Final Results

Full year results for the year ended 31 December 2014 Continuing to deliver shareholder value Financial highlights Underlying* Underlying* Underlying* Reported 2014 2013 YOY changeRevenue £4,372m £3,851m +14% £4,378mOperating profit £576.3m £516.9m +11% £388.9mProfit before tax £535.7m £475.0m +13% £292.4mEarnings per share 65.15p 59.40p +10% 35.79pTotal dividend pershare 29.2p 26.5p +10% 29.2p *Excludes non-underlying items detailed in note 2 business disposal, note 3administrative expenses and note 4 net finance costs, in the notes to thepreliminary statement. Highlights Strong financial and operating performance in 2014 - Underlying revenue growth* of 14%, including 9% organic growth - Underlying operating margin* 13.2% (2013: 13.4%) - Underlying profit before tax* up 13% to £535.7m (2013: £475.0m) - Underlying earnings per share* up 10% to 65.15p (2013: 59.4p) - Total dividend up 10% to 29.2p (2013: 26.5p) - Underlying operating cash* conversion rate of 112% (2013: 106%) - Underlying free cash flow* up 18% to £368m (2013: £312m) - Post-tax ROCE* 14.8% (2013: 15.5%) - Reported profit before tax up 36% to £292.4m (2013: £215.0m) - £1.7bn contract wins (2013: £3.3bn), with contract win rate of 1 in 2 (by value) - £310m spent on 17 acquisitions to enhance capability and facilitate future organic growth An excellent start to 2015 - £1.1bn contracts secured to date (2014: £588m), including Fera preferred bidder and Sheffield extension - Bid pipeline increased to £5.1bn (November 2014: £4.1bn), 53% private and 47% public sector - Agreement to acquire avocis adds significant future growth platform in Germany and Switzerland - Good visibility of low double digit revenue growth in the full year Platform to drive further value creation - We operate in a large addressable market and have significant scope to increase penetration - We focus upon leveraging our competitive advantages of scale, unique breadth of capabilities and experience in delivering transformational partnerships - We continue to manage the business to deliver strong EPS growth, cash flow and return on capital. Andy Parker, Chief Executive of Capita plc, commented: "2014 was a year of excellent financial performance, with 9% organic revenuegrowth, sustained high returns and levels of cash generation, and an activeyear for acquisitions. We have good visibility of strong revenue growth in2015, which will be driven by the conversion of our bid pipeline, acquisitionsand the full benefit from last year's contract wins and acquisitions. We havesignificant scope to increase penetration of our large and growing addressablemarket, supported by a number of structural factors such as fiscal pressure,digitisation, regulation and demographics and our own competitive advantages.This leads us to look forward to the medium to long term with confidence." Analyst & investor presentation: Andy Parker, Chief Executive of Capita plc, will host an analyst presentationin London at 8.30am UK time today. There will be a dial in call and live webcast of the full event. Detailscan be found at www.capita.co.uk/investors. (Please dial into the call in time to allow for registration) Participant Dial-in : +44 (0)20 3059 8125. Participant password: Capita Replay: A replay of the conference call will be available for 7 days bydialing +44 (0)121 260 4861 (access code is 0258732 #). For further information: Capita plc Tel: 020 7654 2219Shona Nichols, Corporate CommunicationsDirectorAndrew Ripper, Head of InvestorRelations Capita press office Tel: 020 7654 2152 or 020 7654 2399 out of hours FTI Consulting Tel: 020 7269 7291Andrew Lorenz About Capita Capita plc is the UK's leading provider of customer and businessprocess management (BPM) and integrated professional support servicesolutions. With 68,000 people at over 400 sites, including 80 business centresacross the UK, Europe, India and South Africa, the Group uses its expertise,infrastructure and scale benefits to transform its clients' services, drivingdown costs and adding value. Capita is quoted on the London Stock Exchange(CPI.L), and is a constituent of the FTSE 100 with 2014 revenue of £4.4bn.Further information on Capita plc can be found at: www.capita.co.uk Capita plc Full year results for the year ended 31 December 2014 Overview 2014 was a year of double digit revenue and profit growth, withsustained high cash flow and returns, alongside strong acquisition activity. Underlying revenue[1] increased by 14% to £4,372m[2](2013:£3,851m[3],including 9% organic and 5% acquisition growth. Underlyingoperating profit[1] rose by 11% to £576.3m[2](2013: £516.9m[3])andunderlying profit before taxation[1] increased by 13% to £535.7m [2] (2013:£475.0m[3]). Underlying earnings per share[1] grew by 10% to 65.2p[2] (2013:59.4p[3]). We increased our total dividend for the full year by 10% to 29.2pper share(2013: 26.5p). Underlying free cash flow[1] was up 18% to £368m[2](2013: £312m[3])and ROCE[1] was 14.8%[2](2013: 15.5%[3]), which compares toour estimated post-tax WACC of 7.2%. The majority of our divisions performed well in 2014, with stronggrowth particularly in Workplace Services and Justice & Secure Services,supported by new contracts, and significant improvements in the profitabilityof IT Services and Property & Infrastructure, helped by the macroeconomicbackdrop. These positives were partially offset by Insurance & Benefits andHealth & Wellbeing, and the end of the Disclosure and Barring contract inMarch 2014. The aggregate value of new and extended major contracts secured in 2014 was£1.7bn, representing a 1 in 2 win rate. We are pleased to report thatwe have secured £1.1bn new business since the year end and an increase in thebid pipeline to £5.1bn since the IMS in November 2014 (£4.1bn). We are seeinggood levels of activity in both the private sector, across telecoms, financialservices and utilities, and the public sector, particularly in health, localgovernment and defence. We continued to focus upon acquiring small to medium sized businesses in 2014,to enter new markets, build capability in existing areas and enhance our salespropositions to facilitate future organic growth. Weinvested a total of £310mon acquisitions (excluding deferred and contingent considerations),acquiring 17 organisations in markets such as utilities and transport software,IT networking, mortgage administration and Germany. Financial review - Revenue: the Group increased underlying revenue[1] by 14% to£4,372m[2](2013: £3,851m[3]). This comprised 9% organic growth (net ofattrition)and 5% from acquisitions, comprising 3% from those completed withinthe year and the remainder from 2013 acquisitions. The most significantcontributors to organic growth were the full year benefit from new contractswith Telefónica UK (O2), Ministry of Justice electronic monitoring, DWPPersonal Independence Payment (PIP) assessments, London Borough of Barnet,npower