Presentation - Investors

Results for the 6 months
to 30 June 2013
Half year results presentation
25 July 2013
Agenda
1. Introduction
–
Paul Pindar, Chief Executive
2. Financial results
–
Gordon Hurst, Group Finance Director
3. Major sales update
–
Maggi Bell, Group Business Development Director
4. Managing growth
–
Andy Parker, Deputy Chief Executive & Joint COO
–
Paul Pindar , Chief Executive
5. Acquisition update
6. Summary & outlook
2
H1 2013 key highlights
ƒ £2.0bn of major new contracts including our largest win by annual value
ƒ On track to meet full year organic growth target
ƒ Pipeline
Pi li steadily
t dil replenishing,
l i hi
now £4.2bn
£4 2b
ƒ Strong drivers in key established and new markets
ƒ Solid financial performance, H1 dividend up 10%
ƒ Operational teams well positioned for recently secured large scale
transformation programmes
q
strategy
gy supporting
pp
g organic
g
growth
g
opportunities
pp
ƒ Acquisition
High degree of confidence for full year 2013 & 2014
3
Financial results
Gordon Hurst
Group Finance Director
Financial results – revenue
Comparative growth 13%
5 year H1 compound growth 9%
1,182
2008
2,441
1,311
2009
2,687
1,361
2010
2,744
Half year
1,400
2011
Full year
2,930
1,607
2012
3,352
1,819
2013
0
1 000
1,000
2 000
2,000
3 000
3,000
4 000
4,000
£m
Continued revenue ggrowth
5
Financial results – revenue by market
Private sector 52% (full year 2012: 53%)
Public sector 48% (full year 2012: 47%)
2013 half year (full year 2012):
Central government 11% (11%)
Local government 17% (18%)
Education 8% (8%)
( )
Health 5% (6%)
Justice & emergency services 4% (3%)
Defence 3% (1%)
Insurance 3% (4%)
Life and pensions 15% (17%)
Financial services 8% (6%)
Retail, telecoms, utilities 7% (n/a)*
Other private 19% (26%)*
Diverse market spread
* Retail, telecoms and utilities previously reported under other private
6
Financial results – H1 revenue growth
£m 6 months to
30 June 2013
Revenue
1,819
£m 6 months to
30 June 2012
Growth
1,607
13%
2013 acquisitions
61
-
4%
2012 acquisitions
96
-
6%
1,607
3%
Revenue growth excl. acquisitions
1,662
Expectation of at least 8% organic growth for full year 2013
7
Financial results – underlying operating profit*
Comparative growth 6%
5 year H1 compound growth 11%
136.0
2008
311.7
157 0
157.0
2009
352.4
174.1
2010
386.4
Half year
187.8
2011
Full year
417.0
214.1
2012
466 7
466.7
226.8
2013
0
100
200
300
400
500
£m
Continued increasingg profitability
p
y
* Adjusted for new pension standard, IAS19 (R). Excludes non-underlying items being:
intangible amortisation, acquisition expenses, net contingent consideration movements,
impairments, non-cash impact of mark to market finance costs.
8
Financial results – underlying profit before tax*
Comparative growth 10%
year H1 compound
p
growth
g
12%
5y
116.4
2008
269.1
140.0
2009
321.7
159.2
2010
355.7
Half year
169.7
2011
Full year
376.6
186.4
2012
417.0
205.27
2013
0
100
200
300
400
500
£m
Continued increasingg profitability
p
y
* Adjusted for new pension standard, IAS19 (R). Excludes non-underlying items being:
intangible amortisation, acquisition expenses, net contingent consideration movements,
impairments, non-cash impact of mark to market finance costs.
9
Financial results – underlying H1 operating margin*
15.0
14.2
14.1
13.9
14.0
Operrating margin %
13.4
13.3
13.1
12.8
13.0
12.8
12.5
12.0
12 0
12.0
11.5
Full year
Half year
11.0
10.0
H1 2008
H1 2009
H1 2010
H1 2011
H1 2012
H1 2013
Year
Full yyear margin
g expectation:
p
12.5 – 13.5% range
g for foreseeable future
* Adjusted for new pension standard, IAS19 (R). Excludes non-underlying items being:
intangible amortisation, acquisition expenses, net contingent consideration movements,
impairments, non-cash impact of mark to market finance costs.
10
Financial results – underlying earnings per share*
Comparative growth 9%
5 year H1 compound growth 13%
14.0
2008
32.3
16.7
2009
38.3
19.1
2010
43 9
43.9
Half year
21.4
2011
Full year
47.4
23.7
2012
52.1
25.8
2013
0
10
20
30
40
50
60
pence
Continued ggrowth in earnings
g
* Adjusted for new pension standard, IAS19 (R). Excludes non-underlying items being:
intangible amortisation, acquisition expenses, net contingent consideration movements,
impairments, non-cash impact of mark to market finance costs.
