24th Feb 2011 07:00
24 February 2011 THE CAPITA GROUP PLC Preliminary Results for the year ended 31 December 2010 GOOD PERFORMANCE AND PROSPECTS Financial Highlights Year ended 31 Year ended 31 Change December 2010 December 2009 Turnover £2,744m £2,687m +2% Underlying operating profit* £395.1m £357.7m
+10%
Underlying profit before tax* £364.2m £325.1m
+12%
Underlying earnings per share* 44.98p 38.75p +16%
Total dividend per share 20.0p 16.8p +19% *excludes items which the Group treats as non-underlying, which are: intangibleamortisation, acquisition expenses, business disposals and non-cash mark tomarket gains or losses on financial instruments. In 2009 the provision for ArchCru was also excluded. See notes 2 and 3.
Key points
* Bid pipeline stands at a record £4.7bn (Feb 2010: £3.7bn); increasingly
active markets * Major contract wins and renewals in 2010 of £795m (2009: £1bn)
* £244m major new contracts and renewals secured in first 7 weeks of 2011
* Broadened our operational capability and market reach: £301m spent on 12
acquisitions in 2010 * Expanded our Indian capabilities and creating a new service delivery capability in Continental Europe * Underlying profits before tax advance by 12% to £364.2m
* Continued operating margin progression: increased by 109 basis points to
14.40% (2009: 13.31%) * Underlying operating cash flow up by 1% to £442m (2009: £437m) * Earnings per share growth of 16% to 44.98p (2009: 38.75p) * 19% dividend increase, with dividend cover of 2.25 times.
Paul Pindar, Chief Executive of Capita Group Plc, commented:
"Capita delivered a good performance in 2010, with the majority of businessesacross the Group producing robust results against a challenging background. Afocus on optimising our operational infrastructure and on growing our offshoreoperation ensured that we continued to increase margins.In 2010, we faced a slowdown in decisions on major outsourcing contracts, loweradditional spend by existing clients and reduced activity in some of ourtransactional trading operations due to constraints on public spending.Notwithstanding these challenges, Capita is positioned strongly for securingnew business in 2011.We enter 2011 with a record bid pipeline, increasing activity across the publicand private sectors and some encouraging new contract wins. The need for ourpublic sector clients to achieve substantial cost savings and for privatesector clients to increase their efficiency to remain competitive offerssignificant opportunities for the Group going forward.
Capita's pipeline of sales prospects, strong forward visibility of revenues from our long term contracts and consistent operational performance position us well for further progress in 2011 and thereafter."
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 2152 or 020 7654 2399 out of hours Financial Dynamics Tel: 020 7269 7291 Andrew Lorenz The Capita Group Plc Preliminary Statement for the year ended 31 December 2010 Capita delivered a good performance in 2010 with the majority of businessesacross the Group delivering robust results against a challenging background. Afocus on optimising our operational infrastructure and on growing our offshoreoperation ensured that we continued to drive forward our margins. We havemaintained healthy cash generation, contained capital expenditure and retainedan efficient capital structure, with relatively low gearing.In 2010, we faced a slowdown in decisions on major outsourcing contracts, loweradditional spend by existing clients and reduced activity in some of ourtransactional trading operations due to reduced public spending.Notwithstanding these challenges, Capita is positioned strongly for securingnew business in 2011.In the year ended 31 December 2010, turnover increased by 2% to £2,744m (2009:£2,687m). Underlying operating profit* rose by 10% to £395.1m (2009: £357.7m)and underlying profit before taxation* increased by 12% to £364.2m (2009: £325.1m). Underlying earnings per share* grew by 16% to 44.98p (2009: 38.75p).Underlying operating cash flow increased by 1% to £442m (2009: £437m).
We have increased our total dividend for the year by 19% to 20.0p (2009: 16.8p).
*excludes items which the Group treats as non-underlying, which are: intangibleamortisation, acquisition expenses, business disposals and non-cash mark tomarket gains or losses on financial instruments. In 2009 the provision for ArchCru was also excluded. See notes 2 and 3.
Building value for shareholders
In addition to the financial measures reported above, we focus on a number of other key financial measures to ensure we build value for shareholders on a consistent basis over the long term:
* Margin - We focus on generating a steadily improving operating margin. In
2010, the underlying operating margin increased by 109 basis points to
14.40% (2009:13.31%). 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), the
optimisation of our offshore facilities and the sophistication and added
value of the services we deliver to clients.
* Cash flow - The strength of our business model is reflected in our healthy
cash flow, with £442m (2009: £437m) generated by operations in the period,
representing an operating profit to cash conversion rate of 112% (2009:
122%). Our underlying free cash flow decreased to £241m (2009: £280m). This
was due to increased investment in IT platforms in our life and pensions
and share registration operations.
