23rd Feb 2012 07:00
23 February 2012
CAPITA PLC Preliminary Results for the year ended 31 December 2011 Steady performance in 2011 and a good platform for further progress in 2012Financial Highlights Year ended Year ended Change 31 December 2011 31 December 2010 Turnover £2,930m £2,744m +7%Underlying operating profit* £427.4m £395.1m +8%Underlying profit before £385.2m £364.2m +6%tax*Underlying earnings per 48.49p 44.98p +8%share*Total dividend per share 21.4p 20.0p +7% * Excludes non-underlying items being: intangible amortisation and acquisitionexpenses and release of contingent consideration of £71.9m (2010: £47.8m), thenon-cash impact of mark to market movement on financial instruments of £7.1m(2010: £6.6m), and £3.3m (2010: £nil) for increased counterparty credit andcurrency risk. After these non-underlying items: reported operating profit is £355.5m (2010: £347.3m), reported profit before tax is £302.9m (2010: £309.8m) and reported earnings per share is 39.16p (2010: 38.44p).
Key points
- £2.0bn of major contract wins secured in 2011 (2010: £0.8bn), including £0.9bn new contracts and £1.1bn renewals
- Maintaining win rate of just below 1 in 2 reflecting the strength of our relationships and track record
- Broadened our operational capability and market reach: £341m spent on 21 acquisitions in 2011
- New service delivery capability established in Continental Europe
- Underlying profit before tax increased by 6% to £385.2m
- Underlying operating margin was 14.59% (2010: 14.40%)
- Operating cash flow before settlements[1] of £364m (2010: £442m)
- £620m major contract sales secured to date in 2012
- Selected this month as Recommended Supplier for the Army's Recruiting Partnering Project
- Despite a number of recent client decisions, pipeline stands at £4.6bn as at 22 February 2012 (July 2011: £4.7bn)
Paul Pindar, Chief Executive of Capita plc, commented:
"2011 was a challenging year in which we achieved reasonable revenue growthand maintained our underlying operating margin. However, it was also a successful year for Capita in respect of major sales wins, with a record total value of £2.0bn new and extended contracts secured during theyear (2010: £0.8bn). This strong sales performance underlines our continuedability to present innovative service solutions that deliver quality and costbenefits to our clients, whilst delivering attractive rewards to Capita. Wealso completed a series of acquisitions in 2011 which will play a key role inextending our capabilities, enhancing our propositions to clients and making avaluable contribution to our long term growth.
We already have good visibility of stronger revenue growth this year due to renewed organic growth from our major contract sales performance in 2011 and to date in 2012 and the contribution from acquisitions. This visibility and the current buoyant sales environment, evidenced by the rapid replenishment of our bid pipeline, underpin our confidence in good growth prospects and performance for 2012 and beyond."
[1] Settlements consist of a £17.9m settlement for Arch cru and an additional pension contribution of £10.0m on the transfer back of the Cumbria County Council pension scheme.
For further information:Capita plc Tel: 020 7799 1525Paul Pindar, Chief ExecutiveShona Nichols, Corporate Communications Director Capita Press Office Tel: 020 7654 2152 or 020 7654 2399 out of hours FTI Consulting Tel: 020 7269 7291Andrew Lorenz2011 was a challenging year in which we achieved reasonable revenuegrowth and maintained our margin. However, it was also a successful year forCapita in respect of major sales wins, with a record total value of £2.0bn newand extended contracts secured during the year (2010: £0.8bn). This included£0.9bn from new contract wins and £1.1bn from contract renewals. We alsocompleted a series of acquisitions in 2011 which play a key role in extendingour capabilities, enhancing our propositions to clients and making a valuablecontribution to our long term growth.In the full year 2011, revenue increased by 7% to £2,930m (2010: £2,744m).Underlying operating profit[2] rose by 8% to £427.4m (2010: £395.1m)and underlying profit before taxation[2] increased by 6% to £385.2m (2010:£364.2m). Underlying earnings per share[2] grew by 8% to 48.49p (2010: 44.98p).We have increased our total dividend for the full year 2011 by 7% to 21.4p pershare (2010: 20.0p).
After non-underlying items [2], reported operating profit was £355.5m (2010: £347.3m) and basic earnings per share were 39.16p (2010: 38.44p). These figures were impacted by higher amortisation of goodwill arising from increased levels of acquisitions.
Our performance in 2011 was impacted by the more challenging economicenvironment, including a range of austerity measures implementedacross Government. This adversely affected a number of our trading activities,including our property consultancy and parts of our IT and resourcingbusinesses, and also resulted in lower discretionary revenue being generatedfrom existing clients. As anticipated, we have reported an overall organicrevenue decline of 7% for the full year 2011 due to the combination of thesechallenging trading conditions and due to an unusually high level of revenueattrition. Throughout 2011, we focussed on taking actions to ensure optimumefficiency across all our businesses going forward.
Despite this background, we have achieved overall revenue growth of 7%, with good progress across the majority of our businesses and a significant contribution from acquisitions completed in 2011 and those completed part way through 2010.