11
Financial results – dividends
Comparative growth 10%
year H1 compound
p
growth
g
13%
5y
4.8
2008
14.4
5.6
2009
16.8
6.6
2010
20 0
20.0
Half year
7.2
2011
Full year
21.4
7.9
2012
23.5
8.7
2013
0
5
10
15
20
25
pence
Continued ggrowth in dividends
12
Financial results – cash flow statement
£m 6 months to
30 June 2013
£m 6 months to
30 June 2012
Cash flow from operations
242
201
Net interest paid
(19)
(23)
Taxation paid
(12)
(29)
C it l expenditure
Capital
dit
(47)
(54)
Free cash flow
164
95
Acquisition of subsidiary undertakings and businesses
(196)
(148)
Acquisition of public sector subsidiary JV arrangements
(34)
-
(102)
(87)
-
271
(32)
(18)
Share option proceeds
11
3
Other financing
(5)
(2)
((194))
114
Equity dividends paid
Share issue net proceeds
Net debt repaid
((Decrease)/increase
)
in cash in the p
period
Strong focus on cash management
13
Financial results – cash flow from operating activities
£m 6 months to
30 June 2013
£m 6 months to
30 June 2012
227
214
Depreciation
39
39
Amortisation
1
-
Share based payment
5
5
Pensions
2
(3)
(1)
-
Movements in working capital
(31)
(54)
Cash flow from operations
242
201
Operating cash conversion
107%
Operating profit*
Movements in provisions
94%
Anticipate achieving medium to long term annual cash conversion of around 100%
*Excludes non-underlying items being intangible amortisation, acquisition expenses and net
contingent consideration movements
14
Financial results – half year capex as % turnover
7
6
5
4
%
3.4
3
2.8
2.7
2.8
2.8
2008
2009
2010
2011
2.6
2
1
0
2012
2013
Controlled capital
p
expenditure
p
15
Financial results – underlying net return on capital (debt plus equity)*
12 months to 30 June 2013
24
Actual
WACC
20
19.2
19.7
19.7
17.9
% re
eturn
16
16.1
15.1
12
8
8.2
7.9
7.8
7.8
7.2
7.2
2008
2009
2010
2011
2012
2013
2008
2009
2010
2011
2012
2013
280
333
370
400
443
479
Avg capital (£m)
1,067
1,234
1,387
1,710
2,181
2,576
Tax (%)
27.0
26.8
26.0
23.5
21.0
19.0
4
Operating profit (£m)
Maintainingg healthyy returns
*Adjusted for new pension standard, IAS19 (R)
16
Financial results – post tax economic profit*
12 months
th tto 30 J
June 2013
210
190
Annual growth 5%
5 year compound growth 12%
193
£m
170
165
150
110
173
Economic profit
146
130
202
117
90
2008
2009
2010
2011
2012
2013
2008
2009
2010
2011
2012
2013
Operating profit (£m)
280
333
370
400
443
479
Average capital (£m)
1,067
1,234
1,387
1,710
2,181
2,576
Tax (%)
27.0
26.8
26.0
23.5
21.0
19.0
WACC (%)
8.2
7.9
7.8
7.8
7.2
7.2
Capital charge (£m)
87.5
97.5
108.2
133.3
157.0
186.0
Tax (£m)
75.6
89.2
96.2
94.0
93.0
91.0
Ri in eeconomic
Rising
n i pr
profit
fit
* Adjusted for new pension standard, IAS19 (R). Excludes non-underlying items being:
intangible amortisation, acquisition expenses, net contingent consideration movements,
impairments, non-cash impact of mark to market finance costs.