and AXELOS, which drove strong underlying growth in Justice & SecureServices, Customer Management & International, Property & Infrastructure andWorkplace Services. - Operating profit: underlying operating profit[1] rose by 11% to£576.3m[2] (2013: £516.9m[3]). Strong performances from Workplace Services,Justice & Secure Services and Customer Management & International were drivenby the aforementioned contracts and, following last year's management changes,there were significant improvements in trading in IT Services and Property &Infrastructure, supported by the macroeconomic backdrop. These positives werepartially offset by the impact of planned step downs in Insurance & Benefitsand contract churn in Health & Wellbeing (DWP PIP in; NHS Choices out). - Operating margin: underlying operating margin[1] was 13.2%[2](2013: 13.4%[3]), partly reflecting the end of the Disclosure and Barringcontract in March 2014. We continue to closely manage operating costs toensure that the business is growing profitably, leveraging our scale,purchasing power and lean corporate structure, and remain selective in biddingand delivering differentiated client propositions. This underpins ourconfidence that underlying Group operating margins will be maintained in therange of 12.5% to 13.5% for the foreseeable future. - Profit before tax: underlying profit before tax[1] increased by13% to £535.7m[2] (2013: £475m[3]). The net interest charge was £40.6m (2013:£41.9m). - Earnings per share: underlying earnings per share[1] rose by 10%to 65.2p[2] in 2014 (2013: 59.4p[3]), after an increase in the underlyingminority charge to £7.3m (2013: £(4.4)m) due to the initial contribution fromAXELOS. Our underlying tax rate was 18.5% (2013: 19%). The Group's EPS hasgrown at a compound annual rate of 11% over the five years to 31 December2014. - Cash flow: underlying cash flow from operations was £644m[2](2013: £546m[3]), with an underlying operating profit to cash conversion ratioof 112%[2] (2013: 106%[3]). We continue to pro-actively manage working capitalacross the Group and expect our annual cash conversion ratio to remain at orabove 100% for the foreseeable future. Net capital expenditure was £146m (2013: £144m), which represents3.3% of revenue (2013: 3.7%). We aim to contain capex at or below 4% ofrevenue and there are currently no indications of significant capexrequirements in our business forecasts or bid pipeline that would take us overthis threshold. Underlying free cash flow[2] (defined as operating cash flowless net capital expenditure, interest and taxation) was £368m (2013:£312m[3]). - Net debt: net debt at end December 2014 was £1,405m (2013:£1,203m). As at 31 December 2014, we had £1,122m of private placement bonddebt of which £97m matures in 2015 and the remainder gradually matures overthe period up to 2021. In addition, we have £300m of bank debt, of which £200mmatures in January 2016. In August 2014, we refinanced our £425m revolvingcredit facility with a new £600m 5+1+1 year revolving credit facility maturingin August 2019. This facility was unutilised at 31 December 2014. Our annualised net debt to EBITDA[1] ratio in 2014 was 2.1[2](2013: 2.0[3]) and interest cover[1] was 14[2] times (2013: 12[3] times). Ouraim continues to be to keep the ratio of net debt to EBITDA in the range of 2to 2.5 over the long term and we would be unlikely to incur borrowings whichwould reduce interest cover below 7 times. - Dividends: the Board is recommending a final dividend of 19.6pper ordinary share (2013: 17.8p), making a total of 29.2p for the year (2013:26.5p), representing an increase of 10%. Dividend cover[1] is 2.2 times[2] for2014. The final dividend will be payable on 28 May 2015 to shareholders on theregister at the close of business on 17 April 2015. The Group's total dividendhas grown at a compound annual rate of 12% over the five years to 31 December2014. - Return on capital employed: our post-tax return on averagecapital employed (ROCE)[1] in 2014 was 14.8%[2] (2013: 15.5%[3]), whichcompares to our estimated post-tax WACC of 7.2%. ROCE reflects how productively we deploy capital to fuel futuregrowth. In 2014, it was incorporated into senior management's long termincentives, 25% of which is now based upon performance against ROCE targetsand 75% remains based upon EPS growth targets. - Total shareholder returns: over the 10-year period to 31December 2014, Capita has delivered £1.5bn (net of £274m equity raising inApril 2012) to shareholders through dividends, share buybacks and a specialdividend. Capita's total shareholder return over the same period is 269%compared to 108% for the FTSE All Share Index. - Reported profit before tax: reported profit before tax, afterthe effect of non-underlying charges, increased by 36% to £292.4m (2013:£215.0m). Non-underlying charges included £25m in relation to businessdisposals and £218m in relation to those items detailed in notes 3 and 4 ofthe preliminary statement. Sales and business development review Our major sales team focuses upon value enhancing transformational outsourcingand partnering opportunities, where the Group has sustainable competitiveadvantage and can leverage its unique blend of commercial skills. We are alsoincreasing our emphasis upon expanding existing client relationships in ourtargeted vertical markets. We have made a good start to 2015, with £1.1bnaggregate contracts secured to date, and are pleased to report that our bidpipeline has increased to £5.1bn from £4.1bn as reported in our IMS lastNovember. The pipeline does not include frameworks. Major contracts announced to date in 2015 - Fera: appointed preferred bidder by the Department forEnvironment, Food & Rural Affairs (Defra) to form a joint venture, operate andgrow the Food and Environment Research Agency (Fera), which is expected toachieve at least £700m revenue over its first 10 years. Fera providesscientific services to government and commercial customers, such as foodretailers and manufacturers of crop protection products, across the food andagriculture supply chains in the UK and overseas. The joint venture willutilise Capita's commercial expertise, Fera's scientific capability andpartners such as Newcastle University to drive growth and efficiency. As partof the agreement, it has secured a long term 10 year service agreement withDefra and the Health & Safety Executive and a 10 year sole supplier frameworkfor other Crown bodies. Capita is acquiring a 75% stake in the joint venturefor £20m cash and expects to generate a post-tax ROCE in line with the Group'starget in the first full year, increasing thereafter. - Sheffield extension: we have extended our existing servicedelivery contract with Sheffield City Council by six years, worth around £140m- £170m from January 2016 to January 2022. Capita will continue to deliver thecore range of services on behalf of the Council, including ICT, revenues,benefits, HR and