme also allows for the opportunity
to widen the scope of the contract up to £300m.
Contracts worth between £10m-£50m: We have also secured 7 contracts with an
aggregate value of £118m. This includes delivery of a shared services contract
for the London Boroughs of Bromley and Lewisham, IT outsourcing for English
Heritage, revenues administration for the London Borough of Brent, managed
resourcing services regarding contractors for EDF Energy, an agreement with the
National Policing Improvement Agency (NPIA) to be one of 3 companies on the
Digital Interviewing Framework, preferred supplier to deliver HR, payroll and
recruitment services for up to 12 NHS trusts in Mersey. In addition, in July
2011 we have secured an extension to our existing contract with the Driving
Standards Agency for the provision of a full range of information services
throughout the DSA network.
Creating the fuel for organic growth
Following the 12 new contracts announced in H1 2011, we have rapidly
replenished our bid pipeline which stands at £4.7bn today (February 2011:
£4.7bn). This reflects the continued quality and quantity of business
opportunities across our target markets. In the private sector, opportunities
are particularly strong in the life and pensions and financial services
markets. The most active public sector markets are local government and defence
and we are also seeing opportunities emerge in the central government arena.
The pipeline, which is currently made up of 30 bids with an average contract
duration of 9 years, only includes bid situations in which Capita is
shortlisted to the last 4 or fewer bidders and caps the largest bids at £500m.
There are 4 bids in our pipeline where the potential client has publicly
announced that Capita is on the shortlist: administration of army recruitment
for the MOD, support for Edinburgh City Council, the rebid to administer TV
licensing for the BBC and a strategic partnership with NHS shared support
services provider, Anglia Support Partnership (ASP).
Over the 5 years to 31 December 2015, we only have 2 material contracts
(defined as having annual revenue in excess of 1% of 2010 turnover) due for
rebid and these are both due in 2012 - the contract for TV licensing, where the
re-bid process has commenced and we have been shortlisted, and the CRB
contract. The National Strategies initiative ceased in March 2011 and the
contract has therefore not been re-tendered.
Underpinning the pipeline is an active prospect list of opportunities which are
the fuel for the next tranche of potential outsourcing contracts, supported by
a suspect list of early stage targets.
Stimulating growth through acquisition
The acquisition of small to medium sized companies that enhance our
capabilities and take us into new and complementary areas has always played a
key part in Capita's business model. For example, our entry into the private
sector in 2000 was via the purchase of IRG Plc, a share registration business,
which we then expanded through organic growth and further acquisition creating
the platform for our growth into the private sector and particularly the wider
financial services market. From this initial entry point 11 years ago, our
private sector annual revenues are now approaching £1.5bn and contribute 50% of
the Group's revenue, with leading positions established across a number of
areas, including life & pensions, insurance and financial services.
Our more recent acquisitions continue to enhance our client propositions and
provide platforms for further growth. For example:
We continue to expand our financial services offering and, in June 2009,
acquired the European loan administration, asset management administration and
commercial mortgage backed securities (CMBS) administration services of Capmark
Financial Group Inc, creating Capita Asset Services. The business has
subsequently grown organically, securing the largest ever outsourcing mandate
in Europe from the National Asset Management Agency (`NAMA') in November 2009,
and also by further bolt-on acquisitions. In February 2011, Capita acquired the
securitised commercial loan business of Barclays Capital Mortgage Servicing
Limited ('BCMS'), owned by Barclays Capital making Capita Asset Services
Europe's largest, independent, third-party commercial mortgage servicer,
providing loan administration, facility agency, asset management and special
servicing to the banking and securitisation markets.
We entered the business travel market in 2005 with the acquisition of Lonsdale
Travel and expanded our capability with the acquisitions of Harry Weeks Travel
& Leisure in 2007 and BSI in December 2010. Capita's end-to-end business travel
offering is now one of the top 5 travel businesses in the UK, allowing us to
compete for clients across the public and private sectors where we are seeing
significant demand. In particular, central government is looking to
significantly drive down travel and subsistence costs for its workforce and we
will be in a strong position to help achieve these aims.
