23rd Jul 2009 07:00
23 July 2009 THE CAPITA GROUP PLC Half year results for the 6 months to 30 June 2009 STRONG PERFORMANCE Financial highlights Half year 2009 Half year 2008 Change Turnover GBP1,311m GBP1,182m +11% Underlying operating profit* GBP159.6m GBP140.6m
+14%
Underlying profit before tax* GBP141.7m GBP120.2m
+18%
Underlying earnings per share* 16.92p 14.46p +17%
Interim dividend per share 5.6p 4.8p +17%
*excludes intangible amortisation of 9.9m (2008: 4.9m) and the non-cash impact of mark to market positive movement on callable swaps of 3.0m (2008: Nil)
Key points
* Solid organic growth with major contracts secured up 30% to 814m (6 months
to 30 June 2008: 626m) * Operating margin increased to 12.2% (6 months to 30 June 2008: 11.9%)
* Strong free cash flow - up 20% to 122m (6 months to June 2008: 102m)
* 17% increase in half year dividend to 5.6p per share
* Demand for outsourcing remains buoyant. Bid pipeline of 3bn (Feb 2009:
3.1bn)
* 9 acquisitions completed to date in 2009 at a cost of 92.7m.
Paul Pindar, Chief Executive of The Capita Group Plc, commented:
"Capita has made good progress in 2009. The majority of our businesses acrossthe Group have performed well and we have secured new and renewed majorcontracts worth 814m in the first 6 months of the year. Our businesses arefocused on operating at optimum efficiency and harnessing our extensive scalebenefits to enable continued successful growth.We remain confident regarding our prospects. Our operational performance isconsistently strong providing an excellent background for further expansion.Demand for outsourcing across our chosen markets continues to be buoyant,generating an encouraging volume of opportunities. Our successes in 2008 andprogress in the first half of 2009 position us well for a successful year. Weare now focused on building a strong platform for continued growth in 2010
andbeyond."For further information:The Capita Group Plc Tel: 020 7799 1525
Paul Pindar, Chief Executive Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 020 7654 2399 Financial Dynamics Tel: 020 7269 7121 Andrew Lorenz The Capita Group Plc Half year results for the 6 months to 30 June 2009
Capita, the UK's leading business process outsourcing ("BPO") and professional services company, has made good progress in 2009. The majority of our businesses across the Group have performed well and we have secured new and renewed major contracts worth 814m in the first 6 months of the year.
In the 6 months ended 30 June 2009, turnover increased by 11% to 1,311m (6months to 30 June 2008: 1,182m). Of this increase, 8% growth was organic and3% was generated through acquisitions. Underlying operating profit* rose by 14%to 159.6m (2008: 140.6m) and underlying profit before taxation* increased by18% to 141.7m (2008: 120.2m). Underlying earnings per share* grew by 17% to16.92p (2008: 14.46p).
Underlying operating cash flow** rose by 14% to 198m (2008: 174m). We have increased our interim dividend by 17% and we propose to pay 5.6p per share.
*underlying profit excludes intangible amortisation of 9.9m (2008: 4.9m) andthe non-cash impact of mark to market positive movement on callable swaps of 3.0m (2008: Nil)
**underlying cash flow excludes an exceptional additional pension contribution to the Group Final Salary Pension Scheme of 40m.
Building value for shareholders
To ensure we build value for shareholders on a consistent, long term basis, we focus on a number of additional key financial measures including:
* Margin - our focus remains on generating steadily improving operating
margin. In the period, operating margin (before amortisation) was 12.2%
(2008: 11.9%). This reflects the added value of the services we deliver to
clients, the efficient use of our operational infrastructure and the
benefits of our scale. These factors underpin our confidence in continuing
to deliver improving margin for the foreseeable future. * Cash flow - the strength of our business model is reflected in our excellent underlying cash flow, with 198m (2008: 174m) generated by operations in the period, representing an operating profit to cash conversion rate of 124% (2008: 124%). Our underlying free cash flow increased by 20% to 122m (2008: 102m).
