25th Feb 2010 07:00
25 February 2010 THE CAPITA GROUP PLC Preliminary Results for the year ended 31 December 2009 STRONG PERFORMANCE AND PROSPECTS Financial Highlights Year ended 31 Year ended 31 Change December 2009 December 2008 Turnover £2,687m £2,441m +10%
Underlying operating profit* £357.7m £320.9m +11% Underlying profit before tax* £325.1m £277.2m +17% Underlying earnings per share* 38.75p 33.26p +17%
Total dividend per share 16.8p 14.4p +17%
* excludes intangible amortisation of £28.1m (2008: £18.6m), the non-cashimpact of mark to market movement on financial instruments of £1.4m negative(2008: £32m negative), loss on disposal of business £7.5m and an estimate forcosts of £30m relating to the suspension of 2 OEIC investment funds for whichCapita Financial Managers is the authorised corporate director.
Key points
* Steady organic growth. Major contract wins and renewals of £1bn (2008: £
1.24bn). * Bid pipeline stands at £3.7bn (Feb 2009: £3.1bn); increasingly active market.
* Broadened our operational capability: £177.5m spent on 12 acquisitions.
* Continued underlying operating margin progression: increased by 16 basis
points to 13.31% (2008: 13.15%).
* Strong underlying free cash flow up by 28% to £280m (2008: £219m).
* 17% dividend increase, maintaining our dividend cover of 2.3 times.
Paul Pindar, Chief Executive of Capita Group Plc, commented:
"Capita delivered a strong performance in 2009. Organic growth was steadyacross the year with a number of new major contracts secured in the year andwith businesses across the Group delivering robust results. Additional spend byexisting clients was lower in 2009 but a focus on optimising our operationalinfrastructure and the growth of our offshore operation ensured that wecontinued to increase margins.Capita is well placed to continue its growth and is enjoying a healthy flow ofnew business opportunities. Our pipeline of sales prospects, strong forwardvisibility of revenues from our long term contracts and consistent operationalperformance position us well for further progress in 2010 and thereafter."
For further information:The Capita Group Plc Tel: 020 7799 1525 Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 0207 654 2152 or 020 7654 2399 out of hours Financial Dynamics Tel: 020 7269 7121 Andrew Lorenz The Capita Group Plc Preliminary Statement for the year ended 31 December 2009 Capita delivered a strong performance in 2009. Organic growth was steady with anumber of new major contracts secured in the year and with businesses acrossthe Group delivering robust results.In the year ended 31 December 2009, turnover increased by 10% to £2,687m (2008:£2,441m). Underlying operating profit* rose by 11% to £357.7m (2008: £320.9m)and underlying profit before taxation* increased by 17% to £325.1m (2008: £277.2m). Underlying earnings per share* grew by 17% to 38.75p (2008: 33.26p).Underlying free cash flow** increased by 28% to £280m (2008: £219m).
We have increased our total dividend for the year by 17% to 16.8p (2008: 14.4p).
* excludes intangible amortisation of £28.1m (2008: £18.6m), the non-cashimpact of mark to market movement on financial instruments of £1.4m negative(2008: £32m negative), loss on disposal of business of £7.5m and an estimatefor costs of £30m relating to the suspension of 2 OEIC investment funds forwhich Capita Financial Managers is the authorised corporate director.
** underlying cash flow excludes an exceptional additional pension contribution to the Group Final Salary Pension Scheme of £40m.
Building value for shareholders
In addition to the financial measures reported above we focus on a number of other key financial measures to ensure we build value for shareholders on a consistent basis over the long term:
* Margin - We continue to focus on generating a steadily improving operating
margin. In the year, the underlying operating margin has increased by 16
basis points to 13.31% (2008:13.15%).
* Cash flow - The strength of our business model is reflected in our
excellent cash flow, with £437m (2008: £392m) generated by operations in
the period, representing an operating profit to cash conversion rate of
122% (2008: 122%). Our underlying free cash flow increased by 28% to £280m
(2008: £219m).
We use surplus cash to add value in 3 main ways: through acquisitions, share buybacks and dividends:
* Acquisitions - Acquisitions help us to enter new markets where we can grow
organically, strengthen existing market positions and build economies of
scale, or access a new customer base. In 2009, we spent £177.5m on 12
acquisitions. There is currently a good volume of opportunities valued at
attractive levels and we expect this position to continue through 2010. We
will continue to ensure counterparty risk is fully assessed and be disciplined when assessing opportunities. * Share buybacks - Opportunistic share buybacks help us to maintain an
efficient capital structure and minimise our long term cost of capital. In
2009, the Group did not buy back any shares as we have focused our capital
on the flow of attractive acquisition opportunities. We will however
continue to buy back shares if and when opportunities arise. There are 617m
shares in issue. The Group has authority to re-purchase up to 10% of its
issued share capital and we plan to seek renewal of this authority at the
Annual General Meeting.
* Regular dividends - The Board is recommending a final dividend of 11.2p per
ordinary share (2008: 9.6p), making a total of 16.8p (2008: 14.4p) for the
year. This represents an increase of 17%. The final dividend will be
payable on 24 May 2010 to shareholders on the register at the close of
business on 16 April 2010. Including the proposed final dividend, Capita's
total dividend will have grown at a compound annual rate of 25% over the 5
years to 31 December 2009. Dividend cover for 2009 remains at 2.31 times
(2008: 2.31 times).
