Half Year Results
22 July 2010
THE CAPITA GROUP PLC
Half year results for the 6 months to 30 June 2010
GOOD PERFORMANCE AND PROSPECTS
Financial highlights
Half year 2010 Half year 2009 Change
Turnover £1,361m £1,311m + 4%
Underlying operating profit* £178.4m £159.6m + 12%
Underlying profit before tax* £163.1m £141.7m + 15%
Underlying earnings per share* 19.60p 16.92p + 16%
Interim dividend per share 6.6p 5.6p + 18%
* excludes intangible amortisation and acquisition costs of £18.2m (H1 2009: £
9.9m), the non-cash impact of mark to market movement on financial instruments
of £12.5m charge (H1 2009: £3.0m credit).
Key points
* Major contracts wins and renewals of £523m (6 months to 30 June 2009: £
814m)
* Buoyant bid pipeline of £4.4bn (Feb 2010: £3.7bn)
* 7 acquisitions completed to date in 2010 at a cost of £107m
* Operating margin increased to 13.1% (6 months to 30 June 2009: 12.2%)
* Strong underlying free cash flow - up 15% to £140m (6 months to 30 June
2009: £122m)
* 18% increase in half year dividend to 6.6p per share
* £1.03bn returned to shareholders over last 5 years
Paul Pindar, Chief Executive of The Capita Group Plc, commented:
"Capita has made good progress in 2010. We have secured new and renewed major
contracts worth £523m in the first 6 months of the year and the majority of our
businesses across the Group delivered robust results.
Capita is well placed to continue its growth and is now enjoying a very healthy
flow of new business opportunities. There is buoyant demand for outsourcing
across both the private and public sectors, with the most active markets in our
strong bid pipeline remaining local government and life and pensions. Whilst
the current pressures on public spending may potentially affect growth in the
short term in a small number of our trading activities, the need for our public
sector clients to achieve substantial cost efficiencies offers significant
opportunities for the Group going forwards.
Our pipeline of sales prospects, forward visibility of revenues from our long
term contracts and consistent operational performance position us well for
further progress in 2010 and thereafter."
For further information:
The Capita Group Plc Tel: 020 7799 1525
Paul Pindar, Chief Executive
Shona Nichols, Corporate Communications Director
Capita Press Office Tel: 020 7654 2399
Financial Dynamics Tel: 020 7269 7121
Andrew Lorenz
The Capita Group Plc
Half year results for the 6 months to 30 June 2010
Capita, the UK's leading business process outsourcing ("BPO") and professional
services company, has made good progress in the first 6 months of 2010. The
majority of our businesses across the Group have performed well and we have
secured new and renewed major contracts worth £523m in the first 6 months of
the year.
In the 6 months ended 30 June 2010, turnover increased by 4% to £1,361m (6
months to 30 June 2009: £1,311m). Revenue growth has been impacted by the lower
number of new major contracts secured last year and, as highlighted in February
2010, by an unusually high level of contract completions and lower client
expenditure on project activity. Underlying operating profit* rose by 12% to £
178.4m (2009: £159.6m) and underlying profit before taxation* increased by 15%
to £163.1m (2009: £141.7m). Underlying earnings per share* grew by 16% to
19.60p (2009: 16.92p).
Underlying operating cash flow rose by 9% to £216m (2009: £198m). We have
increased our interim dividend by 18% to 6.6p per share (2009: 5.60p).
* excludes intangible amortisation and acquisition costs of £18.2m (H1 2009: £
9.9m), the non-cash impact of mark to market movement on financial instruments
of £12.5m charge (H1 2009: £3.0m credit).
Building value for shareholders
To ensure we build value for shareholders on a consistent, long term basis, we
focus on a number of additional key financial measures including:
* Margin - our focus remains on generating a steadily improving operating
margin. In the period, operating margin (before amortisation) was 13.1%
(2009: 12.2%). Our continued margin progression is due to our focus on
operating at optimum efficiency across the Group, our ability to drive out
benefits from our extensive scale, in particular through IT
rationalisation, property consolidation and effective procurement, and the
sophistication and added value of the services we deliver to clients. These
factors underpin our confidence in continuing to deliver improving margin
for the foreseeable future.
* Cash flow - the strength of our business model is reflected in our
excellent underlying cash flow, with £216m (2009: £198m) generated by
operations in the period, representing an operating profit to cash
conversion rate of 121% (2009: 124%). Our underlying free cash flow
increased by 15% to £140m (2009: £122m).
We use surplus cash to add value in 3 main ways - through acquisitions, share
buybacks and dividends:
* Acquisitions - acquisitions help us to enter new markets, strengthen
existing market positions and build economies of scale, or access a new
customer base. Acquisitions have consistently been a key driver for
enhancing value to our shareholders by both generating excellent returns on
capital and by building platforms for future organic growth.
