Capita Plc · LSE:CPI
Capita — FY2015 Earnings Presentation
45 slides from Capita's earnings presentation, Feb 25, 2016
Slide 1: Results for the year ended 31 December 2015
Results for the year ended 31 December 2015 25 February 2016 Capita plc 1
Slide 2: Agenda
Agenda Strategy and key highlights Andy Parker, Chief Executive Financial results Nick Greatorex, Group Finance Director Business development Maggi Bell, Group Business Development Director Division spotlight on Vic Gysin, Joint Chief Operating Officer Asset Services and Dawn Marriott-Sims, Joint Ch
Slide 3: Strategy for growth and value creation
Strategy for growth and value creation • Business focus: delivering smart services and products to • Drive out costs and improve customer services • Deliver value-generating outcomes, better positioning clients • Managing the business to deliver enhanced margins, strong EPS growth, cash generation a
Slide 4: Strategy for growth and value creation (cont'd)
Strategy for growth and value creation (cont’d) • Dual strategy of organic and acquisition growth • Generating profitable organic growth from major sales and divisional businesses • Investing in value-generating acquisitions, building capability and fuelling further organic growth • Increased focus
Slide 5: Consistently delivering growth: key highlights
Key highlights • Good financial performance in 2015 • Revenue up 11.8% on a like for like* basis, including organic growth of 4.3% • Reported underlying operating margin 13.7% • Reported underlying profit before tax and EPS up 9% • Dividend increased by 9% • Driving growth from major sales, division
Slide 6: Financial results
Financial results Nick Greatorex Group Finance Director
Slide 7: Underlying income statement
Financial results | underlying income statement 31 December 2015 (£m) Year ended (£m) Year ended Change December 2015* December 2014 Revenue 4,674 4,372 7% Operating profit 639 576 11% Interest (53) (41) 29% Profit before tax 586 535 9% Taxation (108) (99) 9% Profit after interest and tax 477 436 9%
Slide 8: Financial results | revenue
Financial results | revenue • Organic growth from continuing activities 4.3% • 5 year underlying compound growth 11% £m £m Year to Year to Change 31 December 31 December Half year 2015 2014 2010 2,744 Full year Total reported revenue 4,837 4,372 10.6% 2011 Disposals (35) (50) 2,930 2012 Held for sal
Slide 9: Underlying profit measures
Financial results | underlying profit measures* Operating profit Profit before tax • 5 year compound growth 11% • 5 year compound growth 10% 2010 2010 386.4 355.7 2011 2011 417.0 376.6 2012 2012 466.7 417.0 2013 516.9 2013 475.0 2014 576.3** 2014 535.7** 2015 639.0*** 2015 585.5*** 0 100 200 300 400
Slide 10: Underlying operating margin
Financial results | underlying operating margin* 15.0 14.1 14.2 13.9 14.0 13.7*** Operating margin % 13.4 13.5** 13.0 13.2** 12.0 11.0 2010 2011 2012 2013 2014 2015 • * Excludes non-underlying items which include: Intangible amortisation, impairments, net contingent consideration movements, other no
Slide 11: Underlying returns per share
Financial results | underlying returns per share Underlying earnings per share* Dividend per share • 5 year compound growth 10% • 5 year compound growth 10% 2010 2010 43.9 20.0 2011 2011 47.4 21.4 2012 2012 52.1 23.5 2013 2013 59.4 26.5 2014 2014 65.2** 29.2 2015 2015 70.7*** 31.7 0 10 20 30 40 50 6
Slide 12: Segmental reporting: revenue growth
Segmental reporting | revenue growth Divisional revenue 800 700 FY 2014 600 FY 2015 500 £m 400 300 200 100 0 Digital & Integrated Local Workplace IT Enterprise Asset Customer Capita Europe Insurance & Software Services Government, Services Services Services Management Benefits Solutions Health & Ser
Slide 13: Non-underlying items
Financial results | non-underlying items Business exit Other non-underlying items Acquisition Mark to costs net of market Contingent investment gain Review of Asset Non-underlying Disposals and Intangible valuation consideration on Xchanging carrying Services Description trading held for sale Total
Slide 14: Underlying cash flow from operating activities
Financial results | underlying cash flow from operating activities £m Year to £m Year to 31 December 2015 31 December 2014 Operating profit* 639*** 576** Depreciation 95 87 Share based payment 11 11 Pensions (2) (1) Movements in provisions 6 (17) Loss on sale of property, plant & equipment (1) 1 Mov
Slide 15: Underlying cash flow statement
Financial results | underlying cash flow statement £m Year to £m Year to 31 December 2015 31 December 2014 Cash flow from operations 687 644 Net interest paid (47) (36) Taxation paid (94) (94) Capital expenditure (198) (146) Underlying free cash flow 348 368 Non-underlying expenses (46) (25) Net pro
