Capita Plc · LSE:CPI
Capita — FY2013 Earnings Presentation
47 slides from Capita's earnings presentation, Feb 27, 2014
Slide 1: Results for the year ended 31 December 2013
Results for the year ended 31 December 2013 Delivering sustainable growth Full year results presentation 27 February 2014
Slide 2: Agenda
Agenda Introduction Paul Pindar Chief Executive Financial results Gordon Hurst Group Finance Director Positioning Capita for Andy Parker continued growth Deputy Chief Executive Major sales update Maggi Bell Group Business Development Director Outlook Andy Parker Delivering sustainable growth 2
Slide 3: Key highlights
Key highlights £3.3bn of major new contracts secured including largest win by annual value Delivered full year organic growth of 8% Pipeline swiftly replenished, £5.5bn as at February 2014 Strong financial performance, profit before tax and earnings up 14% Total dividends up 13% Cash con
Slide 4: Financial results
Financial results Gordon Hurst Group Finance Director
Slide 5: Financial results – underlying revenue
Financial results – underlying revenue Annual growth 15% 5 year compound growth 10% 2008 2,441 2009 2,687 2010 2,744 ½ year 2011 2,930 Full year 2012 3,352 2013 3,851* 0 1,000 2,000 3,000 4,000 5,000 £m Continued revenue growth * Revenue excluding Insurance Distribution and SIP businesses of £45m 5
Slide 6: Financial results – underlying revenue by market
Financial results – underlying revenue by market Private sector 52% (half year: 52%) Public sector 48% (half year: 48%) Other private sector 21% (19%) Local government 16% (17%) Life and pensions 13% (15%) Education 10% (8%) Central government 10% (11%) Retail, telecoms, utilities 8% (7%) Financial
Slide 7: Financial results – underlying revenue growth
Financial results – underlying revenue growth £m 2013 £m 2012 Growth Underlying revenue 3,851 3,352 14.9% Insurance Distribution and SIP business 45 - 1.3% Total revenue including Insurance Distribution 3,896 3,352 16.2% and SIP business 2012 acquisitions (117) - (3.4)% 2013 acquisitions (167) - (5.
Slide 8: Financial results – underlying operating profit
Financial results – underlying operating profit* Annual growth 11% 5 year compound growth 11% 2008 311.7 2009 352.4 2010 386.4 ½ year 2011 417.0 Full year 2012 466.7 2013 516.9** 0 100 200 300 400 500 600 £m Continued increasing profitability *Adjusted for new pension standard IAS 19 (R). Excludes n
Slide 9: Financial results – underlying profit before tax
Financial results – underlying profit before tax* Annual growth 14% 5 year compound growth 12% 2008 269.1 2009 321.7 2010 355.7 ½ year 2011 376.6 Full year 2012 417.0 2013 475.0** 0 100 200 300 400 500 £m Continued increasing profitability *Adjusted for new pension standard IAS 19 (R). Excludes non-
Slide 10: Financial results – underlying operating margin
Financial results – underlying operating margin* Annual decrease 50 bps Operating margin 15.0 Organic growth 15.0 12.0 14.2 14.1 13.9 14.0 10.0 8.0 13.1 Organic growth % Operating margin % 13.4** 13.0 12.8 5.0 5.0 3.0 12.0 - 11.0 (5.0) (5.0) (7.0) 10.0 (10.0) 2008 2009 2010 2011 2012 2013 12.5 – 13.
