21st Jul 2011 07:00
21 July 2011 THE CAPITA GROUP PLC Half year results for the 6 months to 30 June 2011
SOLID H1 PERFORMANCE & POSITIVE FUTURE OUTLOOK
Highlights Half year Half year Change 2011 2010 Turnover £1,400m £1,361m + 3%
Underlying operating profit* £193.0m £178.4m + 8% Underlying profit before tax* £174.0m £163.1m + 7% Underlying earnings per share* 21.95p 19.60p + 12% Interim dividend per share 7.2p 6.6p + 9%* excludes intangible amortisation and acquisition costs of £33.8m (H1 2010:£18.2m), the non-cash impact of mark to market movement on financial instrumentsof £1.2m credit (H1 2010: £12.5m charge).
Key points
Major contracts wins and renewals of £1.1bn to date in 2011 (H1 2010: £523m), including:
£570m over 15 years with Zurich £149m over 10 years with MetLife £100m over 5 years with the DVLA
Bid pipeline rapidly replenished to £4.7bn (Feb 2011: £4.7bn)
Win rates of approximately 1:2, operational excellence supporting contract extensions & expansions
Broadening our operational capability and market reach with £194m invested in 11 acquisitions
Progressing new European service delivery capability and enhancing our Indian offering
Underlying profit before tax up 7% to £174.0m (H1 2010: £163.1m)
Continued margin progression: up 0.7 percentage points to 13.8% (H1 2010: 13.1%)
EPS up 12% to 21.95p (H1 2010: 19.60p)
9% increase in half year dividend to 7.2p per share
Paul Pindar, Chief Executive of Capita commented:
"Against a backdrop of trading conditions which have continued to bechallenging, the business has progressed in 2011 and we are now experiencingstrong major contract sales performance and high levels of acquisitionactivity. We have secured contracts and renewals totalling £1.1bn in the firsthalf of the year, more than double the value achieved in the first half of2010. This reflects the increasingly strong demand for outsourcing across thepublic and private sectors after a 2 year period of subdued sales activity.Following our recent contract wins, our bid pipeline has been rapidlyreplenished to its previous record level of £4.7bn of opportunities, withbuoyant activity in the local government and life and pensions markets andgrowing activity across central government. After strong sales outcomes in thefirst half, we expect decisions on a number of bids in the bid pipeline in Q3and Q4 this year.
Our pipeline of sales prospects, visibility of revenue from long term contracts and acquisition activity position us well for steady progress in 2011 and underpin strong growth prospects for 2012 and beyond."
For further information:The Capita Group Plc Tel: 020 7799 1525Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 020 7654 2399 Financial Dynamics Tel: 020 7269 7121Andrew Lorenz The Capita Group Plc
Half year results for the 6 months to 30 June 2011
Capita, the UK's leading business process outsourcing ("BPO") and professionalservices company, has performed well in the first 6 months of 2011, securing £1.1bn of major new and extended contracts reflecting increasing demand foroutsourcing across our markets and the excellent operational track record ofthe Group. Additionally, to date in 2011, we have invested £194m in 11 small tomedium sized businesses which broaden our operational capability, market reachand scale, enabling us to add value to existing clients and enhance ourpropositions for new clients.In the 6 months ended 30 June 2011, revenue increased by 3% to £1,400m (H12010: £1,361m). Underlying operating profit1 rose by 8% to £193.0m (H1 2010: £178.4m) and underlying profit before taxation1 increased by 7% to £174m (H12010: £163.1m). Underlying earnings per share1 grew by 12% to 21.95p (H1 2010:19.60p). Cash generated from operations was £179.6m (H1 2010: £216.3m). We haveincreased our interim dividend by 9% to 7.2p per share (2010: 6.6p).1 Excludes intangible amortisation and acquisition costs of £33.8m (H1 2010: £18.2m), the non-cash impact of mark to market movement on financial instrumentsof £1.2m credit (H1 2009: £12.5m charge).Of the growth in revenues in the period, £134m was generated by both 2011acquisitions and additional revenue from acquisitions completed in 2010. Therewas revenue attrition in 4 specific areas totalling £92m, consisting of 2contracts (National Strategies and Home Access) which we previously announcedwere coming to an end and 2 business areas where major project spend wasplanned to reduce. This attrition was not fully counterbalanced in the period,mainly because growth in our resourcing and property consultancy businesses wasmore subdued than expected. However, Capita is now enjoying a healthy flow ofnew opportunities and the bid pipeline has been replenished to its previousrecord level of £4.7bn, providing us with a good platform for stronger progressin 2012.
Our focus on optimising our operational infrastructure and expanding the Group's offshore capacity continues to drive margin progression, resulting in margins increasing to 13.8% (H1 2010: 13.1%). During the period, we have contained capital expenditure and retained an efficient capital structure.