We use surplus cash to add value in 3 main ways: through acquisitions, share buybacks and dividends:
* Acquisitions - We have continued to acquire companies to enhance our
service capabilities, to enter new markets where we can grow organically,
strengthen existing market positions and build economies of scale. In 2010,
we spent £301m on 12 acquisitions. There continues to be a good volume of
opportunities valued at attractive levels so we expect to be active in acquiring further businesses that fit our requirements in 2011. We will continue to be disciplined when assessing opportunities. * Share buybacks - Opportunistic share buybacks help us to maintain an
efficient capital structure and minimise our long term cost of capital. In
2010, the Group bought back 15.4 million shares (representing 2.5% of the
issued share capital) at an average price of 751p per share. Following
these buybacks the Company has 605.6 million shares in issue (excluding
shares held in Treasury and the Capita Employee Benefit Trust). We will
continue to buy back shares if attractive opportunities arise. The Group
has authority to re-purchase up to 10% of its issued share capital and we
plan to seek renewal of this authority at the Annual General Meeting. The
Group has returned £1.1bn to shareholders over the last 5 years through
share buybacks, ordinary dividends and special dividends.
* Regular dividends - The Board is recommending a final dividend of 13.4p per
ordinary share (2009: 11.2p), making a total of 20.0p (2009: 16.8p) for the
year. This represents an increase of 19%. The final dividend will be
payable on 23 May 2011 to shareholders on the register at the close of
business on 15 April 2011. Including the proposed final dividend, Capita's
total dividend will have grown at a compound annual rate of 23% over the 5
years to 31 December 2010. Dividend cover is now 2.25 times for 2010.
* Capital expenditure - We aim to contain capital expenditure at or below 4%
of revenue. During the year, we met this objective with net capital expenditure at 3.6% (2009: 2.5%) of revenue. * Return on capital employed - We focus on driving a steadily increasing return on capital. During 2010, the post tax return on average capital employed (including debt) is unchanged at 20.6% (2009: 20.6%). This
compares to our post tax estimated weighted average cost of capital which
is 7.7%.
Additional financial information
Debt profile - We aim to maintain a conservative balance sheet with substantialheadroom to take advantage of opportunities to add value to shareholders asthey arise. On 30 June 2010, we issued £253m of 7 and 10 year private placementnotes. Following this issuance, we have £834m of private placement debt whichmatures between 2012 and 2020. The proceeds of the new issues were used torepay a more expensive £200m bank term loan that was due to mature in July2011. In addition, we have increased our revolving credit facility to £425mmaturing in December 2015. As at 31 December 2010, this was substantiallyunused.
Generating profitable growth
We generate profitable growth by winning business from new and existing customers principally in the UK and Ireland and supplement this by acquiring businesses that broaden our skill base and extend our market reach.
Organic growth
Overall trading in 2010 remained solid although revenue growth was subdued.Decisions were delayed across both public and private sectors due to thedifficult economic climate and the changing political landscape. There was apause in central government contracts coming out to tender while the UK GeneralElection and a change in administration took place. We also saw a sharpreduction in discretionary spend across our existing contracts and pressures onpublic spending affected growth in a small number of our transactional tradingactivities.We had a higher than normal revenue attrition rate of 6% in 2010. This was dueto a number of project completions and several contracts winding down or beingtaken back in-house. There was a further 2% of revenue reduction due to ourdecision to dispose of a number of our operations at the end of 2009.In 2010, we secured and extended 18 major contracts with a total value of £795m(2009:15 contracts totalling £1.0bn) representing a win rate of just below 1 in2. This includes a life and pensions contract with Aviva Life International inIreland, a contract with AXA to provide administration services for Sainsbury'spet insurance offering, extensions of our DWP storage and Constructionlinecontracts and expansions of 2 of our local government strategic partnerships,and:
* Virgin Money: A 5 year contract, worth £60m, to provide end-to-end sales
support, policy administration and processing services for a new home and
motor insurance proposition.
* Harrow Council: This contract, worth £50m over 10 years, is to transfer the
authority's IT services to Capita. Service commenced in November.
* Marsh: An expansion of our partnership to deliver back office functions and
processing services to enhance Marsh UK's broking activities to clients across its business. * West Sussex County Council: We were appointed to be the Authority's IT infrastructure partner under a contract worth £56m over 7 years. * Service Birmingham: Worth £300m, a 5 year extension to the original
contract to provide ICT and contact centre services. Additionally, Service
Birmingham will deliver the Council's revenues service for 10 years from
April 2011.
* Building Schools for the Future (BSF): A number of BSF contracts involving
the provision of property consultancy and ICT for clients such as Wolverhampton City Council, Manchester City Council and Rochdale Metropolitan Borough Council, worth in aggregate £97m. * Nottinghamshire County Council and East Midlands Broadband Consortium
(embc): A new arrangement to provide networking, applications and services
to Nottinghamshire CC, worth £30m, and an extension to the embc contract,
both secured by our newly acquired Synetrix business.
