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Capita Group PLC (CPI)

  Print      Mail a friend       Annual reports

Tuesday 27 July, 1999

Capita Group PLC

Interim Results

CAPITA GROUP PLC
27 July 1999


                       The Capita Group Plc
                                 
                  INTERIM RESULTS TO 30 JUNE 1999

                   STRONG PROGRESS ON ALL FRONTS


Financial highlights
                                                           
                            Six months    Six months       
                                to            to        Change
                           30 June 1999  30 June 1998      
                                 
Turnover                     £150.2m        £117.9m       + 27%
                                                      
Operating profit              £14.0m         £10.6m       + 33%
                                                      
Pre-tax profit                £14.1m         £10.5m       + 35%
                                                      
Earnings per share              4.73p          3.43p      + 38%
                                                     
Total dividend per share        1.2p           0.9p       + 33%
                                                      
Operating margins               9.4%           9.0%         
                                                       

Operational highlights

*  Strong  growth  experienced  across  all  sectors,  with  local
   government particularly buoyant during the period.
   
*  £50m, 10 year plus contract announced today with Norfolk County
   Council to provide IT, payroll, pension and exchequer services.
   
*  Other  significant  contract wins announced during  the  period
   include:

   -  £12m,  5 year contract with Hertfordshire County Council  to
      design,  build  and  operate local government's  first  ever
      integrated customer services call centre;
   -  £11m, 5 year contract with Kent County Council to administer
      payroll and pensions for 80,000 employees - the largest ever
      outsourcing of payroll services by a local authority.

*  New  £2.1m  national  customer call centre  to  be  set  up  in
   Coventry to support Capita's local government operations.
   
*  £27m invested in March in the purchase of a strategic stake  in
   Eastgate  Group, providing entry into the insurance outsourcing
   sector.
   
*  Additional   £26.6m  invested  during  the   period   in   four
   complementary acquisitions to strengthen existing operations in
   Human   Resources  Services,  Software  Services  and  Property
   Services.


Rod Aldridge, Executive Chairman of the Capita Group Plc,
commented:

'Our  excellent first half results reflect our continuing progress
in   establishing   new  client  relationships  and   successfully
enhancing existing ones.  We continue to invest to strengthen  the
range of services we are able to offer clients and also to improve
our  own  operational efficiency.  Our markets remain very  active
and  we are able to choose from a substantial range and volume  of
opportunities to further develop the Group.  We are confident that
shareholders will be very satisfied with both the results for  the
year and our continuing prospects thereafter.'

For further information:

The Capita Group Plc                         
                                             
Rod Aldridge, Executive Chairman             Tel: 0171 799 1525
Paul Pindar, Chief Executive
Shona Nichols, Group Marketing Director
                                             
Hogarth Partnership Limited                  
                                             
James Longfield/John Olsen                   Tel: 0171 357 9477
                                 

                       CHAIRMAN'S STATEMENT

Results

The six months to 30 June 1999 have been highly successful for the
Capita  Group Plc. Our strong financial results for the half  year
reflect the progress we have made in establishing many new  client
relationships  and successfully enhancing existing  ones.   During
the period, our turnover increased by 27% to £150.2m (half year to
30  June  1998: £117.9m), operating profits rose by 33% to  £14.0m
(1998:  £10.6m  as  restated)  and  net  profits  before  taxation
increased  by 35% to £14.1m (1998: £10.5m as restated).   Earnings
per  share  advanced 38% to 4.73p (1998: 3.43p as restated).   Our
activities  continue  to  produce  strong  cash  flow  with  £8.4m
generated by operations in the period.

Dividend

The  Board has declared an interim dividend of 1.2p net per  share
(1998: 0.9p), a
33% increase.  The dividend will be payable on 14 October 1999  to
shareholders  on  the  register at the close  of  business  on  10
September 1999.  The dividend is covered 3.9 times by earnings per
share.

Business review

Capita  focuses  on providing a broad portfolio of  white  collar,
professional support services on long term contracts to our chosen
markets  in the UK. Across all our businesses, we have  two  clear
objectives:  to enhance service quality on behalf of  our  clients
and to reduce their costs of delivery.

We  have built up an integrated range of support services that are
often  essential to the smooth running and success of our clients'
operations.   Our skills are broad and the scope of contracts  for
which  we  can  bid is wider than that of most of our competitors.
This also enables us to be highly selective.