Including the proposed dividend, £929m will have been returned to shareholdersin respect of the last 5 years - £367m in ordinary dividends, £155m in specialdividends and £407m through share buybacks.
* Capital expenditure - We aim to contain capital expenditure at or below 4%
of revenue. During the year, we met this objective with net capital expenditure at 2.5% (2008: 3.5%) of revenue. * Return on capital employed - We focus on driving a steadily increasing return on capital. During 2009, the post tax return on average capital employed (including debt) has improved to 20.6% (2008: 20.3%). This
compares to our post tax estimated weighted average cost of capital which
is 7.9%.
Additional financial information
Businesses across the Group performed well in 2009. The majority of ourbusinesses delivered good sales and operational performance, especially ourbusinesses servicing the local authority and education markets. Less than 10%of our Group revenues are generated by businesses that are potentiallyvulnerable to a weaker economy and the majority of these delivered to our 2009business plan expectations, particularly our property consultancy, resourcingand share registration businesses. Conversely, our collectives and investmenttrust administration business, Capita Financial Managers (CFM), whichadministers nearly 600 funds and has annual revenues of c. £50m, was adverselyaffected by the increased costs of IT and the sharply increasing obligations ofregulatory compliance.Arch cru Funds - As previously reported, dealings in 2 open ended investmentcompanies, for which CFM is the authorised corporate director (ACD) and ArchFinancial Products LLP was the delegated investment manager, were suspended on13 March 2009, as a result of illiquidity in the underlying investments of theOEICs and an anticipated inability to meet future redemptions. This wasexacerbated by unprecedented market turmoil post the collapse of LehmanBrothers. Since the suspension, CFM, has been working with specialist advisersto conduct a detailed review of the underlying assets of the OEICs and optionsfor their future. This review was completed in December 2009. The underlyingassets of the OEICs have fallen in value and remain illiquid. CFM has advisedinvestors that the only feasible option in the best interests of investors as awhole is for the OEICs to be wound up, with the underlying assets beingrealised in an orderly manner over a period of time, and the proceeds beingreturned to investors in the OEICs.In addition, CFM has informed investors in the OEICs that it is undertaking areview to determine whether such investors have suffered any detriment and, ifso, to what extent any of the parties involved should be responsible forcompensating them. This is a complex exercise and it is taking longer thananticipated, but we are determined to ensure that the matter is concluded in away that takes appropriate account of the results of the review and theinterests of investors in the OEICs, but also recognises the interests ofCapita's shareholders. The detailed work undertaken since March 2009 hasresulted in significant costs. We have set aside estimated costs of £30m (bothincurred and potentially to be incurred) in respect of resolving this matter.This figure has been disclosed separately from the Group's underlying profit inour accounts for the year ended 31 December 2009.CFM predominately provides administration services to investment funds and, insome cases, additionally acts as ACD. In the light of the experience gainedfrom the Arch cru situation, we have undertaken a strategic review of CFM anddecided that the balance between risk and reward in some of the ACD businessdoes not serve our shareholders well. Accordingly, we are now in activediscussions to dispose of part of this business.Pension payment - As reported in February 2009, following our latest tri-annualfunding valuation, we decided to make an exceptional additional pensioncontribution of £50m into the Group Final Salary Pension Scheme. £10m was paidin December 2008 and the remaining £40m was paid in January 2009. At the yearend, the deficit under International Accounting Standard (IAS) 19 was £31.9m.Debt profile - We aim to maintain a conservative balance sheet with substantialheadroom to take advantage of opportunities to add value to shareholders asthey arise. Following repayment of £100m in June 2009, we have £579m of privateplacement debt which matures between 2012 and 2018. Alongside this we haveraised a £200m bank term loan maturing in July 2011 and have an unusedrevolving credit facility of £245m maturing in December 2011.
Our marketplace
We remain the clear leader in the overall UK BPO market with 27.0%†marketshare (2008:25.5%). Independent analysts have estimated that the total 2009market for BPO in the UK was £6.0bn, against market potential of £94.2bn a year†. The capacity for long term growth therefore remains substantial asorganisations review their business models and acknowledge the benefits ofoutsourcing.
We remain focused on selecting opportunities where we believe we can meet clients' expectations and add value, fuelling controlled growth and achieving a reasonable return for the Group.
In 2009, our most active market was local government. We also saw increasedactivity in financial services and central government and ongoing interest fromthe life and pensions market. We have seen a steady flow of outsourcingopportunities across both public and private sectors in 2009. As a result, thesector split of revenues remained broadly in balance at 50% private/50% public.(2008: 52%/48%).Public sector: Across a number of our divisions, we provide outsourcing andprofessional support services to both local authorities and central government.We have built particular expertise in education, transport and health ï¼ andhave a growing interest in the defence sector. We expect fiscal pressure onpublic spending to heighten the focus on outsourcing in the public sector in2010. Irrespective of which party wins the General Election, central governmentdepartments in particular will need to achieve significant cost efficiencieswithout compromising the availability or quality of frontline public services.A combination of reduced public sector revenues and increased demand forservices is likely to add pressure on budgets both locally and centrally. Withour solid track record of delivering public sector contracts, we are wellplaced to help organisations to introduce new, more sustainable and streamlinedways of working to meet public needs.Private sector: The 3 main private sector markets we focus on are life andpensions, insurance and financial services. We also support an increasingnumber of organisations in other markets and we have a growing interest in thebanking and utilities sectors. In the current economic climate, there isincreased pressure on commercial organisations to drive down operational costswithout compromising customer service or their competitiveness in theirmarketplace. As they strive to do this, and to bring new products to marketfaster, we expect them to consider the higher productivity and enhancedoperational and advisory capabilities that an experienced outsourcing serviceprovider can bring. Many of our private sector clients are also looking at thebenefits that Capita can offer through a blended onshore/offshore servicedelivery model. †Ovum 2009
Generating profitable growth
We generate profitable growth by winning business from new and existing customers in the UK and Ireland and supplement this by acquiring businesses that broaden our skill base and extend our market reach.