To date in 2011, 5 new contracts and extensions worth over £10m with anaggregate value of £244m have been secured, including a shared servicescontract with the London Boroughs of Bromley and Lewisham, an IT outsourcingcontract with English Heritage and an agreement with the National PolicingImprovement Agency (NPIA) to be one of 3 companies on the Digital InterviewingFramework and:
* 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 life and pensions administration
contract worth approximately £120m 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.
Bid pipeline: Alongside these contract wins, our bid pipeline has beenreplenished and reflects the quality of business opportunities across ourmarkets. The bid pipeline currently stands at a record £4.7bn (Feb 2010: £3.7bn) and includes 30 bid situations in which we are shortlisted as 1 of 4 orfewer competitors and caps our largest bids at £500m. The bid pipeline containsopportunities across all our markets with the majority in life and pensions,followed by defence and local government. Behind this is a prospect list ofopportunities which are yet to reach a shortlist stage - this is also at recordlevels.Contract rebids: Over the 5 years to 31 December 2015, we only have 2 materialrebids of our contracts (defined as having annual revenue in excess of 1% of2010 turnover) and these are both due in 2012. National Strategies ceases thisyear and therefore our contract will not be re-tendered when it comes to itsconclusion in March 2011.
Stimulating growth through acquisition
We have continued our strategy of acquiring small to medium sized companies towiden our skills and knowledge, extend our presence in existing marketplaces orprovide a foothold in a new market. These acquisitions are a valuablespringboard for further growth of the Group. We have substantial experience ofintegrating acquired businesses and swiftly achieving synergies with ourexisting operations.
In 2010, we completed 12 acquisitions for a total consideration of £301m, including:
* NB Real Estate - commercial property management specialists, acquired in
February for £10m. Combined with Capita Symonds, this acquisition offers
the opportunity to provide a full service proposition across the real
estate lifecycle and help public and private organisations to manage their
property assets in innovative and efficient ways.
* Premier Medical Group - a leading provider of medical reporting and
screening services across the UK, acquired for £60m in June, which further
demonstrates Capita's commitment to the wellbeing and health services
sector. We are currently integrating our existing occupational health
business with Premier Medical Group to offer a wider, improved service to
our clients and to gain operational synergies.
* National Dental Plan - one of the largest providers of corporate dental
plans in the UK, we made this acquisition for £30m in August. This extends
our range of tailored insurance services, including employee benefits
schemes, to both public and private sectors.
* SunGard Public Sector Ltd - a supplier of ICT, radio network services and
communication systems to the emergency services and to central and local
government, acquired for £86m in December. This acquisition brings new
market opportunities particularly in the area of ICT solutions and
outsourced services to fire, police and ambulance authorities.
We also acquired Inventures, a leading property consultancy focused on thehealth market, Ross & Roberts, Ramesys, a provider of integrated ICT solutions,Sureterm Direct, PAL Services, FirstAssist Services, a provider of telephoneassistance and advice services, and iSoft Business Solutions.
In 2011, our pipeline of potential acquisitions is healthy. To date, we have acquired 2 businesses for a total consideration of £9.25m:
* Xayce - a business transformation consultancy specialising in helping financial services organisations deliver regulatory, risk, operational efficiency and data management change programmes. This deepens our capability in supporting the financial services market.
* Barclays Capital Mortgage Servicing Limited (`BCMS') - we have acquired the
securitised commercial loan business of BCMS, owned by Barclays Capital,
which provides primary and special loan servicing for commercial real
estate finance transactions. The acquired business will be integrated into
Capita Asset Services, which is now Europe's largest, independent,
third-party commercial mortgage servicer.
Our market opportunities
Marketplace: In 2010, we commissioned new market research from one of the leading independent industry analysts, IDC.
IDC estimates that the total market for BPO in the UK in 2010 was £7.8bn(versus £7.5bn* in 2009) with Capita remaining the clear leader in thisenlarged market with 23% market share (2009: 23%*). IDC has estimated that themarket potential for BPO in the UK is £117bn a year. The capacity for long termgrowth therefore remains substantial and highlights many opportunities for usto assist organisations as they seek the benefits of outsourcing.In 2010, we gained business across both the public and private sectors and, asa result, the sector split of our revenues remains at 50% private/50% public(2009: 50%/50%). There are significant drivers for outsourcing across bothsectors:Public sector: The Comprehensive Spending Review in October 2010 highlightedareas across central and local government where budgets are to be reduced andefficiencies achieved. We expect this fiscal pressure on public spending,against a backdrop of increased demand for services, to heighten the focus onoutsourcing in the public sector in 2011. The estimated annual administrationspend in 2008/2009 across central government was £16bn delivered byapproximately 500,000 staff in administrative roles. The Government iscommitted to reducing central government administration budgets by £6bn a yearby 2014-2015 across all Departments and Arms Length Bodies. Also, localgovernment spending is to be cut by 7.1% per annum over the next 4 years. Withour solid track record of delivering public sector contracts, we are wellplaced to help organisations to introduce new, more sustainable and streamlinedways of working to meet public needs.
