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Capita Group PLC (CPI)

  Print      Mail a friend       Annual reports

Thursday 23 February, 2006

Capita Group PLC

Preliminary Results 2005

Capita Group PLC
23 February 2006

23 February 2006

                              THE CAPITA GROUP PLC
          Preliminary Results for the year ended 31 December 2005

                            A highly successful year

Financial Highlights

                          Year ended 31 December 2005                                  Year ended 31 December 2004 

Turnover                  £1,436m                                                      £1,282m*                    12%
Operating profit**        £190.7m                                                      £160.5m*                    19%
Profit before tax**       £177.2m                                                      £148.6m*                    19%
Earnings per share**      19.44p                                                       16.08p*                     21%
Total dividend per share   7.00p                                                        5.35p                      31%

Key points

• Operating margins** increased to 13.3% (2004: 12.5%)
• Operating cash flow up 16% to £232m (2004: £200m)
• Strong growth in both public and private sectors - contracts worth £1.1bn won 
  in last three months, including Birmingham City Council and Zurich
• Eleven acquisitions totalling £88m completed in 2005; further acquisitions 
  expected in 2006
• Total potential UK BPO market now independently valued at £94.8bn per annum

*  excluding discontinued operations
** before share based payment charge, intangible amortisation and impairment

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

'Capita enters 2006 with confidence. Our operations are performing consistently
well, our chosen markets are active and our sales prospects are exciting.

'Moreover, the ingredients for a successful year are already in place. We
believe our shareholders will be pleased by the results for 2006.'

Statutory Results                Year ended                Year ended                   Increase
                              31 December 2005          31 December 2004 

Excluding impairment charge
Operating profit                 £178.6m                     £154.0m*                    16.0%
Profit before tax                £165.1m                     £142.1m*                    16.2%
Earnings per share (basic)       18.10p                      15.13p                      19.6%

Including impairment charge
Operating profit                 £166.6m                     £154.0m*                    8.2%
Profit before tax                £153.1m                     £142.1m*                    7.8%
Earnings per share (basic)       16.28p                      15.13p                      7.6%

For further information:

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

Financial Dynamics                                  Tel: 020 7269 7291
Andrew Lorenz/Richard Mountain

Chairman's Statement

Capita has enjoyed a highly successful year in 2005. We have continued to build
upon our position as the UK's market leader in providing business process
outsourcing (BPO) services to the public and private sectors and our successes
during 2005 have positioned us strongly for 2006.

Capita now prepares accounts in accordance with International Financial
Reporting Standards (IFRS). Consequently, in the results below, the comparatives
have been restated to reflect this change.

In the year ended 31 December 2005, turnover increased by 12% to £1,436m (2004:
£1,282m, excluding discontinued operations). Operating profits before the share
based payment charge and before amortisation of separately identifiable
intangible assets ('intangibles') and impairment rose by 19% to £190.7m (2004:
£160.5m) and profits before taxation, share based payment charge, intangible
amortisation and impairment increased by 19% to £177.2m (2004: £148.6m).
Earnings per share before share based payment charge, intangible amortisation
and impairment grew by 21% to 19.44p (2004: 16.08p excluding discontinued

Operating cash flow was particularly strong, rising by 16% to £232m (2004:
£200m). We have increased dividends by 31% and returned a further £50m to
shareholders through purchasing our own shares. In total, including the proposed
final dividend, we will be returning £96m to shareholders in respect of the 2005
financial year.

We are excited by the continued development of the Group and are committed to
building long term, sustainable value for our stakeholders, primarily our
shareholders, customers and our employees.

Building value for shareholders

To ensure we are building value for shareholders, we focus on a number of key
measures. These are outlined below:

   •We have continued to enhance our operating margins, which improved
    materially during the year to 13.3% (2004: 12.5%). This is due to increasing
    volumes of work being processed through existing infrastructure, high
    quality operational performance across our contract base as a whole and our
    continued focus on seeking efficiencies in service delivery.

   •The strength of Capita and its business model is reflected in our
    excellent underlying cash flow, with £232m (2004: £200m) generated by
    operations in the year, representing an operating profit to cash conversion
    rate of 122% (2004: 125%). Our underlying free cash flow increased by 20% to
    £127m (2004: £106m).

   •We aim to contain capital expenditure at or below 4% of revenue, although
    there may be rare occasions when we exceed this where the financial strength
    of Capita can be used to a competitive advantage. In 2005, we comfortably
    met this objective with net capital expenditure being 3.7% (2004: 3.6%) of
    annual revenue. This was achieved after major investment in the Group's
    sophisticated IT platforms to support future growth across both our general
    insurance and our life and pensions businesses.