To date in 2010, we have spent £107m on 7 acquisitions. We will continue with
our strategy of acquiring small to medium-sized businesses which are priced at
a level which add value for our shareholders. Current market conditions are
fuelling our pipeline of potential acquisitions and we expect to be active in
acquiring further suitable businesses in the second half of the year. We remain
highly selective and have a robust process for smoothly integrating
acquisitions into the Group and driving out value.
* Share buybacks - opportunistic share buybacks help us to maintain an
efficient capital structure and minimise our long term cost of capital. In
the 6 months to 30 June 2010, the Group has bought back 11.7 million shares
(representing 1.9% of the issued share capital) at an average price of 765p
per share. Following these buybacks the Company has 609 million shares in
issue (excluding shares held in Treasury and the Capita Employee Benefit
Trust). We will continue to buy back shares if attractive opportunities
arise. Shareholders renewed the Group's authority to purchase up to 10% of
issued share capital at our AGM in May 2010. The Group has returned £1.03bn
to shareholders over the last 5 years through share buybacks, ordinary
dividends and special dividends.
* Interim dividend - the Board has declared an interim dividend of 6.6p per
ordinary share (2009: 5.6p), representing an increase of 18%. The dividend
will be payable on 12 October 2010 to shareholders on the register at the
close of business on 3 September 2010.
* Capital expenditure - we aim to contain capital expenditure at or below 4%
of revenue. During the period, we met this objective with net capital
expenditure at 2.8% (2009: 2.7%) of revenue.
* Return on capital employed - we deploy our capital carefully and focus on
driving a healthy return on capital. Over the last 12 months, the post tax
return on average capital employed (including debt) was 20.2% (12 months to
30 June 2009: 20.2%). This compares to our estimated weighted average cost
of capital which is 7.8%.
Additional financial information
Debt profile - We aim to maintain a conservative balance sheet with substantial
headroom to take advantage of opportunities to add value to shareholders as
they arise. On 30 June 2010, we issued £253m of 7 and 10 year private placement
notes. Following this issuance, we have £834m of private placement debt which
matures between 2012 and 2020. The proceeds of the new issues were used to
repay a more expensive £200m bank term loan that was due to mature in July
2011. In addition to cash of £112m held by the Group, we have an unutilised
committed revolving credit facility of £245m maturing in December 2011.
Our marketplace
We remain the clear leader in the overall UK BPO market with a 27% market share
in 2009 (25.5% 2008). Industry analysts estimate the total potential market at
£94.2bn per annum (private sector 67% and public sector 33%) with only 6%
outsourced to date.†We are experiencing high levels of interest across both
the private and public sectors as organisations seek alternative and more
efficient service delivery models.
Generating profitable growth
We generate profitable growth by winning business from new and existing
customers in the UK and Ireland and supplement this by acquiring businesses
that broaden our skill base and extend our market reach.
Organic growth: Each of our businesses employs sales teams focused upon
securing growth from both existing and new customers. A good performance has
been achieved across the Group in the first half of the year, particularly in
our financial services, local government, property consultancy, resourcing and
IT services businesses.
†Source: Ovum 2008 and 2009
Our centrally managed Major Sales Team pursues complex, long term contracts
worth over £10m which require a wide range of the Group's skills and generate
high quality, recurring revenues. Securing and renewing major contracts remains
an important component of our growth.
To date in 2010, 17 new contracts and extensions with an aggregate value of £
523m have been secured. (H1 2009: £814m, 10 contracts). This includes a life
and pensions contract with Aviva Life International in Ireland, a contract with
AXA to provide administration services for Sainsbury's pet insurance offering,
extensions of our DWP storage and Constructionline contracts and expansions of
2 of our local government strategic partnerships, and:
* Harrow Council: Harrow Council has agreed in principle to transfer the
authority's IT services to Capita, subject to consultation with staff and
unions. The exact way in which this would be provided is still being
decided. This would also be subject to signing a satisfactory 10-year
contract with Capita, with a 5 year break clause. If agreed, the contract is expected to be
worth around £50m to Capita.
* Marsh: We are in the final stages of negotiations regarding an expansion of
our partnership to deliver back office functions and processing services to
enhance Marsh UK's broking activities to clients across its business.
* Building Schools for the Future (BSF): A number of BSF contracts involving
the provision of property consultancy and ICT for clients such as
Wolverhampton City Council, Manchester City Council and Rochdale
Metropolitan Borough Council, worth in aggregate £97m. All of these
contracts have been confirmed as going ahead.
* Nottinghamshire County Council and East Midlands Broadband Consortium
(embc): A new arrangement to provide networking, applications and services
to Nottinghamshire CC, worth £30m, and an extension to the embc contract,
both secured by our newly acquired Synetrix business.