payroll and financial business transactions and also provideadditional business change capacity where it will work in partnership with theCouncil to define and deliver projects designed to raise revenue and generateadditional savings over the life of the extended contract. NHS Support Services Framework - Capita has been approved by NHS England to join the new Lead ProviderFramework for Commissioning Support Services. Clinical CommissioningGroups (CCGs) will be required to re-procure many of their support services byApril 2016 in order to comply with EU procurement law. NHS England anticipatesthat between £3-5bn of services will be procured through the framework,including back office finance and HR, GP IT, contracting, engagement, businessintelligence and services for commissioners to support medicines procurement. Major contract awards in 2014 The aggregate value of new and extended major contracts secured in 2014 was£1.7bn (2013: £3.3bn), representing a 1 in 2 win rate for the Group by value.Contracts gained include: - Ministry of Defence (MOD: selected to be the Strategic BusinessPartner for the Defence Infrastructure Organisation (DIO). The 10 yearcontract is expected to be worth around £400m to Capita. The Group is leadinga partnership comprising two integrated sub-contractors, URS and PAConsulting, to manage and transform the UK's national and internationaldefence infrastructure. It will help to unlock the knowledge, skills andresources that already exist within the DIO while adding capability to tacklethe significant cost-saving targets currently facing the MOD. - The Co-operative Bank: selected preferred bidder to transformThe Co-operative Bank's mortgage servicing operation in the UK. The contractis worth up to £325m over 10 years, subject to final terms and approvals.Under the terms of the deal, if agreed, Capita would take over and transformThe Co-operative Bank's mortgage operations in Leek in Staffordshire andPlymouth, servicing more than 250,000 mortgage customers and £23bn of lending.Capita would install new systems, designed to drive efficiency whilesimplifying business processes in a regulated environment, to improve theexperience for The Co-operative Bank's customers and support business growth.This represents good progress in establishing a strong presence in retailmortgage servicing and builds upon our recent acquisition of Crown MortgageServices. - Scottish Wide Area Network (SWAN): signed a framework contractto deliver SWAN, a single public services network for the use of all publicservice organisations within Scotland. The contract value for SWAN is up to£325m over 9 years. More than 4,600 sites will be connected to the initialnetwork including schools, hospitals, GP surgeries, pharmacists and localcouncil offices. As part of the Scottish Government's national digital publicservices strategy, Capita will deliver a platform designed to support the everincreasing need for data sharing and tighter interworking requirements acrossthe wider Scottish public sector. - Transport for London (TfL): secured a 5 year, £145m contractwith TfL to operate and enforce the congestion charging, low emission zone andtraffic enforcement notice processing schemes. Capita will take fullresponsibility for the schemes in November 2015, following a period ofimplementation which commenced in 2014. Capita has taken over the existingLondon Road User Charging agreement for both Congestion Charging and the LowEmission Zone ahead of go-live of the new contracts in November 2015, which isworth in excess of £30m in addition to the above. - Major contracts worth up to £100m including: the John Lewisonline contact centre contract worth £93.5m over 5 years, an IT servicesstrategic partnership with BAE Systems Maritime worth between £60m and £70mover 5 years, a new contract with Genesis Housing Association and an extensionto our Metropolitan Police radio managed services contract. For further details on our contract wins, visit www.capita.co.uk Bid pipeline replenished Since our IMS in November 2014, we have worked hard to replenish the bidpipeline which now stands at £5.1bn (November 2014: £4.1bn). The pipeline iscomprised of 28 bids with an average contract length of 8 years, including 94%new business and 6% renewals and extensions. We are seeing good levels ofactivity in both the private sector (53% of the pipeline), across telecoms,financial services and utilities, and the public sector (47% of the pipeline),particularly in health, local government and defence. Behind the pipeline is alarger active prospect list of opportunities, from which we expect to be ableto replenish the pipeline as decisions come to fruition over the course ofthis year. We have no material contracts (defined as having forecast annual revenue inexcess of 1% of 2014 revenue) up for rebid for the next 4 years. Our bid pipeline contains all bids worth £25m or above, with bids capped at£1bn and where we have been shortlisted to the last 4 or fewer. We announcethe value of the pipeline three times a year and it is therefore a snapshot ata specific point in time. Market review We operate predominantly in the Customer Management (CM) and Business ProcessManagement (BPM) market in the UK and Ireland, a large addressable market withsignificant scope to increase penetration and drive growth over the medium tolong term. Additionally, we have recently increased our presence in NorthernEurope. We continually look for changes in sector dynamics and management,which can act as agents of change and catalysts for potential outsourcingopportunities. Our addressable market is gradually increasing as we enter newmarket segments through new contracts and acquisitions, such as our entry intocommercial and residential mortgage administration. In 2014, we commissioned market research from Ovum, one of the UK's leadingindependent industry analysts. Ovum estimates that Capita's total addressablemarket for CM and BPM services in the UK is £129bn per annum and that thevalue of outsourced services was £13bn in 2014 (2013: £12bn), including 72% inthe private sector and 28% in the public sector. Growth in BPM is expected toout-pace other outsourcing markets. Ovum ranks Capita as the number one CM and BPM vendor by revenue, with 26.9%market share in 2014 (2013: 24.9%), a greater share than the rest of the topten vendors combined. Capita's revenue mix in 2014 was 52% private and 48%public sector, similar to the breakdown of our current pipeline. The rapid increase in digital communication, including the rise in use ofmobile technology and social media, is having a significant impact on thebehaviour and expectations of people and consequently our public and privatesector clients need to adapt the way in which they communicate and deliverservices. Alongside our existing skills, we have enhanced our digital,behavioural science, analytics and change management capabilities bothinternally