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. To date in 2009, we have spent 92.7m
on 9 acquisitions. We will continue with our strategy of acquiring small to
medium-sized businesses which are priced at a level which add value for our
shareholders. Current market conditions are fuelling our pipeline of potential acquisitions and we expect to be active in acquiring suitable businesses in the second half of the year. We remain highly selective. * Share buybacks - opportunistic share buybacks help us to maintain an
efficient capital structure and minimise our long term cost of capital. In
the period to 30 June 2009, the Group has not bought back any shares as we
have concentrated on the flow of interesting acquisition opportunities. We
will however continue to buy back shares if and when opportunities arise.
Shareholders renewed the Group's authority to purchase up to 10% of issued
share capital at our AGM in May 2009.
* Interim dividend - the Board has declared an interim dividend of 5.6p per
ordinary share (2008: 4.8p), representing an increase of 17%. The dividend
will be payable on 12 October 2009 to shareholders on the register at the
close of business on 4 September 2009.
* Capital expenditure - we aim to contain capital expenditure at or below 4%
of revenue. During the period, we met this objective with net capital expenditure at 2.7% (2008: 2.8%) of revenue. * Return on capital employed - we focus on driving a steadily increasing
return on capital. Over the last 12 months, the post tax return on average
capital employed (including debt) has improved to 20.4% (12 months to 30 June 2008: 20.0%). This compares to our estimated weighted average cost of capital which is 7.9%.
Additional financial information
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.Debt profile - We aim to maintain both a conservative balance sheet andsubstantial borrowing headroom. Following repayment of 100m in June 2009, wehave 579m of private placement debt which matures between 2012 and 2018.Alongside this, we have a substantially unused revolving credit facility of
245m.Our marketplace
We remain the clear leader in the overall UK BPO market which continues to generate strong growth opportunities. Industry analysts estimate the total potential market at 94.2bn per annum with only 6% of this market outsourced in 2008 ( 5.6bn).*
We are seeing high levels of interest across both the private and publicsectors as organisations seek alternative and more efficient service deliverymodels. Fiscal pressure across government in particular is generating a strongfocus on efficiency. There is considerable potential for private and thirdsector organisations to play a larger role in delivering high quality, costeffective services and to help address the 13bn of efficiency savings - acrossback office operations, IT and collaborative procurement - identified in theGovernment's recent Operational Efficiency Programme.Across our bid pipeline, our most active markets remain local government, lifeand pensions and the wider financial sector. Additionally, there are a numberof interesting central government, health and defence opportunities. Sittingbehind our bid pipeline are buoyant prospects and suspects lists, the fuel forpotential outsourcing contracts in future years.
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: Each of our businesses employs sales teams focused upon securing growth from both existing and new customers. Solid performance has been achieved across the Group in the first half of the year, particularly in our life and pensions, local government, resourcing and IT services businesses.
*Source: Ovum 2008
Our centrally managed Major Sales Team pursues complex, long term contractsworth over 10m which require a wide range of the Group's skills and generatehigh quality, recurring revenues. Securing and renewing major contracts remainsan important component of our growth.Our sales performance to date in 2009 has been good. In the first 6 months, wehave secured 10 new and renewed major contracts with a total value of 814m (6months to 2008: 626m). These include:
* AXA Sun Life - to administer 3.2 million life and pensions policies. The
contract, worth 523m over 15 years, started on 1 June with 1,150 employees
in the UK transferring to Capita. We are seeing strong levels of service in
the first few weeks of service delivery. On 1 September 2009, 550 people
are due to transfer from AXA in India to Capita, following our acquisition
of part of the AXA business providing servicing to AXA Sun Life business
from India.
* Learning and Skills Council (LSC) - to manage the administration of a range
of allowances to support learners, including the Education Maintenance
Allowance (EMA) and the Adult Learning Grant (ALG). The contract, worth
68m over 4 years until 2013, with an option to extend for a further 2
years, follows on from our announcement in November 2008 that Capita was to
take over the service with immediate effect, after the ending of the LSC's
contract with its previous provider.
* Office for National Statistics (ONS) - to recruit and train all the
temporary ONS workers who will work as field staff for the 2011 Census of
Population and Housing in England and Wales, and to administer their pay.
The contract will be 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, one where there
will be less reliance on centrally delivered support arrangements and
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. Capita will also be well
placed to respond to the proposed new support arrangements from 2011
onwards.