* Virgin Money and Sheffield City Council: As previously announced, we are in
the final stages of negotiations with Virgin Money regarding the provision
of end-to-end sales support, policy administration and processing services
for a new home and motor insurance proposition. Also, we are working to
agree terms with Sheffield CC, under their existing partnership agreement,
to deliver and transform their customer services function.
Market activity and opportunities - the fuel for growth
Our bid pipeline currently stands at £4.4bn (February 2010: £3.7bn) and only
includes bid situations in which Capita is shortlisted to the last 4 or fewer
bidders and caps the largest bids at £500m. We have no material contracts
(defined as having annual revenue in excess of 1% of 2009 turnover) due for
rebid until 2012.
The bid pipeline reflects the continued quality and quantity of business
opportunities across our private and public sector markets. The bid pipeline is
currently made up of 23 bids with an average contract duration of 8 years.
Behind this is an active prospect list of opportunities which are yet to reach
a shortlist stage, the fuel for the next tranche of potential outsourcing
contracts.
Across our pipeline, our most active markets remain local government and life
and pensions. Additionally, there are several interesting central government,
health and defence opportunities.
Below we have highlighted some of the drivers for outsourcing and opportunities
in a number of our public sector markets due to the current increased focus on
restructuring and remodelling public services to deliver essential services
efficiently.
* Central government: Central government contracts currently represent
approximately 9% of our Group turnover. Fiscal pressure across Government
is generating a strong focus on ways to deliver essential services at lower
cost. We are very encouraged by the decisiveness and pace being
demonstrated by the Coalition Government to tackle the fiscal position. It
was announced in the emergency budget in June that Government departments
should seek to make a reduction of 25% in costs and subsequently the civil
service has been tasked to identify further cost savings of up to 40% to be
achieved over the course of the next spending period starting April 2011.
The Government is expected to review services currently delivered by the
public sector and engage with outsourcing companies more widely and
innovatively to help streamline and administer public services through
different delivery models. With our breadth of capabilities and track
record, we believe we are well placed to help Government achieve the
required efficiencies whilst protecting the quality of services.
* Local government: The local government market remains an area of high
interest and opportunity for us. Services we deliver to local authorities
represent 23% of Group revenues. Local authorities have been under fiscal
pressure for a number of years and are now facing the need to achieve even
greater cost savings. Strategic partnerships with outsourcing companies are
an established and recognised model for achieving service improvements and
cost efficiencies in this market. We are currently experiencing an increase
in engagement both with our current clients to explore expanding the remit
of our existing partnerships to assist them further and with potential
clients who are seeking wide ranging partnerships to remodel their services
to meet the needs of citizens within reduced budgets. Increasingly
authorities are seeking assistance in consolidating and managing their
property estates and using workspace more effectively. There is also an
increased appetite to push forward the joint delivery of local public
services currently delivered by separate organisations and to share common
support services. Our footprint in the local authority market and the
health market positions us well to help local authorities respond to the
proposed structural changes in the recent NHS White Paper "Liberating the
NHS".
* Health: We have continued to build our capabilities and resources to meet
the needs of the health market. We entered the health market in 2004 with
the acquisition of AON Health Solutions. Today, the health market accounts
for 4% of Group revenues. As patient demand continues to grow against a
backdrop of tighter funding, we see further opportunities for growth in
this market. Our contract with NHS BSA, to provide processing and payments
of c.40m dental claims p.a. in England and Wales, and a managed IT service
to support the Authority, commenced at the beginning of July and we are now
focused on delivering service quality improvement and introducing
efficiencies to the Authority. Our recent acquisition of Premier Medical
Group, a leading provider of medical reporting and screening services in
the UK, further expands our service portfolio and provides greater depth of
experience in working with and managing medical professionals. The recent
NHS White Paper highlights the need to cut bureaucracy and administration
costs while increasing productivity and service quality. We are well placed
to bring together our skills and experience in the health market with our
ability to re-engineer processes and customer services to assist health
organisations to address these challenges.
Stimulating growth through acquisition: A key element of our growth is the
acquisition of small to medium sized companies which extend our presence in
existing marketplaces or provide a footprint in a new market. We have
substantial experience of integrating acquired businesses and achieving
synergies with our existing operations. To date in 2010, we have acquired 7
businesses for a total consideration of £107m including:
* Premier Medical Group - a leading provider of medical reporting and
screening services across the UK, acquired for £60m in June, further
demonstrates Capita's commitment to the health sector. We are currently
integrating our existing occupational health business with Premier Medical
Group to offer a wider, improved service to our clients and to gain
operating synergies.
