Capita Plc · LSE:CPI
Capita — H1 2019 Earnings Presentation
49 slides from Capita's earnings presentation, Aug 1, 2019
Slide 1: Half-year results 2019
Capita plc Half-year results 2019 1 August 2019 1 | Capita HY Results 2019
Slide 2: Agenda
Agenda 1. Summary Jon Lewis, CEO 2. Financial results Patrick Butcher, CFO 3. Transformation update and divisional review Jon Lewis, CEO 4. Summary & Questions 2 | Capita HY Results 2019
Slide 3: Disclaimer
Disclaimer This half year results announcement is prepared for and addressed only to the Company’s shareholders as a whole and to no other person. The Company, its Directors, employees, agents and advisers accept and assume no liability to any person in respect of this trading update save as would a
Slide 4: Summary
Summary 2019 half-year results in line with our expectations • Revenue £1,852m and profit before tax* £126m; order intake £830m and order book £6.7bn 2019 full-year guidance maintained • Profit before tax* expected to be between £265m and £295m • On plan to deliver cumulative cost competitiveness sa
Slide 5: Transformation recap: our plan is to do fewer things, better
Transformation recap: our plan is to do fewer things, better • Focus on strong positions with • Strengthen leadership and • Focus on digitally-enabled growth potential governance services and software • Align organisation around growth • Up to £500m investment in asset • More predictable business, l
Slide 6: Transformation programme: the plan for 2019
Transformation programme: the plan for 2019 2017 By December 2019 By 2020 BALANCE SHEET Leverage 1 - 2x* Leverage 2.3x and Lower interest costs, increasing more flexible Purpose, operating Poor governance & 1. GOVERNANCE, OPERATING MODEL AND PEOPLE model, governance, discipline, no people and people
Slide 7: Financial results
Financial results Patrick Butcher 7 | Capita HY Results 2019
Slide 8: Financial overview
Financial overview £m £m % Key financial metrics HY19 HY18 Change All figures included within this presentation are on an adjusted Revenue 1,851.6 1,976.8 (6.3) basis unless otherwise stated. To enable comparability year on year, all slides are presented pre-IFRS 16. Analysis of post-IFRS Operating
Slide 9: Revenue stabilising
Revenue stabilising Capita’s Order Book Revenue £7bn £4bn FY18 HY19 FY18 F2019 F2020 Digitally-enabled services and software Structural change/run-off* Digitally-enabled services and software Structural change/run-off* 9 | Capita HY Results 2019 *Structurally challenged local government multi-servic
Slide 10: Change in revenue
Change in revenue £2,400m • Contract losses: - Chose not to rebid – Tascor Escorting £2,200m & Detention 1,977 £2,000m - Terminated early – Prudential and 51 1,852 Marsh £1,800m (138) (27) • Reduction in volume and scope changes (11) from Specialist and Networks partly £1,600m offset by growth withi
Slide 11: Change in revenue by division
Change in revenue by division Revenue £m Change % • Reduction in Software due to a large HY19 HY18 active licence coming to an end • Stable overall performance in People Software 192.3 200.5 (4.1) during a period of transformation, CL1 exit offset by other revenue wins People Solutions 253.4 252.5 0
Slide 12: Movements in profit before tax by division
Movements in profit before tax by division £200m PBT £180m • One-off gains in 2018, Marsh £9m £160m • Software: lower revenue and investment in 2 £140m 131 3 126 new sales capability offset by cost reduction 122 0 9 £120m (2) • People Solutions: lower volumes from public (9) (4) (4) sector resourcin
Slide 13: Divisional financial performance
Divisional financial performance Profit £m Margin % HY19 HY18 HY19 HY18 Software 49.2 48.8 25.6 24.3 People Solutions 12.5 16.4 4.9 6.5 Customer Management 26.0 17.2 6.5 4.3 Government Services 20.4 18.6 4.9 4.6 IT & Networks 23.8 25.5 11.1 11.9 Specialist Services 67.7 81.1 18.0 16.4 Central (57.5)
Slide 14: Free cash flow
Free cash flow £m HY19 HY18 Working capital outflow £130m EBITDA 186.7 199.8 • Deferred and accrued income and trade receivables reflects the net impact of advanced billing in Working capital (129.8) (257.4) Software and IT&N, offset by reduced deferred Normalisation of period end cash management in
Slide 15: Capital expenditure: continued investment
Capital expenditure: continued investment £m £m Net capital expenditure HY19 HY18 Invested £64m HY 2019 Capability/efficiency/productivity 34 11 • Ongoing upgrade of core functional reporting systems Maintenance 15 40 - Finance, HR and sales Growth 15 4 • Maintenance investment decreases by £25m Tot
Slide 16: Free cash flow to net debt
Free cash flow to net debt £m HY19 HY18 Adjusted free cash flow (20.2) (109.0) • Restructuring costs £58m including professional fees Known commitments: • Pension deficit cash payment £57m, second year of 2017 actuarial valuation settlement Restructuring (57.7) (37.3) • Repayment of £100m term loan
Slide 17: Building a sustainable balance sheet
Building a sustainable balance sheet 7 Day Rolling Average Net Debt (GDP) • As a responsible business, we have strengthened our balance sheet Rights Issue • Covenant adjusted net debt* reduced from £1,153m to £666m since 31 December 2017 • Seasonal management of net debt ceased and in-month £307m Su