Delivering shareholder value
To ensure that we continue to build long term value for shareholders, we focus on a number of key financial measures including:
Margin - our focus remains on generating a steadily improving operating margin.In H1 2011, operating margin (before acquired amortisation) was 13.8% (H1 2010:13.1%). Our continued margin progression is due to our focus on operating atoptimum efficiency across the Group, our ability to drive out benefits from ourextensive scale, in particular through IT rationalisation, propertyconsolidation and effective procurement, and the sophistication and added valueof the services we deliver to clients.Cash flow - £180m was generated by operations in the period (H1 2010: £216m),representing an underlying operating profit to cash conversion rate of 93% (H12010: 121%). Our underlying free cash flow was £97m (H1 2010: £140m). Operatingcash flow has been impacted by additional working capital required for new andexpanded contracts and for our Building Schools for the Future projects. Thesefactors will continue to impact cash flow for the remainder of the year.Thereafter, cash flow is expected to revert to more usual levels.We use surplus cash to add value in 3 main ways - through acquisitions, sharebuybacks and dividends. We deliver value to shareholders through steadilygrowing dividends, acquiring businesses which meet our strict criteria and arepriced attractively, and undertaking share buybacks when attractive marketopportunities arise. Weighing these 3 elements, our current balance is to focusmore strongly than usual on the healthy pipeline of acquisition opportunities;a decision which we believe will generate significant value to shareholders.Acquisitions - acquisitions have consistently added value to our clientpropositions and been a key driver for enhancing value to our shareholders byboth building platforms for future organic growth and by generating excellentreturns on capital. Current market conditions are fuelling our pipeline ofpotential acquisitions and to date in 2011, we have invested £194m in 11transactions. We expect to acquire further suitable businesses in the secondhalf of the year alongside our focus on integrating our recently acquiredcompanies into the Group.Share buybacks - opportunistic share buybacks help us to maintain an efficientcapital structure and minimise our long term cost of capital and we willcontinue to buy back shares if attractive opportunities arise. Shareholdersrenewed the Group's authority to purchase up to 10% of issued share capital atour AGM in May 2011. No share buybacks were undertaken in H1 2011.Interim dividend - the Board has declared an interim dividend of 7.2p perordinary share (2010: 6.6p), representing an increase of 9%. The dividend willbe payable on 12 October 2011 to shareholders on the register at the close ofbusiness on 2 September 2011.Capital expenditure - we aim to contain capital expenditure at or below 4% ofrevenue. During the period, we met this objective with net capital expenditureat 2.8% (H1 2010: 2.8%) of revenue and anticipate maintaining these levels forthe full year.
Return on capital employed - we deploy our capital carefully and focus on driving a healthy return on capital. Over the last 12 months, the post tax return on average capital employed (including debt) was 18.8% (12 months to 30 June 2010: 20.2%). This compares to our estimated weighted average cost of capital which is 7.8%.
Balance sheet gearing - in January 2011, we issued £101m of 8½ year privateplacement notes and in July 2011, we have issued a further £208m of 7 and 10year private placement notes. The proceeds of the new issues were used to repaymonies drawn down on the Group's revolving credit facility. Following theseissuances, we have £1,142m of private placement debt of which £123m maturesbetween June 2012 and August 2015 and the remainder then gradually maturesuntil 2021.
Generating profitable growth
We generate profitable growth by winning business from new and existing clientsprincipally in the UK, Ireland and Continental Europe and supplement this byacquiring businesses that broaden our skill base and extend our market reach.
Organic growth
Following a relatively subdued 2009 and 2010, we are seeing increasinglybuoyant conditions for outsourcing in 2011, as demonstrated by the significantyear on year increase in new contract awards and extensions. To date in 2011,we have secured 12 new contracts and extensions with an aggregate value of £1.1bn (H1 2010: 17 contracts totalling £523m). This includes life and pensionscontracts with Zurich Financial Services Group and MetLife, a contract toadminister vehicle tax and insurance evasion on road enforcement for the DVLAand a collaborative partnership with the London Borough of Lambeth:
MetLife: Selected to deliver an extended life and pensions administration contract worth approximately £149m over 10 years. Capita will provide customer servicing, policy administration, claims activity and related IT support to underpin the long-term UK growth strategy of MetLife Europe Ltd.
Teachers' Pension Scheme: A 7 year contract worth £80m to administer the Teachers' Pension Scheme (TPS), the second largest public sector pension scheme in England and Wales, with more than 1.6 million members. Capita has been administering TPS since 1996 and this will be our third consecutive contract.
Zurich Financial Services Group: Extension of the current contract to deliveroperational services for Zurich's UK life business operations (from 2015 to2026) and to support the development of Zurich Global Life's European andinternational administration hubs for a 15 year period. The contract extensionand expansion will generate approximately £570m in revenues to Capita.
Driver and Vehicle Licensing Agency (DVLA): Contract to provide a national Vehicle Excise Duty (VED) service that includes provision, at the DVLA's option, for a Continuous Insurance Enforcement (CIE) service. The five-year contract, with an option to extend for a further two years, has an estimated value of £100m.
London Borough of Lambeth: Appointed as preferred bidder to form acollaborative partnership to deliver a range of Council services including theexisting revenue collection administered by Capita and additional servicesincluding management of the Council's call centre operations, ICT supportservices and a benefits resilience service. For the core services, the contractis expected to be worth £60m over 10 years with the option to extend for afurther five years. The commissioning programme also allows for the opportunityto widen the scope of the contract up to £300m.Contracts worth between £10m-£50m: We have also secured 7 contracts with anaggregate value of £118m. This includes delivery of a shared services contractfor the London Boroughs of Bromley and Lewisham, IT outsourcing for EnglishHeritage, revenues administration for the London Borough of Brent, managedresourcing services regarding contractors for EDF Energy, an agreement with theNational Policing Improvement Agency (NPIA) to be one of 3 companies on theDigital Interviewing Framework, preferred supplier to deliver HR, payroll andrecruitment services for up to 12 NHS trusts in Mersey. In addition, in July2011 we have secured an extension to our existing contract with the DrivingStandards Agency for the provision of a full range of information servicesthroughout the DSA network.
