25th Jul 2012 07:00
25 July 2012 Capita plc Half year results for the 6 months to 30 June 2012 Strong H1 performance and a positive outlook Financial Highlights Half year 2012 Half year 2011 Change Revenue £1,607m £1,400m + 15% Underlying operating £216.6m £193.0m + 12%profit* Underlying profit before £190.7m £174.0m + 10%tax* Underlying earnings per 24.19p 21.95p + 10%share* Interim dividend per share 7.9p 7.2p + 10%* Excludes non-underlying items being: intangible amortisation and acquisitionexpenses of £47.4m (H1 2011: £33.8m), the non-cash impact of mark to marketmovement on financial instruments of £0.5m credit (H1 2011: £1.2m credit).After these non-underlying items: reported operating profit is £169.2m (H1 2011£159.2m), reported profit before tax is £143.8m (H1 2011: £141.4m) and reportedearnings per share is 18.70p (H1 2011: 18.01p).
Key points
Creating profitable growth
* A record £1.3bn of major contract wins secured in H1 2012 (H1 2011: £1.1bn)
* Improving organic growth rate; clear visibility of meeting full year 2012
expectations
* Maintaining win rate of 1 in 2 reflecting our strong client propositions
and operational capability
* High level of sales momentum; bid pipeline replenished well after recent
wins to £4.1bn (February 2012: £4.6bn)
* Enhancing our offering through acquisitions; £642m spent in the 2 years to
December 2011 and a further £129m invested in 10 acquisitions to date in
2012 * £271m raised in equity placing to fund stronger pipeline of potential acquisition opportunities
Delivering results
* Revenue up 15%, with 2011 & H1 2012 acquisitions contributing 15% and flat
organic growth after attrition on 4 contracts of 5%, most of which related
to activities that ended in H1 2011
* Underlying profit before tax increased by 10% to £190.7m (H1 2011: £174.0m)
* Underlying operating margin of 13.5% (H1 2011: 13.8%)
* Operating cash flow of £201m (H1 2011: £180m) and cash conversion improved
to 93% from 85% at the full year 2011 (H1 2011: 93%)
Paul Pindar, Chief Executive of Capita plc, commented:
"With organic growth returning as expected, cash conversion improving and agood pipeline of potential acquisitions, Capita is positioned well for furthergrowth. As a result of stronger major contract sales performance over the past18 months, together with the contribution from recent acquisitions, we haveclear visibility of revenue growth in 2012. These factors, coupled with thecurrent buoyant sales environment, underpin our confidence in full yearperformance and provide a strong platform for further progression in 2013."
For further information:Capita plc Tel: 020 7799 1525 Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 020 7654 2152 or 020 7654 2399 out of hours FTI Consulting Tel: 020 7269 7291 Andrew Lorenz Analyst presentation
Paul Pindar, Chief Executive of Capita plc, will host an analyst presentation and conference call in London at 8.30am UK time today.
There will be a conference call and live webcast of the full event. Details canbe found at www.capita.co.uk. (Please dial into the call in time to allow forregistration)
8.30am conference call details below:
Dial-in number: + 44 (0)20 3059 8125
Replay: A replay of the conference call will be available for 7 days by dialling +44 (0)121 260 4861 (access code is 4749763#).
Half year results for the 6 months to 30 June 2012
Capita, the UK's leading business process outsourcing ("BPO") and professional services company, has made good progress in the first 6 months of 2012 with strong major sales performance in our key markets and good operating and financial results across the majority of the Group's businesses.
The market for outsourcing remains buoyant, particularly across the UK publicsector where we are seeing a high level of sales activity. During H1 2012, wesecured major long term contracts totalling £1.3bn (H1 2011: £1.1bn), of which74% relates to new contract wins and 26% to contract renewals, maintaining anaverage win rate of 1 in 2. We have also actively replenished our bid pipelinewhich now stands at £4.1bn (February 2012: £4.6bn), demonstrating the qualityand volume of opportunities across our 9 markets.We continue to invest in small to medium sized businesses which broaden ourcapability and extend our scale, enhancing our sales propositions or providingentry into a new sector. To date in 2012, we have acquired 10 companies for atotal value of £129m. In April, we raised £271m, net of expenses, through anequity placing to enable us to pursue our increased acquisition pipeline,whilst allowing us to maintain a prudent yet efficient balance sheet.The majority of our underlying businesses are trading well, particularly theInvestor and Banking Services division, customer management services within theIntegrated Services division and the Workplace Services division which includesthe Group's resourcing businesses. The challenging economic environmentcontinues to adversely hold back performance in 3 distinct areas: our propertyconsultancy and parts of our IT services and insurance services businesses.
