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Capita Group PLC (CPI)

  Print      Mail a friend       Annual reports

Thursday 22 July, 2004

Capita Group PLC

Interim Results

Capita Group PLC
22 July 2004

22 July 2004

                              THE CAPITA GROUP PLC

              Interim results for the half year ended 30 June 2004

Financial Highlights

                               Six months ended    Six months ended     Change
                                  30 June 2004        30 June 2003
Turnover                                £620m               £532m        +17%
Profit before tax*                     £63.6m              £51.0m        +25%
Earnings per share*                     6.84p               5.38p        +27%
Interim dividend per share              1.75p                1.3p        +35%

* Before amortising goodwill and exceptional items

Operating Highlights
•    Four new contract wins worth £293m announced today, including partnership 
     with Salford City Council worth £250m over 12 years
•    Total of £1.13bn of new contracts won in the first 7 months of 2004 
     (2003: £286m), 58% private and 42% public sector
•    Current live bid pipeline of £2.5bn
•    Margins enhanced to 11.1% up from 10.6% in the same period in 2003
•    Strong operating cash flow of £81.9m representing an operating profit to 
     operating cash conversion rate of 119% (2003: 109%)
•    Free cash flow increased by 30% to £40.3m
•    Post tax return on average capital employed over last 12 months 15.0%
     (2003: 13.4%)

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

'Capita operates a simple, sustainable business model in buoyant and expanding
markets. The business is trading strongly, generating healthy profits and cash
flow. We are confident in our ability to generate long term value for
shareholders, based on a platform of high visibility of future revenues and good
prospects for further growth.'

For further information:

The Capita Group Plc Tel 020 7799 1525
Rod Aldridge, Executive Chairman 
Paul Pindar, Chief Executive
Shona Nichols, Group Marketing Director
Press Office 0870 2400 488

Finsbury Tel 020 7251 3801
Morgan Bone
Mark Harris


                              Chairman's Statement


We are pleased by the Group's progress during the six months to 30 June 2004.
The Group has delivered another period of encouraging financial results
reflecting our strong and developing partnerships with both existing and new
customers. These relationships and our profitable and sustainable business model
have allowed us to continue to build value for our shareholders.

During the period, turnover increased by 17% to £620m (half year to 30 June 2003
: £532m). Operating profits before goodwill amortisation and exceptional items
rose by 23% to £69.1m (2003: £56.1m) and net profits before taxation, goodwill
amortisation and exceptional items increased by 25% to £63.6m (2003: £51.0m).
Earnings per share before goodwill amortisation and exceptional items grew by
27% to 6.84p (2003: 5.38p).

Building Value for Shareholders

In our results announcement for the 2003 financial year, we set out a number of
key measures of our progress in building value for shareholders. During the
period, we have met each of our objectives.

First, we have continued to enhance our operating margins, which have increased
during the period to 11.1% (2003: 10.6%). For the year as a whole, we expect
operating margins to be ahead of the level achieved in 2003 of 12.2%.

Secondly, the underlying financial strength of Capita is reflected by our
excellent cash flow, with £81.9m generated by operations, representing an
operating profit to operating cash conversion rate of 119% (2003: 109%). Our
free cash flow increased by 30% to £40.3m (2003: £31.1m).

Thirdly, we aim to contain capital expenditure at or below 4% of revenue,
although there may be rare occasions when we exceed this where our financial
strength can be used as a competitive advantage. During the period, we achieved
this objective, with capital expenditure being 3.8% of revenue.

Fourthly, we have continued with our strategy of acquiring small businesses
which complement or extend our current service offering. Further detail is
provided later in the Statement.

Fifthly, we intend to create shareholder value through a progressive dividend
policy. The Board has declared an interim dividend of 1.75p net per ordinary
share (2003: 1.3p), a 35% increase. Over the last 5 years, we have grown
Capita's annual dividend at a compound rate of 34%. The dividend will be payable
on 8 October 2004 to shareholders on the register at the close of business on 10
September 2004. The interim dividend is covered 3.9 times by earnings per share
before goodwill amortisation and exceptional items. We intend to reduce annual
dividend cover to no more than 3 times by 2006.