   •We focus on driving a steadily increasing return on capital. During 2005,
    the post tax return on average capital employed (including debt) has
    improved to 17.8% (2004: 16.5%). This compares to our weighted average cost
    of capital which is 8.2%.

   •A core plank in the creation of shareholder value is a progressive
    dividend policy. The Board is recommending a final dividend of 4.9p per
    ordinary share, making a total of 7.0p (2004: 5.35p) for the year. This
    represents a 31% increase on dividends paid in respect of the 2004 financial
    year. Over the 10 years to 31 December 2005, we have grown Capita's annual
    dividend at a compound rate of 31%. The final dividend will be payable on 5
    May 2006 to shareholders on the register at the close of business on 7 April
    2006. Our confidence in the strength and resilience of Capita's business
    model allows us to reduce annual dividend cover further to 2.8 times (2004:
    3 times).

   •There may be circumstances in which market conditions allow us to add
    further value for shareholders through share buybacks, thus ensuring we have
    an efficient capital structure which will minimise our long term cost of
    capital. During 2005, the Group bought back 13.2m shares (representing 2% of
    the issued share capital) at an average price of £3.74. The Group has
    authority to re-purchase up to 10% of its issued share capital and we plan
    to seek renewal of this authority at the Annual General Meeting.

   •We have continued with our strategy of acquiring small, realistically
    priced businesses which complement or develop our service offerings. In
    2005, we invested £88m (net of cash acquired) in 11 acquisitions. Further
    information is provided later in the statement.

   •We believe that the disciplines set out above collectively form an
    integral part of building value for our shareholders on a consistent basis
    over the long term. Over the 10 years to 31 December 2005, the value of the
    Group has increased from £160m to £2.7bn. Total shareholder return
    (excluding dividends) in this period has been 17 fold, equivalent to a 33%
    compound annual return.

Our marketplace

The UK BPO market continues to generate a wide range of opportunities to fuel
Capita's future growth. A recent independent survey estimates that the total
potential UK BPO market is valued at £94.8bn per annum, with the public sector
representing 33% and the private sector 67%. The total UK BPO market is
estimated to have been worth £4.4bn in revenues in 2005, with expected compound
annual growth rates of approximately 12% until 2009.*

The demand for business process re-engineering and service transformation
continues to be driven by the public sector's need to deliver quality, cost
efficient services and the private sector's requirement to remain competitive
and innovative.

Capita works across eight markets, being local government, central government,
education, transport, health, life and pensions, insurance, and other private
sector organisations (including financial services). Capita remains ranked as
the number one provider of BPO services in the UK and number one outsourcing
supplier in central government, local government, finance (including life and
pensions and insurance) and other services (including retail/wholesale, other
businesses and transport).**

Creating organic growth

We have two complementary approaches to creating organic growth. The first, our
centrally managed Major Sales Team seeks to secure contracts typically with a
value of £10m or above. These contracts are 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 over 20,000 customers and our retention rate is exemplary.

Organic Growth: Securing major contracts

Securing major contracts is an important component of our growth. Our sales
performance in 2005 was pleasing. We secured 14 major new and extended contracts
with an aggregate value of £1.14bn (2004: £1.36bn). Significant new contracts
won include a 10 year partnership with Harrow Council, estimated to be worth
£100m, a 10 year contract with Zurich, worth £300m, and a 10 year partnership,
subject to contract, with Birmingham City Council, worth £424m.

2006 has started well. Earlier this month, we announced that we had been named
preferred supplier for contracts worth a total of £240m, subject to contract
signature. These include a new shared services contract with South Oxfordshire
and Vale of White Horse District Councils worth £20m over 7 years, a new HR
outsourcing contract with the BBC worth in excess of £100m over 10 years and the
re-tender of the contract to administer miners' personal liability claims on
behalf of the Department of Trade and Industry, expected to be worth £120m over
3 years.

We continue to enjoy a buoyant period of activity and I am pleased to report
today that we have signed a further contract, worth £120m over 7 years, with DSG
international plc. The contract is to extend the delivery of telephone support
services which doubles the size of our business with DSGi.

As a consequence of this activity, the total value of major contracts won and
extended in the first 8 weeks of 2006 is £360m and we will have no material
contracts (defined as having annual revenue in excess of 1% of 2005 turnover)
due for renewal in 2006 and only one each in 2007 and 2008.