and through acquisitions to address this need. We are well placedto help organisations across both sectors to better meet their customers'needs and remain at the forefront of their markets. In the private sector, commercial organisations are facing pressure tomaintain their competitive position through better utilisation of digitaltechnologies, driving down operating costs and introducing new products andservices to market faster, while maintaining high levels of customer serviceand retention. Changing legislation and regulation, for example in thefinancial services and utilities sectors, is stimulating interest in ourcustomer and administration services and we are constantly evolving ourpropositions to ensure that we can meet these changing requirements. The public sector is facing many similar dynamics with ongoing pressure toreduce budgets while maintaining and adapting front-line services. Thisbackdrop will remain irrespective of the type of Government that will beformed as a result of the 2015 general election. Demographic changes,including the ageing population and an increasing number of children in care,are also creating some specific challenges for public sector organisations,particularly local, health and education authorities, and they are thereforeincreasingly looking to partner with the private sector to find new servicesolutions. Outsourcing in all its various models is being used to addressthese challenges, from traditional models to partnerships and joint ventures.We expect more opportunities to emerge to help government deliver on itsdigital and channel shift objectives and secure greater commercial value frompublic assets. Acquisitions review Our strategy is to make acquisitions which enhance our future organic growthpotential and drive value creation for shareholders, with a 15% post tax ROCEhurdle rate. We focus upon acquiring small to medium sized businesses, toenter new markets, build capability in existing areas and enhance our salespropositions to facilitate future organic growth. For example, following ouracquisitions in the UK customer management sector we were able to securecontracts with Telefónica and npower and, more recently in mortgageadministration, the acquisition of Crown Mortgage Management (now CapitaMortgage Services) was followed by our selection as preferred bidder on theCo-operative Bank opportunity. avocis will add an exciting growth platform in an under-penetrated,increasingly receptive, European market: in February 2015, we announced anagreement to acquire avocis, a leading provider of customer contact managementservices in Germany, Switzerland and Austria (DACH), for €210m (£157m) on acash/debt free basis, subject to completion of legal documentation. avocis hasa strong position in the German speaking regions of Europe serving similarsectors to Capita's UK-based customer management business, with high quality,long term clients particularly in telecoms and utilities. There is strongappetite for customer management services in the DACH region and we are nowpositioned well to further support our existing clients, a number of whom haveGerman or other European heritage. In the financial year ended 31 December2014, avocis had pro forma revenues of €210m (2013: €173m) and EBITA of €25.4m(2013: €19.7m). avocis is expected to achieve Capita's post-tax ROCE target inits second full year under ownership. In 2014, we invested a total of £310m, excluding deferred and contingentconsiderations, in acquiring 17 organisations including: Expanding our presence and capability in the utilities sector: to support ourgrowing presence in the utilities sector and enhance our data managementcapabilities, we acquired AMT-SYBEX Group (AMT) which provides proprietarysoftware and related services in mobile technology and smart data managementto the utilities and transport sectors. We acquired the business for aninitial consideration of £82m on a cash free, debt free basis, plus acontingent consideration of up to £23m (based on the business reachingspecific profit targets over the first 12 months). Increasing our IT networking capabilities: we extended our networkingcapabilities with the acquisition of IT network services provider UpdataInfrastructure (UK) for a cash consideration of £80m. Updata provides a rangeof networking and connectivity services to mainly public sector clients and isworking with Capita on the framework contract to deliver SWAN. Updata's fullyaccredited network provides a secure and trusted platform from which multipleservices can be delivered across both the private and public sectors. Capita'sexisting networking business is being combined with Updata to create the UK'sleading networking integrator. Extending our capabilities into a new financial services segment: we acquiredCrown Mortgage Management (`Crown') a provider of residential and commercialmortgage administration services to banks and financial institutions for acash consideration of £7.5m. Crown is one of the longest establishedresidential and small balance commercial mortgage servicers in the UK and hassignificant experience in managing clients' strategies across both performingand non-performing mortgage assets. Capita currently processes £129bn ofcommercial loans on behalf of banks. The combination of Crown's specialistskills with Capita's large scale administration capability provides us with astrong platform for growth in this sector. Taking customer management into a new geographic region: tricontes, a Germancustomer management company, gave Capita an initial footprint in this newregion. tricontes specialises in delivering a premium service to clients,including contact centre benchmarking and model office services across theretail, telecommunications, utilities and insurance industries. We have nowsecured further expertise in this region with the 2015 acquisitions ofScholand & Beiling and avocis. Increasing depth in Ireland: we acquired SouthWestern, the leading domesticprovider of outsourced managed services in Ireland, in August 2014. Itprovides customer relationship management, financial shared services, dataprocessing and inspectorate services from offices in Ireland, the UK andPoland to clients such as the Department of Agriculture Food and Marine, BordGáis, the Department for Environment, Food and Rural Affairs, Bord Bia, eircomand Fáilte Ireland. Our Board and people The Board would like to take this opportunity to thank all ourpeople for their hard work and dedication which ensures that we can continueto deliver quality services for clients. Our employees join us through directrecruitment, contracts or acquisitions and their commitment and enthusiasmplay a vital role in helping us to meet client expectations and sustain ourgrowth. As announced in November 2014, Gordon Hurst will retire from Capitaand step down as Group Finance Director and from the Group Board with effectfrom 28 February 