Organic growth
We have a centrally managed major sales team, as well as sales teams withineach of our businesses, focused upon securing contracts with both existing andnew customers. Our markets continue to offer good opportunities and our newsales performance in 2009 was satisfactory. However, due to the prevailingeconomic conditions it was more difficult to secure additional revenues fromexisting clients.Our major sales team pursues complex, long term contracts which bring togethera wide range of the Group's skills and generate high quality, recurringrevenues. Securing and renewing major contracts is an important component ofour growth.
In 2009, we secured and extended 15 major contracts with a total value of £ 1.0bn (2008: 17 contracts totalling £1.24bn). These include:
* AXA Sun Life: Contract secured to administer 3.2 million life and pensions
policies, worth £523m over 15 years. The contract started on 1 June with
1,150 employees in the UK transferring to Capita. We have already achieved
step improvements in service as well as hitting our critical service level
targets. In September, we transferred a further 550 people from AXA in
India.
* Learning and Skills Council (LSC): Following our appointment to take over
interim responsibility for the administration of the Learner Support
Programme in November 2008, we signed a contract in March 2009 with the LSC
valued at £68m over 4 years until 2013, with an option to extend for a
further 2 years. The contract, to administer and assess applications for a
range of allowances to support learners including the Education Maintenance
Allowance (EMA) and the Adult Learning Grant (ALG), is progressing well. We
currently process and pay over 600,000 Learners per week, on behalf of
4,000 Learning Provider institutions, and deal with approximately 2 million
calls per annum. * Office of National Statistics: Our contract for the 2011 Census is well underway with the first rehearsal successfully completed in October. As
part of our delivery model, we have implemented an innovative IVR solution
for time and attendance as well as travel and expenses data capture for
field operatives. The contract is worth £25m over 2 and a half years.
* Department for Children, Schools and Families (DCSF): The contract for the
management of the National Strategies has been extended by 1 year from the
end of March 2010, when the current 5 year contract is due to end. The DCSF
has indicated that the minimum value of the 1 year contract extension will
be £64m. The recently published Schools White Paper has signalled a new
approach to school accountability and improvement support with greater
focus on the development of school to school support and quality assured
providers. As a result, the National Strategies' contract will not be re-tendered and will end on 31 March 2011. The National Strategies have played a key role in building local capacity and will continue to do so throughout the remaining period of the contract.
* BBC Audience Services: We were successful in being awarded a new contract,
worth c. £45m over 9 years, to handle complaints, comments and enquiries
via phone calls, emails, SMS and letters. We will also provide action lines
for issue-related programming, audience management and ticketing, as well
as daily feedback to the BBC from viewers and listeners about how audiences
feel about BBC content.
* Becta: Our contract to administer and market the Home Access Grant on
behalf of Becta is progressing well, including a controlled launch and take
up of the scheme. We have developed interfaces with multiple equipment
suppliers to process grant payments which will total £136m over the period
of the contract. The contract is valued at £15.7m, commenced on 16 October
2009 and will run to June 2011.
* NHS BSA: In December, we signed a contract, worth £100m over 7 years, to
administer the processing and payment of circa 40 million claims made
annually by dentists for NHS dental treatment administered and to provide a
managed IT service to support the Authority, its current portfolio of
activities and future growth. The service, which is due to commence in July
2010, will be delivered by our Health and IT Services businesses.
8 contracts and renewals worth between £10m and £50m were secured with anaggregate value of £159m with Hart District Council, Havant Borough Council,Breckland District Council, Charnwood Borough Council, eircom, Threadneedle,NHS Employers and the Driving Standards Agency.To date in 2010, 9 new contracts and extensions worth between £10m and £50mwith an aggregate value of £195m have been secured. This includes a life andpensions contract with Aviva Life International in Ireland, a contract with AXAto provide administration services for Sainsbury's pet insurance offering,extensions of our DWP Records Management and Constructionline contracts and:
* Building Schools for the Future (BSF): A number of BSF contracts involving
the provision of property consultancy and ICT for clients such as
Wolverhampton City Council, worth £34m, and Rochdale Metropolitan Borough
Council.
* Nottingham City Council: An arrangement to provide networking, applications
and services to the Council, worth £30m, secured by our newly acquired
Synetrix business.
Bid pipeline: Alongside these contract wins, our bid pipeline has been replenished and reflects the quality of business opportunities across our markets. The bid pipeline currently stands at £3.7bn (Feb 2009: £3.1bn) and only includes bid situations in which we are shortlisted as 1 of 4 or fewer competitors and caps our largest bids at £500m. Behind this is an active prospect list of opportunities which are yet to reach a shortlist stage.