We continue to see a healthy flow of acquisition opportunities that fit our
growth strategy and are priced at attractive levels. To date in 2011, a total
of £194m has been invested in 11 transactions across a number of our core
capabilities and target markets, including customer services, health,
consultancy and financial services, including:
Talis - provides management software and managed services to higher education
markets and local authorities. The acquisition will add valuable new expertise
and capabilities to Capita's existing products for the academic and public
sector.
Barclays Capital Mortgage Servicing Limited (`BCMS') - a securitised commercial
loan business that provides primary and special loan servicing for commercial
real estate finance transactions. The acquired business is being integrated
into Capita Asset Services, which is now Europe's largest, independent,
third-party commercial mortgage servicer.
Right Document Solutions - a provider of document consultancy and managed print
services through long term contracts with a range of public and private sector
clients. The acquisition builds upon Capita's existing design, bulk print and
document management capabilities and provides a good strategic fit with a
number of our professional services businesses.
Tribal (health & government divisions) - The acquisition adds key new
capabilities and scale to Capita's health and consulting businesses and brings
established relationships across a wider spectrum of the health and government
markets.
Call Centre Technology - a provider of voice telephony, applications and
services for customer contact centres, adding valuable expertise and
capabilities for new contracts and Capita's existing telephony services. CCT
already supplies services to a number of our contracts and businesses that have
recently been acquired by Capita, including First Assist and Capita Secure
Information Systems.
Team 24 - a specialist healthcare recruitment company which adds depth and
breadth of expertise to Capita's recruitment business and to the range of
services it provides to the NHS and wider healthcare market.
Ventura - a customer contact specialist managing 50 million customer contacts
each year for a range of additional private and public sector clients. Ventura
was the third party customer services management arm of Next plc and is
particularly strong in the private sector with clients including leading
telecoms, utilities and retail companies. This acquisition provides us with
greater scale and flexibility and enhances our customer services outsourcing
capability and the potential to increase our private sector reach (acquisition
completed on 1 July 2011).
We have a robust process for integrating acquisitions into the Group to
generate value and will be concentrating on bedding down these new acquisitions
in the second half of the year. We will continue to acquire further small to
medium-sized businesses in H2 2011 if they fit our strict acquisition criteria
and provide opportunities to enhance our propositions and create further value.
Market update
Industry analysts value the overall UK BPO market at £117bn per annum with only
£7.8bn actually outsourced by the end of 2010, reflecting the enormous
potential for growth. We continue to be the market leader with a 23% market
share in 2010. Below we have highlighted some of the key drivers for
outsourcing in a number of our public and private sector markets.
Public sector: Following the Spending Review in October 2010 which addressed
the potential for cost savings and efficiencies in the public sector, fiscal
pressure continues to highlight the value that outsourcing can deliver. With an
annual administration spend estimated at £16bn and 500,000 staff in
administrative roles in 2008/2009, the Government is committed to reducing
spend in this area by around £6bn a year by 2014-2015. Similarly in local
government, where spending is to be cut by 7.1% per annum over the next 4
years, we are working with existing and new clients to see how we can support
more efficient, quality service models.
The Government's recent Open Public Services White Paper confirms the
Government's desire to reform public services to ensure equality of access to
high-quality public services. It recognises that this reform will take time but
that significant steps forward can be taken now. It also recognises the need to
open these public services to a range of providers, engaging both large and
smaller organisations from the private and third sectors to help them to
achieve their aims. The Government is also encouraging and exploring a spectrum
of engagement models, such as joint ventures, mutuals and other employee
ownership and cooperative models.
We have an extensive track record of creating collaborative partnerships and
working together with local organisations, charities and small businesses to
deliver the right outcomes for our clients and the communities they serve. We
are therefore well positioned to help create and participate in new models of
delivering public services and to leverage our expertise, capability and
infrastructure to support government at both a central and local level.
Some local authorities are already procuring in different ways to allow them to
form partnerships capable of providing shared services for third party
providers to the authority and to other local authorities and organisations to
achieve considerable savings by working together to deliver common services and
address local needs.