Slide 11: Financial results – underlying earnings per share
Financial results – underlying earnings per share* Annual growth 14% 5 year compound growth 13% 2008 32.3 2009 38.3 2010 43.9 ½ year 2011 Full year 47.4 2012 52.1 2013 59.4 ** 0 10 20 30 40 50 60 70 pence Continued growth in earnings *Adjusted for new pension standard IAS19 (R). Excludes non-underly
Slide 12: Financial results – dividends
Financial results – dividends Annual growth 13% 5 year compound growth 13% Dividend cover* 2.24x Dividend yield 2.4% 2008 14.4 2009 16.8 2010 20.0 ½ year 2011 21.4 Full year 2012 23.5 2013 26.5 0 5 10 15 20 25 30 pence Dividend growth broadly in line with earnings growth *Adjusted for new pension st
Slide 13: Financial results – cash flow statement
Financial results – cash flow statement £m 2013 £m 2012 Cash flow from operations before business disposal/planned 546 515 closure* Net interest paid (37) (46) Taxation paid (53) (62) Capital expenditure (144) (100) Free cash flow before business disposal/planned closure 312 307 Free cash flow of In
Slide 14: Financial results – cash flow from operating activities
Financial results – cash flow from operating activities £m 2013 £m 2012 Operating profit before business disposal/planned closure* 517 467 Depreciation 78 73 Share based payment 11 9 Pensions 2 (7) Movements in provisions (12) (18) Movements in working capital (50) (9) Cash flow from operations 546
Slide 15: Financial results – capital expenditure as a % of turnover
Financial results – capital expenditure as a % of turnover 7 6 5 4 % 3.6 3.7 3.5 3.5 3 2.9 2.5 2 1 0 2008 2009 2010 2011 2012 2013 Controlled capital expenditure 15
Slide 16: Financial results – underlying net return on capital
Financial results – underlying net return on capital* 24 Actual 20 20.3 WACC 19.7 19.5 16 % return 16.1 15.8 15.5 12 8 8.2 7.9 7.7 7.5 7.7 7.0 4 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Operating profit 312 352 386 417 467 517 (£m) Avg capital (£m) 1,155 1,271 1,491 1,976 2,348 2,
Slide 17: Financial results – post tax economic profit
Financial results – post tax economic profit* 210 5 year compound growth 9% 207 211 190 170 176 171 £m 150 158 130 Economic profit 133 110 90 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 PBIT 312 352 386 417 467 517 Average capital 1,155 1,271 1,491 1,976 2,348 2,701 Tax (%) 27.0 26.8
Slide 18: Financial results – balance sheet gearing
Financial results – balance sheet gearing £m 2013 £m 2012 Net debt Bond debt † 1,134 1,148 Net bank facilities drawn - - Cash in bank (158) (307) Term debt 200 185 Other 27 3 Total underlying net debt 1,203 1,030 Interest cover* 12.3x 9.4x Net debt to EBITDA* 2.02 1.91 At lower end of our 2.0x – 2.5
Slide 19: Financial results – debt profile as at December 2013
Financial results – debt profile as at 31 December 2013 £1,134m of private placement bond debt with maturities from 2014 to 2021 with a 44%/56% fixed/floating rate mix Only £11m matures in 2014 £200m term loan facility maturing in July 2015 £425m revolving credit facility maturing in Decembe
Slide 20: Underlying free cash flow growth
Underlying free cash flow growth 350 14% p.a. growth over last 10 307 312 years 300 280 250 241 219 £m 200 184 154 150 157 131 106 100 83 50 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 £2.1bn free cash flow generated over last 10 years Ordinary dividends £1,129m Special dividends £1.7
Slide 21: Total shareholder return
Total shareholder return Over 10 years to 31 December 2013: FTSE 100 Capita Capital appreciation +50% +311% Returns from dividends +65% +114% Total shareholder +115% +425% return Delivering long term shareholder value 1 Share prices used for calculating capital appreciation: 252.392p (2 Jan 2004 clo
Slide 22: Positioning Capita for continued growth
Positioning Capita for continued growth Andy Parker
Slide 23: Strategy for continued growth
Strategy for continued growth Long term objective to deliver a minimum 10% revenue growth, split 2/3 organic growth and 1/3 acquisitions Continued discipline regarding cash management and capex Foster entrepreneurial behaviours within robust governance structure Continue to align management
Slide 24: An embedded delivery model driving operational excellence and robust governance
An embedded delivery model driving operational excellence and robust governance Extensive resources 2013 operating + integrated process Results in: Financial strategy: structure: for controlled 9 divisions growth: Sustainable growth Appropriate gearing: Organic growth: Higher organic growth 2 to 2
Slide 25: Targeting growth – building capability and scale
Targeting growth – building capability and scale Evolve our sales proposition to target new clients and markets Develop capability and scale through 2 main channels: Internally: Via acquisition: Enhancing our delivery Adding specialist skills to network, across time and support major sales c
Slide 26: Targeting growth – £271m spent on acquisitions
Targeting growth – £271m spent on 13 acquisitions Capabilities Acquisition Rationale Division Value £m1 Analytics & G2G3 Provider of simulation-based training for Justice & 3.5 + gamification industry and the police and emergency Secure Services (10.5) services Euristix Provider of data analytics an
Slide 27: Targeting growth – £271m spent on acquisitions (continued)
Targeting growth – £271m spent on 13 acquisitions Capabilities Acquisition Rationale Division Value £m1 IT & software MLS Provider of library and resource management Professional 16.5 + systems to the UK education sector Services (4.0) Northgate Provides cloud-based, infrastructure and IT Services 6
Slide 28: Targeting growth – £25.3m spent on acquisitions to date in 2014
Targeting growth – £25.3m spent on 2 acquisitions to date in 2014 Capabilities Acquisition Rationale Division Value £m1 Data Liberty Document management company, Justice & 6.5 management primarily servicing the transport sector Secure Services IT & software Retain People management, planning and 18.