In addition we have won major contracts and renewals with Breckland District Council, Charnwood Borough Council, eircom, Threadneedle and the Driving Standards Agency.
The first half of the year has seen a healthy level of sales activity resultingin the contract wins listed above. Our bid pipeline has been activelyreplenished and reflects the continued quality of business opportunities acrossour markets. The pipeline currently stands at 3bn (February 2009: 3.1bn) andonly includes bid situations in which Capita is shortlisted and caps thelargest bids at 500m. Behind this is an active prospect list of opportunitieswhich are yet to reach a shortlist stage.
We now have no material rebids of our contracts (defined as having annual revenue in excess of 1% of 2008 turnover) until 2012.
Stimulating growth through acquisition: A key element of our growth is theacquisition of small to medium sized companies which extend our presence inexisting marketplaces or provide a footprint in a new market. We havesubstantial experience of integrating acquired businesses and achievingsynergies with our existing operations. In the current climate we are seeingmany interesting opportunities, particularly in financial services and IT. Todate in 2009, we have acquired 9 businesses for a total consideration of 92.7mincluding:
* 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. We are in
the process of integrating Hero with our existing Insurance Distribution
businesses (BDML, Lancaster Insurance and Thornside) and will achieve significant efficiency improvements through cost management and driving through synergy savings. * Capmark Services Europe - acquired for 10m in June, Capmark provides administration services for CMBS securitisations, 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
GBP36m in June, which offers outsourcing, managed services and network
infrastructure solutions to external clients. The acquisition significantly
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.
IBS OPENSystems: At the beginning of June, the Competition Commission reportedthat Capita's acquisition of IBS OPENSystems did not raise competition issuesin the market for social housing software systems, but that it would result ina substantial lessening of competition in the market for local authorityrevenues and benefits software systems. The Competition Commission concludedthat Capita should divest the Revenue and Benefits business unit of IBS, butsaid that if this partial divestiture were not achieved within a reasonableperiod, it would review the position. Discussions with interested parties areat an advanced stage and the Competition Commission has agreed with Capita aconsultation draft of the divestiture undertakings to be provided by Capita. The draft will be open to public comment until 28 July 2009, after which Capitaanticipates gaining all approvals required to complete the partialdivestiture.
Continued growth and strong operational performance across our businesses
Our life and pensions operation continues to grow strongly. We now administer25 million policies in total, an estimated 22% of all policies in force in theUK. We have considerable scale enabling us to realise our plans for significantsynergies across our operations. We are aiming to achieve greater efficienciesthrough establishing a common IT infrastructure across our operations and weare currently rolling out the latest version of our main life and pensionsadministration platform, Elixir. The life and pensions market is presenting astrong pipeline of bid opportunities as potential clients come under increasingpressure to control costs and to implement new regulatory requirements, such asthose following the FSA's Retail Distribution Review. We are well positioned totake advantage of these opportunities and to build upon our leading position inthis sector.Our operations in India are growing swiftly. In September, we begin operatingfrom an additional site in Bangalore which, along with our Pune site, willsupport our AXA contract. It is our aim to have 3,700 full time employeesacross our 5 sites in India by the end of the year. This will add further scaleto our offshore operations and provide us with a compelling offer for thebenefit of our clients as they seek further cost savings and efficiencies.We continue to win and successfully develop partnerships across the localauthority market where the demands for greater efficiency across publicservices act as a driver for outsourcing. Our contract with Sheffield CityCouncil, worth over 200m over 7 years, commenced on 5 January following asmooth transition of employees and operations. Our newest contract withBreckland Council in Norfolk, valued at 40m over 15 years, to provide planningand building control services to the Authority, commenced at the end of June.The deal, involving