Over the last 3 months, contracts which had been valued at a total of £1.6bn
within our bid pipeline have been awarded. Of this amount, Capita has been
chosen to deliver business totalling £1.1bn. Because of this surge in contract
decisions, our current bid pipeline stands at £2.2bn (£3.4bn: July 2005).
Replenishment of the bid pipeline is already underway and we expect the number
and aggregate value of bids within it to continue to increase steadily over the
next few months. The bid pipeline only includes bid situations in which Capita
is shortlisted as one of 4 or fewer competitors and caps our largest bids at

We have already secured strong revenue growth for 2006 and our efforts are now
focused upon achieving a similar position for 2007.

Organic growth: Group businesses

Group businesses have performed strongly, securing many new clients and
extending and broadening existing relationships across both the private and
public sectors. We have enlarged our service offering in the year, investing in
our business centre infrastructure and establishing additional state of the art
IT platforms to service multiple clients and deliver enhanced administration and
customer services.

Private sector: Our penetration of the private sector market has continued in
2005, with particular success in securing business in the financial services,
insurance and life and pensions sectors.

Capita Insurance Services is trading strongly, building further on its position
as the market leading provider of support services to the insurance market and
the largest technical claims handler in the UK outsourcing market, administering
£11bn of liabilities on behalf of clients. The business is the first in Europe
to implement SAP Claims and SAP CRM. This SAP solution reduces the time taken to
process claims across multiple clients and has the flexibility to respond well
to additional volume demand. Existing and new clients, such as Norwich Union and
Chester Street, will benefit from a single customer view, integrated processes
and enhanced information.

Capita Life & Pensions performed well in the year, securing new long term
contracts and developing its core offering of end to end support for open and
closed books of business. Our investment in establishing flexible, shared
administration platforms is enabling us to deliver significant savings to
clients and to bring their new products to market more swiftly. Clients also
continue to benefit from our high standards of customer service which lead to
reduced policy attrition rates. For Lincoln Life, we have reduced the attrition
rate by at least 1%, equating to approximately £3m in premium income and £4m in
embedded value over 12 months.

Our two pensions administration operations made good progress in the year.
Capita PPML, which supports specialist pensions and related investment services,
has been re-launched as Capita SIP Services, in readiness for pensions
simplification which comes into effect in April 2006. We have invested in
administration platforms that have the capability to support multiple specialist
pensions products at low cost, supporting both charge-capped products and more
complex investment vehicles. Capita Hartshead has further strengthened its
pre-eminent position in the UK third-party pensions administration market
through securing new contracts and the acquisition of complementary businesses.
Contract wins and renewals worth over £9.8m with clients including BP Oil,
Baring Asset Management and Alliance & Leicester were secured in the year.

We have also built up an integrated offering to support the administration
requirements of independent financial advisers (IFAs) and providers, a growing
new market sub-sector for Capita. Using our existing IT platforms and the
specialist products and services of newly acquired Quay Software and Webline, we
can offer a cost effective, integrated administration platform and more
effective product distribution.

Capita Registrars and Financial Services have benefited from buoyant trading
conditions and the extension of their service offering in the year. Capita
Registrars was appointed to half of all company flotations in 2005, including
PartyGaming, the largest flotation by market value in the past 5 years. Our fund
administration operation expanded rapidly, with funds under administration
having increased from £1bn to £16.5bn in just 3 years. As a result of this
growth, we are now listed in 12th place in the Investment Management Association
(IMA) rankings for funds under administration.

Public sector: Demand for our services across local and central government is
healthy. We are ideally positioned to provide the strategic advice and new
service infrastructures required to support current government policies and the
significant service transformation needed to deliver efficient, responsive
public services.

We have continued to extend our capability to support local authorities through
the introduction of new software products, the application of ICT and increasing
utilisation of our shared services centres. Our 6 local government shared
services centres have continued to expand the number of clients and services
supported from each centre. For example, in 2005 our Coventry Centre supported
21 local authorities (2003: 8), collecting £15m council tax payments (2003:
£8.5m) and handling 1.6m customer calls (2003:1.1m). We also renewed a number of
our key local government partnerships in the year, such as our multi-service
contracts with Mendip District Council and Bexley Council.