For example, our contract with the London Borough of Lambeth includes provision
to significantly widen the scope of the contract and achieve further
efficiencies by including other third party organisations. The collaborative
partnership can grow the services delivered over the life of the contract from
an initial value of £60m to a maximum value of £300m. Our pension
administration business, Capita Hartshead, has recently been awarded the
contract to act as the single provider to a Local Government Pension Scheme
(LGPS) framework. The London Borough of Hammersmith & Fulham and the London
Borough of Brent created the Framework Agreement and invited all 32 London
boroughs to register `an interest' in consolidating their pension
administration. 28 London boroughs are able to join the framework and with
expected savings of more than £1m for the two founding councils over the 6 year
contract term, other boroughs have indicated strong interest in joining the
scheme in the near future. We expect to see more of this type of activity as
local authorities look at innovative ways of cutting administration costs and
protecting frontline services.
Private sector: Commercial organisations are also facing continued pressure to
maintain their competitive position by driving down operational costs without
compromising customer service. Organisations can clearly benefit from the
higher productivity and enhanced operational capabilities and flexible capacity
that an experienced outsourcing service partner can provide. Sales activity in
the first half of 2011 has picked up considerably in the private sector and we
expect to see decisions on bids start to flow through in the later part of the
year. We are particularly active in the UK life & pensions and wider financial
services markets and also in Continental Europe where new and existing clients
are exploring the alternative service delivery models. Several of our recent
acquisitions bring with them high level relationships across a wide range of
private sector organisations beyond our existing market reach and we are
expanding these relationships. We are developing our nearshore and offshore
capability to meet the increasing demand for flexible delivery models from
private sector clients.
Developing our offshore/nearshore capability
Continental Europe: Capita's plans to create a multi-lingual shared services
centre in Krakow, Poland, are well advanced. The business centre is scheduled
to start delivering services to existing clients from Q4 2011 and will be fully
operational from early 2012 ensuring that we are well positioned to respond to
increasing demand from new clients in Europe. We have already opened temporary
offices and have signed heads of terms to lease a 500 seat capacity shared
services centre in Krakow city centre. The business centre's primary language
will be English; however, multilingual services will be offered as required by
our clients.
India: Capita's business centres in India continue to thrive and deliver
quality, efficient services to our UK clients. 1,300 new people are joining us
in Pune as part of the recent acquisition of the Ventura operations from Next
plc. We welcome them to Capita where they will continue to deliver services to
former Ventura clients and assist us in growing the business. We will be
reviewing our property portfolio in India to bring together our valuable
workforces to share skills and expertise and optimise the use of resources and
infrastructure.
Outlook: strong drivers for future growth
Against a backdrop of trading conditions which have continued to be
challenging, the business has progressed in 2011 and we are now experiencing
strong major contract sales performance and high levels of acquisition
activity. We have secured contracts and renewals totalling £1.1bn in the first
half of the year, more than double the value achieved in the first half of
2010. This reflects the increasingly strong demand for outsourcing across the
public and private sectors after a 2 year period of subdued sales activity.
Following our recent contract wins, our bid pipeline has been rapidly
replenished to its previous record level of £4.7bn of opportunities, with
buoyant activity in the local government and life and pensions markets and
growing activity across central government. After strong sales outcomes in the
first half, we expect decisions on a number of bids in the bid pipeline in Q3
and Q4 this year.
Our pipeline of sales prospects, visibility of revenue from long term contracts
and acquisition activity position us well for steady progress in 2011 and
underpin strong growth prospects for 2012 and beyond.