the transfer of 50 of the Council's planning and buildingcontrol employees to Capita Symonds, is expected to generate substantialsavings to Breckland over the course of the partnership. Capita will build onthe operation based in East Dereham, Norfolk, to create a shared services hubable to offer planning and building control services to other Local Authoritiesacross East Anglia and the South East of England.Capita Children's Services, our education software services business, hasperformed very strongly due to the successful introduction of innovativeproducts to support the changing requirements of education establishments,teachers, students and parents. The DCSF's requirement for schools to provideinformation online to parents and carers by 2010 (secondary schools) and 2012(primary schools) is helping to drive sales of our SIMS Learning Gatewayproduct that provides parents with data on their children, includingattendance, assessment and behaviour. With students increasingly receivingeducation across a number of learning establishments, our award winning SIMSPartnership Xchange product allows data to be securely shared across alllocations.Our property and infrastructure consultancy, Capita Symonds, is tradingsteadily in a challenging market with strong long term partnerships in localgovernment, infrastructure and the wider public sector. In June, the companywon a contract to design the Royal Oak Portal on the 15.9bn Crossrail scheme.The contract was the first to be awarded by Crossrail via the Crossrail DesignConsultant Framework, the contracting mechanism being used to deliver thedesigns for all infrastructure in the central tunnel section of the scheme.Capita Symonds won a place on the framework late last year for 3 lots -tunnels, portals and central stations. Due to open in 2017, Crossrail will bethe largest transport scheme seen in London and the South East for 50 years, aswell as being the biggest construction project in Europe.Against a background of continued market weakness, trading across our financialservices businesses is mixed. Our trust administration business is performingwell and Capita Registrars has made good progress in the first half of theyear. Our Registration business won 17 new contracts this year, a record numbersince acquiring the business in 2000, including contracts with Stagecoach Plc,Northern Foods Plc and most notably Standard Life Plc which has in excess of1.5 million shareholders. Capita Registrars has also benefited from asignificant number of equity fund raising transactions during the first half ofthe year, supporting M&A activity, rights issues and scrip dividends. We arecurrently upgrading the IT systems across our financial services businesses inorder both to introduce greater efficiencies and to provide a materiallyenhanced customer experience. This development is progressing well.Capita's collectives and investment trust administration business, which hasannual revenues of approximately 50m, is however feeling the effects of thelower valuations across the stock market as our fees are connected to the valueof funds under administration. Concurrently, we are finalising the upgrade ofour IT infrastructure and seeing a sharply rising cost of regulatorycompliance. We are also involved in reviewing and resolving the suspension, dueto a lack of liquidity, of 2 OEIC funds we administer. This has required extraresources and is expected to continue adversely impacting this business in thesecond half.
We remain confident that the areas across the Group that could potentially be affected by the current weaker economy represent less than 10% of our Group revenues and this risk has been factored into our business plans for 2009.
Future prospects
We remain confident regarding our prospects. Our businesses are focused onoperating at optimum efficiency and harnessing our extensive scale benefits toenable continued successful growth. Demand for outsourcing across our chosenmarkets continues to be buoyant, generating an encouraging volume ofopportunities. Our operational performance is consistently strong providing anexcellent background for further expansion.
Our successes in 2008 and progress in the first half of 2009 position us well for a successful year. We are now focused on building a strong platform for continued growth in 2010 and beyond.
-Ends-
The Capita Group Plc is the UK's leading provider of BPO and integrated professional support service solutions. With 36,000 people at more than 300 sites, including 59 business centres across the UK, Ireland, the Channel Islands and India, the Group uses its expertise, infrastructure and scale benefits to transform its clients' services, driving down costs and adding value. Capita is quoted on the London Stock Exchange (CPI.L), and is a constituent of the FTSE100 with revenues for 2008 of 2,441m.