Sixthly, we have renewed our authority to repurchase up to 10% of our issued
share capital, so we can undertake share buybacks in circumstances when market
conditions allow us to add further value for shareholders. During the period,
the Group bought back 300,000 shares and we remain alert to opportunities for
further buybacks in the future.

Finally, our activities should drive a steadily increasing return on capital,
which in turn should exceed our cost of capital. Over the last 12 months, the
post tax return on average capital employed (including debt) has improved to 15%
(12 months to 30 June 2003: 13.4%). This compares to our weighted average cost
of capital of 8.5%.

Creating Organic Growth

We have two complementary approaches to creating organic growth. First, our
centrally managed 'Big Ticket' team seeks to secure major contracts, typically
with a value of £10m or above, to deliver complex, integrated projects that
require a wide range of the Group's skills and which generate high quality
recurring revenues. Secondly, each of our businesses employs sales teams focused
upon securing growth from both existing and new customers. Across the Group, we
have more than 20,000 customers and our retention rate remains excellent.

Organic Growth: Major Contracts

Major contracts are an important component of our growth. In the past 12 months,
we have invested significantly in this area, both to enlarge the size of our
sales team and also to refine our processes. Our objective is to stimulate a
consistent flow of opportunities and to maximise our win rate, thereby
underpinning above average growth for the Group.

Our performance in the first 7 months has been strong. This year, we have
already announced £835m of major contracts, comprising a 2 1/2 year contract with
the Department of Trade & Industry, a 7 year contract with the Department for
Work and Pensions, a 5 year contract with Dixons Group Plc, a 10 year contract
with Winterthur Life and a 20 year contract with The Children's Mutual. Our win
rate during the period has been better than one in two, comfortably ahead of our
long term average.

We continue to enjoy a buoyant period of activity and I am pleased to report
today 4 further major contract wins totalling £293m, of which £260m are new
contracts and £33m are extensions to existing contracts. Consequently, the total
value of major contracts won in the first 7 months of 2004 is £1.13bn (2003:

I am delighted to announce that we have been selected by Salford City Council as
its preferred strategic partner to contribute to the regeneration of the City
through a programme of continuous service enhancement across property,
engineering and highways services and associated support services. With a
service contract estimated to generate revenues to Capita of £250m over an
initial contract period of 12 years, Salford City Council and Capita will join
together to form a new joint venture, in association with Morrison (part of AWG
Plc). The JV will deliver services to the Council and create further business
growth for the partners by selling services to external organisations. Capita
will provide property, engineering and highways design and professional
maintenance services through our property consultancy business, Capita Symonds.
Morrison will support both partners, providing blue collar, highway construction

I am also pleased to announce that we have signed a contract to manage the
run-off services of Hill House Hammond, Norwich Union's national broker, worth
£10m over the next 2 years. Capita will be dealing with all aspects of the
run-off for Hill House Hammond including IT, policy administration, claims
management and customer enquiries through a central administration centre in
Bristol. 300 staff will transfer to Capita in two phases, this month and next.

In the period, we have extended and expanded two major public sector contracts
that use our IT and business process transformation skills to improve customers'
experiences of public services. Capita has been reappointed by the Driving
Standards Agency (DSA) to provide information services throughout the DSA
network in a contract valued at £22m over 6 years. Capita was originally awarded
a 7 year contract in 1997 to support the DSA's IT infrastructure, successfully
developing and implementing the technology platform behind today's driving test
appointment control system. The new agreement includes the continued management
of this infrastructure, as well as the development of a new system to manage the
registration of driving instructors.

Our partnership with Derby City Council has been extended in a new contract
worth £11m over the next 4 1/2 years. The original contract, awarded in 1998, 
was to support and develop the council's core IT infrastructure. The new 
contract focuses on delivering an innovative, accessible e-government solution 
to assist the authority in delivering improved services for Derby's citizens.

In the 4 1/2 years to 31 December 2008, we have only 3 material contracts
(defined as having annual revenue in excess of 1% of 2003 turnover) due for
renewal. There are no material contracts due for renewal until 2005.