2015, after 27 years with the Company. Gordon will remainemployed by the Group as a consultant until 30 September 2015. The Boardwarmly thanks him for his significant contribution to the success of Capitaand wishes him all the best for the future. In line with Capita's senior management succession plan, NickGreatorex, previously Executive Director of Capita's Insurance & BenefitsServices division, will join the Group Board and succeed Gordon as GroupFinance Director effective from 1 March 2015. Nick was released from hisprevious role from 1 December 2014, allowing him to work closely alongsideGordon through the 2014 annual results and 2015 annual business planningperiod. On January 2015, we appointed Andrew Williams as an IndependentNon-Executive Director and to the Nomination, Remuneration and Audit and RiskCommittees. Andrew is Chief Executive of Halma plc, a leading specialist insafety, health and environmental technologies and a FTSE 250 company. Future prospects We have good visibility and are on track to deliver low doubledigit revenue growth in 2015, driven by the conversion of our bid pipeline,the timing of which is likely to be more evenly spread than last year,acquisitions and the full benefit from 2014's contract wins and acquisitions.We expect our operating margin to remain broadly stable and will continue tomanage the business to deliver a combination of sustainable growth, highlevels of cash flow and return on capital. Capita operates in a large addressable market with scope toincrease penetration supported by a number of structural factors such asfiscal pressure, digitisation, regulation and demographics and our owncompetitive advantages. We look forward to the medium to long term withconfidence. 1 Excludes non-underlying items being: intangible amortisation, acquisition expenses, net contingent consideration movements, Asset Services settlement provision, non-cash impact of mark-to-market finance costs2 2014 numbers exclude the sale of our Occupational Health business3 2013 numbers exclude the partial sale of our Insurance Distribution and planned SIP business closure -Ends- Consolidated income statementfor the year ended 31 December 2014 2014 2013 Non-underlying Non-underlying Other Business non- Other disposal underlying Business non- Underlying (note 2) (note 3) Total Underlying disposal/ underlying Total Note £m £m £m £m £m closure £m £m £mContinuingoperations:Revenue 4,372.3 5.8 -- 4,378.1 3,850.9 45.3 -- 3,896.2Cost of sales (3,166.9) (4.8) -- (3,171.7) (2,780.9) (46.7) -- (2,827.6)Gross profit 1,205.4 1.0 -- 1,206.4 1,070.0 (1.4) -- 1,068.6Administrativeexpenses (629.1) (8.1) (180.3) (817.5) (553.1) (63.2) (139.9) (756.2)Operatingprofit 576.3 (7.1) (180.3) 388.9 516.9 (64.6) (139.9) 312.4Net financecosts 4 (40.6) -- (38.1) (78.7) (41.9) -- 26.6 (15.3)Loss on businessdisposal -- (17.8) -- (17.8) -- (82.1) -- (82.1)Profit beforetax 535.7 (24.9) (218.4) 292.4 475.0 (146.7) (113.3) 215.0Income taxexpense (99.1) 1.8 44.8 (52.5) (90.3) 14.8 32.4 (43.1)Profit for theyear 436.6 (23.1) (173.6) 239.9 384.7 (131.9) (80.9) 171.9Attributableto:Owners of theCompany 429.3 (23.1) (170.3) 235.9 389.1 (131.9) (80.0) 177.2Non-controllinginterests 7.3 -- (3.3) 4.0 (4.4) -- (0.9) (5.3) 436.6 (23.1) (173.6) 239.9 384.7 (131.9) (80.9) 171.9Earnings pershare- basic 5 65.15p (3.51)p (25.85)p 35.79p 59.40p (20.14)p (12.21)p 27.05p- diluted 5 64.58p (3.48)p (25.62)p 35.48p 58.71p (19.90)p (12.07)p 26.74p Consolidated statement of comprehensive incomefor the year ended 31 December 2014 2014 2013 £m £m £m £m Profit for the year 239.9 171.9Other comprehensive (expense)/income:Items that will not be reclassified subsequently toprofit or lossActuarial (loss)/gain on defined benefit pension schemes (67.2 ) 10.9Deferred tax effect 12.8 (9.2 ) (54.4 ) 1.7Items that will or may be reclassified subsequently toprofit or lossExchange differences on translation of foreignoperations (6.3 ) 0.3Gain/(loss) on cash flow hedges 5.6 (10.3 )Reclassification adjustments for losses included in theincome statement 6.0 2.6Income tax effect (2.3 ) 0.9 9.3 (6.8 ) 3.0 (6.5 )Other comprehensive expense for the year net of tax (51.4 ) (4.8 )Total comprehensive income for the year net of tax 188.5 167.1Attributable to:Owners of the Company 184.5 172.4Non-controlling interests 4.0 (5.3 ) 188.5 167.1 Consolidated balance sheetAs at 31 December 2014 2014 2013 Note £m £mNon-current assetsProperty, plant and equipment 448.8 419.8Intangible assets 2,619.4 2,330.7Financial assets 178.2 166.4Deferred taxation 12.5 --Trade and other receivables 73.5 77.6 3,332.4 2,994.5Current assetsFinancial assets 14.7 3.1Funds assets 118.2 100.8Trade and other receivables 988.1 892.9Cash 458.9 610.8 1,579.9 1,607.6Total assets 4,912.3 4,602.1Current liabilitiesTrade and other payables 1,128.2 1,023.5Overdrafts 429.8 453.0Financial liabilities 164.8 79.2Funds liabilities 118.2 100.8Provisions 8 69.6 62.2Income tax payable 42.6 52.5 1,953.2 1,771.2Non-current liabilitiesTrade and other payables 28.3 26.5Financial liabilities 1,780.8 1,729.9Deferred taxation -- 7.1Provisions 8 42.0 52.7Employee benefits 192.5 118.4 2,043.6 1,934.6Total liabilities 3,996.8 3,705.8Net assets 915.5 896.3Capital and reservesIssued share capital 13.8 13.8Share premium 499.0 491.2Employee benefit trust and treasury shares (0.3 ) (0.4 )Capital redemption reserve 1.8 1.8Foreign currency translation reserve (4.3 ) 2.0Cash flow hedging reserve (14.8 ) (24.1 )Retained earnings 354.7 350.4Equity attributable to owners of the Company 849.9 834.7Non-controlling interests 65.6 61.6Total equity 915.5 896.3 Included in aggregate financial liabilities is an amount of £1,306.8m (2013:£1,267.3m) 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 £185.4m included in financial assets and £0.6m included infinancial liabilities (2013: £147.1m included in financial assets and £13.5mincluded in financial liabilities). Consequently, this gives an effectiveliability of £1,122.0m (2013: £1,133.7m). Consolidated statement of changes in equityfor the year ended 31 December 2014 Employee benefit trust Cash & Capital Foreign flow Non- Share treasury redemption Retained currency hedging controlling Total capital Share shares reserve earnings translation reserve Total interests equity £m premium £m £m £m £m reserve £m £m £m £m £mAt 1 January2013 13.8 470.4 (0.4 ) 1.8 408.1 1.7 (17.3 ) 878.1 -- 878.1Profit for theyear -- -- -- -- 177.2 -- -- 177.2 (5.3 ) 171.9Othercomprehensiveexpense -- -- -- -- 1.7 0.3 (6.8 ) (4.8 ) -- (4.8 )Totalcomprehensiveincome for theyear -- -- -- -- 178.9 0.3 (6.8 ) 172.4 (5.3 ) 167.1Share basedpayment -- -- -- -- 10.5 -- -- 10.5 -- 10.5Deferred incometax relating toshare basedpayments -- -- -- -- 8.0 -- -- 8.0 -- 8.0Shares issued -- 20.8 -- -- -- -- -- 20.8 -- 20.8Equitydividends paid -- -- -- -- (159.1 ) -- -- (159.1 ) -- (159.1 )Put option ofnon-controllinginterest -- -- -- -- (96.0 ) -- -- (96.0 ) -- (96.0 )Investment bynon-controllinginterest -- -- -- -- -- -- -- -- 66.9 66.9At 1 January2014 13.8 491.2 (0.4 ) 1.8 350.4 2.0 (24.1 ) 834.7 61.6 896.3Profit for theyear -- -- -- -- 235.9 -- -- 235.9 4.0 239.9Othercomprehensiveexpense -- -- -- -- (54.4 ) (6.4 ) 9.3 (51.4 ) -- (51.4 )Totalcomprehensiveincome for theyear -- -- -- -- 181.5 (6.3 ) 9.3 184.5 4.0 188.5Share basedpayment -- -- -- -- 11.0 -- -- 11.0 -- 11.0Deferred incometax relating toshare basedpayments -- -- -- -- 5.7 -- -- 5.7 -- 5.7Shares issued -- 7.8 0.1 -- -- -- -- 7.9 -- 7.9Equitydividends paid -- -- -- -- (180.5 ) -- -- (180.5 ) -- (180.5 )Movement in putoptions held bynon-controllinginterest -- -- -- -- (13.4 ) -- -- (13.4 ) -- (13.4 )At 31 December2014 13.8 499.0 (0.3 ) 1.8 354.7 (4.3 ) (14.8 ) 849.9 65.6 915.5 Consolidated cash flow statementfor the year ended 31 December 2014 2014 2013 Note £m £mCash flows from operating activitiesOperating profit before interest and taxation from continuingoperations 388.9 312.4Adjustment for underlying non-cash items:Depreciation 77.8 74.1Amortisation of intangible assets (treated as depreciation) 9.1 3.3Share based payment expense 11.0 10.5Employee benefits (1.0 ) 2.2Loss/(profit) on sale of property, plant and equipment 0.9 2.1Adjustment for non-underlying non-cash items:Accelerated depreciation on business closure -- 6.0Accelerated amortisation of intangible assets on businessclosure -- 0.2Amortisation of intangible assets recognised on acquisition 147.1 122.2Contingent consideration 3 (9.4 ) 1.7Non-underlying provisions expense 8 32.4 43.2Movement in underlying provisions (net) 8 (17.4 ) (11.0 )Net movement in payables and receivables 1.8 (28.4 )Cash generated from operations before non-underlying cashitems 641.2 538.5Asset Services settlement provision cash paid 8 (4.3 ) (1.2 )Disposal/closure provision cash paid 8 (18.8 ) (0.2 )Cash generated from operations 618.1 537.1Income tax paid (93.7 ) (52.9 )Net interest paid (35.6 ) (37.2 )Net cash inflow from operating activities 488.8 447.0Cash flows from investing activitiesPurchase of property, plant and equipment (110.5 ) (128.2 )Purchase of intangible assets (40.8 ) (16.9 )Proceeds from sale of property, plant and equipment 5.3 1.2Acquisition of public sector subsidiary partnerships -- (38.9 )Debt repaid on acquisition of public sector subsidiarypartnerships -- (9.1 )Acquisition of subsidiary undertakings and businesses (325.5 ) (243.2 )Cash acquired with subsidiary undertakings 29.7 15.8Debt repaid on acquisition of subsidiaries undertakings (21.5 ) (5.1 )Cash disposed of with subsidiary undertakings (2.8 ) (6.0 )Deferred consideration (35.5 ) --Contingent consideration (9.2 ) (14.4 )Purchase of financial assets (1.0 ) (0.7 )Trade investments (5.0 ) 0.2Net cash outflow from investing activities (516.8 ) (445.3 )Cash flows from financing activitiesIssue of share capital 7.9 16.7Dividends paid (180.5 ) (159.1 )Capital element of finance lease rental payments 4,9 (4.9 ) (10.0 )Repayment of loan notes 9 (10.2 ) --Repayment of term debt 9 -- (185.0 )Repayment of bonds 9 (10.6 ) (88.1 )Proceeds on issue of term debt 9 100.0 200.0Proceeds on issue of bonds 9 -- 75.0Financing arrangement costs (0.3 ) --Net cash outflow from financing activities (98.6 ) (150.5 )Decrease in cash and cash equivalents (126.6 ) (148.8 )Cash and cash equivalents at the beginning of the period 157.8 306.7Impact of movement in exchange rates (2.1 ) (0.1 )Cash and cash equivalents at 31 December 29.1 157.8Cash and cash equivalents comprise:Cash at bank and in hand 458.9 610.8Overdrafts (429.8 ) (453.0 )Total 29.1 157.8 Notes to the financial statements 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 belowrepresents the way in which the results of the businesses were reported to theGroup Board. Before eliminating sales between business units on consolidation, the Groupaccounts for sales between business units as if they were to a third party atmarket rates. Year ended 31 December 2014 Insurance Justice & Customer & Health & IT Secure Professional Property & Workplace Asset Management & Benefits Wellbeing Services Services Services Infrastructure Services Services International Services Total £m £m £m £m £m £m £m £m £m £mSegmentrevenue - UnderlyingTotal segmentrevenue 183.8 611.7 608.0 678.5 363.7 740.0 296.1 690.6 725.9 4,898.3Inter-segmentrevenue (25.0 ) (128.0 ) (42.2 ) (104.9 ) (34.9 ) (44.4 ) (33.4 ) (27.7 ) (85.5 ) (526.0)Third partyrevenue 158.8 483.7 565.8 573.6 328.8 695.6 262.7 662.9 640.4 4,372.3-Non-underlyingtrading[1] 5.8 -- -- -- -- -- -- -- -- 5.8Total segmentrevenue 164.6 483.7 565.8 573.6 328.8 695.6 262.7 662.9 640.4 4,378.1Segment result - UnderlyingResult afterdepreciation 15.7 38.6 78.7 135.1 27.2 93.1 64.4 77.3 57.2 587.3Share basedpayment (0.4 ) (0.6 ) (1.5 ) (2.8 ) (0.3 ) (1.6 ) (0.8 ) (1.3 ) (1.7 ) (11.0)Underlyingtrading result 15.3 38.0 77.2 132.3 26.9 91.5 63.6 76.0 55.5 576.3-Non-underlyingtrading1 (3.1 ) -- -- -- -- -- -- -- -- (3.1)Total tradingresult 12.2 38.0 77.2 132.3 26.9 91.5 63.6 76.0 55.5 573.2Non-tradingBusiness disposal & closure costs[1] (4.0)Intangible amortisation[2] (147.1)Acquisition costs[2] (14.2)Contingent considerationmovements[2] 9.4Asset Services settlementprovision[2] (28.4)Operating profit 388.9Net finance costs[3] (78.7)Loss on business disposal[1] (17.8)Profit beforetax 292.4Incomeexpense (52.5)Profit for theyear 239.9 1See note 2 2See note 3 3See note 4 1 Segmental information (continued) Year ended 31 December 2013 Insurance Justice & Customer & Health & IT Secure Professional Property & Workplace Asset Management & Benefits Wellbeing Services Services Services Infrastructure Services Services International Services Total £m £m £m £m £m £m £m £m £m £mSegmentrevenue- UnderlyingTotal segmentrevenue 187.6 590.4 425.4 666.8 297.3 597.5 257.3 518.9 762.2 4,303.4Inter-segmentrevenue (24.8 ) (132.8 ) (14.0 ) (110.3 ) (20.0 ) (31.5 ) (10.7 ) (13.2 ) (95.2 ) (452.5)Third partyrevenue 162.8 457.6 411.4 556.5 277.3 566.0 246.6 505.7 667.0 3,850.9-Non-underlyingtrading -- -- -- -- -- -- -- -- 45.3 45.3Total segmentrevenue 162.8 457.6 411.4 556.5 277.3 566.0 246.6 505.7 712.3 3,896.2Segment result- UnderlyingResult afterdepreciation 22.2 25.5 66.4 131.2 16.0 75.0 65.3 64.1 61.7 527.4Share basedpayment (0.4 ) (0.5 ) (1.5 ) (2.7 ) (0.3 ) (1.5 ) (1.3 ) (1.2 ) (1.1 ) (10.5)Underlyingtrading result 21.8 25.0 64.9 128.5 15.7 73.5 64.0 62.9 60.6 516.9-Non-underlyingtrading (14.4 ) (14.4)Total tradingresult 21.8 25.0 64.9 128.5 15.7 73.5 64.0 62.9 46.2 502.5Non-tradingBusiness disposal & closure costs (50.2)Intangible amortisation[2] (122.2)Acquisition costs[2] (14.3)Contingent considerationmovements[2] (1.7)Asset Services settlementprovision[2] (1.7)Operating profit 312.4Net finance costs[3] (15.3)Loss on business disposal (82.1)Profit beforetax 215.0Income taxexpense (43.1)Profit for theyear 171.9 2See note 3 3See