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Capita Group PLC (CPI)

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Friday 18 November, 2011

Capita Group PLC

Capita Interim Management Statement


18 November 2011

              The Capita Group Plc - Interim Management Statement              

Introduction

The Capita Group Plc ('Capita'), the UK's leading business process outsourcing
('BPO') and professional services company, is today issuing its interim
management statement covering the 10 months to 31 October 2011 and progress to
date.

Capita is having a successful year in respect of new major contracts and
renewals, reflecting the operational track record of the Group and the demand
for outsourcing across our target markets. Furthermore, we have made a series
of acquisitions which are playing a key role in extending our capabilities and
making a valuable contribution to our growth. However, this progress is
somewhat counterbalanced by the prevailing pressure on spending which continues
to affect adversely a small number of our trading activities and is also
constraining discretionary additional revenue from existing clients. Taking
these factors into account, we expect to achieve reasonable revenue growth for
the full year and stable year on year margins.

Major sales update

Our market leadership and track record continue to position us well in the
outsourcing market. This is demonstrated by our strong performance to date in
2011 with 16 new and extended contracts totalling £1.26bn.

New major contracts secured to date this year include:

  * Administration of the Teachers' Pension Scheme for a further 7 years;
   
  * Life and pensions contracts with MetLife and Zurich Financial Services
    Group;
   
  * Administration of vehicle tax and insurance evasion for the DVLA;
   
  * A collaborative partnership with the London Borough of Lambeth;
   
  * A contract with The Pensions Regulator to deliver employer education for
    automatic enrolment.
   
We have a number of major bid decisions due in Q4 of 2011 and if we sustain our
historic success rate over this period, we expect to deliver more than double
the level of major wins secured in 2010 and indeed to have our best ever year
in terms of major contract wins, surpassing the £1.89bn won in 2007.

Our bid pipeline (which we announce twice a year at our half and full year
results) is a snapshot of bids worth £10m or above, capped at £500m and where
we have been shortlisted to the last four or fewer. In July 2011, we reported a
record pipeline of £4.7bn which has been actively replenished following the
bids won to date in 2011 and remains at record levels.

Over the period to 31 December 2015, we only have two material contracts
(defined as having annual revenue in excess of 1% of 2010 turnover) due for
rebid - the contract for TV licensing in 2012, where the procurement process is
in its final stages, and the CRB contract in 2013, where the bid process is now
underway.

Business trading & financial update

We currently expect to achieve reasonable revenue growth for the Group for the
full year 2011. As reported previously, the pressure on spending continues to
constrain additional revenue generated from existing clients and impact a small
number of our trading businesses, specifically property, resourcing and parts
of our IT business. Our other businesses are trading steadily, recent
acquisitions are making a valuable contribution to our growth and service
delivery remains excellent.

For the first half of 2011, we reported an overall organic revenue decline of
7% due to the combination of challenging trading conditions and an unusually
high level of revenue attrition. As these conditions have continued in the
second half of the year, we currently expect a similar level of organic revenue
decline for the full year. Counterbalancing this, the contribution from 2011
acquisitions and those acquisitions completed in 2010 will add some 14% to 2011
revenue growth. We therefore currently expect the net effect of these elements
to result in revenue growth of approximately 7% for the full year.

We are maintaining good discipline across our other key financial metrics. We
expect to contain capital expenditure at or below 4% of revenue, which includes
our continued investment in a new share registration platform and life and
pensions systems. As highlighted in July, operating cash flow has been impacted
by the anticipated conclusion of the National Strategies programme and by
additional working capital requirements for new and expanded contracts and
(prior to receiving completion payments) for our Building Schools for the
Future projects. As anticipated, these factors will continue to impact cash
flow for the remainder of the year but we expect a return to more usual levels
for the full year 2012.

Acquisitions

Acquisition activity has continued in the second half, enabling us to enhance
our propositions to clients and extend our market reach. To date in 2011, we
have acquired 19 businesses for a total cash consideration of £334m with 8 new
deals undertaken since our half year results in July 2011, including:

  * NorthgateArinso's pensions administration and software business acquired
    for £27.5m, bringing new expertise and capacity to Capita Hartshead, the
    UK's leading administrators of occupational pension schemes;
   
  * AIB Group's international financial services and trust services businesses
    acquired for a combined consideration of £42m;
   
  * Vertex's private sector division for £40m, opening up new market
    opportunities in the private sector;
   
  * Cedar HR Software, a leading provider of human resource management software
    to UK policing acquired for £15m.
   
Our focus is now on achieving the successful integration of these businesses
and realising synergies. We expect our acquisition activity to slow going
forward in 2012 as organic growth picks up.

Market update

The market for large scale outsourcing has become increasingly active during
2011, as reflected by the strength of our major sales performance, bid pipeline
and the prospect and suspect lists which underpin it.

In the private sector, continuing pressure on organisations to drive down
operational costs without compromising customer service is creating
opportunities for outsourcing. We are particularly active in the UK life &
pensions and wider financial services markets and continue to build our
presence in the retail and utilities markets.

In the public sector, the ongoing pressure to reduce budgets whilst maintaining
front line services is creating a healthy pipeline of opportunities in local
government and there are also a number of opportunities arising across central
government.

Outlook

We expect to achieve reasonable revenue growth and stable year on year margins
for the full year 2011. Our strong major contracts sales performance, the
contribution from acquisitions in 2011 and our buoyant bid pipeline will
support stronger revenue growth in 2012.

We continue to believe that the significant pressure on both public and private
sector organisations to explore alternative service delivery models will drive
long term demand for outsourcing and support our growth in 2012 and beyond.

                                    -ends-                                     

Conference Call: Paul Pindar, Chief Executive of The Capita Group Plc, will
host a conference call for investors and analysts at 8.00am UK time today,
details below:

Dial-in number: +44 (0)203 140 0668

Passcode 186077#

(Please dial into the call in time to allow for registration).

Replay: A replay of the call will be available from midnight today until Friday
2 December 2011:

Dial-in number: +44 (0)203 140 0698

Passcode 380908#.

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                                                        

 

Note to editors: The Capita Group Plc is the UK's leading provider of BPO and
integrated professional support service solutions. With around 45,000 employees
at more than 350 sites, including 64 business centres across the UK, Ireland,
the Channel Islands and India, the Group uses its expertise, infrastructure and
scale benefits to transform its clients' services, driving down costs and
adding value. Capita is quoted on the London Stock Exchange (CPI.L), and is a
constituent of the FTSE100 with revenues for 2010 of £2,744 million.  Further
information on The Capita Group Plc can be found at: http://www.capita.co.uk