Building value for shareholders
In addition to the financial measures detailed above, we focus on a number of other key financial metrics to ensure we build value for shareholders on a consistent basis over the long term:
- Margin - We constantly monitor operating margins and manage operating coststo ensure that the business is running efficiently and cost effectively. Thevalued nature of the services we deliver to clients together with our scale,in particular our extensive shared service infrastructure, flexible deliverymodels and effective procurement, allows us to maintain our margins.In 2011, the Group's underlying operating margin[2] was 14.59% (2010:14.40%). In 2011, operating profit was impacted by a number of notable itemsincluding: unusually high restructuring costs (including redundancies) and thesettlement of certain historic captive insurance claims. This adverse impactwas offset by a past pension service credit of £23.9m which includes thechange to indexation benefits from RPI to CPI.
- Cash flow - In 2011, £364m (2010: £442m) was generated by operations representing an operating profit to cash conversion rate (defined as cash generated from operations before settlements divided by underlying operating profit[2] for the year) of 85% (2010: 112%).
[2] Excludes non-underlying items being: intangible amortisation andacquisition expenses and release of contingent consideration of £71.9m (2010:£47.8m), the non-cash impact of mark to market movement on financialinstruments of £7.1m (2010: £6.6m), and £3.3m (2010: £nil) for increasedcounterparty credit and currency risk. After these non-underlying items:reported operating profit is £355.5m (2010: £347.3m), reported profit beforetax is £302.9m (2010: £309.8m) and reported earnings per share is 39.16p(2010: 38.44p).As previously highlighted, operating cash flow before settlements[3] has beenimpacted by the conclusion of the National Strategies programme and additionalworking capital requirements for new and expanded contracts, in particular ourBuilding Schools for the Future projects, Service Birmingham and certain lifeand pensions contracts.Due to the recent more challenging economic conditions, thebeneficial payment terms that we have historically secured from certainclients are more difficult to obtain and this inevitably impacts our workingcapital profile as these payment terms revert to industry norms. However, weexpect that our operating cash to operating profit conversion rate willimprove in 2012 and again in 2013.
Free cash flow defined as operating cash flow before settlements[3], less capital expenditure, interest and taxation for the year was £157m (2010: £241m). This decrease was due to the movement in working capital noted above.
(3) Settlements consist of a £17.9m settlement for Arch cru and an additional pension contribution of £10.0m on the transfer back of the Cumbria County Council pension scheme.
After meeting the requirements of the business, we use surplus cash to add value in 3 main ways: through acquisitions, dividends and share buybacks:
- Acquisitions - Acquisitions have consistently added value to ourclient propositions and been a key driver for enhancing value to ourshareholders by both building platforms for future organic growth and bygenerating excellent returns on capital. Over the 4 years to 31 December 2011,we estimate our acquisitions have delivered a post tax return of approximately14%. As a result of a favourable acquisition environment in 2011, we enjoyed aparticularly active year for the Group with £341m invested in 21 transactions.Our focus is now on achieving the successful integration of these businessesand realising synergies. We expect our acquisition activity to reduce goingforward in 2012 and to revert to historic levels.
- Regular dividends - The Board is recommending a final dividend of 14.2p per ordinary share (2010: 13.4p), making a total of 21.4p (2010: 20.0p) for the year. This represents an increase of 7%. The final dividend will be payable on 28 May 2012 to shareholders on the register at the close of business on 20 April 2012. Including the proposed final dividend, Capita's total dividend will have grown at a compound annual rate of 19% over the 5 years to 31 December 2011. Dividend cover is 2.27 times for 2011.
- Share buybacks - Opportunistic share buybacks help us to maintainan efficient capital structure and minimise our long term cost of capital. Wedid not complete any share buybacks in 2011 due to the higher level ofacquisition spend. We will continue to evaluate any attractive opportunitiesas they arise and balance this against our other uses of cash. Shareholdersrenewed the Group's authority to purchase up to 10% of issued share capital atour AGM in May 2011.- Capital expenditure - We aim to contain capital expenditure at orbelow 4% of revenue. In 2011, we met this objective, with net capex at 3.5% ofannual revenue (2010: 3.6%). There are currently no indications of significantcapex requirements in our business forecasts or bid pipeline.- Return on capital employed - We focus on driving a healthy returnon capital. During 2011, our post-tax return on average capital employed was17.2% (2010: 20.6%). This compares to our estimated post-tax WACC which is7.5%. We expect returns to improve as recent acquisitions deliver their fullprofitability and organic growth returns.
Debt profile
During 2011, we issued £340m of private placement notes with maturitiesbetween 7 and 10 years. Following these issuances, we have £1,176m of privateplacement debt of which £123m matures between now and August 2015, with theremainder gradually maturing until 2021. In February 2012, we raised a further£285m of bank debt under a 2 year term loan facility to further increaseliquidity headroom.
Our aim continues to be to keep the ratio of net debt to EBITDA at or below 2.5 over the long term and we would be unlikely to incur borrowings which would reduce interest cover below 7 times.
During the year, our net debt to EBITDA ratio increased to 2.5 (2010: 1.6) asa result of taking advantage of a higher level of acquisition opportunities in2011 and higher working capital requirements. Interest cover for the yearended 31 December 2011 was 10.2 times.
Generating profitable growth
We generate profitable growth by winning business from new and existing customers and through acquiring businesses that broaden our propositions, capability and market reach.
Major contract wins
In 2011, we secured 26 new and extended major contracts with a total value of £2.0bn (2010: 18 contracts totalling £0.8bn) representing a win rate of just below 1 in 2. This includes:
- Teachers' Pension Scheme: Appointed preferred supplier for a 7 year contract worth £80m to administer the Teachers' Pensions Scheme (TPS), the second largest public sector pension scheme in England and Wales, with more than 1.6 million members. Capita has been administering TPS since 1996 and this will be our 3rd consecutive contract.
