23rd Feb 2006 07:03
Capita Group PLC23 February 2006 23 February 2006 THE CAPITA GROUP PLC Preliminary Results for the year ended 31 December 2005 A highly successful year Financial Highlights Year ended 31 December 2005 Year ended 31 December 2004 Increase Turnover £1,436m £1,282m* 12%Operating profit** £190.7m £160.5m* 19%Profit before tax** £177.2m £148.6m* 19%Earnings per share** 19.44p 16.08p* 21%Total dividend per share 7.00p 5.35p 31% Key points • Operating margins** increased to 13.3% (2004: 12.5%)• Operating cash flow up 16% to £232m (2004: £200m)• Strong growth in both public and private sectors - contracts worth £1.1bn won in last three months, including Birmingham City Council and Zurich• Eleven acquisitions totalling £88m completed in 2005; further acquisitions expected in 2006• Total potential UK BPO market now independently valued at £94.8bn per annum * excluding discontinued operations** before share based payment charge, intangible amortisation and impairment Rod Aldridge, Executive Chairman of The Capita Group Plc, commented: "Capita enters 2006 with confidence. Our operations are performing consistentlywell, our chosen markets are active and our sales prospects are exciting. "Moreover, the ingredients for a successful year are already in place. Webelieve our shareholders will be pleased by the results for 2006." Statutory Results Year ended Year ended Increase 31 December 2005 31 December 2004 Excluding impairment chargeOperating profit £178.6m £154.0m* 16.0%Profit before tax £165.1m £142.1m* 16.2%Earnings per share (basic) 18.10p 15.13p 19.6% Including impairment chargeOperating profit £166.6m £154.0m* 8.2%Profit before tax £153.1m £142.1m* 7.8%Earnings per share (basic) 16.28p 15.13p 7.6% For further information: The Capita Group Plc Tel: 020 7799 1525Rod Aldridge, Executive ChairmanPaul Pindar, Chief ExecutiveShona Nichols, Corporate Communications DirectorCapita Press Office Tel: 0870 2400 488 Financial Dynamics Tel: 020 7269 7291Andrew Lorenz/Richard Mountain Chairman's Statement Capita has enjoyed a highly successful year in 2005. We have continued to buildupon our position as the UK's market leader in providing business processoutsourcing (BPO) services to the public and private sectors and our successesduring 2005 have positioned us strongly for 2006. Capita now prepares accounts in accordance with International FinancialReporting Standards (IFRS). Consequently, in the results below, the comparativeshave been restated to reflect this change. In the year ended 31 December 2005, turnover increased by 12% to £1,436m (2004:£1,282m, excluding discontinued operations). Operating profits before the sharebased payment charge and before amortisation of separately identifiableintangible assets ('intangibles') and impairment rose by 19% to £190.7m (2004:£160.5m) and profits before taxation, share based payment charge, intangibleamortisation and impairment increased by 19% to £177.2m (2004: £148.6m).Earnings per share before share based payment charge, intangible amortisationand impairment grew by 21% to 19.44p (2004: 16.08p excluding discontinuedoperations). Operating cash flow was particularly strong, rising by 16% to £232m (2004:£200m). We have increased dividends by 31% and returned a further £50m toshareholders through purchasing our own shares. In total, including the proposedfinal dividend, we will be returning £96m to shareholders in respect of the 2005financial year. We are excited by the continued development of the Group and are committed tobuilding long term, sustainable value for our stakeholders, primarily ourshareholders, customers and our employees. Building value for shareholders To ensure we are building value for shareholders, we focus on a number of keymeasures. These are outlined below: •We have continued to enhance our operating margins, which improved materially during the year to 13.3% (2004: 12.5%). This is due to increasing volumes of work being processed through existing infrastructure, high quality operational performance across our contract base as a whole and our continued focus on seeking efficiencies in service delivery. •The strength of Capita and its business model is reflected in our excellent underlying cash flow, with £232m (2004: £200m) generated by operations in the year, representing an operating profit to cash conversion rate of 122% (2004: 125%). Our underlying free cash flow increased by 20% to £127m (2004: £106m). •We aim to contain capital expenditure at or below 4% of revenue, although there may be rare occasions when we exceed this where the financial strength of Capita can be used to a competitive advantage. In 2005, we