* restated to give like for like comparisons
Private sector: In the current economic climate, there is increased pressure oncommercial organisations to drive down operational costs, without compromisingcustomer service, to maintain their competitive positions. Although there was adelay in outsourcing decisions in 2010 in the private sector, we expect this toreturn to more usual levels as these organisations and their markets stabilise.Organisations can clearly benefit from the higher productivity and enhancedoperational and advisory capabilities that an experienced outsourcing serviceprovider can bring them. We are also pursuing opportunities to provide supportin Continental Europe for existing and new clients across life and pensions andthe wider financial services that serve international markets.
The strength of our bid pipeline, with opportunities across all our chosen markets, is a strong demonstration of the continued interest in and engagement with outsourcing. With our scale, expertise and financial stability, we are strongly placed to deliver more flexible, lower cost operating models, alongside improved service quality, for organisations across the public and private sectors.
Increasing our resources and infrastructure
To ensure that we are well placed to secure the opportunities in our bid pipeline and continue to expand our market reach, we have taken actions to expand our resources, capabilities and service delivery infrastructure:
Sales team expansion: We have a centrally managed major sales team whichpursues long term major contracts, as well as sales teams within each of ourbusinesses, focused upon securing contracts with both existing and newcustomers. To respond to the opportunities in our bid pipeline, prospects andsuspects lists, we have actively identified high quality candidates andincreased the headcount in our major sales team. In 2010, we significantlystrengthened our bid teams with 7 additional people focused on leading majorsales and 9 in senior bid support roles.Developments in India: We have expanded our operations in India as they play animportant role in helping us to secure new business and increase the efficiencyof our Group operations. We now have 3 sites in Mumbai, 1 site in Pune and 1site in Bangalore which deliver services to multiple clients as well assupporting Group businesses. We have expanded our service capability acrossthese operations, broadening our IT capabilities, introducing propertyconsultancy services and consulting services, and creating a knowledge servicesfunction to assist pharmaceutical companies. Our business centres in India arean integral part of Capita, providing high quality, cost effective Englishlanguage based services.Developments in Europe: We are creating a new service delivery capability inContinental Europe. A number of our existing clients who have an internationalpresence, especially across the life and pensions and the wider financialservices sector, are exploring the opportunity to replicate their successful UKpartnerships with Capita in other European territories. In addition, we have inrecent months established contact with a number of prospective new clients inEurope who are exploring the benefits of outsourcing their operations. Toembrace these opportunities requires Capita to provide both back office andcustomer engagement services in a number of different European languages. Weare therefore establishing a multi-lingual shared services business centre inKrakow, Poland, to ensure that we are well positioned to respond to thisdemand. We plan to make this fully operational from early 2012. The centre willsupport these existing clients and new clients as demand grows.Recently, we secured work from a new client, a consolidator of closed lifebooks in Europe. The consolidator has selected Capita as preferred supplier fora framework agreement to set up a new European administration operation, usingour best practice model and financial platform, to support their growth. Underthe framework, Capita will initially administer 15,000 policies from ouroperations in Dublin and then as the relationship grows, we expect to deployadditional support from our new business centre in Poland. We expect to startwork in mid 2011, subject to contract.
Group Board
Following on from the changes made to the Board at the end of 2009, the Boardcontinued to review its composition during 2010. Martin Bolland was appointedNon-Executive Chairman from 1 January 2010 and Paddy Doyle moved to aNon-Executive Director from 1 March 2010. In May, we appointed Nigel Wilson asSenior Independent Director and in June, appointed Paul Bowtell as anindependent Non-Executive Director and Chairman of our Audit Committee. BillGrimsey stood down in July 2010 as a Non-Executive Director.On 10 January 2011, we also announced the appointments of Vic Gysin and AndyParker as Joint Chief Operating Officers to the Board. Simon Pilling stood downas Chief Operating Officer the same day. We believe we have a talented andsubstantial team in place to support our continued growth.
Valuing our people
Capita relies on the hard work and dedication of its people and the Board wouldlike to thank all the talented employees across our businesses who have playeda key role in Capita's success. Against a backdrop of challenging marketconditions during 2010, the effort made by our 37,000 employees has beenoutstanding and has contributed to another successful year for the Group. Ouremployees join us through direct recruitment, contracts or acquisitions andtheir commitment and enthusiasm play a vital role in helping us to meet clientexpectations and sustain our growth.
Future prospects
We enter 2011 with a record bid pipeline, increasing activity across the publicand private sectors and some encouraging new contract wins. The need for ourpublic sector clients to achieve substantial cost efficiencies and for privatesector clients to increase their efficiency to remain competitive offerssignificant opportunities for the Group going forward.
Capita's pipeline of sales prospects, strong forward visibility of revenues from our long term contracts and consistent operational performance position us well for further progress in 2011 and thereafter.