Creating the fuel for organic growth
Following the 12 new contracts announced in H1 2011, we have rapidlyreplenished our bid pipeline which stands at £4.7bn today (February 2011: £4.7bn). This reflects the continued quality and quantity of businessopportunities across our target markets. In the private sector, opportunitiesare particularly strong in the life and pensions and financial servicesmarkets. The most active public sector markets are local government and defenceand we are also seeing opportunities emerge in the central government arena.The pipeline, which is currently made up of 30 bids with an average contractduration of 9 years, only includes bid situations in which Capita isshortlisted to the last 4 or fewer bidders and caps the largest bids at £500m.There are 4 bids in our pipeline where the potential client has publiclyannounced that Capita is on the shortlist: administration of army recruitmentfor the MOD, support for Edinburgh City Council, the rebid to administer TVlicensing for the BBC and a strategic partnership with NHS shared supportservices provider, Anglia Support Partnership (ASP).
Over the 5 years to 31 December 2015, we only have 2 material contracts (defined as having annual revenue in excess of 1% of 2010 turnover) due for rebid and these are both due in 2012 - the contract for TV licensing, where the re-bid process has commenced and we have been shortlisted, and the CRB contract. The National Strategies initiative ceased in March 2011 and the contract has therefore not been re-tendered.
Underpinning the pipeline is an active prospect list of opportunities which arethe fuel for the next tranche of potential outsourcing contracts, supported bya suspect list of early stage targets.
Stimulating growth through acquisition
The acquisition of small to medium sized companies that enhance ourcapabilities and take us into new and complementary areas has always played akey part in Capita's business model. For example, our entry into the privatesector in 2000 was via the purchase of IRG Plc, a share registration business,which we then expanded through organic growth and further acquisition creatingthe platform for our growth into the private sector and particularly the widerfinancial services market. From this initial entry point 11 years ago, ourprivate sector annual revenues are now approaching £1.5bn and contribute 50% ofthe Group's revenue, with leading positions established across a number ofareas, including life & pensions, insurance and financial services.
Our more recent acquisitions continue to enhance our client propositions and provide platforms for further growth. For example:
We continue to expand our financial services offering and, in June 2009,acquired the European loan administration, asset management administration andcommercial mortgage backed securities (CMBS) administration services of CapmarkFinancial Group Inc, creating Capita Asset Services. The business hassubsequently grown organically, securing the largest ever outsourcing mandatein Europe from the National Asset Management Agency (`NAMA') in November 2009,and also by further bolt-on acquisitions. In February 2011, Capita acquired thesecuritised commercial loan business of Barclays Capital Mortgage ServicingLimited ('BCMS'), owned by Barclays Capital making Capita Asset ServicesEurope's largest, independent, third-party commercial mortgage servicer,providing loan administration, facility agency, asset management and specialservicing to the banking and securitisation markets.We entered the business travel market in 2005 with the acquisition of LonsdaleTravel and expanded our capability with the acquisitions of Harry Weeks Travel& Leisure in 2007 and BSI in December 2010. Capita's end-to-end business traveloffering is now one of the top 5 travel businesses in the UK, allowing us tocompete for clients across the public and private sectors where we are seeingsignificant demand. In particular, central government is looking tosignificantly drive down travel and subsistence costs for its workforce and wewill be in a strong position to help achieve these aims.
We continue to see a healthy flow of acquisition opportunities that fit our growth strategy and are priced at attractive levels. To date in 2011, a total of £194m has been invested in 11 transactions across a number of our core capabilities and target markets, including customer services, health, consultancy and financial services, including:
Talis - provides management software and managed services to higher educationmarkets and local authorities. The acquisition will add valuable new expertiseand capabilities to Capita's existing products for the academic and publicsector.Barclays Capital Mortgage Servicing Limited (`BCMS') - a securitised commercialloan business that provides primary and special loan servicing for commercialreal estate finance transactions. The acquired business is being integratedinto Capita Asset Services, which is now Europe's largest, independent,third-party commercial mortgage servicer.Right Document Solutions - a provider of document consultancy and managed printservices through long term contracts with a range of public and private sectorclients. The acquisition builds upon Capita's existing design, bulk print anddocument management capabilities and provides a good strategic fit with anumber of our professional services businesses.Tribal (health & government divisions) - The acquisition adds key newcapabilities and scale to Capita's health and consulting businesses and bringsestablished relationships across a wider spectrum of the health and governmentmarkets.Call Centre Technology - a provider of voice telephony, applications andservices for customer contact centres, adding valuable expertise andcapabilities for new contracts and Capita's existing telephony services. CCTalready supplies services to a number of our contracts and businesses that haverecently been acquired by Capita, including First Assist and Capita SecureInformation Systems.
Team 24 - a specialist healthcare recruitment company which adds depth and breadth of expertise to Capita's recruitment business and to the range of services it provides to the NHS and wider healthcare market.