- MetLife: Selected to deliver an extended and expanded life andpensions administration contract worth approximately £149m over 10 years.Capita will provide customer servicing, policy administration, claims activityand related IT support to underpin the long-term UK growth strategy of MetLifeEurope Ltd.
- Zurich Financial Services Group: A new contract to support the development of Zurich Global Life's European and international administration hubs for a 15 year period. Also an extension of the current contract to deliver operational services for Zurich's UK life business operations (from 2015 to 2026). The contract extension and expansion will generate approximately £570m in revenues to Capita.
- Driver and Vehicle Licensing Agency (DVLA): A new contract to provide a national Vehicle Excise Duty (VED) service that includes provision, at the DVLA's option, for a Continuous Insurance Enforcement (CIE) service. The 5 year contract has an estimated value of £100m.
- London Borough of Lambeth: A contract to form a collaborative partnership to deliver a range of services including the existing revenue collection administered by Capita as well as additional Council services. For the core services, the contract is expected to be worth £50m over 10 years (with the option to extend for a further 5 years) and the commissioning programme allows for the opportunity to widen the scope of the contract.
- The Pensions Regulator: A contract to support its directcommunications with employers for automatic enrolment of staff into workplacepension schemes which will be phased in from October 2012. The 7 year contracthas an option for the regulator to extend it for a further 3 years and has anestimated value of £105m.
- BBC: Selected by the BBC to administer TV Licensing for an 8 year term under a new contract expected to be worth approximately £560m. Capita will re-engineer the current service delivery model and harness advances in technology and analytics to increase the TV Licensing revenues collected, while also reducing the current servicing costs. The contract is due to commence on 1 July 2012.
Contracts worth between £10-50m: The Group secured 19 new contracts and extensions in this range with an aggregate value of £397m. Contracts include:
- Secured a contract to administer revenue and benefits for the London Borough of Brent worth £15m over 5 years
- Appointed to deliver transactional HR and payroll services for 10 NHS trusts in North Merseyside in a contract estimated to be worth £22m over 7 years
- Selected by West Sussex County Council to manage core data and applications in a contract estimated to be worth £26m over 6 years
- Awarded a shared services contract for the London Boroughs of Bromley and Lewisham worth £18m over 5 years
- Agreed a 1 year extension with BAE Systems Maritime - Submarines, supporting over 5,500 users
- Secured extension to our NHS Choices contract for a further 15 months, valued at approximately £16m.
In 2012 to date, we have been selected as recommended supplier or signed newand extended major contracts estimated in aggregate to be worth approximately£620m, comprising recommended supplier to partner with the MOD to deliver theRecruiting Partnering Project (RPP) to the Army and the enabling ICT for theRoyal Navy and the Royal Air Force, the Civil Service training agreement and 3customer management contracts.Our bid pipeline includes all bids worth £10m or above, capped at£500m and where we have been shortlisted to the last 4 or fewer. We announcethe value of the pipeline twice a year at our half and full year results andit is therefore a snapshot at a specific point in time. Despite an extremelyactive few months in terms of client decisions, the pipeline has beenreplenished and now stands at £4.6bn (July 2011: £4.7bn) and comprises 35 bidsituations across our target markets, with the highest value of bids being incentral government, followed by defence, local government and life andpensions. Behind this is an active prospect list of opportunities, including anumber of bids which are expected to reach shortlist stage shortly.Contract rebids: Over the next 7 years to 31 December 2019, we onlyhave 2 material contracts (defined as having annual revenue in excess of 1% of2011 turnover) due for rebid - the Criminal Records Bureau (CRB) contract in2013, where the bid process is now underway, and the Phoenix contract in 2019.
Stimulating growth through acquisition
Acquisitions play a key role in Capita's business model and we have secured some excellent opportunities in 2011 which add value to our proposition and make a valuable contribution to our growth. We focus on acquiring small to medium sized companies which widen our skill base and knowledge, enhance our client propositions, extend our presence in existing markets or provide a foothold in a new market. We have substantial experience of integrating acquired businesses and swiftly achieving synergies with our existing operations. In 2011, we completed 21 acquisitions for a total consideration of £341m, in the following key areas:
- Customer management: Ventura and the private sector division of Vertex acquired for a combined total of £105.5m, enhancing our existing customer management offering and opening up new market opportunities in the private sector
- IT services: Cedar HR Software and Beat Systems acquired for a combined consideration of £23m which provide further skills and relationships in Capita's newest target market, emergency services
- Financial services: AIB Group's international financial services and trust services businesses acquired for a combined consideration of £41.5m, further strengthening our existing offering in this sector
- Pensions administration: NorthgateArinso's pensions administration and software business acquired for £27.5m, bringing new expertise and capacity to Capita Hartshead, the UK's leading administrator of occupational pension schemes
- Health: Acquisitions of Team24, a specialist healthcare recruitment company, for £24m and the health and government divisions of Tribal, for £16.5m, adding established relationships and key new capabilities and scale to the range of services Capita provides to the NHS and wider healthcare and government markets
- Document management: Right Document Solutions acquired for £30m, building upon Capita's existing design, bulk print and document management capabilities and providing a good strategic fit with a number of our professional services businesses
- Translation services: Applied Language Solutions and Salmat Speech Solutions UK operations, providers of translation and interpreting services to the public and private sectors, acquired for a combined consideration of £7.6m.