* Ramesys - a provider of integrated ICT solutions to the education and
commercial sector. This acquisition, for £15m, allows us to broaden and
deepen our own expertise in the education technology market and also
enables us to compete for larger and more complex education IT projects.
* NB Real Estate - commercial property management specialists, acquired for £
10m. Combined with Capita Symonds, this acquisition offers the opportunity
to provide a full service proposition across the real estate lifecycle and
help public and private organisations to manage their property assets in
innovative and efficient ways.
* Sureterm Direct - acquired for £8m, Sureterm Direct is a niche personal
lines broker primarily offering insurance for classic cars, motorhomes and
4x4s. This acquisition will allow Capita Insurance Distribution to align
its classic car insurance business with its other operations, increasing
the efficiency of its services to customers.
* Inventures - acquired for £6.8m, Inventures is a leading property
consultancy focused on the healthcare market. Alongside Capita Symonds
services, the acquisition enables us to provide a full service proposition
across health and the wider public sector. Its focus on achieving efficient
use of clients' property portfolios and releasing surplus accommodation
positions the business well in the current fiscal environment.
Operational Update
Businesses across the Group have performed robustly in the continued
challenging economic environment. The breadth and nature of our services and
our flexible and innovative approach have enabled us to respond well to
changing client requirements. Some examples of this are outlined below:
* India: Our Indian operations continue to deliver excellent productivity and
quality services. Our headcount in India stands at 4,140, an increase of 8%
since the beginning of the year. We are now focused on expanding our
capabilities in India beyond core administration services. Alongside our
offshore IT testing services, we have established an IT services capability
with scale and an initial focus on Application services.
* IT Services: Our IT Services business continues to expand and deliver a
good service to our businesses and contracts as well as directly to
clients. We have a growing track record of delivering IT transformations
that drive out efficiencies across organisations, particularly across local
government. In the education market, our breadth of specialist IT and
technology solutions is constantly growing and adapting to the increasing
use of technology to support education and training. Notwithstanding the
Government's announcement that it is not continuing the Building Schools
for the Future programme, our revenues for contracted projects remain
secure. We believe there will remain a steady demand for our services as
educational establishments continue to embrace technology as a key enabler
for learning and education improvement. Additionally, we are working across
the Group to draw together ICT, software services, property consultancy and
strategic educational consultancy skills and services to develop a
comprehensive response to support the Government's emerging new direction
for education.
* Property Consultancy - Capita Symonds has positioned itself well to weather
the reduction in Government spending on infrastructure projects. It is now
one of the UK's largest, multifaceted consultancies with an unrivalled
scope of services. In particular, it has invested in building its
capability in roadside technology that focuses on information, planning and
traffic flow control to ensure the most effective use of existing
infrastructures. Also, the combination of the services provided by recently
acquired NB Real Estate with Capita Symonds' portfolio of services enables
us to provide a full service proposition across the real estate lifecycle.
This is very valuable not only to commercial organisations but also to
central and local government organisations seeking to use workspace more
effectively and to manage their property estate more efficiently through
consolidation and disposal.
* Resourcing: Our Resourcing businesses continue to perform well. With the
drive across both the private and public sectors to manage their workforces
and recruitment as flexibly and efficiently as possible, we have been
successful in extending current and securing new managed services contracts
and expanding our remits under existing framework agreements. Our
recruitment process outsourcing (RPO) contract with NATS (National Air
Traffic Services) to save money through effective resource planning is
entering its 7th year. We have extended our existing contract and secured a
new 3 year contract (plus a potential 2 years extension) to supply the
entire Nuclear Estate with non permanent workers. We are supporting Severn
Trent Water through its business transformation and relocation programme.
In support of the collaborative procurement agenda across government, the
DWP CIPHER contract framework for interim resources has delivered cost
savings of £20m since July 2008 and now also engages with an additional 6
central government organisations.
Board changes
We have recently appointed two additional Non-Executive Directors to the Group
Board. Dr Nigel Wilson was appointed a Non-Executive Director with effect from
12 May 2010, and became a member of the Nomination, Remuneration and Audit
Committees. He became Senior Independent Director on appointment. Nigel is
Group Chief Financial Officer of Legal & General Group Plc.
Paul Bowtell was appointed a Non-Executive Director with effect from 28 June
2010 and became a member of the Nomination, Remuneration and Audit Committees
on appointment. He will become Chairman of the Audit Committee from 1 August
2010. Paul is Chief Financial Officer of Tui Travel PLC.
Paul and Nigel's appointments add further financial and commercial expertise to
the Board and we look forward to their contribution to Capita.
Additionally, after almost 4 years of service, Non-Executive Director Bill
Grimsey has decided to stand down from the Board from 31 July 2010. His
business acumen has enriched the Board during this period and we would like to
thank Bill for his contribution and wish him well with his business and
personal interests going forward.