Ventura - a customer contact specialist managing 50 million customer contactseach year for a range of additional private and public sector clients. Venturawas the third party customer services management arm of Next plc and isparticularly strong in the private sector with clients including leadingtelecoms, utilities and retail companies. This acquisition provides us withgreater scale and flexibility and enhances our customer services outsourcingcapability and the potential to increase our private sector reach (acquisitioncompleted on 1 July 2011).We have a robust process for integrating acquisitions into the Group togenerate value and will be concentrating on bedding down these new acquisitionsin the second half of the year. We will continue to acquire further small tomedium-sized businesses in H2 2011 if they fit our strict acquisition criteriaand provide opportunities to enhance our propositions and create further value.
Market update
Industry analysts value the overall UK BPO market at £117bn per annum with only £7.8bn actually outsourced by the end of 2010, reflecting the enormous potential for growth. We continue to be the market leader with a 23% market share in 2010. Below we have highlighted some of the key drivers for outsourcing in a number of our public and private sector markets.
Public sector: Following the Spending Review in October 2010 which addressedthe potential for cost savings and efficiencies in the public sector, fiscalpressure continues to highlight the value that outsourcing can deliver. With anannual administration spend estimated at £16bn and 500,000 staff inadministrative roles in 2008/2009, the Government is committed to reducingspend in this area by around £6bn a year by 2014-2015. Similarly in localgovernment, where spending is to be cut by 7.1% per annum over the next 4years, we are working with existing and new clients to see how we can supportmore efficient, quality service models.The Government's recent Open Public Services White Paper confirms theGovernment's desire to reform public services to ensure equality of access tohigh-quality public services. It recognises that this reform will take time butthat significant steps forward can be taken now. It also recognises the need toopen these public services to a range of providers, engaging both large andsmaller organisations from the private and third sectors to help them toachieve their aims. The Government is also encouraging and exploring a spectrumof engagement models, such as joint ventures, mutuals and other employeeownership and cooperative models.We have an extensive track record of creating collaborative partnerships andworking together with local organisations, charities and small businesses todeliver the right outcomes for our clients and the communities they serve. Weare therefore well positioned to help create and participate in new models ofdelivering public services and to leverage our expertise, capability andinfrastructure to support government at both a central and local level.Some local authorities are already procuring in different ways to allow them toform partnerships capable of providing shared services for third partyproviders to the authority and to other local authorities and organisations toachieve considerable savings by working together to deliver common services andaddress local needs.For example, our contract with the London Borough of Lambeth includes provisionto significantly widen the scope of the contract and achieve furtherefficiencies by including other third party organisations. The collaborativepartnership can grow the services delivered over the life of the contract froman initial value of £60m to a maximum value of £300m. Our pensionadministration business, Capita Hartshead, has recently been awarded thecontract to act as the single provider to a Local Government Pension Scheme(LGPS) framework. The London Borough of Hammersmith & Fulham and the LondonBorough of Brent created the Framework Agreement and invited all 32 Londonboroughs to register `an interest' in consolidating their pensionadministration. 28 London boroughs are able to join the framework and withexpected savings of more than £1m for the two founding councils over the 6 yearcontract term, other boroughs have indicated strong interest in joining thescheme in the near future. We expect to see more of this type of activity as local authorities look at innovative ways of cutting administration costs and protecting frontline services.Private sector: Commercial organisations are also facing continued pressure tomaintain their competitive position by driving down operational costs withoutcompromising customer service. Organisations can clearly benefit from thehigher productivity and enhanced operational capabilities and flexible capacitythat an experienced outsourcing service partner can provide. Sales activity inthe first half of 2011 has picked up considerably in the private sector and weexpect to see decisions on bids start to flow through in the later part of theyear. We are particularly active in the UK life & pensions and wider financialservices markets and also in Continental Europe where new and existing clientsare exploring the alternative service delivery models. Several of our recentacquisitions bring with them high level relationships across a wide range ofprivate sector organisations beyond our existing market reach and we areexpanding these relationships. We are developing our nearshore and offshorecapability to meet the increasing demand for flexible delivery models fromprivate sector clients.
Developing our offshore/nearshore capability
Continental Europe: Capita's plans to create a multi-lingual shared servicescentre in Krakow, Poland, are well advanced. The business centre is scheduledto start delivering services to existing clients from Q4 2011 and will be fullyoperational from early 2012 ensuring that we are well positioned to respond toincreasing demand from new clients in Europe. We have already opened temporaryoffices and have signed heads of terms to lease a 500 seat capacity sharedservices centre in Krakow city centre. The business centre's primary languagewill be English; however, multilingual services will be offered as required byour clients.India: Capita's business centres in India continue to thrive and deliverquality, efficient services to our UK clients. 1,300 new people are joining usin Pune as part of the recent acquisition of the Ventura operations from Nextplc. We welcome them to Capita where they will continue to deliver services toformer Ventura clients and assist us in growing the business. We will bereviewing our property portfolio in India to bring together our valuableworkforces to share skills and expertise and optimise the use of resources andinfrastructure.