Our major contract bid pipeline continues to be buoyant. Notwithstanding the
recent successes announced above, we are continuing to replenish our pipeline at
a healthy rate and we are currently working on live major bids with a total
value of £2.5bn across the public and private sectors. This total only includes
bid situations in which Capita is short listed with three or fewer competitors.

All of our markets are active, but the financial services sector is generating
opportunities at an exceptional rate. Similarly, the Government's 2004 Spending
Review and the Review of Public Sector Efficiency published earlier in the month
will provide further stimulus to the public sector markets in which Capita
operates. The drivers to outsource services and to engage with the Group's wide
range of integrated services remain strong in both the public and private

Organic Growth: Divisions

Our focus on enhancing the capacity of our divisional sales forces and our
introduction of a more formal process to share information and resources across
the businesses, has resulted in a stronger and higher quality sales pipeline.
Market penetration continues to increase through the provision of enhanced and
innovative, new services across Group businesses.

Pleasingly, Capita Hartshead was recently named 'Pensions Administrator of the
Year' at the 2004 UK Professional Pensions Awards, which honour excellence and
outstanding contributions to the industry. Capita Hartshead has become a leading
service provider through a combination of continuous development of its core
administration services and innovative use of technology to provide advanced
administration systems. The business has experienced strong growth across both
the public and private sectors in the period, with new contracts and extensions
secured with clients such as GUS, T-mobile and NAAFI, worth an aggregate of £3m
in 3 to 5 year contracts.

Capita Registrars continues to grow its market share substantially, winning over
50% of the 101 company flotations to the end of May, representing a 73% market
share of flotations by market capitalisation. The business has also reached
agreement to extend existing contracts with BAA plc, Viridian Group plc,
Morrison (Wm) Supermarkets plc and Kelda Group plc. Revenues from existing
relationships have been increased through the provision of added value services
such as share dealing, company secretarial, voting and web based services. We
remain market leader in Share Incentive Plan (SIP) administration with 120 live
clients, thereby administering 1 in every 3 live plans. Significant new wins
this year include providing share plan administration for Coca Cola, Arriva and

Local Authorities are benefiting from Capita's range of alternative service
delivery models, from full outsourcing partnerships to off-site delivery of
single services. New contracts for our off-site processing and customer services
business worth £2.3m in aggregate have been secured in the period with clients
such as Bristol, Edinburgh and Leicester City Councils.

Our local government and social housing software business, Capita Software
Services, is performing strongly, securing £5.5m of additional business in the
period from new and existing customers including Herefordshire Council, Luton
Borough Council and the London Borough of Lewisham. New clients include Carlisle
City Council, where we are designing and developing a customer contact centre
which will be operated by council staff. Built around Capita's CRM (Customer
Relationship Management) and e-government solution, the contract has also
brought incremental work to other Capita businesses, such as the provision of
strategic consultancy support, property services and technology and telephony
infrastructure development. Capita Software Services is also enjoying
accelerated growth in the use of its 24 hour Managed Services products, whereby
organisations can outsource their payment processing requirements through an
internet or touch tone payments solution. Capita will process in excess of £100m
of payments per annum via these systems.

Capita Education Services, providers of software and support services to
schools, further education establishments and Local Education Authorities
(LEAs), has developed some new, innovative services. For St. Helens LEA, Capita
is providing an integrated solution to tackle truancy in its secondary schools.
The solution combines lesson attendance monitoring with systems providing rapid
alerts for parents if their children are absent without prior explanation. A
cluster of 6 Hampshire schools has recently started using Capita Education
Services' Learning Platform, an eLearning system that delivers personalised
learning to individual pupils. This approach to education is a growing
requirement and Capita is positioned strongly in this market both with Learning
Platform and IEP Writer, the leading Individual Education Planning tool owned by
Capita and used by over 16,000 schools.