Our focus is now on achieving the successful integration of these businesses and realising synergies. We expect our acquisition activity to slow going forward in 2012 as organic growth regains momentum.
Our market opportunities
Leading independent industry analysts, IDC, estimate that the totalmarket for BPO in the UK in 2011 was £8.1bn (2010: £7.8bn) with Capitaremaining the clear market leader, maintaining 23% market share (2010: 23%).The overall market potential for BPO in the UK is estimated at £117bn a yeardemonstrating the substantial capacity for long term growth. In 2011, wegained business across both the public and private sectors and the sectorsplit of our revenues currently stands at 52% private/48% public (2010:50%/50%).[4]
[4] IDC 2010 and 2011
Drivers for outsourcing in 2012
In the current economic climate, where organisations are facingdifficult decisions about how best to allocate resources to protect theirfrontline activities and long term sustainability, outsourcing is seen as anessential part of a cost efficient operating model. By moving from in-houseservice provision to a specialist third party provider, government andcommercial entities can benefit from economies of scale and flexible deliveryoptions that fit their service requirements, enabling them to focus on theircore activities. With our wealth of experience of transforming processes,people management and effective ICT, together with our flexible deliverynetwork, we are well positioned in this marketplace.Private sector: Commercial organisations are facing continuedpressure to maintain their competitive position by driving down operationalcosts and introducing new products to market faster whilst maintaining highlevels of customer service. Organisations can clearly benefit from the higherproductivity, enhanced operational capabilities and flexible capacity that anexperienced outsourcing partner can provide. We saw sales activity pick up in2011 following the delay in decisions experienced in 2009 and 2010 and weexpect to see further progress in 2012. We are particularly active in the UKlife and pensions and wider financial services markets. Several of our recentacquisitions bring with them high level relationships across a wide range ofindustries, including retail, utilities and telecoms and we are activelylooking to grow these relationships.Public sector: The ongoing pressure to reduce budgets whilstmaintaining frontline services is creating a steady pipeline of opportunitiesin the public sector, particularly across local government and increasingly incentral government. The 2011 Open Public Services White Paper confirmed theGovernment's commitment to reform and open service provision to a wide rangeof suppliers and to explore a spectrum of engagement models, such as jointventures, mutuals and other employee ownership and cooperative models. We havea strong track record of developing bespoke service delivery models that meetthe long term needs of our clients and the current and future expectations ofthe public.
Increasing our resources and infrastructure
The strength of our offering is a result of our proactive development of the Group's capability and infrastructure, ensuring that we have the right resources in place to deliver tailored service solutions for our clients. We harness the extensive skills and resources that we have internally across the Group and work with partners, SMEs and third sector organisations to meet each client's specific needs.
By offering clients onshore, nearshore, offshore or blended servicedelivery options over a timeframe that suits their organisational objectives,we can offer maximum flexibility, quality and cost savings. In 2011, weestablished a new European business centre in Krakow, Poland, which extendsour flexible service delivery network. The centre is now operational and willbe servicing the expanded Zurich relationship as well as a number of Capita'sexisting clients in English and other core European languages. The centre inKrakow is located close to the city centre and the university and cantherefore access a skilled, multi-lingual workforce. We have a 550 seatcapacity and expect to expand as we transition some existing operations fromthe UK.Our employees join us through direct recruitment, contracts oracquisitions and their commitment and enthusiasm play a vital role in helpingus to meet client expectations and sustain our growth. Against a backdrop ofchallenging market conditions during 2011, the effort made by our 46,500employees has been outstanding. In the year, we further strengthened ourmanagement teams to prepare us for our next stage of growth and to ensure wehave the strongest operational team in place to maintain our track record ofquality service delivery to our clients. We attracted some excellent newsenior people, employing approximately 100 new managers and specialists, andalso promoted talent from within our existing workforce. The Board would liketo take this opportunity to thank all our people for their continued hard workand dedication which underpins Capita's performance.
Group Board
Capita Non-Executive Director Paddy Doyle has decided to retire from Capita and will be stepping down from the Board at the end of March 2012. Paddy joined Capita in 1992, was appointed to the Board as an Executive Director in 1994 and became a Non-Executive Director in 2010.
The Board has valued Paddy's insight and guidance and the significant contribution he has brought to Capita throughout his career. The Board and his Capita colleagues wish him the very best.
Future prospects
We already have good visibility of stronger revenue growth in 2012 due to renewed organic growth from our major contract sales performance in 2011 and to date in 2012 and the contribution from 2011 acquisitions. This visibility and the current buoyant sales environment, evidenced by the rapid replenishment of our bid pipeline, underpin our confidence in good growth prospects and performance for 2012 and beyond.