Slide 16: Underlying free funds from operations and free cash flows
Financial results | underlying free funds from operations (FFO) and free cash flows (FCF) 800 687 700 644 600 546 519 500 442 £m 400 364 368 348 307 312 300 241 200 157 100 FFO FCF 0 2010 2011 2012 2013 2014 2015 16
Slide 17: Capital expenditure as % of underlying revenue
Financial results | full year capital expenditure as % of underlying revenue 7 • Opportunities to invest for attractive returns Full year including software development 6 Full year excluding software development • Continued focus on software products 5 • Major software investments in 2016: 4.2 4 3.7
Slide 18: Balance sheet gearing
Financial results | balance sheet gearing At 31 Dec Cash Non-cash At 31 Dec 2015 Maturity 2014 movements movements Net debt £m £m £m £m Years Bond debt * 1,122 400 7 1,529 2016 – 2027 £600m revolving credit facility maturing August 2020 and Cash in bank (29) (58) 2 (85) £600m credit facility maturin
Slide 19: Interest and debt profile
Financial results | interest and debt profile 1.8 1.7 60 1.7 46.0 1.6 41.9 53.5 50 40.6 £m Interest cost 1.5 40 £bn Net debt 1.4 1.3 1.4 30 1.2 1.1 1.2 20 1.0 1.0 10 Net debt Interest cost 0.9 0.8 0 2012 2013 2014 2015 Interest cost is increasing due to: 2012 2013 2014 2015 Interest rate % 4.0 3.8 3
Slide 20: Net return on capital
Financial results | net return on capital* 20 Underlying ROCE including disposed and held fo r disposal a ssets WACC 16.1 15.8 15.5 16 14.8 14.3 12 % return 7.5 7.7 7.3 8 7.0 7.2 4 2011 2012 2013 2014 2015 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Operating profit (£m) 417 467 517 576** 639*** Average
Slide 21: ROCE bridge
ROCE bridge Discontinued & contract items 16.0% Recurring Business exit benefits 15.5% 0.2% 0.2% 0.7% 15.0% 0.4% 0.7% 0.2% 14.5% 0.2% 14.0% 15.0% 14.8% 14.3% 13.5% 13.0% Year end 2014 Organic profit L&P price DBS contract Acquisitions Capex > Working Year end 2015 Business Continuing growth reductio
Slide 22: Capita's business discipline increasing shareholder value over time
Capita’s business discipline increasing shareholder value over time Delivering shareholder Inputs Strong financial discipline returns Organic revenue growth Inorganic revenue growth Disciplined Appropriate approach to leverage M&A level Growth Strong operating margins Operational leverage Tight Prog
Slide 23: 2016 financial guidance
Financial results | 2016 financial guidance 2.5% growth booked net of attrition including acquisitions Revenue Targeting organic growth of at least 4% despite higher attrition than in 2015 Full year operating margin Target range of between 13.0% and 14.0% Expected to be in the region of £60m to £65m
Slide 24: Creating growth: Business development
Creating growth: Business development Maggi Bell Group Business Development Director 24
Slide 25: Major contract wins 2015
Creating growth | major contract wins 2015: £1.8bn + 2016: £251m to date Duration 2015 contracts Key features Value (£m) (years) Defra (Fera) High end science services JV + 10 700 Sheffield City Council Strategic partnership extension 6 170 Summary Central London Community Health NHS Strategic partn
Slide 26: Focusing sales resource and capability
Creating organic growth | 5 key platforms for profitable growth Traditional outsourcing partnerships Group Business Development led Asset commercialisation/ growth businesses High value, replicable solutions Group Business Development led with Growing key client relationships Divisional support Divi
Slide 27: Platforms for profitable growth: traditional outsourcing
Creating organic growth | platforms for profitable growth Traditional outsourcing Key characteristics partnerships Traditional Asset outsourcing commercialisation/ Asset commercialisation/ partnerships growth businesses growth businesses Competitive High High advantage • Highly referenceable track r
Slide 28: Platforms for profitable growth: high value, replicable solutions
Creating organic growth | platforms for profitable growth High value, replicable Key characteristics solutions Competitive advantage High • Proprietary software/platform led • Enabled by insight and data Length of procurement Shortened • Enabled by releasing value from property assets Contract lengt
Slide 29: Platforms for profitable growth: key client relationships
Creating organic growth | platforms for profitable growth Growing key client relationships Key characteristics High – trusted Competitive advantage relationship • 7,000 substantial clients across the Group • Proactively selling integrated proprietary solutions Sole discussion or Type of procurement
Slide 30: Bid pipeline £4.7bn