We continue to experience growth across the financial services sector. Our entry
into the new Children's Trust Fund administration market is progressing well. We
have secured significant market share, supporting The Children's Mutual and
other organisations, such as Norwich Union, who will be offering this new
product from next year. Activity in the life and pensions market is buoyant. In
our recently formed Dublin operation, we have won an additional evergreen
contract worth £3m to administer a closed book of 4,000 policies for St. James's
Place Capital. In our insurance business, we have won significant new business
across our London Markets operation and Legal and Medical helplines. We are
continuing the refocusing of our volume loss adjusting services into higher
value added propositions utilising our newly implemented SAP technology. We
remain at the forefront of the major loss sector of the market and have recently
strengthened this position by our appointment to a major insurer's loss
adjusting panel.

Some of our Resourcing businesses have experienced challenging trading
conditions in the period, leading to some margin pressure. We have recently
strengthened management in this area. We continue to be successful in securing
longer term managed services contracts across the private sector and extending
these relationships with clients such as BNP Paribas, BAA and NATS. Through our
executive search and selection business, Veredus, we have established longer
term relationships with clients such as the London Borough of Waltham Forest,
the new National Assessment Agency, NHS Direct and the Serious Organised Crime

We have also focused on securing valuable positions on supplier frameworks.
Capita Education Resourcing has been awarded preferred supplier status through
the Government Office for London on a framework for supply teachers for all 33
London LEAs, alongside 6 other agencies. We have also been awarded a place by
Birmingham City Council's Education Department on a similar framework to support
all Birmingham's schools. In the first contract of its type, the business was
appointed by the Department for Education & Skills (DfES) as master vendor to
pilot the central supply of permanent secondary teacher candidates for the
London Challenge inner city schools.


Whilst we continue to see a healthy flow of acquisition opportunities, our focus
remains firmly on small transactions, priced at a level which adds value for the
Group's shareholders and which supports our objective of achieving an increasing
return on capital for the Group. During the period, we completed 4 acquisitions,
investing a total of £31.4m (net of cash acquired). Of this sum, £29.9m (£25.8m,
net of cash acquired) was used to acquire the Symonds Group (Holdings) Ltd. A
further £1m may be payable upon the achievement of certain targets. Symonds is a
leading provider of consultancy, project management and design services for the
property and infrastructure markets.

Symonds has been integrated with Capita's existing multi-disciplinary property
business. The enlarged company, Capita Symonds Limited, is now a leading player
in the industry, with proforma annual revenues exceeding £160m. We are delighted
by the manner in which the two businesses have been integrated and we are
impressed by the calibre of management we have acquired from Symonds, many of
whom have taken senior roles in the enlarged business.

Our People

The principal ingredient of Capita's success is the talent and commitment of our
22,000 staff. I would like to thank them for their contribution to our success
and their intensity of effort.

We welcome into Capita the 5,000 employees who have joined the Group since 1
January 2004, through our contract wins, recent acquisitions and direct

Future Prospects

Capita is fortunate to enjoy a combination of buoyant, expanding markets and a
simple, sustainable business model. We have built an excellent platform to
create value for our shareholders over the long term.

The business is trading strongly, generating healthy profits and excellent cash
flow. We are confident that shareholders will be pleased by Capita's results for

Rodney M Aldridge OBE
Executive Chairman



                                                          Six months                               Six months           
                                                          to 30 June                               to 30 June           
                                                                2004                                     2003           

                               Before Goodwill              Goodwill           
                                  amortisation          amortisation                    
                               and exceptional       and exceptional                 Before          Goodwill    
                                         item                  item     Total      Goodwill      amortisation     Total 
                        Notes              £m                    £m        £m            £m                £m        £m 

Turnover                    1           620.2                     -     620.2         531.6                 -     531.6 
                                      --------              --------  --------      --------          --------  --------
Group operating profit      1            69.1                 (14.5)     54.6          56.1             (13.7)     42.4 
Non Operating 
exceptional item            2               -                  (1.0)     (1.0)            -                 -         - 
Net interest payable                     (5.5)                    -      (5.5)         (5.1)                -      (5.1)
                                      --------              --------  --------      --------          --------  --------
Profit before taxation                   63.6                 (15.5)     48.1          51.0             (13.7)     37.3 
Taxation                                 17.9                  (0.3)     17.6          15.0                 -      15.0 
                                      --------              --------  --------      --------          --------  --------