-Ends-
Preliminary Statement
Consolidated income statementfor the year ended 31 December 2011 2011 2010 Non- Non- Underlying underlying Total Underlying underlying Total Notes £m £m £m £m £m £m Continuing operations:Revenue 1 2,930.2 - 2,930.2 2,744.0 - 2,744.0Cost of sales 2,094.7 - 2,094.7 1,950.4 - 1,950.4Gross profit 835.5 - 835.5 793.6 - 793.6Administrative expenses 2 408.1 71.9 480.0 398.5 47.8 446.3Operating profit 1 427.4 (71.9) 355.5 395.1 (47.8) 347.3Net finance costs 3 (42.0) (10.4) (52.4) (31.8) (6.6) (38.4)Investment (expense)/income (0.2) - (0.2) 0.9 - 0.9Profit before tax 385.2 (82.3) 302.9 364.2 (54.4) 309.8Income tax expense (90.5) 25.6 (64.9) (89.2) 14.4 (74.8)Profit for the year 294.7 (56.7) 238.0 275.0 (40.0) 235.0Attributable to:Equity holders of the parent 294.7 (56.7) 238.0 275.0 (40.0) 235.0Earnings per share 4- basic 48.49p (9.33)p 39.16p 44.98p (6.54)p 38.44p- diluted 48.38p (9.31)p 39.07p 44.48p (6.47)p 38.01p Preliminary StatementConsolidated statement of comprehensive incomefor the year ended 31 December 2011 2011
2011 2010 2010
£m £m £m £mProfit for the year 238.0 235.0Other comprehensive income/(expense):Actuarial losses on defined benefit pension schemes (104.4)
(14.1)Income tax effect 24.1 2.7 (80.3) (11.4)
Exchange differences on translation of foreign operations 2.1 1.1(Losses)/gains on cash flow hedges arising during the year (16.5) 2.8Reclassification adjustments for gains includedin the income statement (5.0) (2.0)Income tax effect 5.6 (0.2) (15.9) 0.6
Other comprehensive expense for the year net of tax (94.1) (9.7)Total comprehensive income for the year net of tax 143.9 225.3Attributable to:Equity holders of the parent
143.9 225.3Preliminary StatementConsolidated balance sheetat 31 December 2011 2011 2010 £m £m Notes Non-current assetsProperty, plant and equipment 330.2 291.4Intangible assets 1,828.9 1,416.0Financial assets 293.8 237.4Trade and other receivables 65.8 66.8 2,518.7 2,011.6Current assetsFinancial assets 3.0 6.0Funds receivables* 7 98.0 100.0Trade and other receivables 846.3 704.2Cash 71.5 38.5 1,018.8 848.7Total assets 3,537.5 2,860.3Current liabilitiesTrade and other payables 936.5 836.5Financial liabilities 36.5 115.8Funds payables* 7 107.1 117.0Provisions 6 17.0 26.3Income tax payable 47.0 42.9 1,144.1 1,138.5Non-current liabilitiesTrade and other payables 20.0 54.0Financial liabilities 1,695.9 1,084.6Deferred taxation 21.0 31.8Provisions 6 46.7 31.3Employee benefits 85.7 24.6 1,869.3 1,226.3Total liabilities 3,013.4 2,364.8Net assets 524.1 495.5Capital and reservesIssued share capital 13.0 13.0Share premium 459.4 454.9Employee benefit trust & treasury shares (0.4) (0.5)Capital redemption reserve 1.8 1.8Foreign currency translation reserve 7.5 5.4Net unrealised gains reserve (7.5) 8.4Retained earnings 50.3 12.5Equity shareholders' funds 524.1 495.5Included in aggregate financial liabilities is an amount of £1,432.2m (2010:£1,016.4m) which represents the fair value of the Group's bonds which shouldbe considered in conjunction with the aggregate value of currency and interestrate swaps of £256.8m included in financial assets and £0.9m included infinancial liabilities (2010: £194.3m included in financial assets and £11.4mincluded in financial liabilities). Consequently, this gives an effectiveliability of £1,176.3m (2010: £833.5m).* These balances are related to investors' purchase or redemption of units inInvestment Funds of which Capita Financial Managers Limited, our unit trustadministration business, is an Authorised Corporate Director. The comparativeshave been restated - see note 7.
Preliminary Statement
Consolidated statement of changes in equityfor the year ended 31 December 2011 Employee Foreign Net benefit Capital currency unrealised Share Share trust redemption Retained translation gains Total capital premium shares reserve earnings reserve reserve equity £m £m £m £m £m £m £m £mAt 1 January 2010 12.9 435.2 (0.2) 1.8 4.4 4.3 7.8 466.2Profit for the year - - - - 235.0 - - 235.0
Other comprehensive expense - - - - (11.4)
1.1 0.6 (9.7)Total comprehensiveincome for the year - - - - 223.6 1.1 0.6 225.3Share based payment - - - - 10.2 - - 10.2Purchase of own shares - - (0.3) - (115.9) - - (116.2)Income tax deduction onexercise of stock options - - - - 4.0 - - 4.0Deferred income tax relatingto share based payments - - - - (4.7) - - (4.7)Shares issued 0.1 19.7 - - - - - 19.8Equity dividends paid - - - - (109.1) - - (109.1)At 1 January 2011 13.0 454.9 (0.5) 1.8 12.5 5.4 8.4 495.5Profit for the year - - - - 238.0 - - 238.0Other comprehensive expense - - - - (80.3) 2.1 (15.9) (94.1)Total comprehensiveincome for the year - - - - 157.7 2.1 (15.9) 143.9Share based payment - - - - 8.3 - - 8.3Income tax deduction onexercise of stock options - - - - (3.8) - - (3.8)Deferred income tax relatingto share based payments - - - - 0.7 - - 0.7Shares issued - 4.5 0.1 - (0.1) - - 4.5Equity dividends paid - - - - (125.0) - - (125.0)At 31 December 2011 13.0 459.4 (0.4) 1.8 50.3 7.5 (7.5) 524.1Preliminary StatementConsolidated cash flow statementfor the year ended 31 December 2011 2011 2010 £m £m Cash flows from operating activitiesOperating profit on continuing activitiesbefore interest and taxation 355.5
347.3
Depreciation 70.2
70.3
Amortisation of other intangible assets(treated as depreciation) 0.2