Capita Strategic Education Services performed well and was re-launched in the
year as Capita Strategic Children's Services, in line with the Government's
strategy requiring local authorities to integrate services for children and
young people. In conjunction with our education software business, we are
developing new products and services to help authorities through this
unprecedented service transformation and to support the delivery of on-going

Capita Symonds has had another year of steady growth securing good quality new
business, including a number of long term, high profile projects. The business
has been particularly successful in penetrating the transport infrastructure and
urban regeneration markets this year. In the year, we were appointed to support
the Dubai Rapid Link consortium in delivering the new Dubai £1.86bn rail system
with design and engineering services. Urban Vision, the joint venture between
Capita Symonds, City of Salford and Morrison has been officially launched and
our strategic partnership with Cumbria County Council was extended for a further
3 years to 2011. Capita Symonds is now ranked as the 5th largest
multidisciplinary consultancy in the UK (7th in 2004).

Capita's resourcing businesses performed much better in 2005, increasing market
share across the public and private sectors, with new projects awarded by such
clients as the Home Office, Department for Work and Pensions, the Metropolitan
Police, the National Assembly of Wales, BAA, Fujitsu, HBOS and Argos. We have
also continued our success in securing significant managed services contracts,
with the award of a new contract by British Nuclear Group to manage agency
supplied workers with a payroll of £150m over 3 years.

Organic growth: Offshore capabilities

To meet the increasing requirements to offer offshore delivery options in our
major contract bid proposals and to add further value to existing clients and
our own businesses, we are investing in our offshore BPO capabilities. During
the year, we established a second, modern business centre in Mumbai, comprising
50,000 sq ft of space with a further 50,000 sq ft under option, bringing our
total potential space in India to 120,000 sq ft, with a seat capacity of over
1,250. We now have 400 employees in Mumbai servicing five clients.

Our two sites are equipped with the latest voice over internet and wireless
connectivity and are now delivering eight different business processes, ranging
from data input to complex fund accounting. We have achieved full BS7799
accreditation at both sites and passed all independent security audits
undertaken by prospective clients. Our service delivery track record is
excellent. For example, we recently transferred an existing client's extensive
back office activities to the operation. We have consistently exceeded their
99.5% accuracy requirements and have met their 24 hour turnaround deadlines
(previously 48 hours onshore) from the first month of live operations. We are
delivering substantial savings of up to 50% of operating costs to clients
currently using the offshore operation.


We have seen a good volume of opportunities during 2005. Our focus remains
firmly on small transactions, priced at a level which adds value for

During the year, we completed 11 acquisitions, investing a total of £88m (net of
cash acquired). Three of these transactions had an initial purchase
consideration of £10m or above:

   •In July, we completed the acquisition of BMI Health Services for £10m.
    This business has been merged with Capita's existing health solutions
    company which we acquired from AON in 2004. The integration of the two
    businesses has been completed in a highly successful manner and the combined
    company is now positioned as the leading and largest provider of
    occupational health services to the public and private sectors in the UK. We
    believe this market has significant potential going forward.

   •In September, we completed the acquisition of BDML Connect Limited from
    the insurance group BDML. The business was acquired for an initial cash
    consideration of £26m, with a deferred consideration of up to £9m, dependent
    on future business performance. BDML Connect delivers personalised insurance
    services on behalf of major affinity brands such as Norwich Union, Admiral
    Insurance and RAC. We are delighted by the manner in which this business has
    been integrated within Capita. It has performed in line with our
    expectations and is strongly placed for 2006.

   •In November, we completed the acquisition of Lonsdale Travel for an
    initial consideration of £10.25m. A further £0.25m may be payable, subject
    to achievement of certain targets. Just as we targeted and built up over the
    past 20 months a market leading position in supplying outsourced
    occupational health services, we have now identified travel administration
    as an area of major spend where we can add value to our clients by offering
    effective outsourced services. Organisations spent £14.7bn on business
    travel in the UK in 2004 and we estimate that some £3bn is spent across the
    public sector alone. The administration costs of this activity are very
    significant and ripe for re-engineering.

Our pipeline of potential businesses to be acquired remains encouraging and we
anticipate a similar volume of small transactions during 2006.

Valuing our people

One of the principal attributes that differentiates Capita from its competition
is the proficiency, commitment and open style of our staff. The culture within
Capita and its people is a key reason for our ability to deliver value for our
shareholders and other stakeholders. We have a stable and consistent management
team, a low turnover of senior people and an excellent spirit throughout the
company. I would like to thank our staff for the vital part they play in
Capita's continued success. I also welcome the 2,000 employees that have joined
us since the beginning of 2005. We now employ 25,000 people in the UK, Ireland
and India.

Future prospects

Capita enters 2006 with confidence. Our operations are performing consistently
well, our chosen markets are active and our sales prospects are exciting.

Moreover, the ingredients for a successful year are already in place. We believe
our shareholders will be pleased by the results for 2006.