17
Financial results – balance sheet gearing
£m 30 June 2013
£m 30 June 2012
Bond debt †
1,117
1,151
Cash in bank
(126)
(186)
185
185
24
5
Total underlying net debt
1 200
1,200
1 155
1,155
Annualised interest cover
11x
9x
Net debt to EBITDA
2.2
2.2
Net debt
T
Term
loan
l
Other (includes Northgate acquired leases)
Comfortably within 2.0
2 0 – 2.5x
2 5x EBITDA target range
†
Underlying net debt after impact of currency and interest rate swaps
18
Financial results – debt profile
30 June 2013 debt profile:
ƒ £1,117m of private placement bond debt with maturities from 2013 to 2021 with a
33%/67% fixed/floating rate mix
ƒ Only £66m matures before August 2015
ƒ £185m 2 year term loan facility maturing in February 2014
ƒ £425m revolving credit facility maturing in December 2015 of which £nil utilised at
30 June 2013
ƒ Comfortable with long term ratio of net debt to EBITDA in the range of 2 to 2.5
Comfortable maturity profile : with good headroom
19
Capita total shareholder return since IPO
45,000
42,004%
Return over different time periods
40,000
Since IPO
42,004%
35,000
Last 20 years
7,120%
Last 15 years
630%
Last 10 years
499%
25,000
Last 5 years
83%
20,000
Last 3 years
51%
15,000
Last 12 months
55%
Year to date
38%
Total re
eturn index
30,000
10 000
10,000
5,000
0
Apr-89
May-92
May-95
May-98
Jun-01
Jun-04
Jun-07
Jul-10
Jul-13
Total return index
Financial disciplines
p
creatingg strongg shareholder returns
Source: Deutsche Bank, Datastream, 11 July 2013
20
Creating growth:
Major sales update
Maggi Bell
Group Business Development Director
Creating growth – 2013 major contract wins to date
Total value to date in 2013: £2.0bn
Contract
Value (£m)
Duration (y)
Type
1,200
10
New + extension
London Borough of Barnet (development and
regulatory services)
154
10
New
Cabinet Office
400
10
New
University of Strathclyde
40
5
New
Civil Service Learning
60
2
Extension
Carphone Warehouse
160
10
New
Telefónica UK (O2)
Overall aggregate
gg g
value
2,014
80% new business / 20% extensions
ƒ Focus on Customer Management client base
ƒ Win rate higher than 1 in 2
Strong start to 2013
22
Existing major contracts due for rebid
High degree of revenue visibility
Year
Contract
Original value per annum (£m) 1
2013
None
-
2014
None
-
2015
None
-
2016
None
-
2017
None
-
2018
None
-
2019
Phoenix
48
Long term, stable revenue base
Criteria: more than 1% of 2012 full year revenue of £3,352m
1 Revenue based on original contract value
23
Generating growth – bid pipeline
ƒ Bid pipeline today of £4.2bn
comprising 32 bids (Feb 2013:
£5.2bn, 27 bids)
20
Local
gov
15
Retail,
telecoms Central
gov
& utilities
ƒ 97% new revenue / 3% extensions
ƒ Average contract length – 8 years
Lif &
Life
pensions
Financial
services
10
%
Defence
Justice &
emergency
services
Education Health
5
0
Well diversified ppipeline
p
Bid pipeline criteria: contains all bids worth £25m or above, capped at £1bn and where we have
been shortlisted to the last 4 or fewer
24
Sca
ale
Strategy for growth
U d t di client
Understanding
li t requirements
i
t and
dd
desired
i d outcomes
t
Transformational
partnering
Transformational
outsourcing
Mid-sized / multi
service
contracts
Single service
platforms
l tf
Complexity
25
Sca
ale
Strategy for growth
Understanding client requirements and desired outcomes – Recent wins
Transformational
partnering
ƒ University of
Strathclyde
Mid-sized / multi
service
contracts
ƒ
ƒ
ƒ
ƒ
Staffordshire JV
Cabinet Office IP JV
Telefónica UK (O2)
Barnet
Transformational
outsourcing
ƒ Carphone
C h
W h
Warehouse
ƒ Civil Service Learning
Single
g service
platforms
C
Complexity
l it
26
Strategy for growth – targeted opportunities
Competitive differentiation:
ƒ Deep
D
understanding
d t di off customer
t
and
d citizen
iti
b
behaviours
h i
Behavioural insight and analytics
ƒ Strategic acquisitions
Solution strength and depth
ƒ Proven track record in growing and developing diverse businesses
Creating additional value from Government assets for the public purse and Capita
Underpinned by:
+
ƒ
Efficient business process management
ƒ
Robust open book accountability
ƒ
g
of 'best of breed'
Integrator
ƒ
Financial stability
Leadingg and shaping
p g the BPM market
27
Growth opportunities – strong drivers in key markets
Central government
Local government
• Ongoing pressure on
departmental spend
• Commercialisation of
assets
• Ongoing cost pressure
(cumulative effect of last
2 spending
p
g reviews – 33
to 50% savings)
• Changing demands of
local communities –
ageing population,
digital shift
Justice &
emergency
services
• Wholesale change in
governance – Police &
Crime Commissioners.