-Ends- Preliminary StatementConsolidated income statementfor the year ended 31 December 2010 2010 2009 Non- Non- Underlying underlying Total Underlying underlying Total Notes £m £m £m £m £m £m Continuing operations: Revenue 1 2,744.0 - 2,744.0 2,686.8 - 2,686.8 Cost of sales 1,950.4 - 1,950.4 1,937.0 - 1,937.0 Gross Profit 793.6 - 793.6 749.8 - 749.8 Administrative 2 398.5 47.8 446.3 392.1 58.1 450.2expenses Operating 1 395.1 (47.8) 347.3 357.7 (58.1) 299.6profit Net finance 3 (31.8) (6.6) (38.4) (32.8) (1.4) (34.2)costs Investment 0.9 - 0.9 0.2 - 0.2gain/(loss) Loss on 4 - - - - (7.5) (7.5)business disposal Profit before 364.2 (54.4) 309.8 325.1 (67.0) 258.1tax Income tax (89.2) 14.4 (74.8) (87.1) 17.9 (69.2)expense Profit for the 275.0 (40.0) 235.0 238.0 (49.1) 188.9year Attributable to: Equity holders 275.0 (40.0) 235.0 238.0 (49.1) 188.9of the parent Earnings per 5 share - basic 44.98 (6.54) 38.44 38.75 (7.99) 30.76 - diluted 44.48 (6.47) 38.01 38.42 (7.92) 30.50Preliminary StatementConsolidated statement of comprehensive incomefor the year ended 31 December 2010 2010 2010 2009 2009 £m £m £m £m Profit for the year 235.0 188.9
Other comprehensive income/(expense): Actuarial losses on defined benefit pension (14.1) (58.2)
schemes Income tax effect 2.7 16.3 (11.4) (41.9)
Exchange differences on translation 1.1
(2.3)of foreign operations
Gains/(losses) on cash flow hedges 2.8 (10.8)
arising during the year
Reclassification adjustments for gains (2.0) (4.1) included in the income statement
Income tax effect (0.2) 4.2 0.6 (10.7) Other comprehensive expense (9.7) (54.9)for the year net of tax Total comprehensive income 225.3 134.0for the year net of tax Attributable to: Equity holders of the parent 225.3 134.0Preliminary StatementConsolidated balance sheetat 31 December 2010 2010 2009 Notes £m £m Non-current assets Property, plant and equipment 291.4 256.6 Intangible assets 1,416.0 1,107.0 Financial assets 237.4 186.3 Trade and other receivables 66.8 61.8 2,011.6 1,611.7 Current assets Financial assets 6.0 2.0 Trade and other receivables 704.2 576.9 Cash 38.5 181.5 748.7 760.4 Total assets 2,760.3 2,372.1 Current liabilities Trade and other payables 855.2 768.7 Financial liabilities 114.1 19.8 Provisions 7 26.3 27.6 Income tax payable 42.9 37.5 1,038.5 853.6 Non-current liabilities Trade and other payables 72.2 34.8 Financial liabilities 1,066.4 951.3 Deferred taxation 31.8 13.9 Provisions 7 31.3 20.4 Employee benefits 24.6 31.9 1,226.3 1,052.3 Total liabilities 2,264.8 1,905.9 Net assets 495.5 466.2 Capital and reserves Issued share capital 13.0 12.9 Share premium 454.9 435.2 Employee Benefit Trust (0.5) (0.2) Capital redemption reserve 1.8 1.8
Foreign currency translation reserve 5.4
4.3 Net unrealised gains reserve 8.4 7.8 Retained earnings 12.5 4.4 Equity shareholders' funds 495.5 466.2Included in aggregate financial liabilities is an amount of £1,016.4m (2009: £720.5m) which represents the fair value of the Group's bonds which should beconsidered in conjunction with the aggregate value of currency and interestrate swaps of £194.3m included in financial assets and £11.4m included infinancial liabilities (2009: £139.9m included in financial assets and £0.6mincluded in financial liabilities). Consequently, this gives an effectiveliability of £833.5m (2009: £581.2m).Preliminary StatementConsolidated statementof changes in equityfor the year ended 31 December 2010 Share Share Employee Capital Retained Foreign
Net Total