comfortably met this objective with net capital expenditure being 3.7% (2004: 3.6%) of annual revenue. This was achieved after major investment in the Group's sophisticated IT platforms to support future growth across both our general insurance and our life and pensions businesses. •We focus on driving a steadily increasing return on capital. During 2005, the post tax return on average capital employed (including debt) has improved to 17.8% (2004: 16.5%). This compares to our weighted average cost of capital which is 8.2%. •A core plank in the creation of shareholder value is a progressive dividend policy. The Board is recommending a final dividend of 4.9p per ordinary share, making a total of 7.0p (2004: 5.35p) for the year. This represents a 31% increase on dividends paid in respect of the 2004 financial year. Over the 10 years to 31 December 2005, we have grown Capita's annual dividend at a compound rate of 31%. The final dividend will be payable on 5 May 2006 to shareholders on the register at the close of business on 7 April 2006. Our confidence in the strength and resilience of Capita's business model allows us to reduce annual dividend cover further to 2.8 times (2004: 3 times). •There may be circumstances in which market conditions allow us to add further value for shareholders through share buybacks, thus ensuring we have an efficient capital structure which will minimise our long term cost of capital. During 2005, the Group bought back 13.2m shares (representing 2% of the issued share capital) at an average price of £3.74. The Group has authority to re-purchase up to 10% of its issued share capital and we plan to seek renewal of this authority at the Annual General Meeting. •We have continued with our strategy of acquiring small, realistically priced businesses which complement or develop our service offerings. In 2005, we invested £88m (net of cash acquired) in 11 acquisitions. Further information is provided later in the statement. •We believe that the disciplines set out above collectively form an integral part of building value for our shareholders on a consistent basis over the long term. Over the 10 years to 31 December 2005, the value of the Group has increased from £160m to £2.7bn. Total shareholder return (excluding dividends) in this period has been 17 fold, equivalent to a 33% compound annual return. Our marketplace The UK BPO market continues to generate a wide range of opportunities to fuelCapita's future growth. A recent independent survey estimates that the totalpotential UK BPO market is valued at £94.8bn per annum, with the public sectorrepresenting 33% and the private sector 67%. The total UK BPO market isestimated to have been worth £4.4bn in revenues in 2005, with expected compoundannual growth rates of approximately 12% until 2009.* The demand for business process re-engineering and service transformationcontinues to be driven by the public sector's need to deliver quality, costefficient services and the private sector's requirement to remain competitiveand innovative. Capita works across eight markets, being local government, central government,education, transport, health, life and pensions, insurance, and other privatesector organisations (including financial services). Capita remains ranked asthe number one provider of BPO services in the UK and number one outsourcingsupplier in central government, local government, finance (including life andpensions and insurance) and other services (including retail/wholesale, otherbusinesses and transport).** Creating organic growth We have two complementary approaches to creating organic growth. The first, ourcentrally managed Major Sales Team seeks to secure contracts typically with avalue of £10m or above. These contracts are complex, integrated projects thatrequire a wide range of the Group's skills and which generate high quality,recurring revenues. Secondly, each of our businesses employs sales teams focusedupon securing growth from both existing and new customers. Across the Group, wehave over 20,000 customers and our retention rate is exemplary. Organic Growth: Securing major contracts Securing major contracts is an important component of our growth. Our salesperformance in 2005 was pleasing. We secured 14 major new and extended contractswith an aggregate value of £1.14bn (2004: £1.36bn). Significant new contractswon include a 10 year partnership with Harrow Council, estimated to be worth£100m, a 10 year contract with Zurich, worth £300m, and a 10 year partnership,subject to contract, with Birmingham City Council, worth £424m. 2006 has started well. Earlier this month, we announced that we had been