Financial update
Overview - Capita has delivered robust financial results with good growth inrevenue and profits compared to H1 2011 and improved cash conversion comparedto FY 2011.In the first six months of 2012, revenue increased by 15% to £1,607m (H1 2011:£1,400m) with acquisitions completed during 2011 and H1 2012 contributing 15%but flat organic growth, after revenue attrition of 5% relating largely tocontracts and projects that ended in H1 2011. Following this period of higherattrition, we expect to revert back to the Group's long term attrition rate ofapproximately 3% for the full year 2012 and beyond.Underlying operating profit (1)rose by 12% to £216.6m (H1 2011: £193.0m) andunderlying profit before taxation (1) increased by 10% to £190.7m (H1 2012: £174.0m). Underlying earnings per share (1) grew by 10% to 24.19p (H1 2011:21.95p).(1)Excludes non-underlying items being: intangible amortisation and acquisitionexpenses of £47.4m (H1 2011: £33.8m), the non-cash impact of mark to marketmovement on financial instruments of £0.5m credit (H1 2011: £1.2m credit).After these non-underlying items: reported operating profit is £169.2m (H1 2011£159.2m), reported profit before tax is £143.8m (H1 2011: £141.4m) and reportedearnings per share is 18.70p (H1 2011: 18.01p).
The Board is recommending an interim dividend of 7.9p per ordinary share (H1 2011: 7.2p) representing an increase of 10%. The interim dividend will be payable on 15 October 2012 to shareholders on the register at the close of business on 14 September 2012.
Margin - In H1 2012, the Group's underlying operating margin1 was 13.5% (H1 2011: 13.8%). Margins were 30bps lower due to the assimilation in H1 2012 of certain new large contracts and acquisitions, with their expected initial transformation and integration costs.
Cash flow - In H1 2012, £201m (H1 2011: £180m) was generated by operationsrepresenting an improved operating profit to cash conversion rate (2) of 93%,improved from 85% at the full year 2011 (H1 2011: 93%). Operating cash flow, aspreviously stated, has been impacted by the one-off effect of the beneficialpayment terms that we had historically secured on certain contracts revertingon renewal to industry norms and the additional working capital requirementsfor certain new major contracts and projects. As these items unwind, we expectour operating cash to operating profit conversion rate to continue to improvein 2013.
(2) Defined as cash generated from operations divided by underlying operating profit for the year.
Free cash flow, defined as operating cash flow, less capital expenditure,interest and taxation for the half year was £95m (H1 2011: £97m). This decreasewas due to a higher level of capital expenditure on IT infrastructure and newcontracts.Capital expenditure - We aim to contain capital expenditure at or below 4% ofrevenue. In H1 2012, we met this objective, with net capex at 3.4% of annualrevenue (H1 2011: 2.8%). There are currently no indications of significantcapex increases in our business forecasts or bid pipeline.Return on capital employed - We focus on driving a healthy return on capital.During H1 2012, our post-tax return on average capital employed was 16.3% (H12011: 18.8%). This compares to our estimated post-tax WACC which is 7.2%. Wewould expect returns to increase as recent acquisitions deliver their fullprofitability and organic growth continues to strengthen.
Debt profile - As at 30 June 2012, we have £1,151m of private placement debt of which only £99m matures before August 2015, with the remainder gradually maturing over the 9 years to 2021. In addition, we have £185m of bank debt under a 2 year term loan facility, offset by £186m of cash held on deposit.
Our aim continues to be to keep the ratio of net debt to EBITDA in the range of2 to 2.5 over the long term and we would be unlikely to incur borrowings whichwould reduce interest cover below 7 times. At 30 June 2012, our annualised netdebt to EBITDA ratio was 2.2 (H1 2011: 2.1) with annualised interest cover at 9times (H1 2011: 11 times).
Generating profitable growth
We generate profitable growth by winning business from new and existing customers and through acquiring organisations that broaden our capability, scale and market reach.
Major contract wins
We have made a strong start to 2012, securing 24 new and extended major contracts with a total value of £1.3bn (H1 2011: 12 contracts totalling £1.1bn) representing a win rate of 1 in 2. This includes:
* Recruiting Partnering Project (RPP) - partnering with the MOD to deliver
RPP for the Army, and the enabling ICT for the Royal Navy and the Royal Air
Force, in a contract valued at approximately £50m per annum over 10 years.
The project represents a major investment in the transformation of military
recruiting. While the Army retains ownership of recruitment policy, entry
criteria and assessment standards, RPP will jointly deliver the entire
process for the attraction and recruitment of soldiers and officers to the
Regular and Territorial Army. It will also provide a tri-service digital
ICT platform to underpin recruitment for the Royal Navy, Army and Royal Air
Force.