Outlook: strong drivers for future growth
Against a backdrop of trading conditions which have continued to bechallenging, the business has progressed in 2011 and we are now experiencingstrong major contract sales performance and high levels of acquisitionactivity. We have secured contracts and renewals totalling £1.1bn in the firsthalf of the year, more than double the value achieved in the first half of2010. This reflects the increasingly strong demand for outsourcing across thepublic and private sectors after a 2 year period of subdued sales activity.Following our recent contract wins, our bid pipeline has been rapidlyreplenished to its previous record level of £4.7bn of opportunities, withbuoyant activity in the local government and life and pensions markets andgrowing activity across central government. After strong sales outcomes in thefirst half, we expect decisions on a number of bids in the bid pipeline in Q3and Q4 this year.
Our pipeline of sales prospects, visibility of revenue from long term contracts and acquisition activity position us well for steady progress in 2011 and underpin strong growth prospects for 2012 and beyond.
-Ends-Half year condensed consolidated income statementfor the 6 months ended 30 June 2011 30 June 30 June 2011 2010 Non- Non- Underlying underlying Total Underlying underlying Total Notes £m £m £m £m £m £m Continuing operations: Revenue 3 1,399.9 - 1,399.9 1,361.1 - 1,361.1 Cost of sales (989.8) - (989.8) (971.7) - (971.7) Gross profit 410.1 - 410.1 389.4 - 389.4 Administrative (217.1) (33.8) (250.9) (211.0) (18.2) (229.2)expenses Operating profit 3 193.0 (33.8) 159.2 178.4 (18.2) 160.2 Finance costs (19.0) 1.2 (17.8) (15.3) (12.5) (27.8) Profit before tax 3 174.0 (32.6) 141.4 163.1 (30.7) 132.4 Income tax expense (40.9) 8.7 (32.2) (42.4) 8.2 (34.2) Profit for the 133.1 (23.9) 109.2 120.7 (22.5) 98.2period Attributable to: Equity holders of 133.1 (23.9) 109.2 120.7 (22.5) 98.2the parent Earnings per share 4 - basic 21.95p (3.94)p 18.01p 19.60p (3.65)p 15.95p - diluted 21.66p (3.89)p 17.77p 19.38p (3.62)p 15.76p
Half year condensed consolidated statement of comprehensive income for the 6 months ended 30 June 2011
30 June 30 June 2011 2010 £m £m £m £m Profit for the period 109.2 98.2
Other comprehensive income/(expense): Actuarial losses on defined benefit
pension schemes (1.2) (14.8) Income tax effect 0.1 4.1 (1.1) (10.7)
Exchange differences on translation of
foreign operations 4.0 (0.9)
(Losses)/gains on cash flow hedges (3.1) 6.6 Reclassification adjustments for gains included in the income statement (2.7) (0.1)
Income tax effect 1.6 (1.8) (4.2) 4.7
Other comprehensive expense for the
period net of tax (1.3) (6.9)
Total comprehensive income for the
period net of tax 107.9 91.3 Attributable to: Equity holders of the parent 107.9 91.3Half year condensed consolidated balance sheetat 30 June 2011 31 30 June December 2011 2010 £m £m Non-current assets Property, plant and equipment 295.0 291.4 Intangible assets 1,527.3 1,416.0 Financial assets 216.4 237.4 Trade and other receivables 57.7 66.8 2,096.4 2,011.6 Current assets Financial assets 5.0 6.0 Trade and other receivables 818.5 704.2 Cash 41.8 38.5 865.3 748.7 Total assets 2,961.7 2,760.3 Current liabilities Trade and other payables 934.3 855.2 Financial liabilities 149.0 114.1 Provisions 21.0 26.3 Income tax payable 59.0 42.9 1,163.3 1,038.5 Non-current liabilities Trade and other payables 69.9 72.2 Financial liabilities 1,126.2 1,066.4 Deferred taxation 21.1 31.8 Provisions 28.6 31.3 Employee benefits 22.8 24.6 1.268.6 1,226.3 Total liabilities 2,431.9 2,264.8 Net assets 529.8 495.5 Capital and reserves Issued share capital 13.0 13.0 Share premium 457.6 454.9 Employee benefit trust (0.5) (0.5) Capital redemption reserve 1.8 1.8 Foreign currency translation 9.4 5.4 Net unrealised gains reserve 4.2 8.4 Retained earnings 44.3 12.5 Equity shareholders' funds 529.8 495.5
Included in aggregate financial liabilities is an amount of £1,092.6m (31December 2010: £1,016.4m) which represents the fair value of the Group's bondswhich should be considered in conjunction with the aggregate value of currencyand interest rate swaps of £179.8m (31 December 2010: £194.3m) included infinancial assets and £21.5m (31 December 2010: £11.4m) included in financialliabilities. Consequently, this gives an effective liability of £934.3m (31December 2010: £833.5m).