Rodney M Aldridge OBE
Executive Chairman

22 February 2006

Sources: *Ovum and **Harris Interactive (formally HI Europe) Reports 2005

Consolidated income statement
for the year ended 31 December 2005
                                                           2005                                2004
                                    Before                              Before  operations,
                               impairment,  Impairment,            impairment,  impairment,
                              amortisation amortisation           amortisation amortisation         
                                       and          and                    and          and
                               share-based  share-based            share-based  share-based        
                                   payment      payment   Total        payment      payment   Total
                       Notes            £m           £m      £m             £m           £m      £m
Continuing operations:
Revenue                  1         1,435.5            - 1,435.5        1,282.2            - 1,282.2
Cost of sales                      1,054.6            - 1,054.6          955.6            -   955.6

Gross profit                         380.9            -   380.9          326.6            -   326.6
Administrative           2           190.2         24.1   214.3          166.1          6.5   172.6

Operating profit         1           190.7       (24.1)   166.6          160.5        (6.5)   154.0
Finance revenue                        0.4            -     0.4            0.2            -     0.2
Finance costs                       (13.9)            -  (13.9)         (12.1)            -  (12.1)

Profit before tax                    177.2       (24.1)   153.1          148.6        (6.5)   142.1
Income tax expense                  (49.1)          3.3  (45.8)         (41.8)          2.4  (39.4)

Profit for the year
from continuing
operations                           128.1       (20.8)   107.3          106.8        (4.1)   102.7

Loss on discontinued
operations                               -            -       -              -        (2.2)   (2.2)

Profit for the year                  128.1       (20.8)   107.3          106.8        (6.3)   100.5

Attributable to:
Equity holders of the                128.3       (20.8)   107.5          107.0        (6.3)   100.7
Minority interest                    (0.2)            -   (0.2)          (0.2)            -   (0.2)
                                     128.1       (20.8)   107.3          106.8        (6.3)   100.5

Earnings per share       3
- basic                             19.44p      (3.16)p  16.28p         16.08p      (0.95)p  15.13p
- diluted                           19.16p      (3.11)p  16.05p         15.94p      (0.94)p  15.00p
- basic (excluding                  19.44p      (3.16)p  16.28p         16.08p      (0.62)p  15.46p
discontinued operations)
- diluted (excluding                19.16p      (3.11)p  16.05p         15.94p      (0.61)p  15.33p
discontinued operations)

Consolidated statement of recognised income and expense
for the year ended 31 December 2005

                                                           2005     2004
                                                             £m       £m

Actuarial loss on defined benefit pension schemes         (3.7)   (19.7)
Exchange differences on translation of                     
foreign operations                                          0.2      0.1
Tax on items taken directly to equity                       3.7      8.3

Net income/(expense) recognised directly in equity          0.2   (11.3)
Profit for the year                                       107.3    100.5

Total income and expense for the period                   107.5     89.2

Attributable to:
Equity holders of the parent                              107.7     89.4
Minority interest                                         (0.2)    (0.2)

                                                          107.5     89.2

Consolidated balance sheet
at 31 December 2005

                                                                 2005               2004
                                          Notes                    £m                 £m
Non-current assets
Property, plant and equipment                                   150.1              129.1
Intangible assets                                               588.7              500.2
Financial assets                                                 13.8                0.2
Trade and other receivables                                       5.8                6.1
Deferred taxation                                                25.1               32.6

                                                                783.5              668.2

Current assets
Trade and other receivables                 6                   343.8              260.3

Total assets                                                   1,127.3             928.5

Current liabilities
Trade and other payables                    6                   378.0              308.9
Financial liabilities                       6                    49.9               33.0
Provisions                                                        1.3                2.1
Income tax payable                                               32.5               28.4

                                                                461.7              372.4

Non-current liabilities
Trade and other payables                                          1.3                3.1
Financial liabilities                                           221.7              145.2
Provisions                                                        2.0                3.4
Employee benefits                                                43.0               44.1

                                                                268.0              195.8

Total liabilities                                               729.7              568.2

Net assets                                                      397.6              360.3

Capital and reserves
Issued capital                                                   13.4               13.4
Share premium                                                   258.1              248.1
Treasury shares                                                 (0.4)              (0.2)
Capital redemption reserve                                        0.2                0.1
Foreign currency translation                                      0.3                0.1
Retained earnings                                               125.8               98.4

Equity shareholders' funds                                      397.4              359.9

Minority interest                                                 0.2                0.4

Total equity                                                    397.6              360.3