namedpreferred supplier for contracts worth a total of £240m, subject to contractsignature. These include a new shared services contract with South Oxfordshireand Vale of White Horse District Councils worth £20m over 7 years, a new HRoutsourcing contract with the BBC worth in excess of £100m over 10 years and there-tender of the contract to administer miners' personal liability claims onbehalf of the Department of Trade and Industry, expected to be worth £120m over3 years. We continue to enjoy a buoyant period of activity and I am pleased to reporttoday that we have signed a further contract, worth £120m over 7 years, with DSGinternational plc. The contract is to extend the delivery of telephone supportservices which doubles the size of our business with DSGi. As a consequence of this activity, the total value of major contracts won andextended in the first 8 weeks of 2006 is £360m and we will have no materialcontracts (defined as having annual revenue in excess of 1% of 2005 turnover)due for renewal in 2006 and only one each in 2007 and 2008. Over the last 3 months, contracts which had been valued at a total of £1.6bnwithin our bid pipeline have been awarded. Of this amount, Capita has beenchosen to deliver business totalling £1.1bn. Because of this surge in contractdecisions, our current bid pipeline stands at £2.2bn (£3.4bn: July 2005).Replenishment of the bid pipeline is already underway and we expect the numberand aggregate value of bids within it to continue to increase steadily over thenext few months. The bid pipeline only includes bid situations in which Capitais shortlisted as one of 4 or fewer competitors and caps our largest bids at£500m. We have already secured strong revenue growth for 2006 and our efforts are nowfocused upon achieving a similar position for 2007. Organic growth: Group businesses Group businesses have performed strongly, securing many new clients andextending and broadening existing relationships across both the private andpublic sectors. We have enlarged our service offering in the year, investing inour business centre infrastructure and establishing additional state of the artIT platforms to service multiple clients and deliver enhanced administration andcustomer services. Private sector: Our penetration of the private sector market has continued in2005, with particular success in securing business in the financial services,insurance and life and pensions sectors. Capita Insurance Services is trading strongly, building further on its positionas the market leading provider of support services to the insurance market andthe largest technical claims handler in the UK outsourcing market, administering£11bn of liabilities on behalf of clients. The business is the first in Europeto implement SAP Claims and SAP CRM. This SAP solution reduces the time taken toprocess claims across multiple clients and has the flexibility to respond wellto additional volume demand. Existing and new clients, such as Norwich Union andChester Street, will benefit from a single customer view, integrated processesand enhanced information. Capita Life & Pensions performed well in the year, securing new long termcontracts and developing its core offering of end to end support for open andclosed books of business. Our investment in establishing flexible, sharedadministration platforms is enabling us to deliver significant savings toclients and to bring their new products to market more swiftly. Clients alsocontinue to benefit from our high standards of customer service which lead toreduced policy attrition rates. For Lincoln Life, we have reduced the attritionrate by at least 1%, equating to approximately £3m in premium income and £4m inembedded value over 12 months. Our two pensions administration operations made good progress in the year.Capita PPML, which supports specialist pensions and related investment services,has been re-launched as Capita SIP Services, in readiness for pensionssimplification which comes into effect in April 2006. We have invested inadministration platforms that have the capability to support multiple specialistpensions products at low cost, supporting both charge-capped products and morecomplex investment vehicles. Capita Hartshead has further strengthened itspre-eminent position in the UK third-party pensions administration marketthrough securing new contracts and the acquisition of complementary businesses.Contract wins and renewals worth over £9.8m with clients including BP Oil,Baring Asset Management and Alliance & Leicester were secured in the year. We have also built up an integrated offering to support the administrationrequirements of independent