Contract renewals: We have no material rebids of our contracts (defined as having annual revenue in excess of 1% of 2009 turnover) in 2010 and 2011, 2 rebids in 2012 and none in the following 2 years.
Stimulating growth through acquisition
A key element of our growth is the acquisition of small to medium sizedcompanies which widen our skills and knowledge, extend our presence in existingmarketplaces or provide a foothold in a new market. We have substantialexperience of integrating acquired businesses and achieving synergies with ourexisting operations.
In 2009, we completed 12 acquisitions for a total consideration of £177.5m, including:
* CHKS and NHS Membership Services: CHKS Limited, a healthcare intelligence
business, and NHS Membership Services, which provides membership services
and engagement programmes for over 50 NHS foundation trusts, add further
strength to our position in the health market. The 2 businesses were acquired for an aggregate consideration of £13.6m. * Hero Insurance Services: A personal lines broker primarily offering
insurance for cars and motorbikes, acquired in March for £15m. Hero has
been integrated with our existing Insurance Distribution businesses (BDML,
Lancaster Insurance and Thornside) and is already achieving significant
efficiency improvements through cost management and driving through synergy
savings. * Capmark Services Europe: Acquired for £10m in June, Capmark provides administration services for commercial mortgage backed securities, commercial mortgages, commercial property loans and asset managers from offices based in the UK, Ireland and Germany.
* Carillion IT Services Ltd ("CITS"): An IT services business, acquired for £
36m in June, which offers outsourcing, managed services and network
infrastructure solutions to external clients. The acquisition enhances and
expands Capita's position in the IT services market, increasing our scale,
customer base and reach across the UK. There will be significant operational and cost synergies by bringing together CITS and Capita IT Services.
* Synetrix (Holdings) Ltd: A provider of ICT application and communications
solutions to both public and private sector organisations and specialises
in the design, development, integration and deployment of converged
networks, hosted application solutions, managed security solutions and
software platforms. This acquisition, made in December for £75m, further
strengthens our position in the IT services market.
In 2010, our pipeline of potential acquisitions is healthy. To date, we have acquired 2 businesses for a total consideration of £16.8m:
* Inventures, a leading healthcare property consultancy for £6.8m. With 4 UK
offices and more than 100 consultants, Inventures provides programme and
project management, property and estate management, healthcare planning and
facilities management advice to the NHS and other public sector bodies across the UK. * NB Real Estate Ltd, for £10m on a cash-free, debt-free basis, plus a
contingent deferred consideration of up to £10m payable on the achievement
of certain performance targets. The continuing pressure on public service
spending and the wider UK economy will drive more organisations to consider
more innovative and efficient ways to manage their property assets and the
acquisition of NB Real Estate positions Capita strongly to fulfil this
demand.
Optimising operational efficiency
We have built up an extensive operational infrastructure and a depth ofcapabilities which enable us to fully support our clients, provide flexibleoperating models and share economies of scale. Wherever possible, we willmigrate and integrate systems, share resources and rationalise premises tooptimise our infrastructure while maintaining and enhancing services. In 2009,we have taken significant steps forward in this ongoing process, particularlyacross our Life & Pensions business.Our business centres, where we run a broad range of shared services to providecost efficiencies to customers and a higher level of service quality, form acentral part of our service delivery infrastructure. At the end of 2009, we had60 business centres onshore in the UK, nearshore in Ireland and the ChannelIslands, and offshore in India. Our infrastructure allows us to offer clientsan onshore/offshore delivery model structured to meet their individual needs,delivering maximum service flexibility, quality and cost effectiveness.We established our offshore operations in India in 2003 and they play anincreasingly important role in our business and long term growth strategy.Capita India is fully integrated into the Group and operates like any otherCapita business with the same values, technical infrastructure and operatingmodel. It continues to develop strongly both in scale and scope of services andis a compelling proposition when offered as part of many of our bids. It alsoplays an increasing role in supporting Group businesses and Group supportfunctions. We now have 3 sites in Mumbai, 1 site in Pune and a new office inBangalore. These sites are specialist centres, delivering services to multipleclients or providing multiple services to a single client. At the end of 2009,our Indian operations represented approximately 10% of our overall headcountand delivered significant growth in profits.
Group Board
After 9 years with Capita, Eric Walters decided to step down as Chairman witheffect from 1 January 2010. We thank Eric for his considerable contribution andwish him well as he pursues other interests. We are delighted that MartinBolland, who has been an active and valuable Non-Executive Director since March2008, has assumed the role of Chairman. We also announced last year that PaddyDoyle would be moving to a part-time Executive Director role. He has nowdecided to reduce his business interests further and will continue on the Boardas a Non-Executive Director from 1 March 2010. We welcome Paddy's continuedvaluable contribution to the Group.The Board has considered the number of Independent Non-Executive Directors,specifically with relevant financial experience, and will be recruiting to addfurther Non-Executives to the Board. Whilst this process is taking place,Martin will continue as Chairman of the Audit Committee and Senior IndependentDirector until an appropriate replacement is appointed.
Valuing our people
Capita owes its success to its people and the Board would like to take thisopportunity to thank all the talented employees across our businesses who haveplayed a key role in Capita's consistent growth. Against a backdrop ofdifficult market conditions during 2009, the effort made by our 36,800employees has been outstanding and has contributed to another successful yearfor the Group. Whether joining us through direct recruitment, contracts oracquisitions, their hard work, commitment and enthusiasm play a vital role inhelping us to meet client expectations and in sustaining our growth.