capital premium Benefit redemption earnings currency unrealised equity Trust reserve translation gains shares reserve reserve £m £m £m £m £m £m £m £m At 1 January 12.8 410.4 (0.2) 1.8 (53.0) 6.6 18.5 396.92009 Profit for - - - - 188.9 - - 188.9the year Other - - - - (41.9) (2.3) (10.7) (54.9)comprehensive expense Total - - - - 147.0 (2.3) (10.7) 134.0comprehensive income for the year Share based - - - - 9.8 - - 9.8payment Income tax - - - - 6.0 - - 6.0deduction on exercise of stock options in excess of share based payments Deferred - - - - (12.2) - - (12.2)income tax relating to share based payments Shares issued 0.1 24.8 - - - - - 24.9 Equity - - - - (93.2) - - (93.2)dividends paid At 1 January 12.9 435.2 (0.2) 1.8 4.4 4.3 7.8 466.22010 Profit for - - - - 235.0 - - 235.0the year Other - - - - (11.4) 1.1 0.6 (9.7)comprehensive expense Total - - - - 223.6 1.1 0.6 225.3comprehensive income for the year Share based - - - - 10.2 - - 10.2payment Purchase of - - (0.3) - (115.9) - - (116.2)own shares Income tax - - - - 4.0 - - 4.0deduction on exercise of stock options in excess of share based payments Deferred - - - - (4.7) - - (4.7)income tax relating to share based payments Shares issued 0.1 19.7 - - - - - 19.8 Equity - - - - (109.1) - - (109.1)dividends paid At 31 13.0 454.9 (0.5) 1.8 12.5 5.4 8.4 495.5December 2010 Preliminary StatementConsolidated cash flow statementfor the year ended 31 December 2010 2010 2009 £m £m
Cash flows from operating activities Operating profit on continuing activities 347.3 299.6before interest and taxation Depreciation 70.3 54.4
Amortisation of other intangible assets 0.2
1.2(treated as depreciation)
Amortisation of intangible assets 41.3
28.1recognised on acquisition Share based payment expense 10.2 9.8 Pension charge 7.7 21.2 Pension contributions before (29.1) (32.0)
exceptional additional contribution Loss on sale of property, plant and equipment 0.8
1.1 Movement in provisions 7.5 25.5 Movement in provisions due to - 17.2reclassification from payables during the year
Net movement in payables and receivables (13.8)
10.6
Cash generated from operations 442.4
436.7
before exceptional additional
pension contribution Income tax paid (70.8) (58.3) Exceptional additional pension contribution - (40.0) Net interest paid (31.8) (31.1) Cash generated from operations 339.8
307.3
after income tax, interest and exceptional additional pension contribution Net cash used in investing activities Purchase of property, plant and equipment (98.5)
(68.4)
Proceeds from sale of property, plant and 0.1
0.1equipment Acquisition of subsidiary undertakings and (208.5) (197.1)businesses
Debt repaid on acquisition of subsidiaries (95.7)
-
Cash acquired with subsidiary undertakings (7.2)
24.2
Disposal of financial assets -
1.6
Purchase of financial assets (1.1) (0.4) Investment loan 0.5 (0.6)
Proceeds on business disposal (net of cash -
8.0sold)
Return on investment in joint venture 0.5
0.4 (409.9) (232.2)
Net cash (used in)/from financing activities Issue of ordinary share capital 19.8
24.9 Share buybacks (115.7) - Share transaction costs (0.5) - Dividends paid (109.1) (93.2)
Capital element of finance lease rental (0.6)
-payments Instalment debtor movement 6.6 (8.1)
Asset based securitised financing (5.4)
6.7
Repayment of loan notes and long term debt (217.4) (108.0) Proceeds on issue of debt 252.9 200.0 Financing arrangement costs (2.3) (2.6) (171.7) 19.7
Net (decrease)/increase in cash and cash (241.8)
94.8equivalents
Cash and cash equivalents at the beginning of 181.5
86.7the period Cash and cash equivalents at 31 December (60.3)
181.5
Cash and cash equivalents comprise:
Overdrafts (98.8) - Cash at bank and in hand 38.5 181.5 Total (60.3) 181.5Preliminary StatementNotes to the preliminary statementfor the year ended 31 December 2010
1 Segmental information
The Group's operations are organised and managed separately according to thenature of the services provided, with each segment representing a strategicbusiness unit offering a different package of related services across theGroup's markets. No operating segments have been aggregated to form thereportable operating segments below. The information disclosed below representsthe way in which the results of the businesses are reported to the Group Board.However the 5 divisions have been disaggregated into 8 reportable segments.
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 2010 and 2009.
All operations in 2010 are continuing.