financial advisers (IFAs) and providers, a growingnew market sub-sector for Capita. Using our existing IT platforms and thespecialist products and services of newly acquired Quay Software and Webline, wecan offer a cost effective, integrated administration platform and moreeffective product distribution. Capita Registrars and Financial Services have benefited from buoyant tradingconditions and the extension of their service offering in the year. CapitaRegistrars was appointed to half of all company flotations in 2005, includingPartyGaming, the largest flotation by market value in the past 5 years. Our fundadministration operation expanded rapidly, with funds under administrationhaving increased from £1bn to £16.5bn in just 3 years. As a result of thisgrowth, we are now listed in 12th place in the Investment Management Association(IMA) rankings for funds under administration. Public sector: Demand for our services across local and central government ishealthy. We are ideally positioned to provide the strategic advice and newservice infrastructures required to support current government policies and thesignificant service transformation needed to deliver efficient, responsivepublic services. We have continued to extend our capability to support local authorities throughthe introduction of new software products, the application of ICT and increasingutilisation of our shared services centres. Our 6 local government sharedservices centres have continued to expand the number of clients and servicessupported from each centre. For example, in 2005 our Coventry Centre supported21 local authorities (2003: 8), collecting £15m council tax payments (2003:£8.5m) and handling 1.6m customer calls (2003:1.1m). We also renewed a number ofour key local government partnerships in the year, such as our multi-servicecontracts with Mendip District Council and Bexley Council. Capita Strategic Education Services performed well and was re-launched in theyear as Capita Strategic Children's Services, in line with the Government'sstrategy requiring local authorities to integrate services for children andyoung people. In conjunction with our education software business, we aredeveloping new products and services to help authorities through thisunprecedented service transformation and to support the delivery of on-goingservices. Capita Symonds has had another year of steady growth securing good quality newbusiness, including a number of long term, high profile projects. The businesshas been particularly successful in penetrating the transport infrastructure andurban regeneration markets this year. In the year, we were appointed to supportthe Dubai Rapid Link consortium in delivering the new Dubai £1.86bn rail systemwith design and engineering services. Urban Vision, the joint venture betweenCapita Symonds, City of Salford and Morrison has been officially launched andour strategic partnership with Cumbria County Council was extended for a further3 years to 2011. Capita Symonds is now ranked as the 5th largestmultidisciplinary consultancy in the UK (7th in 2004). Capita's resourcing businesses performed much better in 2005, increasing marketshare across the public and private sectors, with new projects awarded by suchclients as the Home Office, Department for Work and Pensions, the MetropolitanPolice, the National Assembly of Wales, BAA, Fujitsu, HBOS and Argos. We havealso continued our success in securing significant managed services contracts,with the award of a new contract by British Nuclear Group to manage agencysupplied workers with a payroll of £150m over 3 years. Organic growth: Offshore capabilities To meet the increasing requirements to offer offshore delivery options in ourmajor contract bid proposals and to add further value to existing clients andour own businesses, we are investing in our offshore BPO capabilities. Duringthe year, we established a second, modern business centre in Mumbai, comprising50,000 sq ft of space with a further 50,000 sq ft under option, bringing ourtotal potential space in India to 120,000 sq ft, with a seat capacity of over1,250. We now have 400 employees in Mumbai servicing five clients. Our two sites are equipped with the latest voice over internet and wirelessconnectivity and are now delivering eight different business processes, rangingfrom data input to complex fund accounting. We have achieved full BS7799accreditation at both sites and passed all independent security auditsundertaken by prospective clients. Our service delivery track record isexcellent. For example, we recently transferred an existing client's extensiveback office activities to the operation. We