Future prospects
Capita is well placed to continue its growth and is experiencing a healthy flowof new business opportunities. Our pipeline of sales prospects, strong forwardvisibility of revenues from our long term contracts and consistent operationalperformance position us well for further strong progress in 2010 andthereafter. -Ends- Preliminary Statement
Consolidated income statement
for the year ended 31 December 2009
Underlying Non-underlying 2009 Underlying Non-underlying 2008 Total Total Notes £m £m £m £m £m £m Continuing operations: Revenue 1 2,686.8 - 2,686.8 2,441.4 - 2,441.4 Cost of sales 1,937.0 - 1,937.0 1,757.8 - 1,757.8 Gross Profit 749.8 - 749.8 683.6 - 683.6 Administrative 2 392.1 58.1 450.2 362.7 18.6 381.3expenses Operating 1 357.7 (58.1) 299.6 320.9 (18.6) 302.3profit Net finance 3 (32.8) (1.4) (34.2) (43.5) (32.0) (75.5)costs Investment 0.2 - 0.2 (0.2) - (0.2)gain/(loss) Loss on 4 - (7.5) (7.5) - - -business disposal Profit before 325.1 (67.0) 258.1 277.2 (50.6) 226.6tax Income tax (87.1) 17.9 (69.2) (74.9) 14.1 (60.8)expense Profit for the 238.0 (49.1) 188.9 202.3 (36.5) 165.8year Attributable to: Equity holders 238.0 (49.1) 188.9 202.3 (36.5) 165.8of the parent Earnings per 5 share - basic 38.75p (7.99)p 30.76p 33.26p (6.00)p 27.26p - diluted 38.42p (7.92)p 30.50p 32.96p (5.95)p 27.01p
Consolidated statement of comprehensive income
for the year ended 31 December 2009
2009 2009 2008 2008 £m £m £m £m Profit for the year 188.9 165.8
Other comprehensive income/(expense): Actuarial losses on defined benefit pension (58.2) (48.1)
schemes Income tax effect 16.3 13.5 (41.9) (34.6)
Exchange differences on translation of foreign (2.3)
5.9operations
Losses/(gains) on cash flow hedges arising (10.8) 20.9
during the year
Reclassification adjustments for gains included (4.1) (0.8)
in the income statement Income tax effect 4.2 (5.6) (10.7) 14.5 Other comprehensive expense for the year net of (54.9) (14.2)tax Total comprehensive income for the year net of 134.0 151.6tax Attributable to: Equity holders of the parent 134.0 151.6Consolidated balance sheetat 31 December 2009 2009 2008 Notes £m £m Non-current assets Property, plant and 256.6 238.3equipment Intangible assets 1,107.0 907.0 Financial assets 186.3 332.4 Trade and other 20.3 8.1receivables Deferred taxation 0.0 3.0 1,570.2 1,488.8 Current assets Financial assets 2.0 5.2 Trade and other 618.4 583.6receivables Cash 181.5 86.7 801.9 675.5 Total assets 2,372.1 2,164.3 Current liabilities Trade and other 794.5 690.4payables Financial 19.8 116.5liabilities Provisions 7 27.6 2.3 Income tax payable 37.5 40.4 879.4 849.6 Non-current liabilities Trade and other 9.0 9.6payables Financial 951.3 882.7liabilities Deferred taxation 13.9 - Provisions 7 20.4 1.0 Employee benefits 31.9 24.5 1,026.5 917.8 Total liabilities 1,905.9 1,767.4 Net assets 466.2 396.9 Capital and reserves Issued share capital 12.9 12.8 Share premium 435.2 410.4 Employee Benefit (0.2) (0.2)Trust Capital redemption 1.8 1.8reserve Foreign currency 4.3 6.6translation Net unrealised gains 7.8 18.5reserve Retained earnings 4.4 (53.0) Equity shareholders' 466.2 396.9funds
Included in aggregate financial liabilities is an amount of £720.5m (2008: £953.1m) which represents the fair value of the Group's bonds which should beconsidered in conjunction with the aggregate value of currency and interestrate swaps of £139.9m included in financial assets and £0.6m included infinancial liabilities (2008: £274.3m included in financial assets).Consequently, this gives an effective liability of £581.2m (2008: £678.8m).