Consolidated cash flow statement
for the year ended 31 December 2005

                                                                    2005         2004
                                                         Notes        £m           £m
Cash flows from operating activities
Operating profit on continuing activities before                   166.6        154.0
interest and taxation
Operating loss on discontinued activities                              -        (0.3)
Depreciation                                                        31.7         27.9
Amortisation of other intangible assets (treated as                  4.9          2.9
Amortisation of intangible assets created on                         4.5          1.8
Impairment of goodwill                                    2         12.0            -
Loss on sale of available-for-sale financial assets                    -          0.1
Share-based payment expense                                          7.6          4.7
Pension charge                                                      12.0         13.1
Pension contributions                                             (16.6)       (16.5)
Loss on sale of property, plant and equipment                        0.5            -
Movement in provisions                                             (2.4)          0.7
Increase in debtors                                               (19.4)       (12.5)
Increase in creditors                                               30.8         24.1

Cash generated from operations                                     232.2        200.0

Exceptional additional pension contribution                            -       (50.0)
Income tax paid                                                   (38.2)       (36.0)
Interest paid                                                     (13.9)       (11.9)
Interest received                                                    0.4          0.2

Net cash generated from operating activities                       180.5        102.3

Net cash used in investing activities
Purchase of property, plant and equipment                         (49.7)       (46.2)
Proceeds from sale of property, plant and equipment                  0.4          3.3
Purchase of intangible fixed assets                                (4.0)        (8.0)
Acquisition of subsidiary undertakings and businesses            (101.9)       (56.4)
Cash acquired with subsidiary undertakings                           2.7          3.8
Proceeds on disposal of subsidiary undertakings                        -          3.1
Purchase of trade investments in insurance captives               (12.0)            -
Proceeds on sale of available-for-sale financial assets                -          4.9

                                                                 (164.5)       (95.5)

Net cash used in financing activities
Issue of ordinary share capital                                      9.9          5.5
Share buybacks                                                    (49.6)       (27.5)
Share transaction costs                                            (0.3)        (0.2)
Dividends                                                 4       (38.0)       (29.6)
Capital element of finance lease rental payments                   (0.2)        (0.3)
Movement on asset based securitised financing             5          1.4            -
Repayment of loans notes and long term loans                       (7.3)       (11.5)
Proceeds on issue of bond                                           75.0            -
Bond issue costs                                                   (0.1)            -

                                                                   (9.2)       (63.6)

Net increase/(decrease) in cash and cash equivalents      5          6.8       (56.8)
Cash and cash equivalents at the beginning of the                 (26.1)         30.7

Cash and cash equivalents at 31 December                          (19.3)       (26.1)

Cash and cash equivalents comprise:
Overdraft                                                         (19.3)       (26.1)

Total                                                             (19.3)       (26.1)

Notes to the Preliminary Statement
31 December 2005

1. Segmental information

The Group's operations are organised and managed separately according to the
nature of the services provided, with each segment representing a strategic
business unit offering a different package of related services across the
Group's markets.

The Group accounts for sales between business units as if they were to a third
party at market rates.

Year ended 31 December 2005

Segment revenue       Resourcing Property Commercial Corporate Integrated Professional
                        services services   services  services   services     services   Total
                              £m       £m         £m        £m         £m           £m      £m

Total segment revenue      187.9    200.7      271.4     245.0      400.8        267.3 1,573.1
Inter-segment revenue     (13.7)   (10.2)     (17.7)     (4.6)     (27.0)       (64.4) (137.6)

Third party revenue        174.2    190.5      253.7     240.4      373.8        202.9 1,435.5

Segment result
Result after                11.4     17.1       25.4      44.8       58.0         34.0   190.7
Share-based payment        (0.9)    (1.0)      (1.3)     (1.2)      (1.9)        (1.3)   (7.6)
Intangible amortisation        -    (1.7)      (0.9)     (0.8)      (0.6)        (0.5)   (4.5)
Impairment charge              -        -          -         -          -       (12.0)  (12.0)

                            10.5     14.4       23.2      42.8       55.5        20.2    166.6

Net finance costs                                                                       (13.5)

Profit before tax and                                                                    153.1
minority interests                                                                       
Corporation taxation                                                                    (45.8)
Minority interests                                                                         0.2
Profit after tax and                                                                     107.5
minority interests                                                                       

Year ended 31 December 2004
Segment revenue                                                                            
                                                                                Continuing Discontinued  
               Resourcing Property Commercial Corporate Integrated Professional operations   operations     
                 services services   services  services   services     services      total        total
                       £m       £m         £m        £m         £m           £m         £m           £m

