Capita Plc · LSE:CPI
Capita — H1 2010 Earnings Presentation
51 slides from Capita's earnings presentation, August 2010
Slide 1: Results for the 6 months to 30 June 2010
Results for the 6 months to 30 June 2010
Slide 2: Agenda
Agenda Introduction: Paul Pindar Chief Executive Financial results: Gordon Hurst Group Finance Director Generating growth: Paul Pindar Operational update and Simon Pilling market opportunities Chief Operating Officer Prospects: Paul Pindar
Slide 3: Highlights
Highlights Strong profit growth Continued margin improvement Excellent cash flow despite economic environment Major contract sales at £523m 7 acquisitions completed for £107m Active market – both sales and acquisitions “A consistent strategy, consistently applied”
Slide 4: Financial results
Financial results Gordon Hurst Group Finance Director
Slide 5: Financial results - turnover
Financial results - turnover Comparative growth 4% 687 1/2 Year 2005 Full Year 1,436 845 2006 1,739 985 2007 2,073 1,182 2008 2,441 1,311 2009 2,687 1,361 2010 0 500 1,000 1,500 2,000 2,500 3,000 £m
Slide 6: Financial results - turnover by market
Financial results - turnover by market Public sector 51% (2009: 50%) Private sector 49% (2009: 50%) Central government 9% (10%) Local government 23% (22%) 9 19 Education 13% (12%) Health 4% (3%) 4 23 Transport 2% (3%) Insurance 7% (8%) 19 Life and pensions 19% (18%) 13 Financial services 4% (4%) 7 2
Slide 7: Financial results - half year organic growth
Financial results - half year organic growth £m 6 months to £m 6 months to £m 20082010 £mJune 2007 Growth £m 2008 30 June 30 2009 Growth Turnover 1361 1311 4% 2010 acquisitions (27) - (2%) 2009 acquisitions (89) 2001 (36) - 2003 2004 (7%) Disposals - (21) 2% Growth excl. acquisitions & disposals 124
Slide 8: Financial results - underlying profit before tax
Financial results - underlying profit before tax Comparative growth 15% 71.3 1/2 Year 2005 143.9 Full Year 88.3 2006 200.1 103.8 2007 238.4 120.2 2008 277.2 141.7 2009 325.1 163.1 2010 0 50 100 150 200 250 300 350 £m
Slide 9: Financial results - underlying operating profit
Financial results - underlying operating profit Comparative growth 12% 77.8 1/2 Year 2005 183.1 Full Year 99.1 2006 225.1 118.9 2007 271.3 140.6 2008 320.9 159.6 2009 357.7 178.4 2010 0 100 200 300 400 £m
Slide 10: Financial results - underlying half year operating margin
Financial results – underlying half year operating margin 14 13 13.1 12 12.1 12.2 % 11.9 11.7 11 11.3 10 9 2005 2006 2007 2008 2009 2010
Slide 11: Financial results - principal margin drivers
Financial results – principal margin drivers bpts Offshore profitability 13 IT server rationalisation 22 Procurement and property rationalisations 18 Insurance disposal 15 Turnarounds (print and document management) 22
Slide 12: Financial results - underlying earnings per share
Financial results - underlying earnings per share Comparative growth 16% 7.72 1/2 Year 2005 15.37 Full Year 9.96 2006 18.60 12.13 2007 23.10 14.46 2008 28.10 16.92 2009 33.26 19.60 2010 0 10 20 30 40 50 Pence
Slide 13: Financial results - dividends
Financial results - dividends Comparative growth 18% 2.1 1/2 Year 2005 7.0 Full Year 2.7 2006 9.0 4.0 2007 12.0* 4.8 2008 14.4 5.6 2009 16.8 6.6 2010 0 5 10 15 20 Pence * excluding 25p special dividend
Slide 14: Financial results - cash flow statement
Financial results - cash flow statement £m 6 months to £m 6 months to 30 June 2010 30 June 2009 Cash flow from operating activities 216 198* Net interest paid (15) (19) Taxation paid (23) (21) Capital expenditure (38) (36) Free cash flow 140 122 Exceptional pension payment - (40) Acquisitions and di
Slide 15: Financial results - cash flow from operating activities
Financial results - cash flow from operating activities Comparative growth 9% 95 1/2 Year 2005 232 Full Year 122 2006 279 145 2007 334 174 2008 392 198 2009 437 216 2010 0 100 200 300 400 500 £m exceptional additional pension contribution £10m (2008), £40m (2009)
Slide 16: Financial results - free cash flow
Financial results - free cash flow Comparative growth 15% 38 1/2 Year 2005 127 Full Year 58 2006 154 83 2007 184 102 2008 219 122 2009 280 140 2010 0 50 100 150 200 250 300 £m exceptional additional pension contribution £10m (2008), £40m (2009)
Slide 17: Financial results - half year capex as % of turnover
Financial results - half year capex as % of turnover 7 6 5 % 4 4.1% 3.9% 3 3.2% 2.8% 2.7% 2.8% 2 1 0 2005 2006 2007 2008 2009 2010
Slide 18: % net return on capital
Financial results - % net return on capital (debt plus equity) – 12 months to 30 June 2010 24.0 Actual 20.0 20.2 20.2 20.0 18.6 WACC 17.9 % return 16.7 16.0 12.0 8.0 8.0 7.8 8.1 8.2 7.9 7.8 4.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 PBIT (normalised) 167 204 245 293 340 377 Avg
Slide 19: Underlying free cash flow return on capital