This is our first significant partnering contract in the defence sector. Our
ability to secure the contract was a result of the Group's experience and
proven track record in the UK BPO market combined with our established presence
in the resourcing market, which has been built up over 16 years via strategic
acquisitions and organic growth.
* Civil Service Learning agreement - selected by the Cabinet Office to manage
exclusively the provision of training across the Civil Service in a contract
that is expected to generate revenues of at least £50m per annum to Capita over
2 years, with the option to extend for a further 2 years. The contract
commenced in April 2012 following a short procurement process. Capita will
deliver just under half of the training directly through our learning and
development business and will be responsible for managing the balance of 51%
through a network of small and medium sized (SME) training providers, with all
revenue flowing through Capita. The contract is expected to make a significant
contribution to the projected £90m per annum savings which Civil Service
Learning, the Government's training agency, is tasked to deliver.
* 3 major private sector contracts - our expanded customer management
offering has secured 3 major new and extended contracts in H1 2012, worth
in aggregate £161m over 3 to 5 years, including a full customer management
service for Debenhams plc, another major UK retailer and Scottish Power.
Combining the expertise and infrastructure of Capita with the recently acquired
Ventura and Vertex Private Sector enables us to offer compelling customer
management propositions and to identify and bid for large scale opportunities.
This would not previously have been possible as separate entities. This is a
particularly buoyant area for Capita where we have a strong pipeline of
opportunities, predominantly in the private sector with an increasing level of
interest from public sector organisations. Capita also has the scope to expand
these customer management relationships by providing further services to this
private sector client base. We expect to see a high level of activity in this
area going forward. * West Sussex County Council Support Services partnership - selected to deliver a range of services including HR and payroll, finance, office
services, online service delivery, procurement and pensions administration.
The 10 year relationship is scheduled to commence in September and is
expected to generate approximately £154m new revenues to Capita over the
life of the contract. Our existing IT Services contract that commenced in
2010 has also been extended concurrent with the new contract bringing
additional revenues of £18m over an additional 2 years to 2022.
* Contracts worth between £10-50m - The Group secured 17 new contracts and
extensions in this range with an aggregate value of £325m over 2 to 10
years including:
* 8 customer management contracts in the motor, retail and utilities markets
worth in aggregate £124m over 2 to 5 years
* a property consultancy contract for Capita Symonds to support Carillion's
partnership with Oxfordshire County Council worth approximately £42m over 10 years
* preferred bidder for contact management services, worth up to £30m over 4
years, to support the UK Border Agency in the management of the "overstayer" backlog.
Bid pipeline & market updateBid pipeline: Our bid pipeline includes all bids worth £10m or above, capped at£500m and where we have been shortlisted to the last 4 or fewer. We announcethe value of the pipeline twice a year at our half and full year results and itis therefore a snapshot at a specific point in time. The pipeline has beenreplenished well after recent wins and now stands at £4.1bn (February 2012: £4.6bn) and comprises 33 bid situations across our target markets with anaverage length of 7 years. The most active markets are central government,defence, local government and the wider private sector.
Behind the bid pipeline is an active prospect list of opportunities including a number of bids which are expected to reach shortlist stage shortly.
Contract rebids: Over the next 7 years to 31 December 2019, we have only 3material contracts (defined as having annual revenue in excess of 1% of 2011turnover) due for rebid: Criminal Records Bureau (CRB) in 2013, where the bidprocess is at an advanced stage, and Civil Service Learning in 2014, which hasa 2 year extension option, with the next material renewal not until 2019,relating to our Phoenix contract.Market dynamics: The current economic climate is encouraging interest inoutsourcing and the benefits it can deliver to organisations, as demonstratedby our strong major sales wins and pipeline over the previous 18 months. Thepublic sector is particularly buoyant, with significant activity across centralgovernment departments, notably the Ministry of Justice, Department for Workand Pensions and the Ministry of Defence, and also across local government, theemergency services and health markets.There has been some good progress in the Government's streamlining of itsprocurement timelines and processes, evidenced by the increased use ofprocurement frameworks which support a more efficient approach for publicsector organisations to source services. Capita has successfully secured placeson a wide range of frameworks including: the Health and Disability AssessmentServices framework to support the Department for Work and Pensions and otherpublic authorities including the Department of Social Development in NorthernIreland; Information Management and Learning Services framework for use byschools, academies, consortia and local authorities to purchase both managementinformation systems and learning services; the Radio Services framework todeliver services to the Metropolitan Police and the Public Services Network(PSN) framework agreements to supply connectivity and related services acrossthe public sector.In the private sector, we are seeing a high level of demand for customermanagement services, particularly from retail and utilities organisations, andincreasing interest from financial services, especially banking organisations.However, large outsourcing opportunities in the life and pensions sector arecurrently quieter.AcquisitionsThe acquisition of small to medium sized businesses is a key part of Capita'sbusiness model and has consistently enhanced shareholder value by both buildingplatforms for future organic growth and by generating excellent returns oninvestment. Throughout the Company's history, acquisitions have providedcapability and scale to support our BPO propositions as well as providing entryinto new market areas. This is evidenced by a number of our recent majorcontracts, including the RPP and Civil Service Learning contracts, beingsecured as a direct result of the combination of capabilities from companiesacquired in previous years and Capita's wider expertise.Since January 2010, we have had a particularly strong period of makingacquisitions, with £642m spent in the 2 years to 31 December 2011 and a further£129m on 10 acquisitions to date in 2012. In April 2012, we considered itappropriate to raise fresh equity to fund the pursuit of our pipeline ofacquisitions, while allowing us to maintain a prudent yet efficient balancesheet. We undertook an equity placing which raised net proceeds ofapproximately £271m. A total of 40m ordinary shares were placed at 685 penceper share, representing 6.5% of the Company's share capital prior to theplacing. Our acquisition pipeline remains active and we currently anticipatespending a total of £200m to £250m on acquisitions in 2012.