have consistently exceeded their99.5% accuracy requirements and have met their 24 hour turnaround deadlines(previously 48 hours onshore) from the first month of live operations. We aredelivering substantial savings of up to 50% of operating costs to clientscurrently using the offshore operation. Acquisitions We have seen a good volume of opportunities during 2005. Our focus remainsfirmly on small transactions, priced at a level which adds value forshareholders. During the year, we completed 11 acquisitions, investing a total of £88m (net ofcash acquired). Three of these transactions had an initial purchaseconsideration of £10m or above: •In July, we completed the acquisition of BMI Health Services for £10m. This business has been merged with Capita's existing health solutions company which we acquired from AON in 2004. The integration of the two businesses has been completed in a highly successful manner and the combined company is now positioned as the leading and largest provider of occupational health services to the public and private sectors in the UK. We believe this market has significant potential going forward. •In September, we completed the acquisition of BDML Connect Limited from the insurance group BDML. The business was acquired for an initial cash consideration of £26m, with a deferred consideration of up to £9m, dependent on future business performance. BDML Connect delivers personalised insurance services on behalf of major affinity brands such as Norwich Union, Admiral Insurance and RAC. We are delighted by the manner in which this business has been integrated within Capita. It has performed in line with our expectations and is strongly placed for 2006. •In November, we completed the acquisition of Lonsdale Travel for an initial consideration of £10.25m. A further £0.25m may be payable, subject to achievement of certain targets. Just as we targeted and built up over the past 20 months a market leading position in supplying outsourced occupational health services, we have now identified travel administration as an area of major spend where we can add value to our clients by offering effective outsourced services. Organisations spent £14.7bn on business travel in the UK in 2004 and we estimate that some £3bn is spent across the public sector alone. The administration costs of this activity are very significant and ripe for re-engineering. Our pipeline of potential businesses to be acquired remains encouraging and weanticipate a similar volume of small transactions during 2006. Valuing our people One of the principal attributes that differentiates Capita from its competitionis the proficiency, commitment and open style of our staff. The culture withinCapita and its people is a key reason for our ability to deliver value for ourshareholders and other stakeholders. We have a stable and consistent managementteam, a low turnover of senior people and an excellent spirit throughout thecompany. I would like to thank our staff for the vital part they play inCapita's continued success. I also welcome the 2,000 employees that have joinedus since the beginning of 2005. We now employ 25,000 people in the UK, Irelandand India. Future prospects Capita enters 2006 with confidence. Our operations are performing consistentlywell, our chosen markets are active and our sales prospects are exciting. Moreover, the ingredients for a successful year are already in place. We believeour shareholders will be pleased by the results for 2006. Rodney M Aldridge OBEExecutive Chairman 22 February 2006 Sources: *Ovum and **Harris Interactive (formally HI Europe) Reports 2005 Consolidated income statementfor the year ended 31 December 2005 2005 2004 Discontinued Before Before operations, impairment, Impairment, impairment, impairment, amortisation amortisation amortisation amortisation and and and and share-based share-based share-based share-based payment payment Total payment payment Total Notes £m £m £m £m £m £mContinuing operations:Revenue 1 1,435.5 - 1,435.5 1,282.2 - 1,282.2Cost of sales 1,054.6 - 1,054.6 955.6 - 955.6 Gross profit 380.9 - 380.9 326.6 - 326.6Administrative 2 190.2 24.1 214.3 166.1 6.5 172.6expenses Operating profit 1 190.7 (24.1) 166.6 160.5 (6.5) 154.0Finance revenue 0.4 - 0.4 0.2 - 0.2Finance costs (13.9) - (13.9) (12.1) - (12.1) Profit before tax 177.2 (24.1) 153.1 148.6 (6.5) 142.1Income tax expense (49.1) 3.3 (45.8) (41.8) 2.4 (39.4) Profit for the yearfrom continuingoperations 128.1 (20.8) 107.3 106.8 (4.1) 102.7 Discontinuedoperations: Loss on discontinuedoperations - - - - (2.2) (2.2) Profit for the year 128.1 (20.8) 107.3 106.8 (6.3) 100.5 Attributable to:Equity holders