Total segment       179.4    162.9      261.5     201.5      344.9        247.1    1,397.3          2.9
Inter-segment      (17.3)        -     (20.3)    (11.7)      (6.3)       (59.5)    (115.1)            -

Third party         162.1    162.9      241.2     189.8      338.6        187.6    1,282.2          2.9

Segment result
Result after          6.8     17.2       21.4      35.0       49.4         30.7      160.5        (0.3)
Share-based         (0.6)    (0.6)      (0.8)     (0.7)      (1.2)        (0.8)      (4.7)            -
Intangible              -    (1.4)          -     (0.2)          -        (0.2)      (1.8)            -

                      6.2     15.2       20.6      34.1       48.2         29.7      154.0        (0.3)

Exceptional                                                                              -        (1.9)

Net finance costs                                                                   (11.9)            -
Profit before tax and                                                                142.1        (2.2)
minority interests                                                                   
Corporation                                                                         (39.4)            -
taxation                                                                               0.2            -

Profit after tax and                                                                 102.9        (2.2)
minority interests

Notes to the Preliminary Statement
31 December 2005

2. Administrative expenses

Included within the middle column disclosed on the face of the consolidated
income statement, against the line item administrative expenses, are the
                                                                         2005        2004
                                                                           £m          £m

Share-based payment charge                                                7.6         4.7
Amortisation of intangible assets created on acquisition                  4.5         1.8
Goodwill impairment*                                                     12.0           -

                                                                         24.1         6.5

* During the year the goodwill recognised on the acquisition of the Industrial
Society's workforce and training business, re-branded as Learning & Development,
which was transacted in December 2001, was impaired. Over the period, the
business has not performed to expectation largely due to a market decline in
this type of training.

3. Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit for
the year attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on the conversion of all
the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted
earnings per share computations:

                                                                           2005      2004
                                                                             £m        £m

Net profit attributable to ordinary equity holders of the parent from     107.5     102.9
continuing operations
Loss attributable to ordinary equity holders of the parent from a             -     (2.2)
discontinued operation
Net profit attributable to ordinary equity holders of the parent          107.5     100.7

                                                                           2005      2004
                                                                         Number    Number
                                                                        million   million

Weighted average number of ordinary shares (excluding treasury shares)
for basic earnings per share                                              660.1     665.4
Dilutive potential ordinary shares:
Employee share options                                                      9.7       5.9

Weighted average number of ordinary shares (excluding treasury shares)
adjusted for the effect of dilution                                       669.8     671.3

There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of completion of these
financial statements.

To calculate earnings per share amounts for the discontinued operations, the
weighted average number of ordinary shares for both basic and diluted amounts is
as per the table above. The following table provides the loss figure used as the
                                                                           2005      2004
                                                                             £m        £m
Net loss attributable to ordinary equity holders of the parent from
discontinued operations for basic and diluted earnings per share
calculation                                                                   -     (2.2)

Notes to the Preliminary Statement
31 December 2005

3. Earnings per share (continued)

The additional earnings per share figures are calculated based on earnings
attributable to ordinary equity holders of the parent before amortisation,
share-based payments and impairment of £128.3m (2004: £107.0m). They are
included as they provide a better understanding of the underlying trading
performance of the Group.
                                                                           2005      2004
                                                                              P         P

Basic earnings per share - before amortisation, share-based payment       19.44     16.08
and impairment
- after amortisation, share-based payment and impairment                  16.28     15.13
Diluted earnings per share - before amortisation, share-based payment     19.16     15.94
and impairment
- after amortisation, share-based payment and impairment                  16.05     15.00

4. Dividends paid and proposed
                                                                           2005      2004
                                                                             £m        £m
Declared and paid during the year

Ordinary shares (equity):
Final for 2004 paid: 3.6p per share (2003: 2.7p per share)                 24.0      18.0
Interim for 2005 paid 2.1p per share (2004: 1.75p per share)               14.0      11.6
                                                                           38.0      29.6
Proposed for approval at AGM (not recognised as a liability at 31

Ordinary shares (equity):
Final for 2005: 4.9p per share (2004: 3.6p per share)                      32.0      23.8

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

At 31 December 2005         Net debt  Adjustments   Net debt   Acquisitions   Cash flow   Non-cash   Net debt
                               at 31    to comply       at 1        in 2005   movements       flow      at 31
                            December  with IAS 32    January    (exc. cash)              movements   December
                                2004   and IAS 39       2005                                             2005
                                  £m           £m         £m             £m          £m         £m         £m