We have a strong track record of integrating acquired businesses well and achieving synergies with our existing operations and corporate functions. Acquisitions made in the last 4 years have delivered an estimated post tax return on capital of approximately 14% and we believe that the acquisitions in our current pipeline are capable of delivering similar returns.
To date in 2012, we have acquired 10 businesses in key market areas including:
* Health
Aviva's occupational health business, a provider of a complete range ofoccupational health services to more than 500 organisations, acquired for £2.5m. The acquisition adds further expertise and capacity to Capita's healthand wellbeing business and provides it with an entry into a number of newclient sectors, including transport and logistics. Medicals Direct Holdings (`MDG'), a provider of medical screening services, for£13.2m. MDG provides more than 150,000 medical screenings every year, primarilyto the life and pensions sector. The acquisition extends Capita's capabilitiesin this area, including the addition of home-based screening expertise whichenhances our existing portfolio of clinic and mobile unit screening services.
These 2 businesses strengthen our position in the medical assessments and disability support marketplace, an area where there are currently significant opportunities.
Clinical Solutions Holdings, a provider of clinical decision support andclinical content products for healthcare professionals, for a cashconsideration of £20m. Its products comprise patient management software,clinical content and decision support technology, which have been used totriage and manage over 70 million clinical calls over the past 10 years in theUK and abroad. The acquisition adds further expertise to Capita's existingservices for the NHS which include support services for health providers andcommissioners, clinical performance management services, health informatics anda range of finance, procurement, estates, IT and HR solutions.
* Pensions administration
Bluefin Corporate Consulting, a provider of employee benefits consultancy tomedium and large corporations, acquired for £50m. Bluefin has also developedaward-winning benefits management technology which is used by more than 150clients with over 80,000 employees. This acquisition extends the capability ofour corporate pensions and actuarial consultancy business, complements otherCapita employee and corporate support services and brings a number of privatesector and banking clients to the Group.
* Emergency services
Fortek Computers Ltd (`Fortek'), a provider of command, control andcommunications systems to emergency services, for a cash consideration of £3.5m. Its solutions deliver the full range of functionalities that support allcontrol room operations from call taking, resource availability and incidentmanagement through to fielding out data securely to front line staff despatchedto an incident.The acquisition complements the other businesses recently acquired by Capita inthis area and enhances our existing command, control and communicationsolutions. Capita and Fortek have worked closely together for a number ofyears, most recently on a successful programme in Wales to provide a resilient,networked solution to the 3 Welsh Fire and Rescue Services control rooms. Byjoining together our next generation solutions we are well-placed to supportshared service models and enable inter-agency communications and data exchange.
* Insurance
Fish Administration, acquired for £21m, has added greater capacity and valuablenew expertise to Capita's specialist insurance broking business. Fish is themarket leader in the field of providing insurance broking services to theindependent living and disability markets, with specialist insurance productsincluding cover for adapted vehicles, travel, and mobility scooters. Alongsideour existing specialist insurance broking business, we anticipate opportunitiesfor growth in the motor, travel, independent living and carer insurancemarkets.