Further information on The Capita Group Plc can be found at: http://www.capita.co.uk
Half year statement
Half year condensed consolidated income statement
for the 6 months ended 30 June 2009
30 June 30 June 2009 2008 Underlying Amortisation Total Underlying Amortisation Total and callable and callable swaps swaps Notes GBPm GBPm GBPm GBPm GBPm GBPm Continuing operations: Revenue 3 1,310.7 - 1,310.7 1,182.5 - 1,182.5 Cost of sales 944.0 - 944.0 852.4 - 852.4 Gross profit 366.7 - 366.7 330.1 - 330.1 Administrative 207.1 9.9 217.0 189.5 4.9 194.4expenses Operating 3 159.6 (9.9) 149.7 140.6 (4.9) 135.7profit Finance costs (17.9) 3.0 (14.9) (20.2) - (20.2) Investment - - - (0.2) - (0.2)loss Profit before 141.7 (6.9) 134.8 120.2 (4.9) 115.3tax Income tax (38.0) 1.9 (36.1) (32.5) 1.4 (31.1)expense Profit for the 103.7 (5.0) 98.7 87.7 (3.5) 84.2period Attributable to: Equity holders 103.7 (5.0) 98.7 87.7 (3.5) 84.2of the parent Earnings per 4 share - basic 16.92p (0.81)p 16.11p 14.46p (0.58)p 13.88p - diluted 16.74p (0.80)p 15.94p 14.29p (0.57)p 13.72p
Half year condensed consolidated statement of comprehensive income
for the 6 months ended 30 June 2009
30 June 30 June 2009 2008 GBPm GBPm Profit for the period 98.7 84.2
Other comprehensive income/(expense): Actuarial losses on defined benefit pension (8.3) (0.5)schemes
Exchange differences on translation of foreign (3.0)
0.8operations Losses on cash flow hedges (26.0) (21.8)
Tax relating to components of other comprehensive 2.7
7.5income/(expense) Other comprehensive expense for the period net of (34.6) (14.0)tax
Total comprehensive income for the period net of 64.1
70.2tax Attributable to: Equity holders of the parent 64.1 70.2
Half year condensed consolidated balance sheet
at 30 June 2009 30 June 31 December 2009 2008 GBPm GBPm Non-current assets Property, plant and equipment 245.2 238.3 Intangible assets 992.3 907.0 Financial assets 166.8 332.4 Trade and other receivables 9.6 8.1 Employee benefits 34.7 - Deferred taxation - 3.0 1,448.6 1,488.8 Current assets Financial assets 0.5 5.2 Trade and other receivables 664.2 583.6 Cash - 86.7 664.7 675.5 Total assets 2,113.3 2,164.3 Current liabilities Trade and other payables 770.1 690.4 Financial liabilities 89.7 116.5 Provisions 3.9 2.3 Income tax payable 44.2 40.4 907.9 849.6 Non-current liabilities Trade and other payables 13.0 9.6 Financial liabilities 741.6 882.7 Provisions 0.3 1.0 Deferred taxation 6.6 - Employee benefits 23.0 24.5 784.5 917.8 Total liabilities 1,692.4 1,767.4 Net assets 420.9 396.9 Capital and reserves Issued share capital 12.9 12.8 Share premium 423.8 410.4 Employee benefit trust (0.2) (0.2) Capital redemption reserve 1.8 1.8 Foreign currency translation 3.6 6.6 Net unrealised gains reserve (0.2) 18.5 Retained earnings (20.8) (53.0) Equity shareholders' funds 420.9 396.9Included in aggregate financial liabilities is an amount of 711.3m (31December 2008: 953.1m) which represents the fair value of the Group's bondswhich should be considered in conjunction with the aggregate value of thecurrency and interest rate swaps of 132.7m, included in financial assets (31December 2008: 274.3m included in financial assets). Consequently, this givesan effective liability of 578.6m (31 December 2008: 678.8m).