Financial results - underlying free cash flow return on capital* (debt plus equity) – 12 months to 30 June 2010 24.0 23.5 22.4* 22.5* 20.0 18.8 17.9 16.3 % return 16.0 12.0 8.0 4.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 FCF (pre interest) 117 147 179 239 278 325 Avg capital (£m)
Slide 20: Financial results - balance sheet gearing
Financial results - balance sheet gearing £m £m £m 20082010 30 June 3030 June £m 2007 2007 June (£m) 2009 Net debt † Bond debt 834 579 (Cash in hand)/Bank facilities drawn (112) 71 Loan notes/leases 4 3 Total net debt 726 653 Interest cover 12.5x 8.2x Net debt to EBITDA 1.5 1.7 † Underlying net debt
Slide 21: Financial results - debt profile
Financial results – debt profile US private placement £253m raised from US private placement in 7 and 10 year notes at rates between 4.15% and 4.80% Proceeds used to repay more expensive £200m bank term loan Current debt profile: – £834m of private placement debt with maturities from 2012 to 202
Slide 22: Financial results - returns to shareholders in respect of 2010
Financial results - returns to shareholders in respect of 2010 11.7m shares (1.9% of share capital) cancelled at average of 765p - Cost £89m (including stamp duty) Shares in issue at 30 June 2010 – 609m Including proposed half year dividend, £130m returned to shareholders in respect of 6 month
Slide 23: Generating growth through contract wins and acquisitions
Generating growth through contract wins and acquisitions Paul Pindar Chief Executive
Slide 24: Generating growth – new agreements in first 6 months of 2010
Generating growth – new agreements in first 6 months of 2010 Client Value (£m) Duration Sheffield City Council 67 6 years Virgin Money 60 5 years Harrow Council 50 10 years Contracts £10m - £50m 14 deals Aggregate value: £346m Total value of 17 agreements to date in 2010: £523m (Half year 2009: 10 c
Slide 25: Generating growth – new agreements in first 6 months of 2010
Generating growth – new agreements in first 6 months of 2010 Local 45 government 40 35 30 % 25 Education Insurance 20 Central 15 government 10 Life and 5 pensions 0 Market
Slide 26: Generating growth - existing major contracts due for rebid
Generating growth - existing major contracts due for rebid Year Contract Value per annum (£m) 2010 None 2011 None 2012 TV Licensing* 50 CRB* 40 2013 None 2014 None Criteria: more than 1% of 2009 turnover *Revenues based on original contract value National Strategies contract due to end 31 March 2011
Slide 27: Generating growth - bid activity
Generating growth - bid activity 40 Local L&P government 35 30 25 % 20 15 Defence Central 10 government Other 5 Transport Health 0 Market Bid pipeline* of £4.4bn comprising 23 bids (Feb 2010: £3.7bn; 26 bids) Average contract length in bid pipeline – 8 years Prospect and suspect lists buoyant
Slide 28: Central government - update
Central government - update 9% Approx 9% of Group revenues from Central government market This excludes small elements of health and education Private sector Central government Public sector
Slide 29: Central government – early perceptions
Central government – early perceptions Impressive pace and urgency to tackle fiscal position Their approach: What activities can the public sector simply stop? Where can they exercise self help quickly? Where and how can partners get them there sooner? Targets: Central government target of
Slide 30: Central government - update
Central government - update Government committed to significantly shortening procurement process – can currently take up to 2 years Receptive to proposals where private sector can help Whitehall to operate more efficiently 2 prong focus: – Actions that provide immediate efficiencies – Initiati
Slide 31: Generating growth - acquisitions
Generating growth - acquisitions Acquisitions remain an important element of our business model: – generate excellent returns on capital – build platforms for future organic growth We continue to acquire small to medium sized companies that: – strengthen existing market positions – build economi
Slide 32: Generating growth – 2010 year to date acquisitions
Generating growth – 2010 year to date acquisitions Acquisition Business area Value (£m) Inventures Property services 6.8 + 5.0 NB Real Estate Property services 10.0 + 10.0 Ross & Roberts Debt management 5.0 Ramesys IT services 15.0 Sureterm Direct Insurance 8.0 + 1.5 PAL Services Trust administratio
Slide 33: Generating growth – 2010 year to date acquisitions
Generating growth – 2010 year to date acquisitions 35 Property Health services IT services 30 % 25 20 15 10 Insurance Other 5 0 Business area
Slide 34: Generating growth – Premier Medical Group
Generating growth – Premier Medical Group Rationale: To expand our footprint in the health market and add important new capability to our range of health services Leading provider of medical reporting and screening services across the UK to range of clients, primarily insurance companies and lawye
Slide 35: Operational update and market opportunities