0.2
Amortisation of intangible assetsrecognised on acquisition 67.7 41.3Share based payment expense 8.3 10.2Pensions (33.3) (21.4)Loss on sale of property, plantand equipment 0.7 0.8Movement in provisions (9.2) 7.5Net movement in payablesand receivables (96.1) (13.8)Cash generated from operationsbefore settlements 364.0
442.4
Settlement of Arch Cru (17.9)
-
Settlement of Cumbria pension deficit (10.0)
-
Cash generated from operations 336.1
442.4Income tax paid (62.6) (70.8)Net interest paid (42.0) (31.8)
Net cash inflow from operating activities 231.5
339.8
Cash flows from investing activitiesPurchase of property, plant and equipment (102.3)
(98.5)
Purchase of intangible assets (8.0)
-
Proceeds from sale of property,plant and equipment 0.1
0.1
Acquisition of subsidiary undertakingsand businesses (352.2)
(208.5)
Debt repaid on acquisition of subsidiaries (22.3)
(95.7)
Overdraft acquired with subsidiaryundertakings (9.6)
(7.2)
Purchase of financial assets (0.2)
(1.1)
Investment loan -
0.5
Return on investment in joint venture 0.3
0.5
Net cash outflow from investing activities (494.2)
(409.9)
Cash flows from financing activitiesIssue of ordinary share capital 4.5
19.8Share buybacks - (115.7)Share transaction costs - (0.5)Dividends paid (125.0) (109.1)Capital element of financelease rental payments (1.0) (0.6)Instalment debtor movement 14.2 6.6
Asset based securitised financing (11.7)
(5.4)
Repayment of loan notes and long term debt - (217.4)Proceeds on issue of debt 339.8 252.9Revolving credit facility 178.0 -Financing arrangement costs (3.2) (2.3)Net cash inflow/(outflow)from financing activities 395.6 (171.7)Net increase/(decrease) incash and cash equivalents 132.9 (241.8)Cash and cash equivalents at thebeginning of the period (60.3)
181.5
Impact of movement in exchange rates (1.1)
-
Cash and cash equivalents at 31 December 71.5
(60.3)
Cash and cash equivalents comprise:Overdrafts - (98.8)Cash at bank and in hand 71.5 38.5Total 71.5 (60.3)Preliminary StatementNotes to the preliminary statementfor the year ended 31 December 2011
1 Segmental information
The Group's operations are organised and managed separatelyaccording to the nature of the services provided, with each segmentrepresenting a strategic business unit offering a different package of relatedservices across the Group's markets. The information disclosed belowrepresents the way in which the results of the businesses are reported to theGroup Board. The comparative figures have been restated due to areorganisation of the Group's business segments during the year and aconsequent change in the way in which the results of the businesses arereported to the Group Board.
Before eliminating sales between business units on consolidation, the Group accounts for sales between business units as if they were to a third party at market rates.
The tables below present revenue and result for the Group's business segments for the years 2011 and 2010.
All operations are continuing.
Year ended 31 December 2011
General Investor
IT Life &
Health Property Insurance & Banking Integrated Services & Pensions Professional WorkplaceUnderlying Services Services Services Services Services Consulting Services Services Services Totalsegmentrevenue £m £m £m £m £m £m £m £m £m £m Total segmentrevenue 162.0 275.9 183.5 223.5 333.4 749.0 639.3 503.8 310.9 3,381.3Inter-segmentrevenue (29.0) (20.0) - (10.6) (5.7) (148.7) (94.2) (114.8) (28.1) (451.1)Third partyrevenue 133.0 255.9 183.5 212.9 327.7 600.3 545.1 389.0 282.8 2,930.2Underlyingsegment resultResult afterdepreciation 26.2 13.4 29.0 55.5 63.2 56.0 56.9 97.3 38.2 435.7Share basedpayment (0.3) (0.6) (0.7) (0.6) (2.0) (0.5) (1.0) (1.6) (1.0) (8.3)Underlyingoperatingprofit 25.9 12.8 28.3 54.9 61.2 55.5 55.9 95.7 37.2 427.4Non-underlyingIntangibleamortisation (8.5) (3.7) (7.4) (6.5) (2.9) (18.6) (5.9) (8.4) (5.8) (67.7)Acquisitioncosts (1.7) (0.3) (0.8) (2.0) (3.2) (3.8) - (2.8) (0.8) (15.4)Contingentconsiderationmovement - 13.2 2.5 (4.5) - - - - - 11.2Operatingprofit 15.7 22.0 22.6 41.9 55.1 33.1 50.0 84.5 30.6 355.5
Net underlying finance costs (42.0)Financial instruments - mark tomarket (7.1)Investmentexpense (0.2)Currency swaps' counterparty risk -mark to market (3.3)Profit beforetax 302.9Corporation taxation (64.9)Profit aftertax 238.0Year ended 31 December 2010 General Investor IT Life & Health Property Insurance & Banking Integrated Services & Pensions Professional WorkplaceUnderlying Services Services Services Services Services Consulting Services Services Services Totalsegmentrevenue £m £m £m £m £m £m £m £m £m £m Total segmentrevenue 115.2 328.5 184.9 191.6 266.2 598.2 621.1 572.6 305.7 3,184.0Inter-segmentrevenue (28.3) (19.5) - (10.4) (5.6) (145.0) (91.9) (112.1) (27.2) (440.0)Third partyrevenue 86.9 309.0 184.9 181.2 260.6 453.2 529.2 460.5 278.5 2,744.0Underlyingsegment resultResult afterdepreciation 16.0 26.9 25.1 42.9 50.6 57.5 59.6 91.5 35.2 405.3Share basedpayment (0.2) (1.3) (1.8) (0.7) (2.4) (0.6) (0.9) (1.1) (1.2) (10.2)Underlyingoperatingprofit 15.8 25.6 23.3 42.2 48.2 56.9 58.7 90.4 34.0 395.1Non-underlyingIntangibleamortisation (4.7) (3.4) (5.5) (6.4) - (10.0) (4.9) (5.1) (1.3) (41.3)Acquisitioncosts (0.8) (0.5) (0.7) (0.9) - (2.2) (0.7) (0.4) (0.3) (6.5)Operatingprofit 10.3 21.7 17.1 34.9 48.2 44.7 53.1 84.9 32.4 347.3