Slide 18: Balance sheet gearing
Balance sheet gearing £m £m Increase in net debt and leverage ratio HY19 FY18 • Bank debt maturity Opening net debt (466.1) (1,117.0) - £100m repaid in May 2019 • PPN* maturity Cash movement in net debt (154.3) 654.1 - £75m net of swaps repaid in July 2019 • Undrawn £600m revolving credit facility m
Slide 19: IFRS 16 Leases: key points
IFRS 16 Leases: key points Key impacts: No impact on: • Right of use Asset (RoUA) recognised on balance sheet of £568m • Total cash flow • Net present value of future rental payments included as lease • Prior year comparatives as elected modified retrospective approach liability on the balance sheet
Slide 20: FY19 financial guidance – second year of a major transformation
FY19 financial guidance – second year of a major transformation Pre-IFRS 16 Net finance costs c.£40m Profit before tax PBT expected to be between £265m and £295m Net debt* Net Debt to EBITDA ratio to be in the upper half of our target range of 1 to 2 times 20 | Capita HY Results 2019 * Net debt/EBIT
Slide 21: Transformation update and divisional review
Transformation update and divisional review Jon Lewis 21 | Capita HY Results 2019
Slide 22: Governance: responsible business
1 Governance: responsible business Operating model launched January 2019 • Foundation for ‘One Capita’ Purpose Why we exist ‘We create • Enables us to deliver more consistently better outcomes’ • Facilitates pan-Capita collaboration Responsible business strategy How we act Values & Operating Code of
Slide 23: People: investment beginning to deliver a return
1 People: investment beginning to deliver a return Glassdoor employer rating trend* Valuing and investing in our people 3.1 • Performance management rolled out 3 2.9 • New HR management system and Capita Academy to come 2.8 2.7 2.6 2.5 2.4 Employees are on the journey with us 2.3 2.2 • Employee sati
Slide 24: Managing contracts: further progress in 2019
2 Managing contracts: further progress in 2019 RPP Army Recruiting • Highly successful ‘Your Army’ recruitment campaign • Record regular soldier training starts in 2019 to date (since 2012) • Improvement recognised by NAO NHS PCSE • Operational service delivery stable – actions from PWC audit implem
Slide 25: Managing contracts: building a successful track record of implementations
2 Managing contracts: building a successful track record of implementations 25 | Capita HY Results 2019
Slide 26: Cost competitiveness: operational excellence
3 Cost competitiveness: operational excellence 2018 2019 2020 Excellence step 1 Simplified Better data Clearly Operational Operations Management operational & management defined assurance Data, Process & Resource delivery structure information processes framework Planning Foundations Excellence step
Slide 27: Investing in capabilities: new digital vetting and onboarding services
4 Investing in capabilities: new digital vetting and onboarding services Security Watchdog Digital onboarding • Digitising pre employment screening services • No current Capita offering • Improvement in customer service and candidate • Complementary product to digital vetting – experience launching
Slide 28: Reigniting growth: foundations for growth now in place
5 Reigniting growth: foundations for growth now in place Consulting capability • Brought together strong consulting team Products and Brand and • Including existing resources in data analytics and digital propositions marketing • Early engagements in telecommunications and financial services Adding
Slide 29: Reigniting growth: recent wins
5 Reigniting growth: recent wins £0.8bn order intake in H1 £0.5bn order intake in Q3* 29 | Capita HY Results 2019 * Excludes DWP PIP extension which is expected to be worth £145m but is not included in our order book
Slide 30: Divisional transformation update: plans progressing well
Divisional transformation update: plans progressing well Strategy and priorities Progress in 2019 • One pure-play Software business, with standardised processes • New contracts with Police Scotland, Met Police and SSE • 911Eye live with 6 police forces in US Software • Aiming to achieve mid to high
Slide 31: Software
Software Strategy & progress What we do Competitive position • Order book momentum continues: new • Pure-play specialised enterprise software business • Education MIS: #1 UK contracts with Police Scotland, Met Police and • Serving sector specific and cross-sector markets – • Emergency services: #1 U
Slide 32: People Solutions
People Solutions Strategy & sales progress What we do Competitive position • Connect and lever our combined offering • Full suite of HR offerings across employment life cycle • #1 in learning process across the HR value chain • Leading market positions in recruitment process outsourcing, outsourcing
Slide 33: Customer Management
Customer Management Strategy & sales progress What we do Competitive position • Improving client outcomes and customer • Leading provider of multi-channel customer contact services • #1 in UK customer management experience in the UK, Switzerland and Germany • #1 in Switzerland • Primarily serving cl