of the 128.3 (20.8) 107.5 107.0 (6.3) 100.7parentMinority interest (0.2) - (0.2) (0.2) - (0.2) 128.1 (20.8) 107.3 106.8 (6.3) 100.5 Earnings per share 3- basic 19.44p (3.16)p 16.28p 16.08p (0.95)p 15.13p- diluted 19.16p (3.11)p 16.05p 15.94p (0.94)p 15.00p- basic (excluding 19.44p (3.16)p 16.28p 16.08p (0.62)p 15.46pdiscontinued operations)- diluted (excluding 19.16p (3.11)p 16.05p 15.94p (0.61)p 15.33pdiscontinued operations) Consolidated statement of recognised income and expensefor the year ended 31 December 2005 2005 2004 £m £m Actuarial loss on defined benefit pension schemes (3.7) (19.7)Exchange differences on translation of foreign operations 0.2 0.1Tax on items taken directly to equity 3.7 8.3 Net income/(expense) recognised directly in equity 0.2 (11.3)Profit for the year 107.3 100.5 Total income and expense for the period 107.5 89.2 Attributable to:Equity holders of the parent 107.7 89.4Minority interest (0.2) (0.2) 107.5 89.2 Consolidated balance sheetat 31 December 2005 2005 2004 Notes £m £mNon-current assetsProperty, plant and equipment 150.1 129.1Intangible assets 588.7 500.2Financial assets 13.8 0.2Trade and other receivables 5.8 6.1Deferred taxation 25.1 32.6 783.5 668.2 Current assetsTrade and other receivables 6 343.8 260.3 Total assets 1,127.3 928.5 Current liabilitiesTrade and other payables 6 378.0 308.9Financial liabilities 6 49.9 33.0Provisions 1.3 2.1Income tax payable 32.5 28.4 461.7 372.4 Non-current liabilitiesTrade and other payables 1.3 3.1Financial liabilities 221.7 145.2Provisions 2.0 3.4Employee benefits 43.0 44.1 268.0 195.8 Total liabilities 729.7 568.2 Net assets 397.6 360.3 Capital and reservesIssued capital 13.4 13.4Share premium 258.1 248.1Treasury shares (0.4) (0.2)Capital redemption reserve 0.2 0.1Foreign currency translation 0.3 0.1Retained earnings 125.8 98.4 Equity shareholders' funds 397.4 359.9 Minority interest 0.2 0.4 Total equity 397.6 360.3 Consolidated cash flow statementfor the year ended 31 December 2005 2005 2004 Notes £m £mCash flows from operating activitiesOperating profit on continuing activities before 166.6 154.0interest and taxationOperating loss on discontinued activities - (0.3)Depreciation 31.7 27.9Amortisation of other intangible assets (treated as 4.9 2.9depreciation)Amortisation of intangible assets created on 4.5 1.8acquisitionImpairment of goodwill 2 12.0 -Loss on sale of available-for-sale financial assets - 0.1Share-based payment expense 7.6 4.7Pension charge 12.0 13.1Pension contributions (16.6) (16.5)Loss on sale of property, plant and equipment 0.5 -Movement in provisions (2.4) 0.7Increase in debtors (19.4) (12.5)Increase in creditors 30.8 24.1 Cash generated from operations 232.2 200.0 Exceptional additional pension contribution - (50.0)Income tax paid (38.2) (36.0)Interest paid (13.9) (11.9)Interest received 0.4 0.2 Net cash generated from operating activities 180.5 102.3 Net cash used in investing activitiesPurchase of property, plant and equipment (49.7) (46.2)Proceeds from sale of property, plant and equipment 0.4 3.3Purchase of intangible fixed assets (4.0) (8.0)Acquisition of subsidiary undertakings and businesses (101.9) (56.4)Cash acquired with subsidiary undertakings 2.7 3.8Proceeds on disposal of subsidiary undertakings - 3.1Purchase of trade investments in insurance captives (12.0) -Proceeds on sale of available-for-sale financial assets - 4.9 (164.5) (95.5) Net cash used in financing activitiesIssue of ordinary share capital 9.9 5.5Share buybacks (49.6) (27.5)Share transaction costs (0.3) (0.2)Dividends 4 (38.0) (29.6)Capital element of finance lease rental payments (0.2) (0.3)Movement on asset based securitised financing 5 1.4 -Repayment of loans notes and long term loans (7.3) (11.5)Proceeds on issue of bond 75.0 -Bond issue costs (0.1) - (9.2) (63.6) Net increase/(decrease) in cash and cash equivalents 5 6.8 (56.8)Cash and cash equivalents at the beginning of the (26.1) 30.7period Cash and cash equivalents at 31 December (19.3) (26.1) Cash and cash equivalents comprise:Overdraft (19.3) (26.1) Total (19.3) (26.1) Notes to the Preliminary Statement31 December 2005 1. Segmental information The Group's operations are organised and managed separately according to thenature of the services provided, with each segment representing a strategicbusiness unit offering a different package of related services across theGroup's markets. The Group accounts for sales between business units as if they were to a thirdparty at market rates. Year ended 31 December 2005 Segment revenue Resourcing Property Commercial Corporate Integrated Professional services services services services services services Total £m £m £m £m £m £m £m Total segment revenue 187.9 200.7 271.4 245.0 400.8 267.3 1,573.1Inter-segment revenue (13.7) (10.2) (17.7) (4.6) (27.0) (64.4) (137.6) Third party revenue 174.2 190.5 253.7 240.4 373.8 202.9 1,435.5 Segment resultResult after 11.4 17.1 25.4 44.8 58.0 34.0 190.7depreciationShare-based payment (0.9) (1.0) (1.3) (1.2) (1.9) (1.3) (7.6)Intangible amortisation - (1.7) (0.9) (0.8) (0.6) (0.5) (4.5)Impairment charge - - - - - (12.0) (12.0) 10.5 14.4 23.2 42.8 55.5 20.2 166.6 Net finance costs (13.5) Profit before tax and 153.1minority interests Corporation taxation (45.8)Minority interests 0.2Profit after tax and 107.5minority interests Year ended 31 December 2004Segment revenue Continuing Discontinued Resourcing Property Commercial Corporate Integrated Professional operations operations services services services services services services total total £m £m £m £m £m £m £m £m Total segment 179.4 162.9 261.5 201.5 344.9 247.1 1,397.3 2.9revenueInter-segment (17.3) - (20.3) (11.7) (6.3) (59.5) (115.1) -revenue Third party 162.1 162.9 241.2 189.8 338.6 187.6 1,282.2 2.9revenue Segment resultResult after 6.8 17.2 21.4 35.0 49.4 30.7 160.5 (0.3)depreciationShare-based (0.6) (0.6) (0.8) (0.7) (1.2) (0.8) (4.7) -paymentIntangible - (1.4) - (0.2) - (0.2) (1.8) -amortisation 6.2 15.2 20.6 34.1 48.2 29.7 154.0 (0.3) Exceptional - (1.9)item Net finance costs (11.9) -Profit before tax and 142.1 (2.2)minority interests Corporation (39.4) -taxation 0.2 -Minority interests Profit after tax and 102.9 (2.2)minority interests Notes to the Preliminary Statement31 December 2005 2. Administrative expenses Included within the middle column disclosed on the face of the consolidatedincome statement, against the line item administrative expenses, are thefollowing: 2005 2004 £m £m Share-based payment charge 7.6 4.7Amortisation of intangible assets created on acquisition 4.5 1.8Goodwill impairment* 12.0 - 24.1 6.5 * During the year the goodwill recognised on the acquisition of the IndustrialSociety's workforce and training business, re-branded as Learning & Development,which was transacted in December 2001, was impaired. Over the period, thebusiness has not performed to expectation largely due to a market decline inthis type of training. 3. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit forthe year attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year plus the weightedaverage number of ordinary shares that would be issued on the conversion of allthe dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and dilutedearnings per share computations: 2005 2004 £m £m Net profit attributable to ordinary equity holders of the parent from 107.5 102.9continuing operationsLoss attributable to ordinary equity holders of the parent from a - (2.2)discontinued operationNet profit attributable to ordinary equity holders of the parent 107.5 100.7 2005 2004 Number Number million million Weighted average number of ordinary shares (excluding treasury shares)for basic earnings per share 660.1 665.4Dilutive potential ordinary shares:Employee share options 9.7 5.9 Weighted average number of ordinary shares (excluding treasury shares)adjusted for the effect of dilution 669.8 671.3 There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thesefinancial statements. To calculate earnings per share amounts for the discontinued operations, theweighted average number of ordinary shares for both basic and diluted amounts isas per the table above. The following table provides the loss figure used as thenumerator: 2005 2004 £m £mNet loss attributable to ordinary equity holders of the parent fromdiscontinued operations for basic and diluted earnings per sharecalculation - (2.2) Notes to the Preliminary Statement31 December 2005 3. Earnings per share (continued) The additional earnings per share figures are calculated based on earningsattributable to ordinary equity holders of the parent before amortisation,share-based payments and impairment of £128.3m (2004: £107.0m). They areincluded as they provide a better understanding of the underlying tradingperformance of the Group. 