Operational update and market opportunities Simon Pilling Chief Operating Officer
Slide 36: Operational update – Property consultancy
Operational update – Property consultancy Capita Symonds: now one of UK’s largest multifaceted consultancies offering wide scope of services – positioned well in current fiscal environment Infrastructure: expanded capability in roadside technology - information, planning and traffic flow control
Slide 37: Operational update – IT Services
Operational update – IT Services IT Services: track record of IT transformations particularly in local government and education Client Capita’s role Education • Growing demand for technology to play a role in delivering and improving education • Drawing together ICT, software services, property co
Slide 38: Operational update – Resourcing
Operational update – Resourcing Resourcing: focus on managing workforces and recruiting flexibly and efficiently Client Capita’s role Nuclear Estate New 3 year contract to supply entire Nuclear Estate with non permanent workers Severn Trent Water Assisting with business transformation and relocati
Slide 39: Operational update - Capita India
Operational update - Capita India Headcount stands at 4140, an increase of 8% since beginning of the year Capita India has expanded its facility in Pune by adding another 380 seats Migration to BT managed WAN – increasing resilience, capacity and connectivity Widening of capability in India
Slide 40: Market activity - UK BPO market
Market activity - UK BPO market Total UK Market 2009 (£m)* Public Sector 1,844 Central government 606 Local government 831 Transport 65 Education 58 Health 77 Other 207 Private Sector 4,140 Insurance 515 Life and pensions 640 Finance 1,050 Other private 1,935 * Ovum 2008 and 2009
Slide 41: Market activity - market position
Market activity - market position Company 2009 Market Share* 2008 Market Share* Capita 27.0% 25.5% Xchanging 7.0% 6.4% Accenture 5.0% 6.8% HP Enterprise Services** 5.0% 5.5% BT Global Services 4.0% 4.1% UK BPO market leader with 27% market share Increased market share during economic downturn
Slide 42: Market opportunities – drivers for outsourcing
Market opportunities – drivers for outsourcing Our markets Drivers for outsourcing Benefits of working with Capita • Increased pressure to • Strong track record of Public: drive down costs without delivering higher productivity •Central government compromising service and enhanced operational • Loca
Slide 43: Market opportunities – Local government
Market opportunities – Local government 23% Approx 23% of Group revenues from Local government market Increased engagement with outsourcers to explore ways to help them achieve cost efficiencies Private sector Local government Public sector
Slide 44: Market opportunities - Local government
Market opportunities - Local government Local Authorities under further fiscal pressure Seeking help to achieve demanding cost savings Possibilities to expand private sector remit, particularly procurement, HR/Resourcing and property estate consolidation and management Indications that local
Slide 45: Market opportunities - life and pensions
Market opportunities - life and pensions Total market Estimated UK policies in force (excluding group schemes and CTF): circa 104m Outsourced market Number of policies outsourced to date estimated to be 35m – 40m (circa 35% of market) Capita Current contracts – 23m policies Circa 22% of the total UK
Slide 46: Market opportunities - life and pensions
Market opportunities - life and pensions Focus on retention to increase embedded value in clients’ funds: - Client X: In the last year we have retained over 13,000 customers and £350m in funds invested Delivering improved levels of customer satisfaction to increase customer re-purchases - Client
Slide 47: Market opportunities – capabilities in health
Market opportunities – capabilities in health NHS Business Services Authority NHS CHOICES Contract: £100m over 7 years Contract: £60m over 3 years Processing and payments of 40m To develop, deliver and host NHS Choices, dental claims and a managed IT the NHS’ digital presence service to support the
Slide 48: Market opportunities - health
Market opportunities - health We continue to engage with DoH to explore running functions currently run by “Arms Length Bodies”: – payment functions – claims functions – regulatory support – customer contact Seeking to replicate the LA strategic partnership model for NHS Acute Trusts and other N
Slide 49: Prospects
Prospects Paul Pindar Chief Executive
Slide 50: Ingredients for continued growth
Ingredients for continued growth Strong trading across the Group Current high levels of sales activity across both the private and public sectors Record bid pipeline of £4.4bn We expect initiatives to increase efficiency across the private and public sectors to result in significant outsourc
Slide 51: Results for the 6 months to 30 June 2010
Results for the 6 months to 30 June 2010