Consolidated statement of changes in equity
for the year ended 31 December 2009
Share Share Employee Capital Retained Foreign
Net Total
capital premium Benefit redemption earnings currency unrealised equity Trust reserve translation gains shares reserve reserve £m £m £m £m £m £m £m £m At 1 January 12.6 374.9 - 1.8 (62.2) 0.7 4.0 331.82008 Profit for - - - - 165.8 - - 165.8the year Other - - - - (34.6) 5.9 14.5 (14.2)comprehensive expense Total - - - - 131.2 5.9 14.5 151.6comprehensive income for the year Share based - - - - 9.2 - - 9.2payment Income tax - - - - 17.6 - - 17.6deduction on exercise of stock options in excess of share based payments Deferred - - - - (2.2) - - (2.2)income tax relating to share based payments Share - - - - (0.4) - - (0.4)transaction costs Shares issued 0.2 35.5 - - - - 35.7 Employee - - (0.2) - (68.2) - - (68.4)benefit trust shares purchased Equity - - - - (78.0) - - (78.0)dividends paid At 1 January 12.8 410.4 (0.2) 1.8 (53.0) 6.6 18.5 396.92009 Profit for - - - - 188.9 - - 188.9the year Other - - - - (41.9) (2.3) (10.7) (54.9)comprehensive expense Total - - - - 147.0 (2.3) (10.7) 134.0comprehensive income for the year Share based - - - - 9.8 - - 9.8payment Income tax - - - - 6.0 - - 6.0deduction on exercise of stock options in excess of share based payments Deferred - - - - (12.2) - - (12.2)income tax relating to share based payments Shares issued 0.1 24.8 - - - - - 24.9 Equity - - - - (93.2) - - (93.2)dividends paid At 31 12.9 435.2 (0.2) 1.8 4.4 4.3 7.8 466.2December 2009
Consolidated cash flow statement
for the year ended 31 December 2009
2009 2008 £m £m
Cash flows from operating activities Operating profit on continuing activities before 299.6 302.3interest and taxation Depreciation 54.4 50.0
Amortisation of other intangible assets (treated as 1.2
1.5depreciation) Amortisation of intangible assets created on acquisition 28.1 18.6 Share based payment expense 9.8 9.2 Pension charge 21.2 19.3 Pension contributions before exceptional additional (32.0) (28.5)contribution
Loss on sale of property, plant and equipment 1.1
1.1 Movement in provisions 25.5 (2.2)
Movement in provisions due to reclassification from 17.2
-payables during the year Decrease/(increase) in receivables 18.6
(90.7)
(Decrease)/increase in payables (8.0)
111.4
Cash generated from operations before exceptional 436.7
392.0
additional pension contribution
Income tax paid (58.3) (48.6) Exceptional additional pension contribution (40.0) (10.0) Net interest paid (31.1) (38.4) Cash generated from operations after income tax, 307.3
295.0
interest and exceptional additional pension contribution Net cash used in investing activities Purchase of property, plant and equipment (68.4)
(86.4)
Proceeds from sale of property, plant and equipment 0.1
0.3
Purchase of intangible fixed assets -
-
Acquisition of subsidiary undertakings and businesses (197.1) (188.4)
Cash acquired with subsidiary undertakings 24.2
8.9
Disposal of financial assets 1.6
23.1
Purchase of financial assets (0.4)
- Investment loan (0.6) (6.2)
Proceeds on business disposal (net of cash sold) 8.0
-
Return on investment in Joint Venture 0.4
0.1 (232.2) (248.6)
Net cash from financing activities Issue of ordinary share capital 24.9 35.7 Share buybacks - (68.4) Share transaction costs - (0.4) Dividends paid (93.2) (78.0) Capital element of finance lease rental payments - (0.2) Instalment debtor movement (8.1) -
Asset based securitised financing 6.7
0.7
Repayment of loan notes and long term debt (108.0) (3.3) Proceeds on issue of debt 200.0 200.2 Financing arrangement costs (2.6) (0.7) 19.7 85.6 Net increase in cash and cash equivalents 94.8
132.0
Cash and cash equivalents at the beginning of the period 86.7 (45.3)
Cash and cash equivalents at 31 December 181.5
86.7
Cash and cash equivalents comprise:
Cash at bank and in hand 181.5 86.7 Total 181.5 86.7
Notes to the preliminary statement
for the year ended 31 December 2009
1. Segmental information
The Group's operations are organised and managed separately according to the nature of the services provided, with each segment representing a strategic business unit offering a different package of related services across the Group's markets.
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 2009 and 2008.
All operations in 2009 are continuing.
Year Ended 31 December 2009 HR Property Insurance Investor Integrated ICT, Life & Professional Total Solutions Consultancy Services Services Services Health & Pensions Services Business Services Underlying £m £m £m £m £m £m £m £m £msegment revenue
Total segment 312.4 272.7 246.8 179.8 341.3 734.9 581.2 424.7 3,093.8revenue Inter-segment (31.8) (14.6) - (5.3) (1.3) (227.5)
(60.5) (66.0) (407.0)revenue Third party 280.6 258.1 246.8 174.5 340.0 507.4 520.7 358.7 2,686.8revenue Underlying segment result Result after 27.4 24.3 30.1 35.8 57.4 59.2 63.0 70.3 367.5depreciation Share based (1.2) (1.2) (1.7) (0.7) (2.4) (0.8) (0.9) (0.9) (9.8)payment 26.2 23.1 28.4 35.1 55.0 58.4 62.1 69.4 357.7 Non-underlying Intangible - (1.7) (4.8) (4.6) - (6.2) (4.1) (6.7) (28.1)amortisation Arch cru - - - (30.0) - - - - (30.0) 26.2 21.4 23.6 0.5 55.0 52.2 58.0 62.7 299.6 Net finance (32.8)costs (before callable swaps) Callable swaps 1.1 Mark to market (2.5)movement on currency swaps Investment 0.2gain Loss on (7.5)business disposal Profit before 258.1tax Corporation (69.2)taxation Profit after 188.9tax Year Ended 31 December 2008 HR Property Insurance Investor Integrated ICT, Life & Professional Total Solutions Consultancy Services Services Services Health & Pensions Services Business Services Underlying £m £m £m £m £m £m £m £m £msegment revenue
Total segment 278.5 284.2 263.6 173.9 344.7 505.3 479.6 396.5 2,726.3revenue Inter-segment (20.3) (22.0) (17.4) - (5.2) (123.1)