• Home Office, MOJ and
austerity continue to
d i the
drive
th reform
f
agenda
d
Life & pensions
• New entrants,
established providers
and re-insurers postRDR
• Employee benefits –
strong growth potential
Education
• Change in funding
arrangements driving
new approach/
pp
delivery models
Insurance
• Regulatory and
compliance costs
driving change
• Providers seeking
access to latest
technology
Health
• Ongoing budgetary
pressures
• £90bn managed
g by
y
new commercial
owners in Clinical
Commissioning
Groups
Defence
• Clear MOD/Ministerial
direction for
outsourcing
g
as a strategic tool
for the future
Financial services
Retail, telecoms
& utilities
• Increasingly complex
products & enquiries,
trend for online quotes/
comparison sites
• Potential to cross/up
sell products
• Regulatory &
structural changes –
utilities smart metering
• Evolving digital
landscape/customer
behaviours
Creating opportunities in key growth markets
28
Managing growth
Andy Parker
Deputy Chief Executive & Joint COO
Operational structure - management breadth
Martina King
Non-Executive Director
Martin Bolland
Non-Executive Chairman
Maggi Bell
Group Business
Development Director
Group
Acquisitions
Strategic
Sales &
Marketing
Vic Gysin
Joint COO
Paul Pindar
CEO
Gillian Sheldon
Non-Executive Director
Snr Independent Director
Paul Bowtell
Non-Executive Director
Gordon Hurst
Group Finance Director
Andy Parker
Deputy CEO & Joint
COO
Customer
Management
&
International
Investor &
Banking
Services
Insurance &
Benefits
Services
Integrated
Services
Professional
Services
IT Services
Health &
Wellbeing
Property
Services
Workplace
Services
Justice &
Secure
Services
Customer
Management
Shareholder
Services
Life &
Pensions
BBC
Local
Government
Services
IT Services
Health
& Wellbeing
Property &
infrastructure
Specialist
Recruitment
Secure
Information
Solutions
Debt
Management
g
Trust
Services
Insurance
Distribution
CRB 1
Capita
Software
Services
Group IT / IS
Organisational
Health
Barnet
property
Managed
Services
Products
Capita India
CFG
Corporate
Insurance
Central
Government
Services
Children’s
Services
Medical
reporting
Development
Solutions
Secure
Border
Services
Capita
Poland
Asset
Services
CMA / MGA
Operations
Document &
Information
S i
Services
Consultancy
Health
Advisory
HR Solutions
G2G3
Employee
Benefits
Services
Financial
Software
Strategic
Partnerships
Life & Tascor
Medicals
Screening
Tascor
RPP
Service
Birmingham
Bi
i h
PIP
Travel
Services
Translation &
Interpreting
Staffordshire
JV
CSL
IT
Professional
Services
Barnet
Cabinet
Office JV
Capita
South Africa
O2
Carphone
Warehouse
1
Now Disclosure & Barring Service
30
Staffordshire County Council JV
ƒ Live on 1 April 2013
2013, seamless launch and transition
ƒ Creation of new brand, Entrust, for delivery of services to schools
and academies across the UK
ƒ IT transformation
t
f
ti
work
k underway
d
to
t improve
i
infrastructure
i f t
t
and
d
provide new online channels
ƒ Significant potential, UK education support services market
estimated at £16bn per annum
ƒ Engaged in a number of major leads with new education clients
ƒ Already securing new business within the region:
ƒ Further 22 schools signed up for technology support
ƒ Success in moving into a Diocese framework
ƒ Now selling school improvement services to a neighbouring Unitary
authority
Leading change : creating new platforms for growth
31
Cabinet Office IP JV – creating a growth business
ƒ JV to own, deliver and commercialise the Government's Best Management
Practice portfolio (including PRINCE2® and ITIL®)
ƒ 51% Capita owned / 49% Cabinet Office owned
ƒ JV owns IP portfolio in perpetuity
ƒ Target to triple annual revenue of approx £40m by year 10
ƒ Growth from further developing the product portfolio in existing and new
markets
ƒ JV assumed management of current contracts on 1 July 2013 with full
operational
ti
ld
delivery
li
ffrom 1 J
January 2014
ƒ JV new brand, AXELOS, Global Best Practice
Creating value from public assets
32
Cabinet Office IP JV – creating a growth business
ƒ Capita’s
Capita s track record of transformation and successful acquisition and growth of
small to medium businesses was recognised in the bid
ƒ Now working with product users, trainers and examiners to leverage expertise
ƒ Continue to provide a common ‘language’
language for IT and project management practices for
large corporates, public sector and SMEs in UK and internationally
Investing
g in quality
q
y
Building a global brand
• PRINCE2: exams in 21 languages,
over 120 countries
• ITIL: exams in 21 languages, over
150 countries
• Ensure continued international
recognition
• Invest in new creative talent and
innovation – gamification,
simulation analytics
simulation,
analytics, digital
channels
Key routes to growth
• Grow international markets
• Invest in existing products
• Develop new products
• Build online global community
• Create tailored solutions
Creatingg value from public
p
assets
33
Cabinet Office IP JV – significant growth potential
Targeting
g
g
+£120m annual
revenue by
year 10
1. Grow
international
markets
Established: UK, US, Australia, parts of the EU
Immediate targets: Brazil, India
Future targets: China, Middle East, parts of the EU
2. In
2
Invest
est in
existing products
Developing PRINCE2® and ITIL® product portfolios
3. Develop new
products
Developing new product portfolios based on additional best management practice IP
4. Build online
community
Developing a global, online community of practitioners for each product set
5. Create tailored
solutions
Years
Targeting major employers and organisations with tailored product offerings
Current revenue:
0
£40m p.a.