Our chosen markets of the UK's public and private sectors are both
active.   Indeed, it is estimated that the market for  outsourcing
services  will  exceed  £8bn by 2002 (source:  The  Holway  Report
1999).  Recent research regarding the Business Process Outsourcing
(BPO) element of this market, the focus of most of our operations,
forecasts a 30% annual growth rate for BPO (source: NelsonHall May
1999).

Our  local government market has been particularly buoyant  during
the period, driven by the introduction of Best Value and the wider
Modernising  Agenda.   The  Government  is  also  extending   this
principle  across  central government.  The  regime  provides  the
opportunity for the client and service provider to concentrate  on
establishing  the most appropriate infrastructure and  partnership
to  achieve continuous improvement of services that focus  on  the
needs  of  the  customer.   It  encourages  more  innovation,  the
combined  delivery  of  a broader range of  council  services  and
longer term relationships with private sector partners.

As  an example, we recently announced a 5 year contract worth £12m
with  Hertfordshire County Council to design,  build  and  operate
local  government's first ever integrated customer  services  call
centre.   This centre will provide the community with  consistency
in  response and service, the highest industry standards for  call
answering  and  over 70% of calls to be handled without  referral.
Indeed, following full implementation, we anticipate managing 1.4m
calls per annum.  This integrated gateway for the public to access
their  services  will put Hertfordshire at the forefront  of  Best
Value delivery in this field.

In  a  similar vein, I am delighted to announce today that  Capita
has been chosen as the strategic service partner to Norfolk County
Council  for  the  combined delivery of IT, payroll,  pension  and
exchequer services to the Authority.  The partnership, covering  a
10  year  plus  period, is valued in excess  of  £50m.  Under  the
contract,  150 staff will join Capita who will be responsible  for
providing  payroll services to 33,000 council staff, administering
over   12,000  pensions  and  processing  in  excess  of   500,000
transactions per annum. Capita will establish a Business Centre in
Norwich  incorporating  a  sophisticated  customer  services  call
centre  and  advanced  business processing, providing  a  hub  for
incremental business in the area.

Sales  activity  during  the  period has  principally  focused  on
securing  additional  contracts from  new  and  current  customers
rather  than  extending existing contracts as there are  no  major
renewals scheduled until 2002.

Our  strategic account development team has achieved some  notable
new  contract  wins with our existing customers.  At  Kent  County
Council,  we have secured an £11m, 5 year contract, to  administer
payroll  and pensions for 80,000 employees across the Council  and
other  local  public organisations.  This represents  the  largest
ever  outsourcing of payroll services by a local authority.   With
Westminster  City Council, with whom we already have 6  contracts,
we  have  signed an additional 5 year contract to provide  the  IT
service  supporting  its  council  tax  operation.  We  have  also
extended  existing advisory and administration contracts with  the
Employment Service, NAAFI and, as part of the Government's welfare
reform  programme, the Benefits Agency, which has recently awarded
further significant consultancy projects to Capita.

We  continue to increase penetration of the private sector,  which
now  represents over a third of the Group's turnover, through  new
business  development and selective acquisitions.  We have  signed
business  and property outsourcing arrangements with a wide  range
of organisations including BT, BMW, Bass, Halifax, Land Securities
and Unilever.  One notable contract awarded and implemented in the
period  was to set up a new safety agency, on behalf of  Railtrack
Plc,  to  issue  and control safety certification across  the  UK.
This  project will run for 5 years and is anticipated to  generate
revenues of £10m.

The  education market continues to develop.  Our Learning  Network
product,   developed  in  response  to  Capita  gaining  preferred
supplier  status for the £230m Government scheme to train teachers
in  the  use  of computers and on-line technology, is  progressing
well.   Following successful trials, the product will be  launched
in September.  The DfEE has also recently awarded us a contract to
assist  in  the  set  up  of  the newly announced  University  for
Industry.  Capita will source and recruit the entire team who will
run the organisation. This flagship project is at the heart of the
Government's  strategy for the learning age  and  is  designed  to
provide universal access to lifelong learning.

Operational review

Alongside  our  new contract wins are two further  key  activities
underpinning Capita's success: maintaining our reputation for high
quality  project  implementation and continuous  strong  operating
performance.   The six months to 30 June have been a  particularly
busy  and  successful  period  with a  record  number  of  project
implementations.  Three projects merit comment.

In  April, a newly created, public information centre in  Belfast,
designed  and  operated by Capita for the BBC, was opened  by  Sir
Christopher Bland, Chairman of the BBC, in the presence of The  Rt
Hon  Dr  Marjorie  Mowlam  MP, Secretary  of  State  for  Northern
Ireland.   This  project  will handle over  2.5  million  customer
contacts  per  annum and encompasses state of the art  technology,
supported  by  newly recruited, high calibre  personnel.   We  are
delighted by the progress of this contract implementation.