* Offshore
Full Circle, acquired for £1m, is a leading contact centre solutions businessbased in Cape Town, South Africa. Since 2005, Full Circle has been directlyinvolved in assisting international clients to offshore their operationssuccessfully to South Africa. It has been associated with some of the mostnotable offshore projects in the region and will enable Capita to provide afull range of offshored services in South Africa to our clients, includingoutsourced customer service and fully-hosted contact centre solutions. TheSouth African operation broadens our existing international delivery capabilityand complements our operations in India and Poland. We expect to have over4,350 employees across our offshore operations by the year end, including 200in South Africa.Future prospects
With organic growth returning as expected, cash conversion improving and a goodpipeline of potential acquisitions, Capita is positioned well for furthergrowth. As a result of stronger major contract sales performance over the past18 months, together with the contribution from recent acquisitions, we haveclear visibility of revenue growth in 2012. These factors, coupled with thecurrent buoyant sales environment, underpin our confidence in full yearperformance and provide a strong platform for further progression in 2013. -Ends- Half year condensed consolidated income statement for the 6 months ended 30 June 2012 30 June 30 June 2012 2011 Notes Underlying Non-underlying Total Underlying Non- Total underlying £m £m £m £m £m £m Continuing operations: Revenue 3 1,607.3 - 1,607.3 1,399.9 - 1,399.9 Cost of sales (1,140.6) - (1,140.6) (989.8) - (989.8) Gross profit 466.7 - 466.7 410.1 - 410.1 Administrative (250.1) (47.4) (297.5) (217.1) (33.8) (250.9)expenses Operating profit 3 216.6 (47.4) 169.2
193.0 (33.8) 159.2
Net finance costs (25.9) 0.5 (25.4) (19.0) 1.2 (17.8) Profit before tax 3 190.7 (46.9) 143.8
174.0 (32.6) 141.4
Income tax expense (40.0) 12.7 (27.3) (40.9) 8.7 (32.2) Profit for the period 150.7 (34.2) 116.5
133.1 (23.9) 109.2
Attributable to: Equity holders of the 150.7 (34.2) 116.5 133.1 (23.9) 109.2parent Earnings per share 4 - basic 24.19p (5.49)p 18.70p 21.95p (3.94)p 18.01p - diluted 24.08p (5.47)p 18.61p 21.66p (3.89)p 17.77pHalf year condensed consolidated statement of comprehensive income for the 6 months ended 30 June 2012 30 June 30 June 2012 2011 £m £m £m £m Profit for the period 116.5 109.2
Other comprehensive income/(expense): Actuarial losses on defined benefit pension (41.1) (1.2)
schemes Income tax effect 9.0 0.1 (32.1) (1.1)
Exchange differences on translation of (2.2)
4.0foreign operations Losses on cash flow hedges (11.0) (3.1)
Reclassification adjustments for gains (0.7) (2.7) included in the income statement
Income tax effect 2.7 1.6 (9.0) (4.2) Other comprehensive expense for the period (43.3) (1.3)net of tax Total comprehensive income for the period net 73.2 107.9of tax Attributable to: Equity holders of the parent 73.2 107.9Half year condensed consolidated balance sheetat 30 June 2012 30 June 31 2012 December 2011 £m £m Non-current assets Property, plant and equipment 346.0 330.2 Intangible assets 1,911.0 1,828.9 Financial assets 292.7 293.8 Trade and other receivables 54.7 65.8 2,604.4 2,518.7 Current assets Financial assets 9.2 3.0 Funds receivables 143.1 98.0 Trade and other receivables 969.9 846.3 Cash 185.7 71.5 1,307.9 1,018.8 Total assets 3,912.3 3,537.5 Current liabilities Trade and other payables 985.8 936.5 Financial liabilities 56.6 36.5 Funds payables 153.0 107.1 Provisions 18.8 17.0 Income tax payable 51.4 47.0 1,265.6 1,144.1 Non-current liabilities Trade and other payables 8.9 20.0 Financial liabilities 1,672.9 1,695.9 Deferred taxation 0.7 21.0 Provisions 45.8 46.7 Employee benefits 125.7 85.7 1,854.0 1,869.3 Total liabilities 3,119.6 3,013.4 Net assets 792.7 524.1 Capital and reserves Issued share capital 13.8 13.0 Share premium 732.6 459.4 Employee benefit trust and treasury shares (0.4) (0.4) Capital redemption reserve 1.8 1.8
Foreign currency translation reserve 5.3
7.5 Net unrealised gains reserve (16.5) (7.5) Retained earnings 56.1 50.3 Equity shareholders' funds 792.7 524.1
Included in aggregate financial liabilities is an amount of £1,415.4m (31December 2011: £1,432.2m) 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 £264.4m (31 December 2011: £256.8m) included infinancial assets and £nil (31 December 2011: £0.9m) included in financialliabilities. Consequently, this gives an effective liability of £1,151.0m (31December 2011: £1,176.3m).