Profit after taxation                    45.7                 (15.2)     30.5          36.0             (13.7)     22.3 
Minority interest                           -                     -         -           0.1                 -       0.1 
                                      --------              --------  --------      --------          --------  --------

Profit for the period                    45.7                 (15.2)     30.5          35.9             (13.7)     22.2 
Dividends                                11.7                     -      11.7           8.7                 -       8.7 
                                      --------              --------  --------      --------          --------  --------
Retained profit for the  
period                                   34.0                 (15.2)     18.8          27.2             (13.7)     13.5 
                                      --------              --------  --------      --------          --------  --------
Earnings per share          4            6.84p               (2.27)p     4.57p         5.38p           (2.06)p     3.32p
                                      --------              --------  --------      --------          --------  --------
Diluted earnings per share  4            6.54p               (2.17)p     4.37p         5.07p           (1.94)p     3.13p
                                      --------              --------  --------      --------          --------  --------
Dividend per share          5                                            1.75p                                     1.30p
                                      --------              --------  --------      --------          --------  --------



                                                       30 June         30 June
                                                          2004            2003
                                                            £m              £m
Fixed assets
Intangible assets                                        468.5           462.2
Tangible assets                                          119.5           103.4
                                                       -------         -------
                                                         588.0           565.6
                                                       -------         -------
Current assets
Trade investments                                          0.4             5.5
Debtors                                                  267.6           220.9
Cash at bank                                               4.8               -
                                                       -------         -------
                                                         272.8           226.4
                                                       -------         -------
Creditors: Amounts falling due
within one year                                          328.8           294.4
                                                       -------         -------

Net current liabilities                                  (56.0)          (68.0)
                                                       -------         -------

Total assets less current liabilities                    532.0           497.6

Creditors: Amounts falling due
after more than one year                                 151.7           157.1

Provision for charges and liabilities                     16.5            16.8
                                                       -------         -------
                                                         363.8           323.7
                                                       -------         -------

Shareholders' funds
Called up share capital - Ordinary                        13.4            13.3
Share premium and other reserves                         350.1           310.3
Minority interests                                         0.3             0.1
                                                       -------         -------
                                                         363.8           323.7
                                                       -------         -------



                                                    Six months      Six months
                                                    to 30 June      to 30 June
                                                          2004            2003
                                          Notes             £m              £m

Cashflow from operating activities             6          81.9            61.3

Returns on investment and 
servicing of finance                                      (5.5)           (5.1)

Taxation paid                                            (12.4)           (8.5)

Capital expenditure and
financial investment                                     (23.7)          (16.6)

Acquisitions and disposals                               (31.4)          (26.2)

Equity dividends paid                                    (18.0)          (13.4)
                                                       --------        --------

Net cash flow before financing                            (9.1)           (8.5)

Financing             - Share Buyback                     (0.9)           (9.3)
                      - Other Financing                   (5.0)           (1.7)
                                                       --------        --------
Decrease in cash in the period                           (15.0)          (19.5)
                                                       --------        --------


                                                    Six months      Six months
                                                    to 30 June      to 30 June
                                                          2004            2003
                                                            £m              £m

Profit attributable to the members of the
parent undertaking                                        30.5            22.2

Exchange adjustment                                          -               -
                                                      ---------        --------
Total recognised gains and losses                         30.5            22.2
                                                      ---------        --------


1.  Analysis of turnover by                                            Restated
    division:                                           Six months   Six months
                                                        to 30 June   to 30 June
                                                              2004         2003
                                                                £m           £m

    Continuing activities  Business Services                 147.0        138.9
                           Commercial Services               168.2        145.2
                           Integrated Services               142.0        118.0
                           Professional Services             142.9        129.5

    Acquired activities    Business Services                  20.1            -
                                                         ----------   ----------
                                                             620.2        531.6
                                                         ----------   ----------
    Analysis of operating profit before goodwill amortisation
    and exceptional item:

    Continuing activities  Business Services                   9.3         11.3
                           Commercial Services                20.1         15.0
                           Integrated Services                19.5         14.6
                           Professional Services              18.1         15.2

    Acquired activities    Business Services                   2.1            -
                                                         ----------   ----------
    Operating profit before goodwill amortisation            
    and exceptional item                                      69.1         56.1
                                                         ----------   ----------

    The comparative figures have been restated due to a reorganisation of the 
    Group's business divisions during the period. The directors decided this was 
    necessary to best manage the growth in the business and to enhance service 
    provision across the Group.