note 4 2 Business disposal In the year the Group disposed of its occupational health business. Income statement impact Non-trading disposal Trading Cash Non-cash Total Total £m £m £m £m £mRevenue 5.8 -- -- -- 5.8Cost of sales (4.8 ) -- -- -- (4.8 )Gross profit 1.0 -- -- -- 1.0Administrative expenses (4.1 ) (4.0 ) -- (4.0 ) (8.1 )Operating loss (3.1 ) (4.0 ) -- (4.0 ) (7.1 )Loss on business disposal -- (2.8 ) (15.0 ) (17.8 ) (17.8 )Loss before tax (3.1 ) (6.8 ) (15.0 ) (21.8 ) (24.9 )Taxation 0.6 0.8 0.4 1.2 1.8Loss after tax (2.5 ) (6.0 ) (14.6 ) (20.6 ) (23.1 ) Trading revenue and costs represent the current year trading performance ofthis business. Non-trading disposal and exit costs include the costs of exiting theoccupational health business and the ongoing stranded costs such as propertylease and redundancy payments. It is expected these expenses will be incurredover 2 years. The table below summarises the loss on disposal: £mProperty, plant and equipment 0.5Cash 2.8Intangible assets 1.4Goodwill 13.1Total net assets disposed of 17.8Net proceeds received £nil --Loss on business disposal 17.8 3 Administrative expenses Included within administrative expenses in the non-underlying column are: 2014 2013 Cash in Cash in Non- Cash in Cash in Non- year future cash Total year future cash Total £m £m £m £m £m £m £m £mAmortisation of acquiredintangibles -- -- 147.1 147.1 -- -- 122.2 122.2Contingent considerationmovements -- -- (9.4 ) (9.4 ) -- -- 1.7 1.7Asset Services settlementprovision (see note 8) 3.6 24.8 -- 28.4 1.2 0.5 -- 1.7Professional fees reacquisitions 5.2 6.7 -- 11.9 12.9 -- -- 12.9Stamp duty paid on acquisitions 2.3 -- -- 2.3 1.4 -- -- 1.4Total 11.1 31.5 137.7 180.3 15.5 0.5 123.9 139.9 4 Net finance costs 2014 2013 £m £mBank interest receivable (0.1 ) (0.1 )Other interest receivable -- (0.1 )Interest receivable (0.1 ) (0.2 )Bonds 24.2 22.9Fixed rate interest rate swaps - realised 1.8 6.0Finance lease 0.6 0.8Bank loans and overdrafts 9.1 7.7Net interest cost on defined benefit pension schemes 5.0 4.7Interest payable 40.7 42.1Underlying net finance costs 40.6 41.9Fixed rate interest rate swaps - mark to market 36.7 (26.3 )Discount unwind on subsidiary partnership payment 2.1 --Non-designated foreign exchange forward contracts - mark tomarket (0.4 ) 1.2Derivatives' counterparty risk adjustment - mark to market (0.2 ) (1.4 )Derivatives' own credit risk adjustment - mark to market (0.1 ) (0.1 )Non-underlying net finance costs 38.1 (26.6 )Total net finance costs 78.7 15.3 5 Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the parent by the weightedaverage 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 plusthe weighted 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 dilutedearnings per share computations: 2014 2013 £m £mNet profit attributable to ordinary equity holders of theparent from operations 235.9 177.2 2014 2013 Number Number million millionWeighted average number of ordinary shares (excluding trustand treasury shares) for basic earnings per share 658.9 655.1Dilutive potential ordinary shares:Employee share options 5.9 7.7Weighted average number of ordinary shares (excluding trustand treasury shares) adjusted for the effect of dilution 664.8 662.8 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£429.3m (2013: £389.1m) and, after non-underlying costs, earnings of £235.9m(2013: £177.2m). They are included as they provide a better understanding ofthe underlying trading performance of the Group. 2014 2013 p pBasic earnings per share - underlying 65.15 59.40- after non-underlying 35.79 27.05Diluted earnings per share - underlying 64.58 58.71- after non-underlying 35.48 26.74 6 Dividends paid and proposed 2014 2013 £m £mDeclared and paid during the yearOrdinary shares (equity):Final for 2013 paid: 17.8p per share (2012: 15.6p pershare) 117.2 102.1Interim for 2014 paid: 9.6p per share (2013: 8.7p pershare) 63.3 57.0 180.5 159.1Proposed for approval at AGM (not recognised as a liabilityat 31 December)Ordinary shares (equity):Final for 2014: 19.6p per share (2013: 17.8p per share) 129.6 116.9 7 Business combinations 2014 acquisitions The Group made a number of acquisitions in 2014 which are shown in aggregate.The fair values of the identifiable assets and liabilities acquired aredisclosed in the table below: Fair value recognised on acquisition £mProperty, plant and equipment 11.6Intangible assets 159.6Trade and other receivables due in less than oneyear 56.6Trade and other receivables due in more than oneyear 3.1Corporation tax (1.7 )Cash and cash equivalents 29.7Trade and other payables (exc. accruals) due inless than one year (43.6 )Accruals due in less than one year (32.7 )Provisions (4.8 )Deferred tax (26.4 )Employee benefits liability (2.9 )Finance leases (0.1 )Long term debt (21.5 )Net assets 126.9Goodwill arising on acquisition 251.4 378.3Discharged by:Cash 318.0Contingent consideration accrued 39.5Investment loan note 20.8 378.3 In all cases 100% of the ordinary share capital was acquired. The companiesacquired have been mainly in the areas of IT and software, customer and debtmanagement, legal and property services, resourcing, communication andprinting which complement or extend the Group's existing skill sets andprovide opportunities for growth into these markets. In addition during theyear the Group settled £35.5m of deferred consideration and £9.2m ofcontingent consideration payments with regard to previous acquisitions, all ofwhich had been accrued. Goodwill has arisen on the acquisitions because the fair value of the acquiredassets was lower than the consideration paid; the goodwill represents thevalue to the Group that can be driven from these underlying assets over thelife of the acquired businesses, particularly from synergies, and thecapabilities of the acquired workforce. The total amount of goodwillrecognised in the period that is expected to be deductible for tax purposes is£9.6m (2013: £103.4m). Contingent consideration In respect of the acquisitions made in 2014, the Group has agreed to pay thevendors additional consideration dependent on the achievement of performancetargets in the periods post acquisition. These performance periods are of upto 3 years in duration and will be settled in cash and loan notes on theirpayment date on achieving the relevant target. The range of the additionalconsideration payment is estimated to be between £30m and £48m. The Group hasincluded £39.5m as contingent consideration related to the additionalconsideration, which represents its fair value at the acquisition date.Contingent consideration has been calculated based on the Group's expectationof what it will pay in relation to the post-acquisition performance of theacquired entities by weighting the probability of a range of payments to givean estimate of the final obligation. Acquisition related costs The Group incurred acquisition related costs of £14.2m related to professionalfees paid for due diligence, general professional fees and legal relatedcosts. These costs have been included in non-underlying administrativeexpenses in the Group's consolidated income statement. 