Half year condensed consolidated statement of changes in equity for the 6 months ended 30 June 2012
Share Share Employee Capital Retained
Foreign Net Total
capital premium benefit redemption earnings currency unrealised equity trust reserve translation gains reserve reserve £m £m £m £m £m £m £m £m 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 At 1 January 2012 13.0 459.4 (0.4) 1.8 50.3 7.5 (7.5) 524.1 Profit for the period - - - - 116.5 - - 116.5 Other comprehensive - - - - (32.1) (2.2) (9.0) (43.3)income/(expense) Total comprehensive - - - - 84.4 (2.2) (9.0) 73.2income/(expense) for the period Share based payment - - - - 4.8 - - 4.8 Income tax deduction on - - - - 0.5 - - 0.5exercise of share options Deferred income tax - - - - 2.8 - - 2.8relating to share based payments Shares issued 0.8 273.2 - - - - - 274.0 Equity dividends paid - - - - (86.7) - - (86.7) At 30 June 2012 13.8 732.6 (0.4) 1.8 56.1 5.3 (16.5) 792.7Half year condensed consolidated cash flow statement for the 6 months ended 30 June 2012 Notes 30 June 30 June 2012 2011 £m £m
Cash flows from operating activities Operating profit on continuing activities before 169.2 159.2interest and taxation Depreciation 38.5 34.0
Amortisation of intangible assets 41.2
28.3 Share based payment expense 4.8 5.6 Pensions (5.5) (6.0) Movement in provisions (0.4) (8.8) Movement in receivables and payables (46.5)
(32.7)
Cash generated from operations 201.3 179.6 Income tax paid (29.5) (26.5) Net interest paid (22.8) (17.7) Net cash inflow from operating activities 149.0
135.4
Cash flows from investing activities Purchase of property, plant and equipment (55.0)
(38.7)
Proceeds from sale of property, plant and equipment 1.0
0.3 Investment loan - 0.5 Acquisition of subsidiary undertakings and businesses (106.2)
(120.4)
Cash acquired with subsidiary undertakings 0.2
2.0
Debt repaid on acquisition of subsidiary undertakings (42.2)
(16.9)
Net cash outflow from investing activities (202.2)
(173.2)
Cash flows from financing activities Issue of ordinary share capital 276.6
2.7 Share transaction costs (2.6) - Dividends paid 5 (86.7) (81.2) Capital element of finance lease rental payments 9 (1.1)
(0.3)
Asset based securitised financing arrangement 9 - (7.8) Instalment debtor movement - 9.4 Proceeds on issue of debt 9 185.0 100.8 Revolving credit facility 9 (178.0) - Financing arrangement costs (1.1) (0.1)
Repayment of loan notes and long term debt 9 (24.7)
-
Net cash inflow from financing activities 167.4
23.5
Net increase/(decrease) in cash and cash equivalents 114.2
(14.3)
Cash and cash equivalents at the beginning of the 71.5 (60.3)period Cash and cash equivalents at 30 June 185.7
(74.6)
Cash and cash equivalents comprise:
Overdraft 9 - (116.4) Cash at bank and in hand 9 185.7 41.8 Total 185.7 (74.6)
Notes to the half year condensed consolidated financial statements for the 6 months ended 30 June 2012
1 Corporate information
Capita plc is a public limited company incorporated in England and Wales whoseshares are publicly traded. The half year condensed consolidated financialstatements of the Company and its subsidiaries (`the Group') for the 6 monthsended 30 June 2012 were authorised for issue in accordance with a resolution ofthe Directors on 24 July 2012.
2 Basis of preparation, accounting policies, principal risks and uncertainties and going concern
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months ended 30 June 2012 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 2011, 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 2011 were approved by theBoard of Directors on 22 February 2012 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 2012 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 preparation of the half year condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2011, except for the adoption of the new standard as of 1 January 2012, noted below.
IFRS 7 Financial Instruments: Disclosures - Transfers of Financial Assets(Amendment)The IASB issued an amendment to IFRS 7 that enhances disclosures forfinancial assets. These disclosures relate to assets transferred (as definedunder IAS 39). If the assets transferred are not derecognised entirely in thefinancial statements, an entity has to disclose information that enables usersof financial statements to understand the relationship between those assetswhich are not derecognised and their associated liabilities. If those assetsare derecognised entirely, but the entity retains a continuing involvement,disclosures have to be provided that enable users of financial statements toevaluate the nature of, and risks associated with, the entity's continuinginvolvement in those derecognised assets. The effective implementation date isfor annual periods beginning on or after 1 July 2011 with no comparativerequirements. The adoption of this revised standard did not have any impact onthe financial position or performance of the Group.