-Ends-
Half year condensed consolidated income statement
for the 6 months ended 30 June 2011
30 June 30 June
2011 2010
Non- Non-
Underlying underlying Total Underlying underlying Total
Notes £m £m £m £m £m £m
Continuing
operations:
Revenue 3 1,399.9 - 1,399.9 1,361.1 - 1,361.1
Cost of sales (989.8) - (989.8) (971.7) - (971.7)
Gross profit 410.1 - 410.1 389.4 - 389.4
Administrative (217.1) (33.8) (250.9) (211.0) (18.2) (229.2)
expenses
Operating profit 3 193.0 (33.8) 159.2 178.4 (18.2) 160.2
Finance costs (19.0) 1.2 (17.8) (15.3) (12.5) (27.8)
Profit before tax 3 174.0 (32.6) 141.4 163.1 (30.7) 132.4
Income tax expense (40.9) 8.7 (32.2) (42.4) 8.2 (34.2)
Profit for the 133.1 (23.9) 109.2 120.7 (22.5) 98.2
period
Attributable to:
Equity holders of 133.1 (23.9) 109.2 120.7 (22.5) 98.2
the parent
Earnings per share 4
- basic 21.95p (3.94)p 18.01p 19.60p (3.65)p 15.95p
- diluted 21.66p (3.89)p 17.77p 19.38p (3.62)p 15.76p
Half year condensed consolidated statement of comprehensive income
for the 6 months ended 30 June 2011
30 June 30 June
2011 2010
£m £m £m £m
Profit for the period 109.2 98.2
Other comprehensive income/(expense):
Actuarial losses on defined benefit
pension schemes (1.2) (14.8)
Income tax effect 0.1 4.1
(1.1) (10.7)
Exchange differences on translation of
foreign operations 4.0 (0.9)
(Losses)/gains on cash flow hedges (3.1) 6.6
Reclassification adjustments for gains
included in the income statement (2.7) (0.1)
Income tax effect 1.6 (1.8)
(4.2) 4.7
Other comprehensive expense for the
period net of tax (1.3) (6.9)
Total comprehensive income for the
period net of tax 107.9 91.3
Attributable to:
Equity holders of the parent 107.9 91.3
Half year condensed consolidated balance sheet
at 30 June 2011
31
30 June December
2011 2010
£m £m
Non-current assets
Property, plant and equipment 295.0 291.4
Intangible assets 1,527.3 1,416.0
Financial assets 216.4 237.4
Trade and other receivables 57.7 66.8
2,096.4 2,011.6
Current assets
Financial assets 5.0 6.0
Trade and other receivables 818.5 704.2
Cash 41.8 38.5
865.3 748.7
Total assets 2,961.7 2,760.3
Current liabilities
Trade and other payables 934.3 855.2
Financial liabilities 149.0 114.1
Provisions 21.0 26.3
Income tax payable 59.0 42.9
1,163.3 1,038.5
Non-current liabilities
Trade and other payables 69.9 72.2
Financial liabilities 1,126.2 1,066.4
Deferred taxation 21.1 31.8
Provisions 28.6 31.3
Employee benefits 22.8 24.6
1.268.6 1,226.3
Total liabilities 2,431.9 2,264.8
Net assets 529.8 495.5
Capital and reserves
Issued share capital 13.0 13.0
Share premium 457.6 454.9
Employee benefit trust (0.5) (0.5)
Capital redemption reserve 1.8 1.8
Foreign currency translation 9.4 5.4
Net unrealised gains reserve 4.2 8.4
Retained earnings 44.3 12.5
Equity shareholders' funds 529.8 495.5
Included in aggregate financial liabilities is an amount of £1,092.6m (31
December 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 £179.8m (31 December 2010: £194.3m) included in
financial assets and £21.5m (31 December 2010: £11.4m) included in financial
liabilities. Consequently, this gives an effective liability of £934.3m (31
December 2010: £833.5m).
Half year condensed consolidated statement of changes in equity
for the 6 months ended 30 June 2011
Foreign Net
Employee Capital currency unrealised
Share Share benefit redemption Retained translation gains Total
capital premium trust 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 period - - - - 98.2 - - 98.2
Other comprehensive - - - - (10.7) (0.9) 4.7 (6.9)
income/(expense)
Total comprehensive - - - - 87.5 (0.9) 4.7 91.3
income/(expense) for the
period
Share based payment - - - - 4.9 - - 4.9
Purchase of own shares - - (0.2) - (89.3) - - (89.5)
Share transaction costs - - - - (0.5) - - (0.5)
Income tax deduction on - - - - 0.7 - - 0.7
exercise of share
options in excess of
share based payments
Deferred income tax - - - - (4.1) - - (4.1)
relating to share based
payments
Shares issued 0.1 15.8 - - - - - 15.9
Equity dividends paid - - - - (69.1) - - (69.1)
At 30 June 2010 13.0 451.0 (0.4) 1.8 (65.5) 3.4 12.5 415.8
At 1 January 2011 13.0 454.9 (0.5) 1.8 12.5 5.4 8.4 495.5
Profit for the period - - - - 109.2 - - 109.2
Other comprehensive - - - - (1.1) 4.0 (4.2) (1.3)
income/(expense)
Total comprehensive - - - - 108.1 4.0 (4.2) 107.9
income/(expense) for the
period
Share based payment - - - - 5.6 - - 5.6
Deferred income tax - - - - (0.7) - - (0.7)
relating to share based
payments
Shares issued - 2.7 - - - - - 2.7
Equity dividends paid - - - - (81.2) - - (81.2)