Future prospects
Capita has made good progress in 2010. We have secured new and renewed major
contracts worth £523m in the first 6 months of the year and the majority of our
businesses across the Group have delivered robust results.
Capita is well placed to continue its growth and is now enjoying a very healthy
flow of new business opportunities. There is buoyant demand for outsourcing
across both the private and public sectors, with the most active markets in our
strong bid pipeline remaining local government and life and pensions. Whilst
the current pressures on public spending may potentially affect growth in the
short term in a small number of our trading activities, the need for our public
sector clients to achieve substantial cost efficiencies offers significant
opportunities for the Group going forwards.
Our pipeline of sales prospects, forward visibility of revenues from our long
term contracts and consistent operational performance position us well for
further progress in 2010 and thereafter.
-Ends-
Half year condensed consolidated income statement
for the 6 months ended 30 June 2010
30 June 30 June
2010 2009
Non- Non-
Underlying underlying Total Underlying underlying Total
Notes £m £m £m £m £m £m
Continuing
operations:
Revenue 3 1,361.1 - 1,361.1 1,310.7 - 1,310.7
Cost of sales 971.7 - 971.7 944.0 - 944.0
Gross profit 389.4 - 389.4 366.7 - 366.7
Administrative 211.0 18.2 229.2 207.1 9.9 217.0
expenses
Operating profit 3 178.4 (18.2) 160.2 159.6 (9.9) 149.7
Finance costs (15.3) (12.5) (27.8) (17.9) 3.0 (14.9)
Profit before tax 163.1 (30.7) 132.4 141.7 (6.9) 134.8
Income tax expense (42.4) 8.2 (34.2) (38.0) 1.9 (36.1)
Profit for the 120.7 (22.5) 98.2 103.7 (5.0) 98.7
period
Attributable to:
Equity holders of 120.7 (22.5) 98.2 103.7 (5.0) 98.7
the parent
Earnings per share 4
- basic 19.60p (3.65)p 15.95p 16.92p (0.81)p 16.11p
- diluted 19.38p (3.62)p 15.76p 16.74p (0.80)p 15.94p
Half year condensed consolidated statement of comprehensive income
for the 6 months ended 30 June 2010
30 June 30 June
2010 2009
£m £m £m £m
Profit for the period 98.2 98.7
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension (14.8) (8.3)
schemes
Income tax effect 4.1 2.3
(10.7) (6.0)
Exchange differences on translation of (0.9) (3.0)
foreign operations
Gains/(Losses) on cash flow hedges 6.6 (23.7)
Reclassification adjustments for gains (0.1) (2.3)
included in the income statement
Income tax effect (1.8) 7.3
4.7 (18.7)
Other comprehensive expense for the period (6.9) (27.7)
net of tax
Total comprehensive income for the period net 91.3 71.0
of tax
Attributable to:
Equity holders of the parent 91.3 71.0
Half year condensed consolidated balance sheet
at 30 June 2010
30 June 31
2010 December
2009
£m £m
Non-current assets
Property, plant and equipment 256.7 256.6
Intangible assets 1,188.0 1,107.0
Financial assets 279.0 186.3
Trade and other receivables 22.6 20.3
1,746.3 1,570.2
Current assets
Financial assets 4.9 2.0
Trade and other receivables 741.4 618.4
Cash 111.8 181.5
858.1 801.9
Total assets 2,604.4 2,372.1
Current liabilities
Trade and other payables 901.2 794.5
Financial liabilities 14.5 19.8
Provisions 29.2 27.6
Income tax payable 56.1 37.5
1,001.0 879.4
Non-current liabilities
Trade and other payables 10.7 9.0
Financial liabilities 1,106.3 951.3
Provisions 20.4 20.4
Deferred taxation 8.5 13.9
Employee benefits 41.7 31.9
1,187.6 1,026.5
Total liabilities 2,188.6 1,905.9
Net assets 415.8 466.2
Capital and reserves
Issued share capital 13.0 12.9
Share premium 451.0 435.2
Employee benefit trust (0.4) (0.2)
Capital redemption reserve 1.8 1.8
Foreign currency translation 3.4 4.3
Net unrealised gains reserve 12.5 7.8
Retained earnings (65.5) 4.4
Equity shareholders' funds 415.8 466.2
Included in aggregate financial liabilities is an amount of £1,059.8m (31
December 2009: £720.5m) which represents the fair value of the Group's bonds
which should be considered in conjunction with the aggregate value of currency
and interest rate swaps of £228.2m (31 December 2009: £139.9m) included in
financial assets and £2.0m (31 December 2009: £0.6m) included in financial
liabilities. Consequently, this gives an effective liability of £833.6m (31
December 2009: £581.2m).