Year Ended 31 December 2010
HR Property Insurance Investor Integrated ICT
and Life & Professional
Solutions Consultancy Services Services Services Partnership Pensions Services Total Services Underlying £m £m £m £m £m £m £m £m £msegment revenue Total 283.0 328.5 184.9 191.6 266.2 873.5 621.1 435.2 3,184.0segment revenue Inter-segment (21.8) (19.5) - (10.4) (5.6) (214.2) (91.9) (76.6) (440.0)revenue Third party 261.2 309.0 184.9 181.2 260.6 659.3 529.2 358.6 2,744.0revenue Underlying segment result Result after 30.0 26.9 25.1 42.9 50.6 89.5 59.6 80.7 405.3depreciation Share based (1.2) (1.3) (1.8) (0.7) (2.4) (0.9) (0.9) (1.0) (10.2)payment 28.8 25.6 23.3 42.2 48.2 88.6 58.7 79.7 395.1 Non- underlying Intangible (0.1) (3.4) (5.5) (6.4) - (15.9) (4.9) (5.1) (41.3)amortisation Acquisition - (0.5) (0.7) (0.9) - (3.0) (0.7) (0.7) (6.5)costs 28.7 21.7 17.1 34.9 48.2 69.7 53.1 73.9 347.3 Net finance (31.8)costs (before callable swaps) Callable (6.6)swaps Mark to -market movement on currency swaps Investment 0.9gain Profit before 309.8tax Corporation (74.8)taxation Profit after 235.0tax Year Ended 31 December 2009 HR Property Insurance Investor Integrated ICT
and Life & Professional
Solutions Consultancy Services Services Services Partnership Pensions Services Total Services Underlying £m £m £m £m £m £m £m £m £msegment revenue Total segment 312.4 272.7 246.8 179.8 341.3 734.9 581.2 424.7 3,093.8revenue Inter-segment (31.8) (14.6) - (5.3) (1.3) (227.5) (60.5) (66.0) (407.0)revenue Third party 280.6 258.1 246.8 174.5 340.0 507.4 520.7 358.7 2,686.8revenue Underlying segment result Result after 27.4 24.3 30.1 35.8 57.4 59.2 63.0 70.3 367.5depreciation Share based (1.2) (1.2) (1.7) (0.7) (2.4) (0.8) (0.9) (0.9) (9.8)payment 26.2 23.1 28.4 35.1 55.0 58.4 62.1 69.4 357.7 Non-underlying Intangible - (1.7) (4.8) (4.6) - (6.2) (4.1) (6.7) (28.1)amortisation Arch cru - - - (30.0) - - - - (30.0) 26.2 21.4 23.6 0.5 55.0 52.2 58.0 62.7 299.6 Net finance (32.8)costs (before callable swaps) Callable swaps 1.1 Mark to market (2.5)movement on currency swaps Investment 0.2gain Loss on (7.5)business disposal Profit before 258.1tax Corporation (69.2)taxation Profit after 188.9tax 2 Administrative expensesIncluded within Administrative expenses, disclosed in the column headed'Non-underlying', are: 2010 2009 £m £m Intangible amortisation 41.3 28.1 Professional fees re acquisitions 5.5 - Stamp duty paid on acquisitions 1.0 - Arch cru costs - 30.0 Total 47.8 58.13 Net finance costs
Included in the column headed 'Non-underlying', against the line item net finance costs, are the following:
2010 2009 £m £m Callable swaps - mark to market 6.6 (1.1) Mark to market movement on - 2.5 currency swaps* 6.6 1.4 \* The mark to market movement on currency swaps represents the extent to whichthe fair value of these instruments has been affected by the perceived changein the creditworthiness of the counterparties to those instruments. The Groupis comfortable that the risk attached to those counterparties is notsignificant and believes that the currency swaps continue to act as aneffective hedge against the movements in the fair value of the Group's issuedUS$ denominated bonds.4 Loss on business disposalIn the prior year the Group disposed of the Revenue and Benefits business thatit had acquired in 2008 as part of its acquisition of IBS OPENSystems (asdirected by the Competition Commission). The table below gives a summary of
thedisposal: 2009 £m Fixed assets 0.4 Debtors 1.9 Creditors (2.2) Intangibles 5.9 Goodwill 7.3 Total net assets disposed of 13.3 Transitional services provided 2.2
Net proceeds received in cash (8.0)
Loss on business disposal 7.55 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 profitfor the year attributable to ordinary equity holders of the parent by theweighted average number of ordinary shares outstanding during the year plus theweighted average number of ordinary shares that would be issued on theconversion 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:
2010 2009 £m £m Net profit attributable to ordinary equity 235.0
188.9
holders of the parent from operations
2010 2009 Number Number million million Weighted average number of ordinary shares 611.3 614.2(excluding trust shares) for basic earnings per share
Dilutive potential ordinary shares:
Employee share options 7.0 5.2 Weighted average number of ordinary shares 618.3
619.4
(excluding trust shares) adjusted for the effect of dilution There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thesefinancial statements.The following additional earnings per share figures are calculated based onunderlying earnings attributable to ordinary equity holders of the parent of £275.0m (2009: £238.0m) and, after underlying costs, earnings £235.0m (2009: £188.9m). They are included as they provide a better understanding of theunderlying trading performance of the Group.
6 Dividends paid and proposed
2010 2009 £m £m
Declared and paid during the year Ordinary shares (equity): Final for 2009 paid: 11.2p per share 69.1
58.8(2008: 9.6p per share)
Interim for 2010 paid: 6.6p per share 40.0
34.4(2009: 5.6p per share) 109.1 93.2 Proposed for approval at AGM
(not recognised as a liability at 31 December)
Ordinary shares (equity):
Final for 2010: 13.4p per share 81.2
69.1(2009: 11.2p per share) 7 Provisions Insurance Property provision provision Arch Other Total cru £m £m £m £m £m At 1 January 2010 15.0 7.4 20.0 5.6 48.0 Utilisation - (1.3) (1.5) (1.2) (4.0) Additional provisions in the 12.0 1.2 - (1.6) 11.6 year Provisions acquired - 2.0 - - 2.0 At 31 December 2010 27.0 9.3 18.5 2.8 57.6
The 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 6 years.