At 30 June 2011 13.0 457.6 (0.5) 1.8 44.3 9.4 4.2 529.8
Half year condensed consolidated cash flow statement
for the 6 months ended 30 June 2011
30 June 30 June
2011 2010
Notes £m £m
Cash flows from operating activities
Operating profit on continuing activities before 159.2 160.2
interest and taxation
Depreciation 34.0 36.4
Amortisation of intangible assets 28.3 17.0
Share based payment expense 5.6 4.9
Pensions (6.0) (5.0)
Movement in provisions (8.8) 0.8
Movement in receivables and payables (32.7) 2.0
Cash generated from operations 179.6 216.3
Income tax paid (26.5) (23.2)
Net interest paid (17.7) (15.3)
Cash generated from operations after income tax and 135.4 177.8
interest
Net cash used in investing activities
Purchase of property, plant and equipment (38.7) (38.8)
Proceeds from sale of property, plant and equipment 0.3 1.3
Investment loan 0.5 0.2
Acquisition of subsidiary undertakings and businesses (120.4) (104.6)
Cash acquired with subsidiary undertakings 2.0 1.1
Debt repaid on acquisition of subsidiary undertakings (16.9) -
(173.2) (140.8)
Net cash used in financing activities
Issue of ordinary share capital 2.7 15.7
Share buybacks - (89.3)
Share transaction costs - (0.5)
Dividends paid 5 (81.2) (69.1)
Capital element of finance lease rental payments 7 (0.3) (0.3)
Asset based securitised financing arrangement 7 (7.8) (5.3)
Instalment debtor movement 9.4 6.4
Proceeds on issue of debt 7 100.8 253.5
Financing arrangement costs 7 (0.1) (0.7)
Repayment of loan notes and long term debt 7 - (217.1)
23.5 (106.7)
Net decrease in cash and cash equivalents (14.3) (69.7)
Cash and cash equivalents at the beginning of the (60.3) 181.5
period
Cash and cash equivalents at 30 June (74.6) 111.8
Cash and cash equivalents comprise:
Overdraft 7 (116.4) -
Cash at bank and in hand 7 41.8 111.8
Total (74.6) 111.8
Notes to the half year condensed consolidated financial statements
for the 6 months ended 30 June 2011
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 2011 were authorised for issue in accordance with a
resolution of the Directors on 20 July 2011.
2 Basis of preparation and accounting policies
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2011 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 2010, 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 2010 were approved by the
Board of Directors on 23 February 2011 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
ended 30 June 2011 have not been audited or reviewed by auditors pursuant to
the Auditing Practices Board guidance on Review of Interim Financial
Information.
The Group has considerable financial resources together with long term
contracts with a wide range of public and private sector clients and suppliers.
As a consequence, the Directors believe the Group is well placed to manage its
business risks successfully.
After making enquiries and in accordance with the FRC's "Going Concern and
Liquidity Risk: Guidance for Directors of UK Companies 2009", the Directors
have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the half year condensed
consolidated financial statements.
(b) Significant accounting policies
The accounting policies adopted in 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 2010, except for the adoption of the new standards and interpretations
as of 1 January 2011, noted below.
IAS 24 Related Party Transactions (Revised) The revised standard clarifies the
definitions of a related party. The new definitions emphasise a symmetrical
view of related party relationships as well as clarifying in which
circumstances persons and key management personnel affect the related party
relationships of an entity. Secondly, the revised standard introduces a partial
exemption from the general related party disclosure requirements for
government-related entities. The adoption of this revised standard did not have
any impact on the financial position or performance of the Group.
IAS 32 Financial Instruments: Presentation - Classification of Rights Issues
(Amendment) The amendment alters the definition of a financial liability to
enable parties to classify rights issues (and certain options or warrants) as
equity instruments. The amendment is applicable if the rights are given pro
rata to all of the existing owners of the same class of an entity's
non-derivative equity instruments, to acquire a fixed number of the entity's
own equity instruments for a fixed amount in any currency. The adoption of this
amendment did not have any impact on the financial position or performance of
the Group.