(25.6) (71.3) (284.9)revenue Third party 258.2 262.2 246.2 173.9 339.5 382.2 454.0 325.2 2,441.4revenue Underlying segment result Result after 25.3 24.0 32.7 40.3 56.7 37.8 54.7 58.6 330.1depreciation Share based (1.1) (1.2) (1.6) (0.7) (2.3) (0.7) (0.8) (0.8) (9.2)payment 24.2 22.8 31.1 39.6 54.4 37.1 53.9 57.8 320.9 Non-underlying Intangible (0.2) (1.4) (3.7) (3.7) - (2.4) (3.8) (3.4) (18.6)amortisation 24.0 21.4 27.4 35.9 54.4 34.7 50.1 54.4 302.3 Net finance (43.5)costs (before callable swaps) Callable swaps (32.0) Investment (0.2)loss Profit before 226.6tax Corporation (60.8)taxation Profit after 165.8tax 2. Administrative expensesIncluded within Administrative expenses, disclosed in the column headed'Non-underlying', are: 2009 2008 £m £m Intangible amortisation 28.1 18.6 Arch cru costs 30.0 - Total 58.1 18.6Arch cru costs - dealings in 2 open ended investment companies, for whichCapita Financial Managers (CFM) is the authorised corporate director (ACD) andArch Financial Products LLP was the delegated investment manager, weresuspended on 13 March 2009, as a result of illiquidity in the underlyinginvestments of the OEICs and an anticipated inability to meet futureredemptions. This was exacerbated by unprecedented market turmoil post thecollapse of Lehman Brothers. Since the suspension, CFM, has been working withspecialist advisers to conduct a detailed review of the underlying assets ofthe OEICs and options for their future. This review was completed in December2009. The underlying assets of the OEICs have fallen in value and remainilliquid. CFM has advised investors that the only feasible option in the bestinterests of investors as a whole is for the OEICs to be wound up, with theunderlying assets being realised in an orderly manner over a period of time,and the proceeds being returned to investors in the OEICs.In addition, CFM has informed investors in the OEICs that it is undertaking areview to determine whether such investors have suffered any detriment and, ifso, to what extent any of the parties involved should be responsible forcompensating them. This is a complex exercise and it is taking longer thananticipated, but we are determined to ensure that the matter is concluded in away that takes appropriate account of the results of the review and theinterests of investors in the OEICs, but also recognises the interests ofCapita's shareholders. The detailed work undertaken since March 2009 hasresulted in significant costs. We have set aside estimated costs of £30m (bothincurred and potentially to be incurred) in respect of resolving this matter.This figure has been disclosed separately from the Group's underlying profit inour accounts for the year ended 31 December 2009. It is expected that anoutcome will be reached in 2010.CFM predominately provides administration services to investment funds and, insome cases, additionally acts as ACD. In the light of the experience gainedfrom the Arch cru situation, we have undertaken a strategic review of CFM anddecided that the balance between risk and reward in some of the ACD businessdoes not serve our shareholders well. Accordingly, we are now in activediscussions to dispose of part of this business.
3. Net finance costs
Included in the column headed 'Non-underlying', against the line item net finance costs, are the following:
2009 2008 £m £m Callable swaps - mark to market (1.1) 32.0 Mark to market movement on 2.5 -currency swaps 1.4 32.0\* The mark to market movement on currency swaps represents the extent to whichthe fair value of these instruments has been affected by the perceived changein the creditworthiness of the counterparties to those instruments. The Groupis comfortable that the risk attached to those counterparties is notsignificant and believes that the currency swaps continue to act as aneffective hedge against the movements in the fair value of the Group's issuedUS$ denominated bonds.4. Loss on business disposal
In the year the Group disposed of the Revenue and Benefits business that it hadacquired in 2008 as part of its acquisition of IBS OPENSystems(as directed by the Competition Commission). The table below gives a summary ofthe disposal: 2009 £m Fixed assets 0.4 Debtors 1.9 Creditors (2.2) Intangibles 5.9 Goodwill 7.3 Total net assets 13.3disposed of Transitional services 2.2provided Net proceeds received in (8.0)cash Loss on business 7.5disposal 5. Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profitfor the year attributable to ordinary equity holders of the parent by theweighted average number of ordinary shares outstanding during the year plus theweighted average number of ordinary shares that would be issued on theconversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
2009 2008 £m £m Net profit attributable to ordinary equity holders of the 188.9 165.8parent from operations 2009 2008 Number Number million million
Weighted average number of ordinary shares (excluding trust 614.2 608.3 shares) for basic earnings per share
Dilutive potential ordinary shares:
Employee share options 5.2 5.5
Weighted average number of ordinary shares (excluding trust 619.4 613.8 shares) adjusted for the effect of dilution
There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thesefinancial statements.The following additional earnings per share figures are calculated based onunderlying earnings attributable to ordinary equity holders of the parent of £238.0m (2008: £202.3m) and, after underlying costs, earnings £188.9 (2008: £165.8m). They are included as they provide a better understanding of theunderlying trading performance of the Group. 2009 2008 p p Basic earnings per share - 38.75 33.26underlying - after non-underlying 30.76 27.26 Diluted earnings per share - 38.42 32.96underlying - after non-underlying 30.50 27.01
6. Dividends paid and proposed
2009 2008 £m £m
Declared and paid during the year
Ordinary shares (equity):
Final for 2008 paid: 9.6p per share (2007: 8.0p 58.8
48.8per share)
Interim for 2009 paid: 5.6p per share (2008: 4.8p 34.4
29.2per share) 93.2 78.0
Proposed for approval at AGM (not recognised as a
liability at 31 December) Ordinary shares (equity):
Final for 2009: 11.2p per share (2008: 9.6p per 69.1
58.6share) 7. Provisions Insurance Property Arch cru Other Total provision provision £m £m £m £m £m At 1 January 2009 - 3.3 - - 3.3 Transfer from accruals - - - 3.0 3.0in the year Transfer from other 14.2 - - - 14.2payables in the year Utilisation - (0.6) - - (0.6) Additional provisions in 0.8 2.4 20.0 2.6 25.8the year Provisions acquired - 2.2 - - 2.2 Unwinding of interest on - 0.1 - - 0.1discounted provisions At 31 December 2009 15.0 7.4 20.0 5.6 48.0
Certain liabilities previously held within accruals and other payables have been reclassified as provisions as it is considered that the classification is more appropriate given the nature of the balances.