Slide 34: Government Services
Government Services Strategy & sales progress What we do Competitive position • Operational excellence programme • Government’s trusted partner for transformation and delivery • Leading UK government BPO tech-enabled business services provider – 13% market share • Manage structural decline in large
Slide 35: IT & Networks
IT & Networks Strategy & sales progress What we do Competitive position • Consolidating separately run business units • End-to-end enterprise IT services • Top 10 ITO player into a single, integrated UK IT Services • Managed network solutions, datacentre and cloud • Focus on mid-tier clients busines
Slide 36: Specialist Services
Specialist Services Strategy & sales progress What we do Key clients & partners • Stand-alone activities, managed as portfolio • Includes our financial and regulated operations • Government and specialist commercial partnerships – • Focus on value optimisation AXELOS, Fera • Zurich partnership growi
Slide 37: Recap: on track to deliver significant financial transformation
Recap: on track to deliver significant financial transformation Our commitments On track Greater Annualised initial cost out of >£175m by 2020; now £175m by end 2019 efficiency One-off cost of £150m to achieve £300m disposal proceeds in 2018; over £400m delivered Greater focus Simplified organisat
Slide 38: Appendix
Appendix 38 | Capita HY Results 2019
Slide 39: Divisional financial performance
Divisional financial performance Revenue Profit Margin % £m HY19 HY18 HY19 HY18 HY19 HY18 Software 192.3 200.5 49.2 48.8 25.6 24.3 People Solutions 253.4 252.5 12.5 16.4 4.9 6.5 Customer Management 399.2 404.6 26.0 17.2 6.5 4.3 Government Services 413.6 407.9 20.4 18.6 4.9 4.6 IT & Networks 213.5 21
Slide 40: Order book bridge FY18 to HY19
Order book* bridge FY18 to HY19 £9.0bn Relevant to approximately half of revenue base £8.0bn • Includes contracted revenue and software licences 7,096 £7.0bn 830 6,651 • Excludes contract growth and non-contracted 2 revenue £6.0bn (1,277) £5.0bn Wins yet to offset revenue earnt £4.0bn £3.0bn DFRP ad
Slide 41: HY19 reported PBT bridge to adjusted PBT
HY19 reported PBT bridge to adjusted PBT* £140m 126 120 £120m (6) £100m £80m (29) £60m 31 £40m (56) £20m (4) £0m Adjusted PBT impairment of acquired Other Reported PBT IFRS 16 adjustment Reported pre-IFRS 16 Significant restructuring Amortisation and intangibles Increase Decrease Total 41 | Capita H
Slide 42: Overall revenue split
Overall revenue split Adjusted revenue split HY19 • Revenue split – based on IFRS 15 definitions: - 72% long term contractual Transactional - 15% short term contractual 13% - 13% transactional • Considerable variation by division Short term contractual Categories are consistent with those presented
Slide 43: Impact of IFRS 16
Impact of IFRS 16 £m £m £m £m £m IFRS 16 Pre-IFRS 16 £m IFRS 16 Pre-IFRS 16 Profit/(loss) HY19 adjustment HY19 Balance Sheet as at 30 Jun 19 HY19 adjustment HY19 Non-current assets 2,869.0 532.3 2,336.7 EBITDA 245.7 59.0 186.7 Right-of-use assets 513.6 513.6 - 106.7 13.3 93.4 Depreciation (82.5) (52
Slide 44: Impact of IFRS 16 cont.
Impact of IFRS 16 cont. £m Other £m IFRS 16 £m US PP financing Balance Sheet gearing HY19 adjustment HY19 Leverage ratio Headline covenants agreements Opening net debt (466.1) - (466.1) Net debt / EBITDA* 1.5x 1.4x 1.7x Adoption of IFRS 16 (643.9) (643.9) - Cash movement in net debt (98.3) 56.0 (154
Slide 45: Cost competitiveness: delivering to plan
Cost competitiveness: delivering to plan Cost competitiveness savings • On track to realise accelerated savings in 2019 • Investing some of savings to drive 2018 FCT 2019 FCT 2020 FCT Total future growth • More savings to come in 2020 Cost to deliver savings £55m £95m £150m (in year) Cumulative savi
Slide 46: FY19 financial guidance – second year of a major transformation
FY19 financial guidance – second year of a major transformation Pre-IFRS 16 Impact of IFRS 16 Net finance costs c.£40m Increase of between £26m and £28m Profit before tax PBT expected to be between £265m and £295m Reduction of between £12m and £14m Net Debt to EBITDA* ratio to be in the upper Net De
Slide 47: Adjusted results
Adjusted results All figures included in this presentation are on an adjusted basis unless otherwise stated Adjusted profit excludes: • impact of IFRS 16 • amortisation of acquired intangibles • impairment of goodwill and acquired intangibles • the costs/benefits, if significant, of items associated
Slide 48: Executive Committee: new Executive Officer biographies
Executive Committee: new Executive Officer biographies Aimie Chapple Andy Start Chantal Free Customer Government People Solutions Management Services Most recently Chantal held the position Aimie worked for more than 20 years at Andy has spent the last 20 years at of Managing Director and Head of Ac
Slide 49: Glossary
Glossary Acronym Division Description Software Software • Specialist enterprise software, in specific vertical markets • Leader in education, emergency services, local government & utilities PS People Solutions • Full suite of HR offerings across employment life cycle • Leading market positions in r