Creating growth | bid pipeline £4.7bn Telecoms 30 & retail 25 Financial services Bid pipeline 20 % Defence • Bid pipeline today of £4.7bn comprising 37 bids (Feb 2015: £5.1bn, 28 bids) 15 Local • Weighted average contract length of 6yrs government (Feb 2015: 8yrs) 10 Science Central • 89% new revenu
Slide 31: Councils shared services platform model
Creating organic growth | 5 councils - shared services platform model • Building on long term relationships Integrated shared service platform Finance / Agile working / Customer services • Addresses need to move to self sustaining funding model by 2020 • Integrated shared services platform Real time
Slide 32: Creating high value, replicable solutions in Health
Creating organic growth | creating high value, replicable solutions in Health • 2014 set and achieved 3 objectives to lay foundation for future growth in Establish footprint Health and service • Secured strategic partnership – Central London Community Health NHS Trust infrastructure • Secured place
Slide 33: Key channels for profitable growth
Creating organic growth | 5 key channels for profitable growth Asset Traditional Growing key commercialisation/ High value, outsourcing client Divisional sales growth replicable solutions partnerships relationships businesses Competitive High High High High Medium advantage Length of Variable Extend
Slide 34: Division spotlight: Asset Services
Division spotlight: Asset Services Vic Gysin Joint Chief Operating Officer 34
Slide 35: Leading independent third party servicer
Division spotlight | Asset Services • What we do Capita Asset Services provides access to… • Debt & Banking solutions • Third party loan administration across the lifecycle Funding • €161bn assets under management across 15 countries Administration services • UK retail banking mortgage servicing (eg
Slide 36: Asset Services track record
Division spotlight | Asset Services • Financials • £404m revenue and £100m operating profit, 16% of group, in 2015 • 4% divisional growth, excluding the benefit from major sales • High margin reflects our shared platforms and fund solutions turnaround Asset Services track record • Growth strategy 45
Slide 37: Division spotlight: Digital & Software Solutions
Division spotlight: Digital & Software Solutions Dawn Marriott-Sims Joint Chief Operating Officer 37
Slide 38: Investing across our software businesses
Division spotlight | Digital & Software Solutions • Financials • £568m revenue and £142m operating profit, 22% of Group, in 2015 • 7% divisional organic growth in 2015, excluding the benefit of major sales Diversified client base • 25% operating margin commensurate with software peer group (% of rev
Slide 39: Strong momentum going into 2016
Division spotlight | Digital & Software Solutions Growth strategy • Selling existing products into new sectors and geographies • Fieldreach (AMT Sybex) enterprise mobility solution into healthcare and local government • Frees up clinician, health & social workers to spend more time with patients • N
Slide 40: Rolling out existing products into new markets
Division spotlight | Major software platform opportunities Rolling out existing products into new markets 40
Slide 41: Acquisitions and outlook
Acquisitions and outlook Andy Parker Chief Executive 41
Slide 42: Building capability & expanding geographic reach
Acquisitions | support our growth strategy • Acquisition strategy • We acquire to build capability in existing markets, enter new markets and enhance our growth potential • We have a good track record and remain a disciplined buyer • Good execution in 2015 • Invested in 17 acquisitions and our Fera
Slide 43: Capita Europe customer management offering
Capita Europe | launching an existing service in a new geography • Customer management in Northern Europe • Capita Europe formed in 2015 Group • Large addressable market for multi-lingual customer management Business Development • Long term clients in telecoms, internet, energy and financial service
Slide 44: UK centric with increasing geographical reach
Strategy for growth and value creation | operational reach Denmark • UK centric but growing UK Germany overseas presence Canada • Targeted geographic expansion ROI Poland • Taking existing services, and expanding support for existing Netherlands Hungary clients into new territories Austria Luxembour
Slide 45: Good platform for growth in 2016 and beyond
Summary and outlook 2015 good financial performance and Capita better positioned for future profitable growth Good platforms for driving organic growth across Group Business Development and Divisions Healthy pipeline of value enhancing acquisitions Continued investment in people, talent and developm