Half year condensed consolidated statement of changes in equity
for the 6 months ended 30 June 2010
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 2009 12.8 410.4 (0.2) 1.8 (53.0) 6.6 18.5 396.9
Profit for the period - - - - 98.7 - - 98.7
Other comprehensive - - - - (6.0) (3.0) (18.7) (27.7)
income/(expense)
Total comprehensive - - - - 92.7 (3.0) (18.7) 71.0
income/(expense) for the
period
Share based payment - - - - 5.2 - - 5.2
Income tax deduction on - - - - 1.1 - - 1.1
exercise of share
options in excess of
share based payments
Deferred income tax - - - - (8.0) - - (8.0)
relating to share based
payments
Shares issued 0.1 6.8 - - - - - 6.9
Share options satisfied - 6.6 - - - - - 6.6
from EBT
Equity dividends paid - - - - (58.8) - - (58.8)
At 30 June 2009 12.9 423.8 (0.2) 1.8 (20.8) 3.6 (0.2) 420.9
At 1 January 2010 12.9 435.2 (0.2) 1.8 4.4 4.3 7.8 466.2
Profit for the period - - - - 98.2 - - 98.2
Other comprehensive - - - - (10.7) (0.9) 4.7 (6.9)
income/(expense)
Total comprehensive - - - - 87.5 (0.9) 4.7 91.3
income/(expense) for the
period
Share based payment - - - - 4.9 - - 4.9
Purchase of own shares - - (0.2) - (89.3) - - (89.5)
Share transaction costs - - - - (0.5) - - (0.5)
Income tax deduction on - - - - 0.7 - - 0.7
exercise of share
options in excess of
share based payments
Deferred income tax - - - - (4.1) - - (4.1)
relating to share based
payments
Shares issued 0.1 15.8 - - - - - 15.9
Equity dividends paid - - - - (69.1) - - (69.1)
At 30 June 2010 13.0 451.0 (0.4) 1.8 (65.5) 3.4 12.5 415.8
Half year condensed consolidated cash flow statement
for the 6 months ended 30 June 2010
30 June 30 June
2010 2009
Notes £m £m
Cash flows from operating activities
Operating profit on continuing activities before 160.2 149.7
interest and taxation
Depreciation 36.4 27.9
Amortisation of intangible assets 17.0 9.9
Share based payment expense 4.9 5.2
Pension charge 10.7 10.3
Pension contributions (15.7) (14.8)
Movement in provisions 0.8 (0.2)
Movement in receivables and payables 2.0 9.8
Cash generated from operations before exceptional 216.3 197.8
additional pension contribution
Income tax paid (23.2) (20.7)
Exceptional additional pension contribution - (40.0)
Net interest paid (15.3) (18.7)
Cash generated from operations after income tax, 177.8 118.4
exceptional additional pension contribution and
interest
Net cash used in investing activities
Purchase of property, plant and equipment (38.8) (35.5)
Proceeds from sale of property, plant and equipment 1.3 -
Investment loan 0.2 3.4
Acquisition of subsidiary undertakings and (104.6) (98.6)
businesses
Cash acquired with subsidiary undertakings 1.1 0.6
Proceeds on sale of financial assets - 1.6
(140.8) (128.5)
Net cash used in financing activities
Issue of ordinary share capital 15.7 13.4
Share buybacks (89.3) -
Share transaction costs (0.5) -
Dividends paid 5 (69.1) (58.8)
Capital element of finance lease rental payments 7 (0.3) -
Asset based securitised financing arrangement 7 (5.3) (1.0)
Instalment debtor movement 6.4 -
Increase in long term debt 7 252.8 -
Repayment of bonds and loan notes 7 (213.0) (101.1)
Repayment of long term debt 7 (3.4) -
Repayment of loan notes 7 (0.7) -
(106.7) (147.5)
Net decrease in cash and cash equivalents (69.7) (157.6)
Cash and cash equivalents at the beginning of the 181.5 86.7
period
Cash and cash equivalents at 30 June 111.8 (70.9)
Cash and cash equivalents comprise:
Overdraft 7 - (70.9)
Cash at bank and in hand 7 111.8 -
Total 111.8 (70.9)
Notes to the half year condensed consolidated financial statements
for the 6 months ended 30 June 2010
1 Corporate information
The Capita Group Plc is a public limited company incorporated in England and
Wales whose shares are publicly traded. The half year condensed consolidated
financial statements of the Company and its subsidiaries (`the Group') for the
6 months ended 30 June 2010 were authorised for issue in accordance with a
resolution of the Directors on 21 July 2010.
2 Basis of preparation and accounting policies
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2010 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 all
the information and disclosures required in the annual financial statements and
should be read in conjunction with the Group's annual financial statements as
at 31 December 2009, which have been prepared in accordance with IFRSs as
adopted by the European Union.