At  the  same  time, we implemented a 3 year contract  to  provide
reception  and administrative management services to  Trillium,  a
consortium  led by Goldman Sachs, which in turn provides  property
services  to  the Benefits Agency.  This implementation  has  also
progressed well and the 700 staff who transferred to Capita  on  1
April  1999 represent the largest ever TUPE transfer completed  by
the company.

We  are  also working on an important internal project, costing  a
total  of £2.1m, to develop a national customer centre to  support
our  local  government  operations.  This centre,  which  we  will
create  in  Coventry, will centralise many of the more fundamental
transactions carried out at individual sites throughout the UK and
will  utilise  state of the art telephony, scanning and  web-based
technology.   It  will  improve further both the  consistency  and
quality  of  service  levels  we provide  to  our  clients  whilst
creating  economies of scale to reduce costs both for our  clients
and  the Group.  The project will generate benefits from the  year
2000 and beyond. Capita is now responsible, across both the public
and  private  sectors, for dealing with over 20  million  customer
contacts per annum.

Acquisitions

Whilst  securing strong organic growth remains the key  driver  of
our  business, we continue to enhance our service offering and  to
seek  incremental  growth  by  making small,  carefully  appraised
acquisitions and investments.

In  March, we invested £27m in respect of the acquisition of 20.5%
of  the  Eastgate Group Ltd.  Formed in 1992, Eastgate is  the  UK
market leader in providing a range of outsourcing services to  the
insurance industry.  Since formation, it has administered $8bn  of
insurance  claims.   It  now handles 1 million  general  insurance
claims  and  3  million telephone calls per annum.  The  insurance
sector  is new to Capita and we will extend our presence carefully
as  our knowledge grows.  However, early indications confirm  that
the  current corporate activity and financial pressures within the
insurance  sector  offer  substantial  potential  for  outsourcing
services.

Within  the  Education  sector, Capita is  the  market  leader  in
providing  administrative software and  services  to  primary  and
secondary schools and to Local Education Authorities.  We acquired
Emis  Ltd in February and Dolphin Computing Services Ltd  in  June
for  £8m  in  aggregate.  Both companies distribute administrative
software to the Higher and Further Education sectors and Capita is
now  also  the established leader in this segment.  We see  strong
opportunities for organic growth from these businesses.

During  this  period,  we also strengthened  our  Human  Resources
services  through  the  £14.6m purchase of  Oldham  &  Tomkins,  a
company providing professional IT and project management staff  on
long  term  assignment.  The acquisition complements our  existing
recruitment  services and brings a valuable  resource  and  highly
developed   internet  based  recruitment  system.   Our   Property
Services  capability  was  further strengthened  through  the  £4m
acquisition  of  MPM  Adams, a leading project management  company
based in Scotland.

Our people

Once  again,  I  would  like  to pay tribute  to  the  outstanding
contribution made by our 6,500 staff.  We have engendered a superb
team spirit within Capita and this strength, coupled with our 'can
do'  mentality,  allows us to tackle successfully  many  demanding
projects.  It is our culture to place high priority upon  ensuring
that   we   meet,   and  if  possible  surpass,   our   customers'
expectations.  I would like to express the Board's appreciation to
all our staff.

We place considerable focus on continuing to strengthen our senior
team  across  the  Group.   Skills  such  as  project  management,
financial  management and account development remain at the  heart
of  our  business and we are investing heavily in both  developing
our  existing skills and adding to them through recruitment.  More
people  than  ever will participate in Capita's internal  training
programmes over the next 12 months and we anticipate doubling  the
number of participants on our graduate  training programme.

Prospects

The   Board  remains  extremely  encouraged  by  Capita's   future
prospects.   We  are able to choose from a substantial  range  and
volume  of  opportunities  in  pursuit  of  developing  the  Group
further.   We  are  confident  that  shareholders  will  be   very
satisfied  with  both  the  Results for  the  full  year  and  our
prospects thereafter.