Net underlying finance costs (31.8)Financial instruments - mark tomarket (6.6)Investment gain 0.9Profit beforetax 309.8Corporation taxation (74.8)Profit aftertax 235.02 Administrative expenses
Included within Administrative expenses, disclosed in the column headed 'Non-underlying', are the following:
2011 2010 £m £m Intangible amortisation 67.7 41.3
Professional fees re acquisitions 13.3 5.5Stamp duty paid on acquisitions 2.1 1.0Contingent consideration released (11.2) -Total
71.9 47.8
In 2011, underlying profit was impacted by a number of notableitems: higher restructuring costs (including redundancies) of £8.0m, higherinsurance captive claims of £14.0m offset by a past service credit of £23.9mwhich includes the reduction in pension liabilities due to the move from RPIto CPI.3 Net finance costs
Included within net finance costs, disclosed in the column headed 'Non-underlying' are the following:
2011 2010 £m £m
Callable swaps - mark to market 7.2 6.6Foreign exchange forward contracts(non-hedged) - mark to market (0.1) -Currency swap's counterparty risk- mark to market* 3.3 - 10.4 6.6 \* The mark to market movement on currency swaps represents the extent to 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 Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
2011 2010 £m £m Net profit attributable to ordinary equityholders of the parent from operations 238.0 235.0 2011 2010 million million Weighted average number of ordinary shares(excluding trust and treasury shares)for basic earnings per share 607.7
611.3
Dilutive potential ordinary shares:Employee share options 1.4
7.0
Weighted average number of ordinary shares(excluding trust and treasury shares)adjusted for the effect of dilution 609.1
618.3
There have been no other transactions involving ordinary shares or 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£294.7m (2010: £275.0m) and, after underlying costs, earnings of £238.0m(2010: £235.0m). They are included as they provide a better understanding ofthe underlying trading performance of the Group. 2011 2010 p p Basic earnings per share: - Underlying 48.49 44.98 - After non-underlying 39.16 38.44Diluted earnings per share: - Underlying 48.38 44.48 - After non-underlying 39.07 38.01 5 Dividends paid and proposed 2011 2010 £m £m Declared and paid during the yearOrdinary shares (equity):Final for 2010 paid: 13.4p per share(2009: 11.2p per share) 81.2 69.1Interim for 2011 paid: 7.2p per share(2010: 6.6p per share) 43.8 40.0 125.0 109.1Proposed for approval at AGM(not recognised as a liability at 31 December)Ordinary shares (equity):Final for 2011: 14.2p per share(2010: 13.4p per share) 86.4 81.26 Provisions Insurance captive Property provision provision £m £m Arch cru Other Total £m £m £m At 1 January 2011 27.0 9.3 18.5 2.8 57.6Utilisation (23.9) (1.5) (17.9) (1.8) (45.1)
Additional provisions in the year 17.2 (0.6) -
1.4 18.0Provisions acquired - 33.2 - - 33.2At 31 December 2011 20.3 40.4 0.6 2.4 63.7The insurance provision is made in relation to the Group's ProfessionalIndemnity, Motor and Employee Liability exposures. The Group uses a captiveinsurer to reduce the cost of providing this cover for its operations; claimsthat are in excess of the Captive's liability are reinsured with a number oflarge insurance underwriters. The Group makes provision when a claim has beenmade where it is more probable than not that an insured loss will occur. Theseprovisions are reassessed regularly to ensure that the level of provisioningis consistent with the claims that have been reported. In the year the Grouphas settled a number of insurance liabilities which it had provided for inprevious years. Additionally it has made provision for new claims andincreased or decreased existing provisions where more information on theprogress of the claim has become available.Within the provisions acquired in the year is included a discounted provisionfor the difference between the market value of the property leases acquiredwith Ventura and Vertex and the lease obligations committed to at the date theleases were signed by the previous owners. This is in accordance with IFRS 3(revised) which requires the use of fair value measurement. The remainingproperty provision is made on a discounted basis for the future rent expenseand related cost of leasehold property (net of estimated sub-lease income)where the space is vacant or currently not planned to be used for ongoingoperations. The expectation is that this expenditure will be incurred over theremaining periods of the leases which range from 1 to 15 years.Arch cru Funds - On 21 June 2011, Capita Financial Managers Limited ("CFM")agreed with the FSA to contribute to and administer a package for investorsholding shares in sub funds of Arch Cru investments. Under the terms of theagreement, CFM along with the depositaries to the funds voluntarilycontributed to the establishment of a £54m payment scheme. CFM's contributionsto this payment scheme were already provided for within the 2009 accounts. TheDirectors anticipate that no further provisions are required.Other relates to provisions in respect of potential claims arising due to thenature of some of the operations that the Group provide. These are likely tounwind over a period of 1 to 3 years.