2005 2004 P P Basic earnings per share - before amortisation, share-based payment 19.44 16.08and impairment- after amortisation, share-based payment and impairment 16.28 15.13Diluted earnings per share - before amortisation, share-based payment 19.16 15.94and impairment- after amortisation, share-based payment and impairment 16.05 15.00 4. Dividends paid and proposed 2005 2004 £m £mDeclared and paid during the year Ordinary shares (equity):Final for 2004 paid: 3.6p per share (2003: 2.7p per share) 24.0 18.0Interim for 2005 paid 2.1p per share (2004: 1.75p per share) 14.0 11.6 38.0 29.6Proposed for approval at AGM (not recognised as a liability at 31December) Ordinary shares (equity):Final for 2005: 4.9p per share (2004: 3.6p per share) 32.0 23.8 5. Reconciliation of net cash flow to movement in net debt At 31 December 2005 Net debt Adjustments Net debt Acquisitions Cash flow Non-cash Net debt at 31 to comply at 1 in 2005 movements flow at 31 December with IAS 32 January (exc. cash) movements December 2004 and IAS 39 2005 2005 £m £m £m £m £m £m £m Overdrafts (26.1) - (26.1) - 6.8 - (19.3)Cash (26.1) - (26.1) - 6.8 - (19.3)Loan notes (27.1) - (27.1) - 4.4 - (22.7)Long-term debt - - - (2.9) 2.9 - -Bonds (124.7) 1.7 (123.0) - (74.9) (0.7) (198.6)Finance leases (0.2) - (0.2) (0.2) 0.2 - (0.2)Sub-total net debt (178.1) 1.7 (176.4) (3.1) (60.6) (0.7) (240.8)Asset based securitisedfinance (note 6) - - - (26.8) (1.4) - (28.2) Total (178.1) 1.7 (176.4) (29.9) (62.0) (0.7) (269.0) Notes to the Preliminary Statement31 December 2005 5. Reconciliation of net cash flow to movement in net debt (continued) At 31 December 2004 Net debt Acquisitions Cash flow Non-cash Net debt at 1 in 2004 movements flow at 31 January (exc. cash) movements December 2004 2004 £m £m £m £m £m Cash and cash equivalents 30.7 - (30.7) - -Overdrafts - - (26.1) - (26.1)Cash 30.7 - (56.8) - (26.1)Loan notes (33.0) (0.4) 6.3 - (27.1)Long-term debt - (5.2) 5.2 - -Bonds (124.6) - - (0.1) (124.7)Finance leases (0.5) - 0.3 - (0.2) Total (127.4) (5.6) (45.0) (0.1) (178.1) 6. Balance sheet impacts The acquisition of BDML Connect Limited (BDML) included "insurance debtorssubject to a securitisation agreement". The purpose of this arrangement is tosecuritise customer receivables, derived through the provision of instalmentcredit facilities to insurance customers of the company. The company sells said receivables, with no immediate effect on the P&L, forcash to a third party (Gresham in this case). Gresham take on the rights andresponsibilities of these receivables such that the terms of this agreementdictate that Gresham has no recourse to BDML beyond 14% of the total receivablesecuritised. Under UK GAAP, the substance of this arrangement was disclosed as a linkedpresentation under the current assets section of the balance sheet withoutappearing in the financing section of the balance sheet. The Group's transition to IFRS has necessitated different disclosure, the impactof which is to reflect on BDML's opening balance sheet an increase in theGroup's receivables of £37.1m adding £26.8m of securitised asset financing. Therespective balances of this arrangement at 31 December 2005 were £37.9m toreceivables and £28.2m to securitised asset financing. One of the principal activities of a subsidiary of the Group, Capita FinancialManagers Limited (CFM), is to act as an authorised unit trust manager wherebyfunds are received on behalf of customers to be invested per instruction by CFM.The transfer of funds to purchase the units is not always done on the samebusiness day. The Group's transition to IFRS has forced us to re-examine certainfunds flow arrangements and we have reached the conclusion that this arrangementshould be recorded gross on the Group's consolidated balance sheet. The impactfor the 2004 closing balance sheet was to increase debtors, creditors and cashbalance by £17.3m, £28.1m and £10.8m respectively. The equivalent balances onthe 2005 closing balance sheet are £31.1m, £38.0m and £6.9m resulting in timingdifference in cash outflow of £3.9m for the year. 7. Preliminary announcement The preliminary announcement is prepared in accordance with InternationalFinancial Reporting Standards. This differs from the basis used for the previousyear's accounts and comparatives have been restated accordingly. A duly appointed and authorised committee of the Board of Directors approved thepreliminary announcement on 22 February 2006. The announcement represents non-statutory accounts within the meaning of section240 of the Companies Act 1985. The statutory annual accounts for the year ended31 December 2005, upon which an unqualified audit opinion has been given andwhich did not contain a statement under section 235, 237(2) or 237(3) of theCompanies Act 1985, will be sent to the Registrar of Companies. Copies of the announcement can be obtained from the Company's registered officeat 71 Victoria Street, Westminster, London, SW1H 0XA. It is intended that theAnnual Report & Accounts will be posted to shareholders on 22 March 2006 andwill be available to members of the public at the registered office of theCompany from that date. 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