8 Provisions Asset Services Disposal/closure settlement Insurance Property provision provision provision provision Other Total £m £m £m £m £m £mAt 1 January 2014 41.3 0.7 25.1 36.6 11.2 114.9Utilisation (18.8 ) (4.3 ) (9.6 ) (5.8 ) (9.0 ) (47.5 )Provided in the year (net) 4.0 28.4 7.0 (0.1 ) 0.1 39.4Provisions acquired -- -- -- 4.7 0.1 4.8At 31 December 2014 26.5 24.8 22.5 35.4 2.4 111.6 The provisions made above have been shown as current or non-current on thebalance sheet to indicate the Group's expected timing of the matters reachingconclusion. The utilisation of the disposal/closure provision relates to ongoing costsincurred subsequent to the decision in 2013 to dispose of its insurancedistribution business and close its SIP business. The additional provisionprovided for in 2014 relates to the additional costs that will be incurred aspart of the disposal of its occupational health business. The provision isexpected to unwind over 2 years. Asset Services settlements relate to two matters: 1. The potential costs in resolving a claim by those investors who did notchoose to accept the Arch Cru Payment Scheme established in 2011. The PaymentScheme has had an 87% acceptance rate. 2. The potential costs in resolving matters relating to a fund, of which CFMwas the Operator until September 2009, when it was replaced by an unrelatedcompany as Operator (following which CFM had no further involvement with thefund). The fund went into liquidation in 2012 and its liquidator has brought aclaim against both former Operators. Giving due consideration to these claims the Group has made a provision of£24.8m at 31 December 2014 (2013: £0.7m). During the year the Group hasincurred £4.3m in respect of professional fees in relation to these matters.The claims are expected to unwind within one year. 9 Additional cash flow information Reconciliation of net cash flow to movement in net funds/(debt) Net debt at Acquisitions Net debt at 1 January in 2014 Cash flow Non-cash flow 31 December 2014 (exc. cash) movements movements 2014 £m £m £m £m £mCash, cash equivalents and overdrafts 157.8 -- (126.6 ) (2.1 ) 29.1Loan notes (10.4 ) -- 10.2 -- (0.2 )Bonds[1] (1,267.3 ) -- 10.6 (50.1 ) (1,306.8 )Currency swaps in relation to US$denominated bonds[1] 125.9 -- -- 49.1 175.0Interest rate swaps in relation toGBP denominated bonds[1] 7.7 -- -- 2.1 9.8Long term debt -- (21.5 ) 21.5 -- --Term loan (200.0 ) -- (100.0 ) -- (300.0 )Finance leases (17.3 ) (0.1 ) 5.5 -- (11.9 )Underlying net debt (1,203.6 ) (21.6 ) (178.8 ) (1.0 ) (1,405.0 )Fixed rate interest rate swaps (26.6 ) -- -- (36.7 ) (63.3 ) (1,230.2 ) (21.6 ) (178.8 ) (37.7 ) (1,468.3 ) Net debt at Acquisitions Net debt at 1 January in 2013 Cash flow Non-cash flow 31 December 2013 (exc. cash) movements movements 2013 £m £m £m £m £mCash, cash equivalents and overdrafts 306.7 -- (148.8 ) (0.1 ) 157.8Loan notes (0.5 ) -- 0.1 (10.0 ) (10.4 )Bonds[1] (1,370.1 ) -- 13.1 89.7 (1,267.3 )Currency swaps in relation to US$denominated bonds[1] 206.2 -- -- (80.3 ) 125.9Interest rate swaps in relation toGBP denominated bonds[1] 15.9 -- -- (8.2 ) 7.7Long term debt -- (14.2 ) 14.2 -- --Term loan (185.0 ) -- 185.0 -- --New term loan -- -- (200.0 ) -- (200.0 )Finance leases (2.7 ) (25.4 ) 10.8 -- (17.3 )Underlying net debt (1,029.5 ) (39.6 ) (125.6 ) (8.9 ) (1,203.6 )Fixed rate interest rate swaps (52.9 ) -- -- 26.3 (26.6 ) (1,082.4 ) (39.6 ) (125.6 ) 17.4 (1,230.2 ) 1 The sum of these items held at fair value equates to the underlying value ofthe Group's bond debt of £1,122.0m (2013: £1,133.7m). The aggregate bond fair value above of £1,306.8m (2013: £1,267.3m) includesthe GBP value of the US$ denominated bonds at 31 December 2014. To remove theGroup's exposure to currency fluctuations it has entered into currency swapswhich effectively hedge the movement in the underlying bond fair value. Theinterest rate swap is being used to hedge the exposure to changes in the fairvalue of GBP denominated bonds. 10 Related party transactions Compensation of key management personnel 2014 2013 £m £mShort term employment benefits 9.0 8.1Pension 0.2 0.2Share based payments 6.8 6.0 16.0 14.3The following companies are substantial shareholders in the Company andtherefore a related party of the Company (in each case, for the purposes ofthe Listing Rules of the UK Listing Authority). The number of shares held on18th February 2015 was as below: No. of % of votingShareholder shares rightsMarathon Asset Management LLP 22,933,805 3.46Woodford Investment Management LLP 35,060,250 5.30Invesco Asset Management 68,877,348 10.41Veritas Asset Management LLP 48,291,643 7.30Legal & General Investment Management 19,920,066 3.0111 Post balance sheet event Subsequent to the balance sheet date, the Group is in the process of acquiringAvocis, a leading provider of customer contact management services in Germany,Switzerland and Austria, for a consideration of £157m on a cash/debt freebasis. 12 Preliminary announcement The 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 25th February 2015. The financial information setout above does not constitute the Company's statutory accounts for the yearsended 31 December 2014 or 2013 but is derived from those accounts. Statutoryaccounts for 2013 have been delivered to the registrar of companies, and thosefor 2014 will be delivered in due course. The auditor has reported on thoseaccounts; their reports were (i) unqualified, (ii) did not include a referenceto any matters to which the auditor drew attention by way of emphasis withoutqualifying their report and (iii) did not contain a statement under section498 (2) or (3) of the Companies Act 2006. Copies of the announcement can be obtained from the Company's registeredoffice at 71 Victoria Street, Westminster, London SW1H 0XA, or on theCompany's corporate website www.capita.co.uk/investors/Pages/Investors.aspx. It is intended that the Annual Report and Accounts will be posted toshareholders in April 2015. It will be available to members of the public atthe registered office and on the Company's Corporate websitewww.capita.co.uk/investors/Pages/Investors.aspx from that date. 13 Statement of Directors responsibilities The Directors confirm that, to the best of their knowledge the extracts fromthe consolidated financial statements included in this report, which have beenprepared in accordance with International Financial Reporting Standards, asadopted by the European Union, (IFRS), IFRIC interpretations, and those partsof the Companies Act 2006 applicable to companies reporting under IFRS, fairlypresents 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. By order of the Board A Parker G M HurstChief Executive Group Finance Director

25 February 2015