This condensed consolidated half year financial information does not comprise
statutory accounts within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2009 were approved by the
Board of Directors on 24 February 2010 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under Section 498 of the Companies Act 2006.
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2010 have not been audited or reviewed by auditors pursuant to
the Auditing Practices Board guidance on Review of Interim Financial
Information.
The Group has considerable financial resources together with long term
contracts 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 its
business risks successfully.
After making enquiries and in accordance with the FRC's "Going Concern and
Liquidity Risk: Guidance for Directors of UK Companies 2009", the Directors
have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the half year condensed
consolidated financial statements.
(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 2009, except for the adoption of the new standards and interpretations
as of 1 January 2010, noted below.
IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate
Financial Statements (Amended) The revised business combinations standard
introduces significant changes in the accounting for business combinations.
Changes affect the valuation of non-controlling interests, the accounting for
transaction costs, the initial recognition and subsequent measurement of
contingent consideration and business combinations achieved in stages. These
changes will impact the amount of goodwill recognised, the reported results in
the period that an acquisition occurs and future reported results.
IAS 27 (Amended) requires that a change in the ownership interest of a
subsidiary (without loss of control) is accounted for as a transaction with
owners in their capacity as owners. Therefore such transactions will no longer
give rise to goodwill, nor will they give rise to a gain or loss. Furthermore
the amended standard changes the accounting for losses incurred by a subsidiary
as well as the loss of control of a subsidiary. The changes by IFRS 3 Revised
and IAS 27 (Amended) will affect future acquisitions or loss of control of
subsidiaries and transactions with non-controlling interests.
This change in accounting policy was applied prospectively and had no material
impact on earnings per share.
IFRS 2 Share based Payment - Group Cash-settled Share based Payment
Transactions The standard has been amended to clarify the accounting for group
cash-settled share based payment transactions. This amendment also supersedes
IFRIC 8 and IFRIC 11. The adoption of this amendment did not have any impact on
the financial position or performance of the Group.
IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged
Items (Amendment) This amendment addresses the designation of a one-sided risk
in a hedged item and the designation of inflation as a hedged risk in
particular situations. The adoption of this amendment did not have any impact
on the financial position or performance of the Group.
Improvements to IFRSs In April 2009 the International Accounting Standards
Board issued its second omnibus of amendments to its standards, primarily with
a view to removing inconsistencies and clarifying wording. The adoption of
these amendments, which are effective from 1 January 2010, did not have any
impact on the financial position or performance of the Group.
IFRIC 17 Distribution of Non-cash Assets to Owners This interpretation provides
guidance on accounting for arrangements whereby an entity distributes non-cash
assets to shareholders either as a distribution of reserves or as dividends.
The interpretation had no effect on the financial position or performance of
the Group.
3 Segmental information
6 months 6 months
to 30 June to 30
2010 June 2009
Analysis of segment revenue £m £m
HR Solutions 137.6 138.2
Property Consultancy 146.2 128.2
Insurance Services 89.7 117.3
Investor Services 87.7 80.0
Integrated Services 130.4 172.7
ICT and Partnership Services 305.0 244.0
Life & Pensions 277.3 251.1
Professional Services 187.2 179.2
1,361.1 1,310.7
6 months 6 months
to 30 June to 30
2010 June 2009
Analysis of segment result £m £m
HR Solutions 13.7 12.8
Property Consultancy 11.8 9.1
Insurance Services 10.3 12.9
Investor Services 18.4 13.9
Integrated Services 21.6 27.2
ICT and Partnership Services 35.9 28.1
Life & Pensions 33.2 26.6
Professional Services 33.5 29.0
178.4 159.6
The comparative figures have been restated to reflect the changes to divisional
structures as reported in the financial statements for the year ended 31
December 2009.
4 Earnings per share
The average number of shares in issue during the period was 615.7m (30 June
2009: 612.8m). The diluted earnings per share have been calculated on the
profit for the period of £98.2m (30 June 2009: £98.7m) and an average diluted
number of shares of 622.9m (30 June 2009: 619.3m). As at 21 July 2010, there
were 608.7m shares in issue.
5 Dividends paid and proposed
The interim dividend of 6.6p (2009: 5.6p) per share (not recognised as a
liability at 30 June 2010) will be payable on 12 October 2010 to ordinary
shareholders on the register at the close of business on 3 September 2010. The
dividend disclosed in the cash flow statement represents the final ordinary
dividend of 11.2p (2009: 9.6p) per share as proposed in the 31 December 2009
financial statements and approved at the Group's AGM (not recognised as a
liability at 31 December 2009).
