Interim Management Statement

18 November 2013 Capita plc - interim management statement Capita plc (Capita), the UK's leading customer and business process management(BPM) company, is today issuing its interim management statement coveringtrading and financial progress to date in 2013. Summary update on performance Major sales: Capita has achieved strong sales performance this year to date,securing £2.9bn of major new contract wins with clients including theDepartment of Energy and Climate Change, the Ministry of Justice and theCabinet Office and, in the private sector, with Carphone Warehouse andTelefónica UK (O2). Sales activity is buoyant and we are seeing high activity across the retail,utilities and telecoms sectors and in central government, particularly acrossdefence and the justice areas. Our bid pipeline currently stands at £4.2bn(July 2013: £4.2bn) with a number of bids at a relatively mature stage of theprocurement process and a good weight of opportunities at earlier stages in andjust outside of the bid pipeline. Following a record level of sales wins over the previous 18 months, we areexperiencing strong organic growth in 2013 and we remain on track to achieveour target of 8% organic growth for the full year (2012: 3%). In turn, oursales success has resulted in a high volume of new contract implementations,including the 2 largest contracts in Capita's history with Staffordshire CountyCouncil and O2, which transferred to Capita in April 2013 and July 2013respectively. Financial performance: Our key financial metrics remain very healthy. Inparticular: Cashflow: The Group has strong control over operating cashflow and we areconfident that the conversion rate of operating profit to operating cash willexceed 100% for 2013. Margins: As stated previously, we believe that our underlying Group operatingmargin can be maintained in the range of 12.5% to 13.5% for the foreseeablefuture. We anticipate that the underlying Group operating margin for the fullyear 2013 will be comfortably within this range and ahead of the half yearmargin of 12.5%. Acquisitions: During the year to date, we have acquired 13 complementarybusinesses for a total consideration of £271m, enhancing and expanding oursales proposition to clients and supporting the delivery of future organicgrowth. Delivering organic growth To date in 2013, we have secured 15 new major contracts with an aggregate valueof £2.9bn (November 2012 IMS: £1.7bn), comprised of 95% new business and 5%renewals. Since our half year results in July 2013, we have announced thefollowing new contracts: * National Asset Management Agency (NAMA) - appointed as primary and special loan servicer on the NAMA loans acquired under the NAMA Act 2009, previously managed on behalf of NAMA by the special liquidators, Irish Bank Resolution Corporation (IBRC). The contract is worth around £69m over 4 years. * Department of Energy and Climate Change (DECC) - selected as successful applicant for the smart meter communication licence which became effective from September 2013. The arrangement is expected to generate revenues to Capita of some £175m over 12 years with an option to be extended for a further 6 years. * Ministry of Justice (MoJ) - selected as preferred bidder for the electronic monitoring and field support services contract and also the role of overall services and systems integrator. We expect the contract to generate revenues to Capita of some £400m over the initial six year contract term, based on the anticipated increase in the use of tags beyond the current numbers of monitored individuals. Further significant growth is expected through the expansion of services to other government departments and agencies. * Other major new contracts - we have secured contracts worth a total of £ 253m, including with the Department for Work and Pensions (DWP), Croydon Council, Scottish Power Energy Retail and the Department of Communications, Energy and Natural Resources in Ireland. Bid pipeline: The pipeline is a snapshot of major bid opportunities, worth £25mor above and capped at £1bn, where we have been shortlisted by the client tothe last 4 bidders or fewer. The bid pipeline currently stands at £4.2bn (July2013: £4.2bn) comprised of 30 bids of which 93% relates to new contracts and 7%to renewals. The pipeline contains opportunities from across all our targetmarkets. Contract rebids: Over the next 5 years, there are no material contracts due forrebid (defined as having forecast annual revenue in excess of 1% of 2012revenue). The next major contract due for renewal will be the Phoenix contractin 2019. Securing value enhancing acquisitions Acquisitions play a key role in enabling us to enhance our sales propositionsand take us into new market segments, providing a platform for further organicgrowth. To date in 2013, we have acquired 13 businesses, investing a total of £271m. Since our H1 results announcement in July 2013, acquisitions include ParkingEyefor £57.5m (Justice and Secure Services division), Write Research for £4m(Workplace Services division), Contact Associates for £4.5m (Health & Wellbeingdivision) and Cymbio for £7m (Health & Wellbeing division). All of theseacquisitions expand our capabilities in our market places and also have thepotential to play valuable roles in our major contract bids. Our acquisition pipeline contains a number of interesting opportunities and weanticipate maintaining total acquisition spend of £200m to £250m per annumgoing forward. With an increased level of organic growth, we therefore expectour acquisition activity to play a proportionately smaller part in our overallrevenue growth in future years. Disposals and closures within the Insurance & Benefit Services division We informed shareholders at our half year results that there are small parts ofour Insurance & Benefits Services division, some insurance distributionbusinesses and our SIP (self invested pensions) administration business, whichoperate in increasingly competitive and highly regulated markets and are lossmaking. Following a detailed review, we have concluded that the route torecovery for these operations would take a long time and accordingly we havetaken steps to address this. Today, we announce that we have agreed to sell,subject to FCA approval, these insurance distribution assets to Markerstudy foran undisclosed sum and we have taken a decision to close our SIP (Self InvestedPensions) administration business based in Salisbury which is sub-scale andtherefore unviable. These operations comprise approximately £47m of Group revenue and areanticipated to make a combined operating loss of £15m in 2013. As other areasof the Group have performed strongly, profit before tax, net of these losses,is expected to remain in line with current market expectations. Our current estimate is that the combined cash costs, net of tax, from the saleand closure will be c£35m. This will be disclosed separately in our PreliminaryAccounts for the year ended 31 December 2013. We anticipate that these actionswill result in an impairment of goodwill when we conduct our annual impairmenttest at the end of the year. Although these acquisitions generated healthy profits and cash over severalyears, we recognise that the recent performance of these acquisitions whichcost in aggregate £70m is disappointing. However, this should be viewed in thecontext of our £1.6bn acquisition programme over the last 10 years, which hasgenerated significant shareholder value. Outlook As a consequence of the sales successes to date in 2013 and the acquisitionscompleted in 2012 / 2013, we are on track to deliver strong growth in 2013.Furthermore, 2014 has the foundations in place today to be a highly successfulyear. The UK market for customer management and BPM remains very encouragingand this underpins our confidence in the Group's long term growth prospects. See separate Board Update announcement. -ends- Analyst & investor conference call Paul Pindar, Chief Executive of Capita plc, will host an analyst conferencecall in London at 8.00am UK time today. Please dial into the call in time toallow for registration Dial-in number: +44 (0) 20 3139 4830 Participant PIN Code 48662047# Replay: A replay of the conference call will be available for 7 days bydialling +44 (0) 20 3426 2807 (access code is 643128#). For further information: Capita plc Tel: 020 7654 2219 Paul Pindar, Chief Executive Officer Shona Nichols, Corporate Communications Director Media enquiries only: Capita press office Caroline Mooney Tel: 020 7654 2152 or 020 7654 2399 (out of hours) Email: [email protected] Capita plc is the UK's leading provider of BPO and integrated professionalsupport service solutions. With 62,000 people at more than 350 sites, including70 business centres across the UK, Europe, India and South Africa, the Groupuses its expertise, infrastructure and scale benefits to transform its clients'services, driving down costs and adding value. Capita is quoted on the LondonStock Exchange (CPI.L), and is a constituent of the FTSE 100 with 2012 revenueof £3.3 billion. Further information on Capita plc can be found at:www.Capita.co.uk