Half year condensed consolidated statement of changes in equity for the 6 months ended 30 June 2011
Foreign Net Employee Capital currency unrealised Share Share benefit redemption Retained
translation gains Total
capital premium trust reserve earnings reserve reserve equity £m £m £m £m £m £m £m £m At 1 January 2010 12.9 435.2 (0.2) 1.8 4.4 4.3 7.8 466.2 Profit for the period - - - - 98.2 - - 98.2 Other comprehensive - - - - (10.7) (0.9) 4.7 (6.9)income/(expense) Total comprehensive - - - - 87.5 (0.9) 4.7 91.3income/(expense) for the period Share based payment - - - - 4.9 - - 4.9 Purchase of own shares - - (0.2) - (89.3) - - (89.5) Share transaction costs - - - - (0.5) - - (0.5) Income tax deduction on - - - - 0.7 - - 0.7exercise of share options in excess of share based payments Deferred income tax - - - - (4.1) - - (4.1)relating to share based payments Shares issued 0.1 15.8 - - - - - 15.9 Equity dividends paid - - - - (69.1) - - (69.1) At 30 June 2010 13.0 451.0 (0.4) 1.8 (65.5) 3.4 12.5 415.8 At 1 January 2011 13.0 454.9 (0.5) 1.8 12.5 5.4 8.4 495.5 Profit for the period - - - - 109.2 - - 109.2 Other comprehensive - - - - (1.1) 4.0 (4.2) (1.3)income/(expense) Total comprehensive - - - - 108.1 4.0 (4.2) 107.9income/(expense) for the period Share based payment - - - - 5.6 - - 5.6 Deferred income tax - - - - (0.7) - - (0.7)relating to share based payments Shares issued - 2.7 - - - - - 2.7 Equity dividends paid - - - - (81.2) - - (81.2) At 30 June 2011 13.0 457.6 (0.5) 1.8 44.3 9.4 4.2 529.8
Half year condensed consolidated cash flow statement for the 6 months ended 30 June 2011
30 June 30 June 2011 2010 Notes £m £m
Cash flows from operating activities Operating profit on continuing activities before 159.2 160.2interest and taxation Depreciation 34.0 36.4
Amortisation of intangible assets 28.3
17.0 Share based payment expense 5.6 4.9 Pensions (6.0) (5.0) Movement in provisions (8.8) 0.8
Movement in receivables and payables (32.7)
2.0
Cash generated from operations 179.6 216.3 Income tax paid (26.5) (23.2) Net interest paid (17.7) (15.3) Cash generated from operations after income tax and 135.4 177.8interest
Net cash used in investing activities Purchase of property, plant and equipment (38.7)
(38.8)
Proceeds from sale of property, plant and equipment 0.3
1.3 Investment loan 0.5 0.2 Acquisition of subsidiary undertakings and businesses (120.4)
(104.6)
Cash acquired with subsidiary undertakings 2.0
1.1
Debt repaid on acquisition of subsidiary undertakings (16.9)
- (173.2) (140.8)
Net cash used in financing activities Issue of ordinary share capital 2.7
15.7 Share buybacks - (89.3) Share transaction costs - (0.5) Dividends paid 5 (81.2) (69.1) Capital element of finance lease rental payments 7 (0.3)
(0.3)
Asset based securitised financing arrangement 7 (7.8) (5.3) Instalment debtor movement 9.4 6.4 Proceeds on issue of debt 7 100.8 253.5 Financing arrangement costs 7 (0.1) (0.7) Repayment of loan notes and long term debt 7 - (217.1) 23.5 (106.7) Net decrease in cash and cash equivalents (14.3)
(69.7)
Cash and cash equivalents at the beginning of the (60.3) 181.5period Cash and cash equivalents at 30 June (74.6)
111.8
Cash and cash equivalents comprise:
Overdraft 7 (116.4) - Cash at bank and in hand 7 41.8 111.8 Total (74.6) 111.8
Notes to the half year condensed consolidated financial statements for the 6 months ended 30 June 2011
1 Corporate information
The Capita Group Plc is a public limited company incorporated in England andWales whose shares are publicly traded. The half year condensed consolidatedfinancial statements of the Company and its subsidiaries ('the Group') for the6 months ended 30 June 2011 were authorised for issue in accordance with aresolution of the Directors on 20 July 2011.
2 Basis of preparation and accounting policies
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months ended 30 June 2011 have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Services Authority and with IAS 34 Interim Financial Reporting.
The half year condensed consolidated financial statements do not include allthe information and disclosures required in the annual financial statements andshould be read in conjunction with the Group's annual financial statements asat 31 December 2010, which have been prepared in accordance with IFRSs asadopted by the European Union.This condensed consolidated half year financial information does not comprisestatutory accounts within the meaning of Section 434 of the Companies Act 2006.Statutory accounts for the year ended 31 December 2010 were approved by theBoard of Directors on 23 February 2011 and delivered to the Registrar ofCompanies. The report of the auditors on those accounts was unqualified, didnot contain an emphasis of matter paragraph and did not contain any statementunder Section 498 of the Companies Act 2006.
The half year condensed consolidated financial statements for the 6 months ended 30 June 2011 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.
The Group has considerable financial resources together with long termcontracts with a wide range of public and private sector clients and suppliers.As a consequence, the Directors believe the Group is well placed to manage itsbusiness risks successfully.After making enquiries and in accordance with the FRC's "Going Concern andLiquidity Risk: Guidance for Directors of UK Companies 2009", the Directorshave a reasonable expectation that the Group has adequate resources to continuein operational existence for the foreseeable future. Accordingly, they continueto adopt the going concern basis in preparing the half year condensedconsolidated financial statements.