6 Business combinations
The Group has made a number of acquisitions in the period, which are shown in
aggregate below:
Book Fair value Provisional
values adjustments fair value
to Group
£m £m £m
Intangible assets 0.6 - 0.6
Property, plant and equipment 3.6 - 3.6
Deferred tax 0.5 - 0.5
Debtors 70.0 (0.1) 69.9
Cash and cash equivalents 1.4 - 1.4
Creditors (65.3) (0.5) (65.8)
Finance lease obligations (0.3) - (0.3)
Provisions (0.7) - (0.7)
Long term debt (0.6) - (0.6)
Corporation tax (1.3) - (1.3)
Net assets 7.9 (0.6) 7.3
Goodwill arising on acquisition 94.2
101.5
Discharged by:
Cash 101.5
The full exercise to determine the intangible assets acquired is still to be
completed, thus the above numbers are provisional; this exercise will be
finalised for the full year financial statements. Further cash consideration
was paid in respect of previous acquisitions of £3.1m with an equivalent impact
on goodwill.
The performance of these acquisitions post their inclusion in the Group cannot
be ascertained as they have been fully integrated within existing offerings.
7 Movement in net debt
Net debt Acquisitions Cash Non- Net debt
at in 2010 flow cash at
1 movements flow 30 June
January movements 2010
2010
£m £m £m £m £m
Cash and cash equivalents 181.5 - (69.7) - 111.8
Loan notes (2.6) - 0.7 - (1.9)
Bonds* (720.5) - (252.8) (86.5) (1,059.8)
Term debt (198.0) - 200.0 (2.0) -
Factored debt acquired - (13.0) 13.0 - -
Currency swaps in relation to 136.0 - - 85.2 221.2
US $ denominated bonds*
Interest rate swaps in relation 3.3 - - 1.6 4.9
to GBP denominated bonds*
Long term debt (2.8) (0.6) 3.4 - -
Finance leases (1.4) (0.3) 0.3 (0.4) (1.8)
Sub-total net debt (604.5) (13.9) (105.1) (2.1) (725.6)
Callable swaps (30.9) - - (12.5) (43.4)
Asset based securitised finance (17.1) - 5.3 - (11.8)
(652.5) (13.9) (99.8) (14.6) (780.8)
Net debt Cash Non- Net debt
at flow cash at
1 January movements flow 30 June
2009 movements 2009
£m £m £m £m
Cash and cash equivalents 86.7 (86.7) - -
Overdrafts - (70.9) - (70.9)
Cash 86.7 (157.6) - (70.9)
Loan notes (3.7) 0.8 - (2.9)
Bonds* (953.1) 100.3 141.5 (711.3)
Currency swaps in relation to US $ 269.6 - (140.1) 129.5
denominated bonds*
Interest rate swaps in relation to GBP 4.7 - (1.5) 3.2
denominated bonds*
Sub-total net debt (595.8) (56.5) (0.1) (652.4)
Callable swaps (32.0) - 3.0 (29.0)
Asset based securitised finance (10.4) (4.7) - (15.1)
(638.2) (61.2) 2.9 (696.5)
The aggregate bond fair value above of £1,059.8m (30 June 2009: £711.3m)
includes the GBP value of the US$ denominated bonds at 30 June 2010 (30 June
2009). To remove the Group's exposure to currency fluctuations it has entered
into currency swaps which effectively hedge the movement in the underlying bond
fair value. The interest rate swap is being used to hedge the exposure to
changes in the fair value of GBP denominated bonds.
* The sum of these items held at fair value equates to the underlying value of
the Group's bond debt of £833.6m (30 June 2009: £578.6m).
8 Capital commitments
At 30 June 2010, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment amounted to £
8.2m (2009: £nil).
9 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. The only related party transactions requiring disclosure are details of
key management personnel compensation (including Directors of the parent
company). These details are set out in the table below.
Compensation of key management personnel (including Directors of parent
company)
6 months 6 months
30 June 30 June
2010 2009
£m £m
Short term employment benefits 1.2 1.2
Post employment benefits 0.1 0.1
Share based payments 2.8 2.2
4.1 3.5
Gains on share options exercised in the period by key management personnel
totalled £4.7m (2009: £3.8m).
10 Update on Arch Cru provision
The Group continues to work with its professional advisors and the relevant
regulatory authority to resolve this matter. The exercise to determine whether
investors have suffered any detriment and if so to what extent any of the
parties involved should be responsible for compensating them is still ongoing.
The Group has not set aside any further provision in the period above that made
in the 2009 year end financial statements.
Statement of Directors' responsibilities
The Directors confirm, to the best of their knowledge, that this condensed set
of financial statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the Half Year Management Report includes a fair
review of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of the
Disclosure and Transparency Rules of the United Kingdom Financial Services
Authority.
The names and functions of the Directors of The Capita Group Plc are as listed
in the Group's Annual Report for 2009. 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
21 July 2010
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