Half year condensed consolidated statement of changes in equity
for the 6 months ended 30 June 2009
Share Share Employee Capital Retained Foreign
Net Total
capital premium benefit redemption earnings currency unrealised equity trust reserve translation gains reserve reserve GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm At 1 January 12.6 374.9 - 1.8 (62.2) 0.7 4.0 331.82008 Total - - - - 85.1 0.8 (15.7) 70.2comprehensive income/ (expense) for the period Share based - - - - 3.7 - - 3.7payment Purchase of - - (0.2) - (66.0) - - (66.2)own shares Share - - - - (0.4) - - (0.4)transaction costs Shares issued 0.1 16.6 - - - - - 16.7 Equity - - - - (48.8) - - (48.8)dividends paid At 30 June 12.7 391.5 (0.2) 1.8 (88.6) 1.5 (11.7) 307.02008 At 1 January 12.8 410.4 (0.2) 1.8 (53.0) 6.6 18.5 396.92009 Total - - - - 85.8 (3.0) (18.7) 64.1comprehensive income/ (expense) for the period Share based - - - - 5.2 - - 5.2payment Shares issued 0.1 6.8 - - - - - 6.9 Share options - 6.6 - - - - - 6.6satisfied from EBT Equity - - - - (58.8) - - (58.8)dividends paid At 30 June 12.9 423.8 (0.2) 1.8 (20.8) 3.6 (0.2) 420.92009
Half year condensed consolidated cash flow statement
for the 6 months ended 30 June 2009
30 June 30 June 2009 2008 Notes GBPm GBPm
Cash flows from operating activities Operating profit on continuing activities before interest 149.7 135.7and taxation Depreciation 27.9 25.4
Amortisation of intangible assets 9.9
4.9 Share based payment expense 5.2 3.7 Pension charge 10.3 9.2 Pension contributions (14.8) (13.0) Movement in provisions (0.2) (1.7)
Movement in receivables and payables 9.8
9.6
Cash generated from operations before exceptional 197.8
173.8
additional pension contribution
Income tax paid (20.7) (18.8)
Exceptional additional pension contribution (40.0)
- Net interest paid (18.7) (20.2)
Cash generated from operations after income tax, 118.4
134.8
exceptional additional pension contribution and interest Net cash used in investing activities Purchase of property, plant and equipment (35.5) (33.0) Investment loan 3.4 (2.0) Acquisition of subsidiary undertakings and businesses (98.6)
(66.0)
Cash acquired with subsidiary undertakings 0.6
13.5
Proceeds on sale of financial assets 1.6
- (128.5) (87.5)
Net cash used in financing activities Issue of ordinary share capital 13.4
16.7 Share buybacks - (66.2) Share transaction costs - (0.4) Dividends paid 5 (58.8) (48.8)
Capital element of finance lease rental payments 7 -
(0.1)
Asset based securitised financing arrangement (1.0)
0.6
Repayment of bonds and loan notes 7 (101.1)
(0.4) (147.5) (98.6) Net decrease in cash and cash equivalents (157.6)
(51.3)
Cash and cash equivalents at the beginning of the period 86.7
(45.3)
Cash and cash equivalents at 30 June (70.9)
(96.6)
Cash and cash equivalents comprise:
Overdraft 7 (70.9) (109.0) Cash at bank and in hand 7 - 12.4 Total (70.9) (96.6)
Notes to the half year condensed consolidated financial statements
for the 6 months ended 30 June 2009
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 2009 were authorised for issue in accordance with aresolution of the Directors on 22 July 2009.
2. Basis of preparation and accounting principles
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months ended 30 June 2009 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 2008, 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 2008 were approved by theBoard of Directors on 25 February 2009 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 to 30 June 2009 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.
(b) Significant accounting policies
The accounting policies adopted in the 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 2008, except for the adoption of the new standards and interpretationsas of 1 January 2009, noted below.IFRS 2 Share-based Payment - Vesting Conditions and Cancellations The standardhas been amended to clarify the definition of vesting conditions and toprescribe the accounting treatment of an award that is effectively cancelledbecause a non-vesting condition is not satisfied. The adoption of thisamendment did not have any impact on the financial position or performance ofthe Group.IFRS 7 Financial Instruments: Disclosures The amended standard requiresadditional disclosure about fair value measurement and liquidity risk. Fairvalue measurements are to be disclosed by source of inputs using a three levelhierarchy for each class of financial instrument. In addition, a reconciliationbetween the opening and closing balance for Level 3 fair value measurements isnow required, as well as significant transfers between Level 1 and Level 2 fairvalue measurements. The amendments also clarify the requirements for liquidityrisk disclosures. As IFRS 7 is a disclosure standard, there is no impact ofthat change in accounting policy on the half year condensed consolidatedfinancial statements. Full details of the change will be disclosed in theannual report for the year ended 31 December 2009.IFRS 8 Operating Segments This standard requires disclosure of informationabout the Group's operating segments and replaces the requirement to determineprimary (business) and secondary (geographical) reporting segments of theGroup. Adoption of this standard did not have any effect on the financialposition or performance of the Group. The Group determined that the operatingsegments were the same as the business segments previously identified under IAS14 Segment Reporting.IAS 1 Revised Presentation of Financial Statements The revised standardseparates owner and non-owner changes in equity. The statement of changes inequity includes only details of transactions with owners, with non-ownerchanges in equity presented as a single line. In addition, the standardintroduces the statement of comprehensive income: it presents all items ofrecognised income and expense, either in one single statement, or in two linkedstatements. The Group has elected to present two statements.IAS 23 Borrowing Costs (Revised) The standard has been revised to requirecapitalisation of borrowing costs on qualifying assets and the Group hasamended its accounting policy accordingly. In accordance with the transitionalrequirements of the standard, this has been adopted as a prospective changefrom the commencement date of 1 January 2009. No change has been made forborrowing costs incurred prior to this date that have been expensed. Sinceadoption, the Group has incurred no borrowing costs on qualifying assets whichare required to be capitalised.IAS 32 Financial Instruments: Presentation and IAS 1 Puttable FinancialInstruments and Obligations Arising on Liquidation The standards have beenamended to allow a limited scope exemption for puttable financial instrumentsto be classified as equity if they fulfil a number of specified criteria. Theadoption of these amendments did not have any impact on the financial positionor performance of the Group.Improvements to IFRSs In May 2008 the International Accounting Standards Boardissued its first 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 2009, did not have any impact onthe financial position or performance of the Group.IFRIC 13 Customer Loyalty Programmes This interpretation requires customerloyalty credits to be accounted for as a separate component of the salestransaction in which they are granted. A portion of the fair value of theconsideration received is allocated to the award credits and deferred. This isthen recognised as revenue over the period that the award credits are redeemed.The Group does not operate any customer loyalty programmes and therefore theadoption of this IFRIC did not have any impact on the financial position orperformance of the Group.IFRIC 16 Hedges of a Net Investment in a Foreign Operation This interpretationprovides guidance on the accounting for a hedge of a net investment. Itprovides guidance on identifying the foreign currency risks that qualify forhedge accounting in the hedge of a net investment, where within the Group thehedging instruments can be held in the hedge of a net investment and how anentity should determine the amount of foreign currency gain or loss, relatingto both the net investment and the hedging instrument, to be recycled ondisposal of the net investment. The Group has no hedges of net investments inforeign operations and consequently the adoption of this interpretation did nothave any impact on the financial position or performance of the Group.3. Segmental information 6 months to 6 months to 30 June 30 June 2009 2008 Analysis of segment GBPm GBPmrevenue HR Solutions 138.2 117.8 Property Consultancy 128.2 126.2 Insurance Services 117.3 117.2 Investor Services 80.0 80.3 Integrated Services 195.4 191.0 ICT and Partnership 223.1 169.8Services Life & Pensions 255.4 229.4 Professional Services 173.1 150.8 1,310.7 1,182.5 6 months to 6 months to 30 June 30 June 2009 2008 Analysis of segment result GBPm GBPm HR Solutions 12.8 11.5 Property Consultancy 9.1 10.1 Insurance Services 12.9 12.7 Investor Services 13.9 17.8 Integrated Services 28.6 22.9 ICT and Partnership 26.4 19.2Services Life & Pensions 27.5 23.8 Professional Services 28.4 22.6 159.6 140.6The comparative figures have been restated due to a reorganisation of theGroup's business divisions during the period. The Directors decided this wasnecessary to better manage the growth in the business and to enhance serviceprovision across the Group. The Group's ongoing operations are not subject
toseasonal variations.4. Earnings per share
The average number of shares in issue during the period was 612.8m (30 June2008: 606.7m). The diluted earnings per share have been calculated on theprofit for the period of 98.7m (30 June 2008: 84.2m) and an average dilutednumber of shares of 619.3m (30 June 2008: 613.7m). As at 22 July 2009, therewere 614.0m shares in issue.
5. Dividends paid and proposed
The interim dividend of 5.6p (2008: 4.8p) per share (not recognised as a liability at 30 June 2009) will be payable on 12 October 2009 to ordinary shareholders on the register at the close of business on 4 September 2009. The dividend disclosed in the cash flow statement represents the final ordinary dividend of 9.6p (2008: 8.0p) per share as proposed in the 31 December 2008 financial statements and approved at the Group's AGM (not recognised as a liability at 31 December 2008).