    The effect of the changes on the 2003 comparatives mentioned above is 
    disclosed in the table below:
                                                         Turnover          item
                                                               £m            £m

                 Business Services                          (12.2)         (8.1)
                 Commercial Services                         (1.6)          5.9
                 Integrated Services                         20.0           2.2
                 Professional Services                       (6.2)            -
                                                                -             -

2.  Non-operating exceptional item

    During the period the Group disposed of its printing business realising a 
    non operating loss on the transaction of £1m.

3.  The interim financial statements have been prepared on the basis of the 
    accounting policies set out in the Group's 2003 statutory accounts. The      
    statements were approved by a duly appointed and authorised committee of the
    Board of Directors on 21 July 2004.

    The full year accounts, on which the auditors gave an unqualified report, 
    have been filed with the Registrar of Companies. The figures for the six      
    months to 30 June 2003 and 2004 are unaudited.

4.  Earnings per share have been calculated on an average number of shares in 
    issue during the period of 667.7m (30 June 2003: 667.9m). The diluted 
    earnings per share have been calculated on the diluted profit for the period 
    of £45.7m (30 June 2003: £35.9m) and an average diluted number of shares of 
    698.4m (30 June 2003: 708.3m). As at 21 July 2004, there were 669.7m shares 
    in issue.

5.  The interim dividend of 1.75p per share will be payable on 8 October 2004 to
    Ordinary shareholders on the register at the close of business on 10 
    September 2004.

6.  Reconciliation of operating profit to net cash inflow from operating 
                                                        Six months   Six months
                                                        to 30 June   to 30 June
                                                              2004         2003
                                                                £m           £m

    Operating profit                                          54.6         42.4
    Depreciation charge                                       16.7         11.8
    Amortisation of goodwill                                  14.5         13.7
    Utilisation of provisions                                 (0.5)        (0.8)
    Increase in debtors                                      (36.4)       (22.8)
    Increase in creditors                                     33.0         17.0        
                                                         ----------   ----------
                                                              81.9         61.3
                                                         ----------   ----------

7.  Reconciliation of net cash flow
    to movement in net debt

                     Net debt at   Acquisitions             
                       1 January        in 2004    Cashflow  Non-cashflow  Net debt at 30 
                            2004      (  movements     movements       June 2004
                              £m             £m          £m            £m              £m
                         --------       --------    --------    ----------      ----------
    Cash in bank            19.8              -       (15.0)            -             4.8
                         --------       --------    --------    ----------      ----------
                            19.8              -       (15.0)            -             4.8
    Loan notes             (33.0)             -         5.9             -           (27.1)
    Bonds                 (124.6)             -           -             -          (124.6)
    Finance leases          (0.5)             -         0.2             -            (0.3)
                         --------       --------    --------    ----------      ----------
                          (138.3)             -        (8.9)            -          (147.2)
                         --------       --------    --------    ----------      ----------

                     Net debt at   Acquisitions             
                       1 January        in 2003    Cashflow  Non-cashflow  Net debt at 30 
                            2003      (  movements     movements       June 2003
                              £m             £m          £m            £m              £m
                         --------       --------    --------    ----------      ----------
    Overdrafts              (1.0)             -       (19.5)            -           (20.5)
                         --------       --------    --------    ----------      ----------
                            (1.0)             -       (19.5)            -           (20.5)
    Loan notes             (34.1)          (0.9)        1.7             -           (33.3)
    Bonds                 (124.5)             -           -             -          (124.5)
    Finance leases          (0.9)             -         0.5          (0.4)           (0.8)
                         --------      --------    --------   ----------       ----------
                          (160.5)          (0.9)      (17.3)         (0.4)         (179.1)
                          --------      --------    --------   ----------       ----------

                      This information is provided by RNS
            The company news service from the London Stock Exchange

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