7 Funds receivables and payables
2011 2010 £m £m Funds receivables 98.0 100.0Funds payables (107.1) (117.0)These balances relate to investors' purchase or redemption of units inInvestment Funds of which Capita Financial Managers Limited, our unit trustadministration business, is an Authorised Corporate Director. The balances aredue to and from the investors and Investment Funds. The parties to the tradeare permitted to take advantage of a four day settlement period betweeninitiation and settlement of the trade. Historically, the Group has notpresented these balances gross, as they believed that the impact on the Groupaccounts was immaterial. However, as these balances have become moresignificant, management has taken the decision to present them separately inthe consolidated balance sheet.
8 Reconciliation of net cash flow to movement in net funds/(debt)
Net Debt Net debt at 1 Acquisitions Non-cash at 31 January in 2011 Cash flow flow December 2011 (exc.
cash) movements movements 2011
£m £m £m £m £m Cash 38.5 - 34.1 (1.1) 71.5
Overdraft and bank loans (98.8) - 98.8 - -Cash and cash equivalents (60.3)
- 132.9 (1.1) 71.5Loan notes (2.3) - - - (2.3)Bonds †(1,016.4) - (339.2) (76.6) (1,432.2)
Revolving credit facility - - (175.4) (0.7) (176.1)Currency swaps in relation toUS$ denominated bonds †178.5 - - 63.9 242.4Interest rate swaps in relation toGBP denominated bonds †4.4 - - 9.1 13.5Long term debt - (22.3) 22.3 - -Finance leases (2.4) - 1.0 (1.7) (3.1)Underlying net debt (898.5) (22.3) (358.4) (7.1) (1,286.3)Asset based securitised finance* (11.7) - 11.7 - -Callable swaps (37.5)
- - (7.2) (44.7) (947.7) (22.3) (346.7) (14.3) (1,331.0)The aggregate bond fair value above of £1,432.2m (2010: £1,016.4m) (includedin aggregate Financial liabilities) includes the GBP value of the US$denominated bonds at 31 December 2011. To remove the Group's exposure tocurrency fluctuations it has entered into currency swaps which effectivelyhedge the movement in the underlying bond fair value. The interest rate swapis being used to hedge the exposure to changes in the fair value of GBPdenominated bonds.
†The sum of these items held at fair value equates to the underlying value of the Group's bond debt of £1,176.3m (2010: £833.5m).
\* The asset based securitised finance movement represents the net movement on the underlying balances with customers.
Net Debt Net debt at 1 Acquisitions Non-cash at 31 January in 2010
Cash flow flow December
2010 (exc. cash) movements movements 2010 £m £m £m £m £m Cash 181.5 - (143.0) - 38.5
Overdraft and bank loans - - (98.8) - (98.8)Cash and cash equivalents 181.5 -
(241.8) - (60.3)Loan notes (2.6) - 0.7 (0.4) (2.3)Bonds †(720.5) - (252.9) (43.0) (1,016.4)Term debt (198.0) - 200.0 (2.0) -Currency swaps in relation toUS$ denominated bonds †136.0 - - 42.5 178.5Interest rate swaps in relation toGBP denominated bonds †3.3 - - 1.1 4.4Long term debt (2.8) (109.6) 112.4 - -Finance leases (1.4) (1.6) 0.6 - (2.4)Underlying net debt (604.5) (111.2) (181.0) (1.8) (898.5)
Asset based securitised finance* (17.1) -
5.4 - (11.7)Callable swaps (30.9) - - (6.6) (37.5) (652.5) (111.2) (175.6) (8.4) (947.7)9 Preliminary announcementThe preliminary announcement is prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union.A duly appointed and authorised committee of the Board of Directors approvedthe preliminary announcement on 22nd February 2012. The announcementrepresents non-statutory accounts within the meaning of the Companies Act2006. The statutory accounts for the year ended 31 December 2011, upon whichan unqualified audit opinion has been given and which did not contain astatement under Section 498 (2) or 498 (3) of the Companies Act 2006, will besent to the Registrar of Companies.Copies of the announcement can be obtained from the Company'sregistered office at 71 Victoria Street, Westminster, London SW1H 0XA, or onthe Company's corporate websitewww.capita.co.uk/investors/Pages/Investors.aspx.
It is intended that the Annual Report and Accounts will be posted to shareholders in April 2012. It will be available to members of the public at the registered office and on the Company's Corporate website www.capita.co.uk/investors/Pages/Investors.aspx from that date.
10 Statement of Directors responsibilities
The Directors confirm that, to the best of their knowledge theconsolidated financial statements in this report, which have been prepared inaccordance with International Financial Reporting Standards (IFRS) as adoptedby the European Union, IFRIC interpretations and those parts of the CompaniesAct 2006 applicable to companies reporting under IFRS, give a true and fairview of the assets, liabilities, financial position and profit of the Grouptaken as a whole and that the management report contained in this reportincludes a fair review of the development and performance of the business.
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