Improvements to IFRSs In May 2010 the International Accounting Standards Board
issued its third 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 2011, did not have any impact on
the financial position or performance of the Group although in some cases they
resulted in enhanced or additional disclosures.
IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) The amendment
provides further guidance on assessing the recoverable amount of a net pension
asset. The amendment permits a prepayment of a minimum funding requirement by
an entity to be recognised as a pension asset. The adoption of this
interpretation had no effect on the financial position or performance of the
Group.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments This
interpretation clarifies that equity instruments issued to a creditor to
extinguish a financial liability are consideration in accordance with paragraph
41 of IAS 39. The equity instruments issued are measured at fair value (unless
this cannot be reliably measured, in which case they are measured at the fair
value of the liability extinguished) with gain or loss being immediately
recognised in profit or loss. The adoption of this interpretation had no effect
on the financial position or performance of the Group.
3 Segmental information
The following tables present revenue and profit information regarding the
Group's operating segments for the six months ended 30 June 2011 and 2010
respectively. The comparative figures have been restated due to a
reorganisation of the Group's business divisions during the period. The
Directors decided that this was necessary to better manage the growth in the
business and to enhance service provision across the Group.
6 months ended 30 June 2011 2010
Total Inter- External Total Inter- External
revenue segment revenue revenue segment revenue
revenue revenue
Analysis of segment £m £m £m £m £m £m
revenue
Investor & Banking 98.5 (9.7) 88.8 90.8 (10.0) 80.8
Services
General Insurance 97.0 - 97.0 89.7 - 89.7
Life & Pensions Services 312.0 (33.9) 278.1 311.9 (34.6) 277.3
Integrated Services 114.7 (7.5) 107.2 144.8 (7.6) 137.2
Professional Services 258.3 (55.1) 203.2 298.9 (56.3) 242.6
IT Services & Consulting 356.3 (68.2) 288.1 279.5 (69.8) 209.7
Health Services 77.9 (10.5) 67.4 42.2 (10.7) 31.5
Property Services 139.5 (14.1) 125.4 160.6 (14.4) 146.2
Workforce Services 157.9 (13.2) 144.7 159.6 (13.5) 146.1
Total segments 1,612.1 (212.2) 1,399.9 1,578.0 (216.9) 1,361.1
Analysis of segment profit 6 months 6 months
to 30 to 30
June June
2011 2010
£m £m
Investor & Banking Services 21.6 17.7
General Insurance 12.8 10.2
Life & Pensions Services 26.4 33.2
Integrated Services 17.2 22.3
Professional Services 49.3 41.0
IT Services & Consulting 29.0 21.2
Health Services 11.6 4.1
Property Services 8.6 11.9
Workforce Services 16.5 16.8
Total underlying segment profit 193.0 178.4
Net finance costs (before callable swaps) (19.0) (15.3)
Underlying profit before tax 174.0 163.1
Intangible amortisation (28.3) (17.0)
Acquisition costs (5.5) (1.2)
Callable swaps 1.2 (12.5)
Profit before tax 141.4 132.4
4 Earnings per share
The average number of shares in issue during the period was 606.4m (30 June
2010: 615.7m). The diluted earnings per share have been calculated on the
profit for the period of £109.2m (30 June 2010: £98.2m) and an average diluted
number of shares of 614.4m (30 June 2010: 622.9m). As at 20 July 2011, there
were 608.2m shares in issue.
5 Dividends
The interim dividend of 7.2p (2010: 6.6p) per share (not recognised as a
liability at 30 June 2011) will be payable on 12 October 2011 to ordinary
shareholders on the register at the close of business on 2 September 2011. The
dividend disclosed in the cash flow statement represents the final ordinary
dividend of 13.4p (2010: 11.2p) per share as proposed in the 31 December 2010
financial statements and approved at the Group's AGM (not recognised as a
liability at 31 December 2010).