Slide 29: Entering and building a new market through acquisition – justice and emergency services
Entering and building a new market through acquisition – justice and emergency services £207m invested in 9 core niche businesses 2010 to date: Strong platform for growth in justice and emergency services sectors Division reported revenue of over £400m in full year 2013 Securing major new contra
Slide 30: Generating further organic growth – Ministry of Justice, electronic monitoring
Generating further organic growth – Ministry of Justice, electronic monitoring Selected as preferred bidder: National electronic monitoring and field support services Overall services and systems integrator £400m over six years (based on EM growth) Contract due to be signed shortly with ne
Slide 31: Wider justice market opportunities
Wider justice market opportunities Probation is a key area for Reoffending rates: Capita • Annual spend of c.£900m 58.2% for prisoners released on delivering sentences in the Significant changes planned from under 12 months community custody, in the way that probation • Total of 16,500 FTE staff
Slide 32: Major sales update
Major sales update Maggi Bell Group Business Development Director
Slide 33: Creating growth – 2013 major contract wins
Creating growth – 2013 major contract wins Value Duration Contract Type (£m) (y) New market npower 120 7 New entry - utilities 17 bids won in Telefónica UK (O2) 1,200 10 New + and telecoms extension 2013 worth £3.3bn Carphone Warehouse 160 10 New Embedded Electronic Monitoring 400 6 New 81% new
Slide 34: Creating growth – 2014 major contracts secured to date
Creating growth – 2014 major contracts secured to date Major contracts and extensions worth £588m in aggregate: Transport for London – Congestion Charging and Low Emission Zone schemes valued at £145m covering upfront implementation and 5 year operating contract Scottish Wide Area Network (SWA
Slide 35: Generating growth – bid pipeline
Generating growth – bid pipeline Bid pipeline today of £5.5bn comprising 25 bids (Nov 2013: £4.2bn, 30 bids) 94% new revenue / 6% renewals Private sector Private sector 46% (Feb 2013: private 30 Justice & emergency sector 20%) services Average contract length – 8 years One material rebid i
Slide 36: Market landscape – multiple market drivers
Market landscape – multiple market drivers Scale: £126bn per annum Public Justice & Central Local Sector Education Health emergency Defence government government services Ongoing financial pressure, Drive to join-up services i.e. education, demographic, social changes health, social care Real
Slide 37: Strategy for growth – capitalising on opportunity
Strategy for growth – capitalising on opportunity Investment in market shaping Established markets New markets Evolve competitive differentiation Leverage scale Unique solution capabilities New relationship models Rigorous qualification ROI based criteria Value sale not price com
Slide 38: Investment in market shaping – people and technology
Investment in market shaping – people and technology 9 market directors Deep understanding of sector Board level relationships New expertise in: Intelligence enabled change Technology enabled change Big data Digital Predictive analytics Gamification Behavioural science Roboti
Slide 39: Investment in intelligence led change
Investment in intelligence led change What does it do? In depth expertise in learning led customer service transformation 16 years improving contact centre operations Developed >250,000 people in 38 countries Major Utility Major Telco Private Bank Major Telco Outbound sales – energy Inboun
Slide 40: Investment in game science led engagement technology & services
Investment in game science led engagement technology & services What does it do? Uses game science to engage, educate & enable for better business outcomes Licenses game-based technology to 7 of top 10 tech companies in world Gartner ‘Cool Vendor’ Global footprint, 172 partners worldwide Glo
Slide 41: Transformational partnership
Transformational partnership Client objectives: Increase revenue Scale Support economic regeneration Transformational Improve services partnering Job creation Transformational Relationship structure: & greenfield Long-term partnership outsourcing Contracted revenue plus evergreen concess
Slide 42: Strategy for growth – understanding client requirements and desired outcomes
Strategy for growth – understanding client requirements and desired outcomes, wins since H1 2013 • npower • SWAN Scale • Southampton CC Carphone Warehouse Transformational Staffordshire CC/Entrust partnering Cabinet Office/Axelos Telefónica UK (O2) Transformational Barnet NAMA & greenfie
Slide 43: Strategy for growth – Bid pipeline by value
Strategy for growth – Bid pipeline by value £3,425m Scale Transformational partnering Transformational & greenfield £728m outsourcing Mid-sized / multi service £1,008m contracts Single service £385m platforms Complexity 43
Slide 44: Fuelling growth for 2015 & 2016 – generating new prospects
Fuelling growth for 2015 & 2016 – generating new prospects Subject to clear criteria: BID Contracts >£25m Shortlisted to 4 or fewer PIPELINE bidders £5.5bn Capped at £1bn PROSPECT LIST opportunities where significant active Investing in team – engagement is underway proactive private and p
Slide 45: Summary & outlook
Summary & outlook Andy Parker
Slide 46: Strongly positioned for growth
Strongly positioned for growth High level of sales activity in both traditional and new customer management and BPM markets Focusing on smooth delivery of recent major contract wins Operational excellence delivering strong customer references Maintaining strong financial discipline and an en
Slide 47: Results for the year ended 31 December 2013
Results for the year ended 31 December 2013 Full year results presentation 27 February 2014