R M Aldridge OBE
Executive Chairman



THE CAPITA GROUP PLC

SUMMARY INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 1999

                                Six months   Six months    Year to
                                to 30 Jun    to 30 Jun      31 Dec
                                   1999         1998         1998
                                                (As          (As
                                             restated)     restated)
                           Notes  £'000        £'000        £'000
Turnover                     1
Continuing operations             141,463     117,907      237,802
Acquisitions                        8,764           -            -
                                  --------    --------     --------
                                  150,227     117,907      237,802
                                  ========    ========     ========

Other operating income
Income from interests in
associated undertakings                82         707          372
                                  ========    ========     ========

Operating profit
Continuing operations              13,404      10,567       27,020
Acquisitions                          643           -            -
                                  --------    --------     --------
                                   14,047      10,567       27,020

Continuing operations:
Net interest receivable/(payable)      16         (83)        (220)
Profit on disposal of fixed
asset investments                      52           -            -
                                  --------    --------     --------

Profit before taxation      1      14,115      10,484       26,800
Taxation                            4,526       3,388        8,708
                                  --------    --------     --------

Profit after taxation               9,589       7,096       18,092
Minority interest                      22         470          804
                                  --------    --------     --------

Profit for the period               9,567       6,626       17,288
Dividends                           2,481       1,748        5,511
                                  --------    --------     --------

Retained profit for the period      7,086       4,878       11,777
                                  ========    ========     ========

Earnings per share          3       4.73p       3.43p        8.90p
                                  ========    ========     ========
Diluted earnings per share  3       4.59p       3.35p        8.68p
                                  ========    ========     ========
Dividend per share          4        1.2p        0.9p         2.8p
                                  ========    ========     ========


THE CAPITA GROUP PLC

SUMMARY BALANCE SHEET AS AT 30TH JUNE 1999

                                  30 Jun       30 Jun       31 Dec
                                   1999         1998         1998

                                                (As          (As
                                             restated)    restated)
                                  £'000        £'000        £'000

Fixed assets                      111,989      22,672      53,799

Current assets
Trade investments                     299         494         219
Debtors                            85,297      56,357      68,265
Cash at bank                        3,593       9,268       3,642
                                  --------     -------     --------
                                   89,189      66,119      72,126
                                  --------     -------     --------
Creditors: Amounts falling due
within one year                    93,199      68,988      84,592
                                  --------     -------     --------

Net current liabilities            (4,010)     (2,869)    (12,466)
                                  --------     -------     --------
Total assets less current
liabilities                       107,979      19,803      41,333

Creditors: Amounts falling due
after more than one year            6,183         784         658

Provision for charges and
liabilities                         1,889       2,223       2,162

                                  --------     -------     --------
                                   99,907      16,796      38,513
                                  ========     =======     ========

Shareholders funds
Called up share capital - Ordinary  4,133       3,884       3,958
Share premium and other reserves   95,099      11,236      33,880
Minority interests                    675       1,676         675

                                  --------     -------     --------
                                   99,907      16,796      38,513
                                  ========     =======     ========


THE CAPITA GROUP PLC

SUMMARY GROUP CASH FLOW
FOR THE SIX MONTHS ENDED 30TH JUNE 1999

                                Six months   Six months    Year to
                                to 30 Jun    to 30 Jun      31 Dec
                                   1999         1998         1998

                                                (As          (As
                                             restated)    restated)
                                  £'000        £'000        £'000

Cashflow from operating
activities                         8,373        7,251      25,353
Returns on investment and
servicing of finance                  24         (952)       (844)

Taxation paid                       (539)        (642)     (6,954)

Capital expenditure and
financial investment              (6,300)      (2,338)    (10,668)
Subscription for loan notes       (6,500)           -           -

Acquisitions and disposals       (38,017)      (3,626)     (8,527)
Equity dividends paid             (3,761)      (2,718)     (4,447)

                                 --------      -------     -------
Net cash flow before financing   (46,720)      (3,025)     (6,087)
Financing                         46,671         (452)     (3,016)
                                 --------      -------     -------
Decrease in cash in the period       (49)      (3,477)     (9,103)
                                 ========      =======     =======


GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE SIX MONTHS ENDED 30TH JUNE 1999

                                Six months   Six months    Year to
                                 to 30 Jun    to 30 Jun     31 Dec
                                   1999         1998         1998

                                                (As          (As
                                             restated)    restated)
                                   £'000        £'000        £'000

Profit attributable to the
members of the parent undertaking  9,567        6,626       17,288

Exchange adjustment                    1          (10)           2
                                   ------       ------      ------
Total recognised gains and
losses relating to the period      9,568        6,616       17,290
                                   ======       ======      ======


THE CAPITA GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS

1. Analysis of turnover by business unit:

                                  Six months   Six months   Year to
                                  to 30 Jun     to 30 Jun   31 Dec
                                     1999         1998       1998