The property provision is made on a discounted basis for the future rent expense and related cost of leasehold property (net of estimated sub-lease income) where the space is vacant or currently not planned to be used for ongoing operations. The expectation is that this expenditure will be incurred over the remaining periods of the leases which range from 1 to 6 years.
Insurance provisions relate to provisions held by the Group's captive insurer. Such provisions are held until utilised or such time as further claims are considered unlikely under the respective insurance policies.
Arch cru costs - see note 2.
8. Reconciliation of net cash flow movements in net funds/(debt)
Net Acquisitions Net debt Debt at at 1 in 2009 Cash flow Non-cash 31 January (exc. cash) movements flow December 2009 movements 2009 At December 2009 £m £m £m £m £m Cash and cash equivalents 86.7 - 94.8 - 181.5 Cash 86.7 - 94.8 - 181.5 Loan notes (3.7) - 1.4 (0.3) (2.6) Bonds †(953.1) - 100.3 132.3 (720.5) Term debt - - (197.4) (0.6) (198.0) Currency swaps in relation 269.6 - - (133.6) 136.0to US$ denominated bonds †Interest rate swaps in 4.7 - - (1.4) 3.3relation to GBP denominated bonds †Long term debt - (9.1) 6.3 - (2.8) Finance leases - (1.4) - - (1.4) Sub-total net debt (595.8) (10.5) 5.4 (3.6) (604.5) Asset based securitised (10.4) - (6.7) - (17.1)finance* Callable swaps (32.0) - - 1.1 (30.9) (638.2) (10.5) (1.3) (2.5) (652.5)
The aggregate bond fair value above of £720.5m (2008: £953.1m) (included inFinancial liabilities) includes the GBP value of the US$ denominated bonds at31 December 2009. To remove the Group's exposure to currency fluctuations ithas entered into currency swaps which effectively hedge the movement in theunderlying bond fair value. The interest rate swap is being used to hedge theexposure to changes in the fair value of GBP denominated bonds. The combinedfair value of the interest and currency swaps, of £139.3m (2008: £274.3m), isincluded in Financial assets and Financial Liabilities.
†The sum of these items held at fair value equates to the underlying value of the Group's bond debt of £581.2m (2008: £678.8m).
\* The asset based securitised finance movement represents the net movement on the underlying balances with customers.
Net Acquisitions Net debt Debt at at 1 in 2008 Cash flow Non-cash 31 January (exc. cash) movements flow December 2008 movements 2008 £m £m £m £m £m Cash and cash equivalents 0.8 - 85.9 - 86.7 Overdrafts (46.1) - 46.1 - - Cash (45.3) - 132.0 - 86.7 Loan notes (1.7) - 3.3 (5.3) (3.7) Bonds †(461.1) - (199.5) (292.5) (953.1) Currency swaps in relation (18.1) - - 287.7 269.6
to US$ denominated bonds â€
Interest rate swaps in 0.1 - - 4.6 4.7relation to GBP denominated bonds †Finance leases (0.2) - 0.2 - - Sub-total net debt (526.3) - (64.0) (5.5) (595.8) Asset based securitised (9.7) - (0.7) - (10.4)finance* Callable swaps - - - (32.0) (32.0) (536.0) - (64.7) (37.5) (638.2)
9. 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 24th February 2010. The announcement representsnon-statutory accounts within the meaning of section 435 of the Companies Act2006. The statutory accounts for the year ended 31 December 2009, upon which anunqualified audit opinion has been given and which did not contain a statementunder Section 498 (2) or 498 (3) of the Companies Act 2006, will be sent to theRegistrar of Companies.
Copies of the announcement can be obtained from the Company's registered office at 71 Victoria Street, Westminster, London SW1H 0XA, or on the Company's corporate website www.capita.co.uk.
It is intended that the Annual Report and Accounts will be posted to shareholders on 8 April 2010. It will also be available to members of the public at the registered office and on the Company's corporate website www.capita.co.uk from that date.
vendorRelated Shares:
Capita