(b) Significant accounting policies
The accounting policies adopted in preparation of the half year condensedconsolidated financial statements are consistent with those followed in thepreparation of the Group's annual financial statements for the year ended 31December 2010, except for the adoption of the new standards and interpretationsas of 1 January 2011, noted below.IAS 24 Related Party Transactions (Revised) The revised standard clarifies thedefinitions of a related party. The new definitions emphasise a symmetricalview of related party relationships as well as clarifying in whichcircumstances persons and key management personnel affect the related partyrelationships of an entity. Secondly, the revised standard introduces a partialexemption from the general related party disclosure requirements forgovernment-related entities. The adoption of this revised standard did not haveany impact on the financial position or performance of the Group.IAS 32 Financial Instruments: Presentation - Classification of Rights Issues(Amendment) The amendment alters the definition of a financial liability toenable parties to classify rights issues (and certain options or warrants) asequity instruments. The amendment is applicable if the rights are given prorata to all of the existing owners of the same class of an entity'snon-derivative equity instruments, to acquire a fixed number of the entity'sown equity instruments for a fixed amount in any currency. The adoption of thisamendment did not have any impact on the financial position or performance ofthe Group.Improvements to IFRSs In May 2010 the International Accounting Standards Boardissued its third omnibus of amendments to its standards, primarily with a viewto removing inconsistencies and clarifying wording. The adoption of theseamendments, which are effective from 1 January 2011, did not have any impact onthe financial position or performance of the Group although in some cases theyresulted in enhanced or additional disclosures.IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) The amendmentprovides further guidance on assessing the recoverable amount of a net pensionasset. The amendment permits a prepayment of a minimum funding requirement byan entity to be recognised as a pension asset. The adoption of thisinterpretation had no effect on the financial position or performance of theGroup.IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Thisinterpretation clarifies that equity instruments issued to a creditor toextinguish a financial liability are consideration in accordance with paragraph41 of IAS 39. The equity instruments issued are measured at fair value (unlessthis cannot be reliably measured, in which case they are measured at the fairvalue of the liability extinguished) with gain or loss being immediatelyrecognised in profit or loss. The adoption of this interpretation had no effecton the financial position or performance of the Group.
3 Segmental information
The following tables present revenue and profit information regarding the Group's operating segments for the six months ended 30 June 2011 and 2010 respectively. The comparative figures have been restated due to a reorganisation of the Group's business divisions during the period. The Directors decided that this was necessary to better manage the growth in the business and to enhance service provision across the Group.
6 months ended 30 June 2011 2010 Total Inter- External Total Inter- External revenue segment revenue revenue segment revenue revenue revenue Analysis of segment £m £m £m £m £m £mrevenue Investor & Banking 98.5 (9.7) 88.8 90.8 (10.0) 80.8Services General Insurance 97.0 - 97.0 89.7 - 89.7 Life & Pensions Services 312.0 (33.9) 278.1 311.9 (34.6) 277.3 Integrated Services 114.7 (7.5) 107.2 144.8 (7.6) 137.2 Professional Services 258.3 (55.1) 203.2 298.9 (56.3) 242.6 IT Services & Consulting 356.3 (68.2) 288.1 279.5 (69.8) 209.7 Health Services 77.9 (10.5) 67.4 42.2 (10.7) 31.5 Property Services 139.5 (14.1) 125.4 160.6 (14.4) 146.2 Workforce Services 157.9 (13.2) 144.7 159.6 (13.5) 146.1 Total segments 1,612.1 (212.2) 1,399.9 1,578.0 (216.9) 1,361.1Analysis of segment profit 6 months 6 months to 30 to 30 June June 2011 2010 £m £m
Investor & Banking Services 21.6
17.7 General Insurance 12.8 10.2 Life & Pensions Services 26.4 33.2 Integrated Services 17.2 22.3 Professional Services 49.3 41.0 IT Services & Consulting 29.0 21.2 Health Services 11.6 4.1 Property Services 8.6 11.9 Workforce Services 16.5 16.8 Total underlying segment profit 193.0
178.4
Net finance costs (before callable swaps) (19.0) (15.3) Underlying profit before tax 174.0 163.1 Intangible amortisation (28.3) (17.0) Acquisition costs (5.5) (1.2) Callable swaps 1.2 (12.5) Profit before tax 141.4 132.44 Earnings per share
The average number of shares in issue during the period was 606.4m (30 June2010: 615.7m). The diluted earnings per share have been calculated on theprofit for the period of £109.2m (30 June 2010: £98.2m) and an average dilutednumber of shares of 614.4m (30 June 2010: 622.9m). As at 20 July 2011, therewere 608.2m shares in issue.
5 Dividends
The interim dividend of 7.2p (2010: 6.6p) per share (not recognised as aliability at 30 June 2011) will be payable on 12 October 2011 to ordinaryshareholders on the register at the close of business on 2 September 2011. Thedividend disclosed in the cash flow statement represents the final ordinarydividend of 13.4p (2010: 11.2p) per share as proposed in the 31 December 2010financial statements and approved at the Group's AGM (not recognised as aliability at 31 December 2010).