(c) Principal risks and uncertainties and going concern
The Directors have considered the principal risks and uncertainties affectingthe Group's financial position and prospects in 2012. As described on pages 33and 34 of the Group's Annual Report for 2011, the Group continues to be exposedto a number of risks and has well established systems and procedures in placeto identify, assess and mitigate those risks. The risks faced by the Group havenot changed significantly over the first 6 months of 2012 and are not expectedto change materially in the remaining 6 months.The principal risks include those arising from: failure to meet service levelagreements, possible loss of contracts and damage to brand reputation;counterparty failure including disruption to supply chains or serviceinterruption; failure to achieve planned synergies in acquisitions; weakereconomic conditions are a key driver for outsourcing but extreme economicuncertainty may result in delays in purchasing decisions and reduceddiscretionary spend in some market segments; regulatory changes in differentjurisdictions may impact businesses in those locations; failure to attract andmaintain key staff; failure to secure sensitive or confidential data; andfailure to comply with complex laws and regulations.The Directors have considered the issues raised in the FRC's "Update fordirectors of listed companies: Responding to heightened country and currencyrisk in interim financial reports" and can report that, although the Group isnot directly exposed to significant overseas sovereign and currency risks, itis exposed indirectly to increased counterparty risk. The Group attempts tomitigate this risk by counterparty monitoring and the avoidance ofconcentrations of counterparty risk.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.
3 Segmental information
The following tables present revenue and profit information regarding theGroup's operating segments for the six months ended 30 June 2012 and 2011respectively.6 months ended 30 June 2012 2011 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 119.1 (9.0) 110.1 98.5 (9.7) 88.8Services General Insurance 75.6 - 75.6 97.0 - 97.0 Life & Pensions 325.0 (31.4) 293.6 312.0 (33.9) 278.1Services Integrated Services 256.0 (6.9) 249.1 114.7 (7.5) 107.2 Professional 237.8 (51.1) 186.7 258.3 (55.1) 203.2Services IT Services & 381.4 (63.6) 317.8 356.3 (68.2) 288.1Consulting Health 105.9 (9.7) 96.2 77.9 (10.5) 67.4 Property Services 133.2 (13.1) 120.1 139.5 (14.1) 125.4 Workplace Services 170.4 (12.3) 158.1 157.9 (13.2) 144.7 Total segments 1,804.4 (197.1) 1,607.3 1,612.1 (212.2) 1,399.9Analysis of segment profit 6 months 6 months to 30 to 30 June June 2012 2011 £m £m Investor & Banking Services 27.1 21.6 General Insurance 9.6 12.8 Life & Pensions Services 28.9 26.4 Integrated Services 36.7 17.2 Professional Services 45.7 49.3 IT Services & Consulting 28.8 29.0 Health 13.1 11.6 Property Services 8.1 8.6 Workplace Services 18.6 16.5 Total underlying segment profit 216.6 193.0 Net underlying finance costs (25.9) (19.0) Underlying profit before tax 190.7 174.0 Intangible amortisation (41.2) (28.3) Acquisition costs (6.2) (5.5)
Financial instruments - mark to market 0.5
1.2 Profit before tax 143.8 141.44 Earnings per share
The average number of shares in issue during the period was 622.9m (30 June2011: 606.4m). The diluted earnings per share have been calculated on theprofit for the period of £116.5m (30 June 2011: £109.2m) and an average dilutednumber of shares of 625.8m (30 June 2011: 614.4m). As at 24 July 2012, therewere 650.6m shares in issue.
5 Dividends
The interim dividend of 7.9p (2011: 7.2p) per share (not recognised as aliability at 30 June 2012) will be payable on 15 October 2012 to ordinaryshareholders on the register at the close of business on 14 September 2012. Thedividend disclosed in the cash flow statement represents the final ordinarydividend of 14.2p (2011: 13.4p) per share as proposed in the 31 December 2011financial statements and approved at the Group's AGM (not recognised as aliability at 31 December 2011).
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
4.1 Intangible assets 18.9 Deferred tax (1.9) Debtors - gross 32.5
Provision for doubtful debts
(2.8) Cash and cash equivalents 0.2 Creditors (11.5) Provisions (1.3) Long term debt (42.2) Net liabilities (4.0)
Goodwill arising on acquisition
98.9 94.9 Discharged by: Cash 94.9
The 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 £5.1m.The performance of these acquisitions post their inclusion in the Group cannotbe ascertained as they have been fully integrated within existing offerings.7 Provisions Insurance Property Arch Other Total captive provision Cru provision £m £m £m £m £m At 1 January 2012 20.3 40.4 0.6 2.4 63.7 Utilisation (0.4) (5.3) (0.1) (0.2) (6.0)
Additional provisions in the period 4.1 1.5 - -
5.6 Provisions acquired - 1.3 - - 1.3 At 30 June 2012 24.0 37.9 0.5 2.2 64.6The insurance provision is made in relation to the Group's ProfessionalIndemnity, Motor and Employee Liability exposures. The Group uses a captiveinsurer to reduce the cost of providing this cover for its operations; claimsthat are in excess of the Captive's liability are reinsured with a number oflarge insurance underwriters. The Group makes provision when a claim has beenmade where it is more probable than not that an insured loss will occur. Theseprovisions are reassessed regularly to ensure that the level of provisioning isconsistent with the claims that have been reported.The property provision includes a discounted provision for the differencebetween the market value of the property leases acquired in 2011 with Venturaand Vertex and the lease obligations committed to at the date the leases weresigned by the previous owners. This is in accordance with IFRS 3 (revised)which requires the use of fair value measurement. The remaining propertyprovision is made on a discounted basis for the future rent expense and relatedcost of leasehold property (net of estimated sub-lease income) where the spaceis vacant or currently not planned to be used for ongoing operations. Theexpectation is that this expenditure will be incurred over the remainingperiods of the leases which range from 1 to 15 years.Other relates to provisions in respect of potential claims arising due to thenature of some of the operations that the Group provides. These are likely tounwind over a period of 1 to 3 years.