1
3
5
7
9
10
34
Customer management – moving up the value chain
Then:
C
Characteristics
off
typical Ventura/
Vertex (private
sector)
t ) contract
t
t
ƒ Pay per seats
ƒ 0 – 5 year contract length
ƒ 0 – 10% margins
Improve customer
experience
Support digital shift
Reduce costs
Future proof delivery
capability
Now:
Characteristics of
Capita customer
management
contract
t
t
ƒ Understand clients’ business
models, support them in
achieving
g desired outcomes
ƒ One of many suppliers
ƒ Streamline customer
management operations
ƒ Based on volume rather
than value add
ƒ 5 – 10 year partnerships
ƒ Average Group BPM margins
ƒ Potential to sell in other Capita
services
Shaping the BPM market : evolving client relationships
35
Telefónica UK (O2)
ƒ Largest single contract win by annual value at £1.2bn over 10 years
ƒ Commenced July 2013, seamless transfer of 2,300 O2 employees and migration of
wider outsourced supply chain scope
ƒ Strategic partnership to create enhanced customer outcomes, drive digital services
capability and support future business growth
ƒ M
Manage core customer
t
service
i centres
t
+ deliver
d li
a range off supportt services
i
to
t O2’s
O2’
retained operations
Adopt
p ‘best of breed’
enabling technologies to:
- integrate channels to
realise customer
experience, quality,
flexibility & cost benefits
Add value by leveraging
our expertise in customer
insight, data + analytics to:
- enhance customer
experience and deliver
operational effectiveness
and improved profitability
Enhance employee
engagementt and
d
opportunity to:
- deliver service
excellence as part of a
growing customer
management business
Delivering large scale,
scale bespoke solutions for our clients
36
Acquisition update
Paul Pindar
Chief Executive
Creating growth – 2013 acquisitions to date
9 acquisitions totalling £198m
Enhancing
capability –
Division
Acquisition
Rationale
IT Services
Northgate
Managed Services
Provides cloud-based, infrastructure and specialist managed services to
public, private and third sectors.
65.0
Customer
Management
&
International
iQor UK
Provides `late stage' debt recovery expertise complementing our existing
early and final stage businesses.
42.0
Euristix
Provider of data analytics and risk management including portfolio
management, value realisation, diagnostics and due diligence services.
9.0 +
(3.0)
STL Technologies
Provider of software and ICT to the criminal justice system.
G2G3
Provider of immersion and simulation-based training for industry and the
police and emergency services.
Blue Sky Training
Provides bespoke, high quality learning & development solutions for
executive level, field based and contact centre employees.
7.2 +
(4.8)
KnowledgePool
Provider of learning managed services, including supplier management,
training administration and learning consultancy.
24.5
Creating Careers
UK market leader for developing and supplying accredited online
qualifications for the further education and secondary sectors.
24.0 +
(6.0)
MLS
Provider of library and resource management systems to the UK education
sector.
16.5 +
(4.0)
Justice &
Secure
Services
Workplace
Services
Professional
Services
Value
£m*
6.1
3.5 +
(10.5)
* Value in brackets represents maximum contingent consideration
38
Summary & outlook
Paul Pindar
Chief Executive
Strongly positioned for growth
ƒ High level of sales activity in both traditional and new customer management
and BPM markets
ƒ Continuing to join-up,
join-up deploy and develop our internal capabilities
ƒ Focusing on smooth delivery of recent major contract wins
ƒ Maintaining strong financial discipline and an entrepreneurial, open culture as
the business grows
ƒ Well positioned for 2013 and 2014
Delivering long term, sustainable growth
40
Results for the 6 months
to 30 June 2013