                                                  (As        (As
                                               restated)  restated)
                                    £'000        £'000     £'000
   Continuing Activities
     Customer Services              40,981       23,981    51,169
     Human Resources Services       33,043       30,837    62,118
     Software Services              17,196       15,700    32,902
     Systems & Strategic Services   31,177       28,023    54,006
     Property Services              19,066       19,366    37,607

   Acquisitions
     Human Resources Services        7,334            -         -
     Property Services               1,430            -         -
                                   --------     -------   -------
                                   150,227      117,907   237,802
                                   ========     =======   =======


   Analysis of profit before taxation by business unit:

   Continuing Activities
     Customer Services               2,733        1,849     3,988
     Human Resources Services        3,584        2,491     6,575
     Software Services               2,483        2,107     5,198
     Systems & Strategic Services    2,605        2,261     6,602
     Property Services               1,933        1,806     4,419

   Acquisitions
     Human Resources Services          445            -         -
     Property Services                 198            -         -


   Associated undertakings              82          (30)       18

Sale of fixed asset investments         52            -         -

                                   --------     -------    -------
Profit before taxation              14,115       10,484    26,800
                                   ========     =======    =======

The results of the Group are now reported under five business units,
rather than simply two divisions. This change reflects our
customers' increasing demands to buy integrated services from across
the Group and to reflect the internal management of operations.

For the analysis of profit before taxation by business unit, the
associated undertakings comparative result has been adjusted to
exclude businesses that are now subsidiary undertakings of the
Group.

2.  The interim financial statements have been prepared on the
    basis of the accounting policies set out in the Group's 1998
    statutory accounts, except for adoption of the new accounting
    standard FRS12. The statements were approved by a duly
    appointed and authorised committee of the Board of Directors on
    26th July 1999.
    
    Comparative figures for the year to 31st December 1998 have
    been extracted from the full accounts of the Group, as restated
    following the adoption of FRS12. Those accounts, on which the
    auditors gave an unqualified report, have been filed with the
    Registrar of Companies. The figures for the six months to 30th
    June 1998 and 1999 are unaudited.
    
3.  Earnings per share have been calculated on an average number of
    shares in issue during the period of 202,252,000 (30th June
    1998: 192,955,000). The diluted earnings per share have been
    calculated on the diluted profit for the period of £9,567,000
    (30th June 1998: £6,648,000) and an average diluted number of
    shares in issue during the period of 208,862,000 (30th June
    1998: 198,314,000). As at 26th July 1999, there were
    206,737,623 shares in issue.
    
4.  The interim dividend of 1.2p per share will be payable on the
    14th October 1999 to Ordinary shareholders on the register at
    the close of business on 10th September 1999.
    
5.  The new accounting standard FRS12 sets out detailed rules on
    the recognition, measurement and disclosure of provisions and
    contingencies. With regard to the Capita Group, the only area
    requiring adjustment in order to comply  with the new standard
    is in respect of leasehold properties, with the requirement
    that a provision be made for the present value of the likely
    future outflows in respect of empty or under let leasehold
    properties. To reflect the changes necessary to comply with the
    standard the comparatives and opening balances for the six
    months ended 30th June 1998 and 31st December 1998 have been
    restated as follows:

                                       30 Jun 1998     31 Dec 1998
                                       ============    ============
Provisions                            £'000   £'000   £'000  £'000
As previously reported                          586            412
FRS12 - Brought forward adjustment    1,531           1,531

Charged in period                       106             219
                                     -------         ------
                                              1,637          1,750
                                             ------         ------
Restated for FRS 12                           2,223          2,162
                                             ------         ------


                                       30 Jun 1998     31 Dec 1998
                                       ============    ============
Share Premium and other reserves      £'000   £'000   £'000  £'000
As previously reported                       12,873         35,630
FRS12 - Brought forward adjustment  (1,531)         (1,531)
Charged in period                     (106)           (219)
                                    -------         -------
                                            (1,637)        (1,750)
                                            -------        -------
Restated for FRS 12                          11,236         33,880
                                            -------        -------

6.  Our Year 2000 Compliance Programme is well advanced in
    identifying, prioritising and ensuring all our essential
    systems are Year 2000 compliant. Our review has covered the
    potential risks to the Group from the failure of systems of
    other parties, and where applicable we have initiated formal
    communication with these other parties.  The progress of the
    Year 2000 Compliance Programme is closely monitored by the
    Board and senior management from across the Group.
    
7.  Copies of this interim report will be sent to all shareholders.
    Further copies can be obtained from the Company's registered
    office, 71 Victoria Street, Westminster, London SW1H 0XA.