6. Business combinations
The Group has made a number of acquisitions in the period, which are shown inaggregate below: Book Fair value Provisional values adjustments fair value to Group GBPm GBPm GBPm Intangible assets 21.1 (21.1) -
Property, plant and equipment 1.6 (0.9)
0.7 Debtors 35.1 (1.7) 33.4
Cash and short term deposits 0.6 -
0.6 Creditors (22.7) (2.0) (24.7) Provisions (0.2) (0.9) (1.1) Corporation tax (1.1) - (1.1) Net assets 34.4 (26.6) 7.8
Goodwill arising on acquisition
95.2 103.0 Discharged by: Cash 98.0
Deferred consideration accrued
5.0 103.0The full exercise to determine the intangible assets acquired is still to becompleted, thus the above numbers are provisional; this exercise will befinalised for the full year financial statements. Further cash considerationwas paid in respect of previous acquisitions of 0.6m with an equivalent impacton goodwill.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 at Cash flow Non-cash Net debt at 1 January movements flow 30 June 2009 movements 2009 GBPm GBPm GBPm GBPm Cash and cash equivalents 86.7 (86.7) - - Overdrafts - (70.9) - (70.9) Cash 86.7 (157.6) - (70.9) Loan notes (3.7) 0.8 - (2.9) Bonds* (953.1) 100.3 141.5 (711.3) Currency swaps* 269.6 - (140.1) 129.5 Interest rate swaps* 4.7 - (1.5) 3.2 Sub-total net debt (595.8) (56.5) (0.1) (652.4) Callable swaps (32.0) - 3.0 (29.0) Asset based securitised (10.4) (4.7) - (15.1)finance (638.2) (61.2) 2.9 (696.5) Net debt at Cash flow Non-cash Net debt at 1 January movements flow 30 June 2008 movements 2008 GBPm GBPm GBPm GBPm Cash and cash equivalents 0.8 11.6 - 12.4 Overdrafts (46.1) (62.9) - (109.0) Cash (45.3) (51.3) - (96.6) Loan notes (1.7) 0.4 (4.9) (6.2) Bonds* (461.1) - (2.1) (463.2) Currency swaps* (18.1) - 2.6 (15.5) Interest rate swaps* 0.1 - (0.5) (0.4) Finance leases (0.2) 0.1 - (0.1) Sub-total net debt (526.3) (50.8) (4.9) (582.0) Asset based securitised (9.7) 1.4 - (8.3)finance (536.0) (49.4) (4.9) (590.3)The aggregate bond fair value above of 711.3m (30 June 2008: 463.2m) includesthe GBP value of the US$ denominated bonds at 30 June 2009 (30 June 2008). Toremove the Group's exposure to currency fluctuations it has entered intocurrency swaps which effectively hedge the movement in the underlying bond fairvalue. The interest rate swap is being used to hedge the exposure to changes inthe 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 578.6m (30 June 2008: 479.1m).
8. Capital commitments
At 30 June 2009, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment amounted to nil (2008: nil).
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 to 6 months to 30 June 30 June 2009 2008 GBPm GBPm Short term employment 1.6 1.5benefits Post employment benefits 0.1 0.1 Share based payments 2.2 2.3 3.9 3.9
Gains on share options exercised in the period by key management personnel totalled 3.8m (2008: 8.7m).
10. Competition Commission ruling on acquisition of IBS
The Group's acquisition in 2008 of IBS OPENSystems Limited (formerly IBSOPENSystems plc) was the subject of a referral to the Competition Commission(CC) under section 22(1) of the Enterprise Act 2002. On 4 June 2009 the CCannounced its decision. The CC determined that the acquisition by the Group ofIBS resulted in a lessening of competition in the market for revenue andbenefit software systems and that the corrective measure required was the saleof the element of IBS that provides this product and service. Consequently, theGroup is actively seeking to dispose of this part of the business.The results of this business activity which contributed revenue of 3.1m andprofit before tax and amortisation of 1.3m (6 months to 30 June 2008: 0.5mand 0.1m respectively) are included in these financial statements.
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 2008. A list of current directors is maintained on the Group website: www.capita.co.uk.
By order of the BoardP R M Pindar G M Hurst Chief Executive Group Finance Director 22 July 2009
vendorRelated Shares:
Capita