REG-Capita PLC: AGM statement and trading update <Origin Href="QuoteRef">CPI.L</Origin>

CapitaAnnouncement

13/06/2017 07:05

Capita plc - AGM statement and trading update

Capita plc ('Capita'), the UK's leading provider of technology-enabled
customer and business process management services (‘BPM’) and integrated
professional support services, is holding its Annual General Meeting today and
is issuing the following trading update.

Strategic initiatives

We are making good progress on executing the strategic initiatives laid out at
the end of 2016 to reposition the Group and create a simpler business better
placed to return to profitable, sustainable growth.

Group restructure: We have bedded down our new divisional management and our
market-facing organisation structure has now been in place since the beginning
of 2017. This has increased transparency and oversight, and created greater
renewed focus on sales, consistent operational performance and customer
service excellence.

Creating a simpler business and addressing leverage: We have completed the
disposal of our stand-alone, transactional specialist recruitment businesses
(education, social care and health personnel) to Endless. We are committed to
our remaining Workplace Services businesses which include our public and
private recruitment process outsourcing (‘RPO’), executive search,
vetting, employer branding agency and learning services businesses. The larger
disposal of the Capita Asset Services businesses is proceeding well and is on
track to conclude in the second half of 2017. Together, these disposals
increase the Group's focus on technology-enabled BPM and should result in a
significant reduction in leverage by the end of 2017. At the half year results
these businesses will be reported as non-underlying.

Performance improvement: We commenced a number of short and long term cost
initiatives in the last quarter of 2016 to improve performance, including
reductions in overheads, the offshoring of some IT applications support,
centralising more of our procurement and rationalising our property estate.
These are progressing well and we are on track to realise net incremental
benefits in line with our expectations.

Trading update

Trading businesses: The overall performance of our trading businesses in the
year to date is in line with our expectations. The turnaround of IT Services
is progressing better than expected, with improving profitability following
the restructuring of the divisional management team and operating model. There
are also steady signs of improvement in Capita Europe, our customer management
operations in Germany and Switzerland. However, trading across our property,
employee benefits consulting and learning services operations is yet to
improve.

Major contracts: The majority of our major private and public sector contracts
are continuing to perform well and the commencement of new contracts with
mobilcom-debitel and Three UK have gone smoothly.

Service delivery across our NHS Primary Care Support England (‘PCSE’)
contract, following the early stages of this complex initiative to
modernisation and standardise primary care administration, is continuing to
improve with additional resources and we are seeing consistent progress across
all services. The cash cost of these continuing improvements has been and will
remain high for the remainder of the year.

As the Strategic Business Partner to the Defence Infrastructure Organisation
(‘DIO’) Capita has delivered a range of positive outcomes, including key
programmes such as the Better Defence Estate (Footprint Strategy) and the Army
Basing Programme. Following this progress, the Ministry of Defence (‘MoD’)
is reviewing how they wish to deliver the next stage of transformation of the
estate and how it is managed. We expect that this may lead to a reshaping of
our DIO contract, which would result in lower than expected profits from this
contract in this year and going forwards, and the possible early termination
of the contract in June 2019. This would then enable the MoD to retender and
procure services to best fit the needs of DIO as it supports the restructured
and reduced estate going forward. Currently, we would expect to participate in
any retendering processes if they occur.

Major sales and business development

Capita has secured £318m aggregate major contracts and extensions in the year
to date, with an improved win rate of 1-in-2 by value. This includes the
extensions of our Personal Independence Payments contract with the Department
for Communities, Northern Ireland until end July 2019 and our IT services
contract with the Northern Ireland Education Authority to March 2019, and the
renewals of our RSPCA customer management contract and Royal London life and
pensions contracts.

Following these recent wins, our bid pipeline is currently £3.8bn. We are
seeing good levels of activity in the private sector, particularly in
financial services, transport and telecoms. In local government, we are also
bidding on a number of opportunities where we can deploy high value,
replicable solutions in areas such as asset optimisation, digital
transformation and procurement management services.

Following recent media coverage, we confirm we have entered a period of
exclusive engagement with British Airways to explore forming a potential
partnership to support its global customer contact operations, which currently
handles approximately 9.5 million calls per year. No final decisions regarding
the outcome of this engagement have been made.

We continue to expect the majority of sales decisions by value to come in the
second half of this year.

Chief Executive search

The Board is making good progress in the search to select a new Chief
Executive and the selection process is moving forward with a shortlist of
strong candidates.

Early adoption of IFRS 15

On 30 May 2017 Capita re-confirmed its intention to early adopt the new
revenue standard IFRS 15 from 1 January 2017, ahead of mandatory adoption on 1
January 2018. This is an accounting change and has no impact on the cash
generation or operating performance of the business.

Early adoption will allow Capita to start 2018 having both restructured the
business and implemented the new standard in 2017. We are progressing well
with the detailed work required to adopt IFRS 15 and will be holding a
detailed ‘IFRS 15 adoption teach-in’ session for analysts and investors on
7 September 2017. Following a review by KPMG, the half year results for the
six months to 30 June 2017 will be reported under IFRS 15 on 21 September 2017
and the 2016 results will be restated in accordance with the new standard.

From our initial work, we do not expect the adoption of the new IFRS 15
accounting standard to result in financial performance being any lower than
market expectations for 2017.

Outlook

As previously stated, Capita expects 2017 will be a transitional year for the
Group.

We expect that the first half performance of 2017 under IFRS 15, including the
impact of higher resourcing costs in PCSE, will be no lower than the second
half of 2016, as reported under previous GAAP accounting standards, excluding
the write-down of accrued income and potential impact from disposals.

We continue to expect profitability to improve in the second half, reflecting
the cumulative benefit from performance improvement initiatives and lower
attrition, and our current view that the trading businesses will continue to
steadily improve.

We remain confident that the decisive actions we commenced in 2016 will make
Capita a simpler business, better positioned to exploit our fundamental
strengths and generate renewed sales performance, supporting a clear pathway
to return to sustainable profitable growth in 2018 and beyond.

-ENDS-

For further information:

Capita plc

Tel: 020 7799 1525

Shona Nichols, Executive Director, Communications

Andrew Ripper, Head of Investor Relations

Media enquiries

Capita Press Office Tel: 020 7654 2399

Powerscourt Tel: 020 7250 1446

capita@powerscourt-group.com

Victoria Palmer-Moore, Peter Ogden and Ben Griffiths

Note to editors:

Capita is a leading UK provider of technology enabled customer and business
process services and integrated professional support services. With 73,000
people at over 450 sites, including 98 business centres across the UK, Europe,
India and South Africa, Capita uses its expertise, infrastructure and scale
benefits to transform its clients' services, driving down costs and adding
value. Capita is quoted on the London Stock Exchange (CPI.L), with 2016
underlying revenue of £4.9 billion.

Further information on Capita can be found at: www.capita.com



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