Overdrafts                    (26.1)            -     (26.1)              -         6.8          -     (19.3)
Cash                          (26.1)            -     (26.1)              -         6.8          -     (19.3)
Loan notes                    (27.1)            -     (27.1)              -         4.4          -     (22.7)
Long-term debt                     -            -          -          (2.9)         2.9          -          -
Bonds                        (124.7)          1.7    (123.0)              -      (74.9)      (0.7)    (198.6)
Finance leases                 (0.2)            -      (0.2)          (0.2)         0.2          -      (0.2)
Sub-total net debt           (178.1)          1.7    (176.4)          (3.1)      (60.6)      (0.7)    (240.8)
Asset based securitised
finance (note 6)                    -           -          -         (26.8)       (1.4)          -     (28.2)

Total                        (178.1)          1.7    (176.4)         (29.9)      (62.0)      (0.7)   (269.0)

Notes to the Preliminary Statement
31 December 2005

5. Reconciliation of net cash flow to movement in net debt (continued)

At 31 December 2004         Net debt   Acquisitions    Cash flow   Non-cash     Net debt
                                at 1        in 2004    movements       flow        at 31
                             January    (exc. cash)               movements     December
                                2004                                                2004
                                  £m             £m           £m         £m           £m

Cash and cash equivalents       30.7              -       (30.7)          -            -
Overdrafts                         -              -       (26.1)          -       (26.1)
Cash                            30.7              -       (56.8)          -       (26.1)
Loan notes                    (33.0)          (0.4)          6.3          -       (27.1)
Long-term debt                     -          (5.2)          5.2          -            -
Bonds                        (124.6)              -            -      (0.1)      (124.7)
Finance leases                 (0.5)              -          0.3          -        (0.2)

Total                        (127.4)          (5.6)       (45.0)      (0.1)      (178.1)

6. Balance sheet impacts

The acquisition of BDML Connect Limited (BDML) included 'insurance debtors
subject to a securitisation agreement'. The purpose of this arrangement is to
securitise customer receivables, derived through the provision of instalment
credit facilities to insurance customers of the company.

The company sells said receivables, with no immediate effect on the P&L, for
cash to a third party (Gresham in this case). Gresham take on the rights and
responsibilities of these receivables such that the terms of this agreement
dictate that Gresham has no recourse to BDML beyond 14% of the total receivable

Under UK GAAP, the substance of this arrangement was disclosed as a linked
presentation under the current assets section of the balance sheet without
appearing in the financing section of the balance sheet.

The Group's transition to IFRS has necessitated different disclosure, the impact
of which is to reflect on BDML's opening balance sheet an increase in the
Group's receivables of £37.1m adding £26.8m of securitised asset financing. The
respective balances of this arrangement at 31 December 2005 were £37.9m to
receivables and £28.2m to securitised asset financing.

One of the principal activities of a subsidiary of the Group, Capita Financial
Managers Limited (CFM), is to act as an authorised unit trust manager whereby
funds are received on behalf of customers to be invested per instruction by CFM.
The transfer of funds to purchase the units is not always done on the same
business day. The Group's transition to IFRS has forced us to re-examine certain
funds flow arrangements and we have reached the conclusion that this arrangement
should be recorded gross on the Group's consolidated balance sheet. The impact
for the 2004 closing balance sheet was to increase debtors, creditors and cash
balance by £17.3m, £28.1m and £10.8m respectively. The equivalent balances on
the 2005 closing balance sheet are £31.1m, £38.0m and £6.9m resulting in timing
difference in cash outflow of £3.9m for the year.

7. Preliminary announcement

The preliminary announcement is prepared in accordance with International
Financial Reporting Standards. This differs from the basis used for the previous
year's accounts and comparatives have been restated accordingly.

A duly appointed and authorised committee of the Board of Directors approved the
preliminary announcement on 22 February 2006.

The announcement represents non-statutory accounts within the meaning of section
240 of the Companies Act 1985. The statutory annual accounts for the year ended
31 December 2005, upon which an unqualified audit opinion has been given and
which did not contain a statement under section 235, 237(2) or 237(3) of the
Companies Act 1985, will be sent to the Registrar of Companies.

Copies of the announcement can be obtained from the Company's registered office
at 71 Victoria Street, Westminster, London, SW1H 0XA. It is intended that the
Annual Report & Accounts will be posted to shareholders on 22 March 2006 and
will be available to members of the public at the registered office of the
Company from that date.

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            The company news service from the London Stock Exchange

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