6 Business combinations
The Group has made a number of acquisitions in the period, which are shown inaggregate below: Provisional fair value to Group £m Property, plant and equipment 0.7 Intangible assets 20.0 Deferred tax 1.0 Debtors 23.9 Cash and cash equivalents 2.0 Creditors (22.1) Provisions (0.3) Long term debt (16.9) Corporation tax (0.6) Net assets 7.7 Goodwill arising on acquisition 117.5 125.2 Discharged by: Cash 112.3 Contingent consideration accrued 12.9 125.2The full exercise to determine the fair value of intangible assets acquired isstill to be completed, thus the above numbers are provisional; this exercisewill be finalised for the full year financial statements. Further cashconsideration was paid in respect of previous acquisitions of £2.6m.The performance of these acquisitions post their inclusion in the Group cannotbe ascertained as they have been fully integrated within existing offerings.7 Movement in net debt Net debt Net debt at Non-cash at 1 January Acquisitions Cash flow flow 30 June 2011 in 2011 movements movements 2011 £m £m £m £m £m
Cash and cash equivalents 38.5 - 3.3
- 41.8 Overdraft (98.8) - (17.6) - (116.4) (60.3) - (14.3) - (74.6) Loan notes (2.3) - - - (2.3) Bonds* (1,016.4) - (100.7) 24.5 (1,092.6) Long term debt - (16.9) 16.9 - - Currency swaps in relation to US 178.5 - - (24.8) 153.7$ denominated bonds* Interest rate swaps in relation 4.4 - - 0.2 4.6to GBP denominated bonds* Finance leases (2.4) - 0.3 - (2.1) Sub-total net debt (898.5) (16.9) (97.8) (0.1) (1,013.3) Callable swaps (37.5) - - 1.2 (36.3)
Asset based securitised finance (11.7) - 7.8
- (3.9) (947.7) (16.9) (90.0) 1.1 (1,053.5)On 20 January 2011 the Group issued £50m and US$80m of bonds with a maturitydate of July 2019. Subsequent to the period end, on 19 July 2011 the Groupissued £35m and US$276m of bonds, of which US$40m mature in July 2018 and theremainder in July 2021.The aggregate bond fair value above of £1,092.6m (30 June 2010: £1,059.8m)includes the GBP value of the US$ denominated bonds at 30 June 2011 (30 June2010). To remove the Group's exposure to currency fluctuations it has enteredinto currency swaps which effectively hedge the movement in the underlying bondfair value. The interest rate swap is being used to hedge the exposure tochanges in the fair value of GBP denominated bonds.
* The sum of these items held at fair value equates to the underlying value of the Group's bond debt of £934.3m (30 June 2010: £833.7m).
7 Movement in net debt (continued)
Net debt Net debt at 1 Non-cash at January Acquisitions Cash flow flow 30 June 2010 in 2010 movements movements 2010 £m £m £m £m £m Cash and cash equivalents 181.5 - (69.7) - 111.8 Loan notes (2.6) - 0.7 - (1.9) Bonds* (720.5) - (252.8) (86.5) (1,059.8) Term debt (198.0) - 200.0 (2.0)
- Factored debt acquired - (13.0) 13.0 - - Currency swaps in 136.0 - - 85.2 221.2 relation to US $ denominated bonds* Interest rate swaps in 3.3 - - 1.6 4.9 relation to GBP denominated bonds* Long term debt (2.8) (0.6) 3.4 - - Finance leases (1.4) (0.3) 0.3 (0.4) (1.8) Sub-total net debt (604.5) (13.9) (105.1) (2.1) (725.6) Callable swaps (30.9) - - (12.5) (43.4) Asset based securitised (17.1) - 5.3 - (11.8) finance (652.5) (13.9) (99.8) (14.6) (780.8) 8 Capital commitments
At 30 June 2011, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment amounted to
£3.2m (2010: £8.2m).
9 Related party transactions
Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. The only related party transactions requiring disclosure are details ofkey management personnel compensation (including Directors of the parentcompany). These details are set out in the table below.Compensation of key management personnel (including Directors of parentcompany) 6 months 6 months 30 June 30 June 2011 2010 £m £m
Short term employment benefits 2.0
1.2 Post employment benefits 0.1 0.1 Share based payments 2.5 2.8 4.6 4.1
Gains on share options exercised in the period by key management personnel totalled £4.9m (2010: £4.7m).
10 Update on Arch Cru provision
On 21 June 2011, Capita Financial Managers Limited ("CFM") agreed with the FSAto contribute and administer a package for investors holding shares in subfunds of Arch Cru investments. Under the terms of the agreement, CFM along withthe depositaries to the funds will voluntarily contribute to the establishmentof a £54m payment scheme, which, when combined with payments already made andthe remaining assets of the funds, will return an estimated 70% of the netasset value as published at the date of suspension. CFM's contributions to thispayment scheme were already provided for within the 2009 accounts, and nofurther provisions are anticipated to be required.
11 Contingent liabilities
The Group has provided, through the normal course of its business, performance bonds and bank guarantees of £56.4m (31 December 2010: £69.4m).
Further consideration may be due, dependent on certain performance criteria, onacquisitions completed by the Group since 2009 up to a maximum of £55.1m. TheGroup expects that these payments, if ultimately due, will be satisfied by theend of 2014.
Statement of Directors' responsibilities
The Directors confirm, to the best of their knowledge, that this condensed setof financial statements has been prepared in accordance with IAS 34 as adoptedby the European Union and that the Half Year Management Report includes a fairreview of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of theDisclosure and Transparency Rules of the United Kingdom Financial ServicesAuthority.
The names and functions of the Directors of The Capita Group Plc are as listed in the Group's Annual Report for 2010. A list of current Directors is maintained on the Group website: www.capita.co.uk.
By order of the Board
P R M Pindar G M HurstChief Executive Group Finance Director20 July 2011
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