6 Business combinations
The Group has made a number of acquisitions in the period, which are shown in
aggregate below:
Provisional
fair value
to
Group
£m
Property, plant and equipment 0.7
Intangible assets 20.0
Deferred tax 1.0
Debtors 23.9
Cash and cash equivalents 2.0
Creditors (22.1)
Provisions (0.3)
Long term debt (16.9)
Corporation tax (0.6)
Net assets 7.7
Goodwill arising on acquisition 117.5
125.2
Discharged by:
Cash 112.3
Contingent consideration accrued 12.9
125.2
The full exercise to determine the fair value of 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 £2.6m.
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 Net debt
at Non-cash at
1 January Acquisitions Cash flow flow 30 June
2011 in 2011 movements movements 2011
£m £m £m £m £m
Cash and cash equivalents 38.5 - 3.3 - 41.8
Overdraft (98.8) - (17.6) - (116.4)
(60.3) - (14.3) - (74.6)
Loan notes (2.3) - - - (2.3)
Bonds* (1,016.4) - (100.7) 24.5 (1,092.6)
Long term debt - (16.9) 16.9 - -
Currency swaps in relation to US 178.5 - - (24.8) 153.7
$ denominated bonds*
Interest rate swaps in relation 4.4 - - 0.2 4.6
to GBP denominated bonds*
Finance leases (2.4) - 0.3 - (2.1)
Sub-total net debt (898.5) (16.9) (97.8) (0.1) (1,013.3)
Callable swaps (37.5) - - 1.2 (36.3)
Asset based securitised finance (11.7) - 7.8 - (3.9)
(947.7) (16.9) (90.0) 1.1 (1,053.5)
On 20 January 2011 the Group issued £50m and US$80m of bonds with a maturity
date of July 2019. Subsequent to the period end, on 19 July 2011 the Group
issued £35m and US$276m of bonds, of which US$40m mature in July 2018 and the
remainder in July 2021.
The aggregate bond fair value above of £1,092.6m (30 June 2010: £1,059.8m)
includes the GBP value of the US$ denominated bonds at 30 June 2011 (30 June
2010). 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 £934.3m (30 June 2010: £833.7m).
7 Movement in net debt (continued)
Net debt Net debt
at 1 Non-cash at
January Acquisitions Cash flow flow 30 June
2010 in 2010 movements movements 2010
£m £m £m £m £m
Cash and cash equivalents 181.5 - (69.7) - 111.8
Loan notes (2.6) - 0.7 - (1.9)
Bonds* (720.5) - (252.8) (86.5) (1,059.8)
Term debt (198.0) - 200.0 (2.0) -
Factored debt acquired - (13.0) 13.0 - -
Currency swaps in 136.0 - - 85.2 221.2
relation to US $
denominated bonds*
Interest rate swaps in 3.3 - - 1.6 4.9
relation to GBP
denominated bonds*
Long term debt (2.8) (0.6) 3.4 - -
Finance leases (1.4) (0.3) 0.3 (0.4) (1.8)
Sub-total net debt (604.5) (13.9) (105.1) (2.1) (725.6)
Callable swaps (30.9) - - (12.5) (43.4)
Asset based securitised (17.1) - 5.3 - (11.8)
finance
(652.5) (13.9) (99.8) (14.6) (780.8)
8 Capital commitments
At 30 June 2011, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment amounted to
£3.2m (2010: £8.2m).
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 6 months
30 June 30 June
2011 2010
£m £m
Short term employment benefits 2.0 1.2
Post employment benefits 0.1 0.1
Share based payments 2.5 2.8
4.6 4.1
Gains on share options exercised in the period by key management personnel
totalled £4.9m (2010: £4.7m).
10 Update on Arch Cru provision
On 21 June 2011, Capita Financial Managers Limited ("CFM") agreed with the FSA
to contribute 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 will voluntarily contribute to the establishment
of a £54m payment scheme, which, when combined with payments already made and
the remaining assets of the funds, will return an estimated 70% of the net
asset value as published at the date of suspension. CFM's contributions to this
payment scheme were already provided for within the 2009 accounts, and no
further provisions are anticipated to be required.
11 Contingent liabilities
The Group has provided, through the normal course of its business, performance
bonds and bank guarantees of £56.4m (31 December 2010: £69.4m).
Further consideration may be due, dependent on certain performance criteria, on
acquisitions completed by the Group since 2009 up to a maximum of £55.1m. The
Group expects that these payments, if ultimately due, will be satisfied by the
end of 2014.
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 2010. 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
20 July 2011
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