Arch cru Funds - dealings in 2 open ended investment companies (OEICs), forwhich Capita Financial Managers (CFM) is the authorised corporate director(ACD) and Arch Financial Products LLP was the delegated investment manager,were suspended on 13 March 2009, as a result of illiquidity in the underlyinginvestments of the OEICs and an anticipated inability to meet futureredemptions. This was exacerbated by unprecedented market turmoil post thecollapse of Lehman Brothers. Since the suspension, CFM has been working withspecialist advisers to conduct a detailed review of the underlying assets ofthe OEICs and options for their future. This review was completed in December2009. The underlying assets of the OEICs have fallen in value and remainilliquid. CFM has advised investors that the only feasible option in the bestinterests of investors as a whole is for the OEICs to be wound up, with theunderlying assets being realised in an orderly manner over a period of time,and the proceeds being returned to investors in the OEICs.In addition, CFM has informed investors in the OEICs that it is undertaking areview to determine whether such investors have suffered any detriment and, ifso, to what extent any of the parties involved should be responsible forcompensating them. This is a complex exercise involving a number of partiesincluding CFM's regulator and it is taking longer than anticipated, but we aredetermined to ensure that the matter is concluded in a way that takesappropriate account of the results of the review and the interests of investorsin the OEICs, but also recognises the interests of Capita's shareholders. Thefinal liability to CFM and to the Group remains subject to uncertainties. At 31December 2010, the Directors continue to provide £18.5m which they believerepresents the most likely future total cost to the Group. The Directorsexpect that insurance cover will be available in respect of certain costsregarding this matter. It is expected that an outcome will be reached in 2011.
Insurance provisions relate to provisions held by the Group's captive insurer. Such provisions are held until utilised or such time as further claims are considered unlikely under the respective insurance policies.
Other relates to provisions in respect of potential claims arising through some of the services that the Group provide. These are likely to unwind over a period of 1 to 3 years.
8 Reconciliation of net cash flow movements in net funds/(debt)
Net Acquisitions Cash Non-cash Net debt Debt at in 2010 flow flow at 31 1 (exc. cash) movements movements December January 2010 2010 £m £m £m £m £m Cash and cash equivalents 181.5 - (143.0) - 38.5 Overdraft and bank loans - - (98.8) - (98.8) Cash 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 136.0 - - 42.5 178.5US$ denominated bonds â€
Interest rate swaps in relation 3.3 - - 1.1
4.4to GBP denominated bonds †Long term debt (2.8) (109.6) 112.4 - - Finance leases (1.4) (1.6) 0.6 - (2.4) Sub-total 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)The aggregate bond fair value above of £1,016.4m (2009: £720.5m) (disclosed inFinancial liabilities) includes the GBP value of the US$ denominated bonds at31 December 2010. To remove the Group's exposure to currency fluctuations ithas entered into currency swaps which effectively hedge the movement in theunderlying bond fair value. The interest rate swap is being used to hedge theexposure 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 £833.5m (2009: £581.2m).
\* The asset based securitised finance movement represents the net movement on the underlying balances with customers.
Net Acquisitions Cash Non-cash Net debt Debt at in 2009 flow flow at 31 1 (exc. cash) movements movements December January 2009 2009 £m £m £m £m £m Cash and cash equivalents 86.7 - 94.8 - 181.5 Cash 86.7 - 94.8 - 181.5 Loan notes (3.7) - 1.4 (0.3) (2.6) Bonds †(953.1) - 100.3 132.3 (720.5) Term debt - - (197.4) (0.6) (198.0) Currency swaps in relation to 269.6 - - (133.6) 136.0US$ denominated bonds â€
Interest rate swaps in relation to 4.7 - - (1.4)
3.3GBP denominated bonds †Long term debt - (9.1) 6.3 - (2.8) Finance leases - (1.4) - - (1.4) Sub-total net debt (595.8) (10.5) 5.4 (3.6) (604.5)
Asset based securitised finance* (10.4) - (6.7) -
(17.1) Callable swaps (32.0) - - 1.1 (30.9) (638.2) (10.5) (1.3) (2.5) (652.5)9 Preliminary announcementThe preliminary announcement is prepared in accordance with InternationalFinancial Reporting Standards as adopted by the European Union. A dulyappointed and authorised committee of the Board of Directors approved thepreliminary announcement on 23th February 2011. The announcement representsnon-statutory accounts within the meaning of the Companies Act 2006. Thestatutory accounts for the year ended 31 December 2010, upon which anunqualified audit opinion has been given and which did not contain a statementunder Section 498 (2) or 498 (3) of the Companies Act 2006, will be sent to theRegistrar 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 on 4 April 2011. It will be also available to members of the public at the registered office and on the Company's Corporate webiste www.capita.co.uk/investors/Pages/Investors.aspx from that date.
vendorRelated Shares:
Capita