8 Share capital
The Company completed a placing of shares in April 2012 for 40m ordinary sharesat a price of 685 pence per share. The gross proceeds to the Company from theplacing of the new ordinary shares were £274m. The new ordinary shares issuedin the placing, representing approximately 6.5 per cent of the Company's issuedshare capital prior to the placing, were credited as fully paid and rank paripassu in all respects with the existing ordinary shares.9 Movement in net debt Net debt Acquisitions Cash flow Non-cash Net debt at 1 in 2012 movements flow at 30 January movements June 2012 2012 £m £m £m £m £m Cash and cash equivalents 71.5 0.2 114.0 - 185.7 Cash 71.5 0.2 114.0 - 185.7 Loan notes (2.3) - - (0.6) (2.9) Bonds* (1,432.2) - 24.7 (7.9) (1,415.4) Term debt - - (185.0) - (185.0) Revolving credit facility (176.1) - 178.0 (1.9) - Currency swaps in relation to US 242.4 - - 7.5 249.9$ denominated bonds* Interest rate swaps in relation 13.5 - - 1.0 14.5to GBP denominated bonds* Long term debt - (42.2) 42.2 - - Finance leases (3.1) - 1.1 - (2.0) Underlying net debt (1,286.3) (42.0) 175.0 (1.9) (1,155.2) Fixed interest rate swaps (44.7) - - (0.6) (45.3) (1,331.0) (42.0) 175.0 (1.9) (1,200.5)* The aggregate bond fair value above of £1,415.4m (30 June 2011: £1,092.6m)includes the GBP value of the US$ denominated bonds. To remove the Group'sexposure to currency fluctuations it has entered into currency swaps whicheffectively hedge the movement in the underlying bond fair value. The interestrate swaps are being used to hedge the exposure to changes in the fair value ofGBP denominated bonds. The sum of these items held at fair value equates to theunderlying value of the Group's bond debt of £1,151.0m (30 June 2011: £934.3m). Net debt Acquisitions Cash flow Non-cash Net debt at 1 January in 2011 movements flow at 30 2011 movements June 2011 £m £m £m £m £m Cash and cash equivalents 38.5 - 3.3 - 41.8 Overdraft (98.8) - (17.6) - (116.4) Cash (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) Underlying net debt (898.5) (16.9) (97.8) (0.1) (1,013.3) Fixed interest rate 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)10 Capital commitments
At 30 June 2012, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment amounted to £ 1.0m (2011: £3.2m).
11 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Pursuant to the Company's share placing which completed on 24 April 2012, fundsmanaged by Invesco Limited, a substantial shareholder in the Company andtherefore a related party of the Company (in each case, for the purposes of theListing Rules of the UK Listing Authority), subscribed, pro rata to theirpreviously existing holdings, for an additional 8,000,000 shares in the Companyat the placing price of 685p representing an aggregate further investment of £54.8 million.Compensation of key management personnel (including Directors of parentcompany) 6 months 6 months 30 June 30 June 2012 2011 £m £m
Short term employment benefits 2.1
2.0 Post employment benefits 0.1 0.1 Share based payments 1.0 2.5 3.2 4.6
Gains on share options exercised in the period by key management personnel totalled £4.9m (2011: £4.9m).
12 Contingent liabilities
The Group has provided, through the normal course of its business, performance bonds and bank guarantees of £49.0m (31 December 2011: £47.6m).
Further consideration may be due, dependent on certain performance criteria, onacquisitions completed by the Group since 2010 up to a maximum of £130.5m ofwhich £57.2m has been provided. The Group expects that these payments, ifultimately due, will be satisfied by the end of 2016.
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 Capita plc are as listed in the Group's Annual Report for 2011. 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 Hurst
Chief Executive Group Finance Director
24 July 2012
PINXRelated Shares:
Capita