REG-Capita PLC: Final Results <Origin Href="QuoteRef">CPI.L</Origin> - Part 1

CapitaAnnouncement

26/02/2015 07:00

Full year results for the year ended 31 December 2014

                   Continuing to deliver shareholder value

Financial highlights Underlying* Underlying*  Underlying*  Reported
                        2014        2013      YOY change
Revenue                £4,372m     £3,851m       +14%      £4,378m
Operating profit       £576.3m     £516.9m       +11%      £388.9m
Profit before tax      £535.7m     £475.0m       +13%      £292.4m
Earnings per share     65.15p      59.40p        +10%       35.79p
Total dividend per
share                   29.2p       26.5p        +10%       29.2p

*Excludes non-underlying items detailed in note 2 business disposal, note 3
administrative expenses and note 4 net finance costs, in the notes to the
preliminary statement.


Highlights

Strong financial and operating performance in 2014

- Underlying revenue growth* of 14%, including 9% organic growth

- Underlying operating margin* 13.2% (2013: 13.4%)

- Underlying profit before tax* up 13% to £535.7m (2013: £475.0m)

- Underlying earnings per share* up 10% to 65.15p (2013: 59.4p)

- Total dividend up 10% to 29.2p (2013: 26.5p)

- Underlying operating cash* conversion rate of 112% (2013: 106%)

- Underlying free cash flow* up 18% to £368m (2013: £312m)

- Post-tax ROCE* 14.8% (2013: 15.5%)

- Reported profit before tax up 36% to £292.4m (2013: £215.0m)

- £1.7bn contract wins (2013: £3.3bn), with contract win rate of 1 in 2 (by
  value)

- £310m spent on 17 acquisitions to enhance capability and facilitate future
  organic growth


An excellent start to 2015

- £1.1bn contracts secured to date (2014: £588m), including Fera preferred
  bidder and Sheffield extension

- Bid pipeline increased to £5.1bn (November 2014: £4.1bn), 53% private and
  47% public sector

- Agreement to acquire avocis adds significant future growth platform in
  Germany and Switzerland

- Good visibility of low double digit revenue growth in the full year


Platform to drive further value creation

- We operate in a large addressable market and have significant scope to
  increase penetration

- We focus upon leveraging our competitive advantages of scale, unique breadth
  of capabilities and

experience in delivering transformational partnerships

- We continue to manage the business to deliver strong EPS growth, cash flow
  and return on capital.


Andy Parker, Chief Executive of Capita plc, commented:

"2014 was a year of excellent financial performance, with 9% organic revenue
growth, sustained high returns and levels of cash generation, and an active
year for acquisitions. We have good visibility of strong revenue growth in
2015, which will be driven by the conversion of our bid pipeline, acquisitions
and the full benefit from last year's contract wins and acquisitions. We have
significant scope to increase penetration of our large and growing addressable
market, supported by a number of structural factors such as fiscal pressure,
digitisation, regulation and demographics and our own competitive advantages.
This leads us to look forward to the medium to long term with confidence."

Analyst & investor presentation:

Andy Parker, Chief Executive of Capita plc, will host an analyst presentation
in London at 8.30am UK time today.

There will be a dial in call and live webcast of the full event. Details
can be found at www.capita.co.uk/investors.

(Please dial into the call in time to allow for registration)

Participant Dial-in : +44 (0)20 3059 8125. Participant password: Capita

Replay: A replay of the conference call will be available for 7 days by
dialing +44 (0)121 260 4861 (access code is 0258732 #).

For further information:

Capita plc                               Tel: 020 7654 2219
Shona Nichols, Corporate Communications
Director
Andrew Ripper, Head of Investor
Relations

Capita press office                      Tel: 020 7654 2152 or
                                         020 7654 2399 out of hours

FTI Consulting                           Tel: 020 7269 7291
Andrew Lorenz


About Capita

Capita plc is the UK's leading provider of customer and business
process management (BPM) and integrated professional support service
solutions. With 68,000 people at over 400 sites, including 80 business centres
across the UK, Europe, India and South Africa, the Group 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), and is a constituent of the FTSE 100 with 2014 revenue of £4.4bn.
Further information on Capita plc can be found at: www.capita.co.uk


                                  Capita plc

            Full year results for the year ended 31 December 2014

Overview

2014 was a year of double digit revenue and profit growth, with
sustained high cash flow and returns, alongside strong acquisition activity.

Underlying revenue 1  increased by 14% to £4,372m 2 (2013:£3,851m 3 , 
including 9% organic and 5% acquisition growth. Underlying
operating profit 1  rose by 11% to £576.3m 2 (2013: £516.9m 3 )and
underlying profit before taxation 1  increased by 13% to £535.7m  2  (2013:
£475.0m 3 ). Underlying earnings per share 1  grew by 10% to 65.2p 2  (2013:
59.4p 3 ). We increased our total dividend for the full year by 10% to 29.2p
per share(2013: 26.5p). Underlying free cash flow 1  was up 18% to £368m 2 
(2013: £312m 3 )and ROCE 1  was 14.8% 2 (2013: 15.5% 3 ), which compares to
our estimated post-tax WACC of 7.2%.

The majority of our divisions performed well in 2014, with strong
growth particularly in Workplace Services and Justice & Secure Services,
supported by new contracts, and significant improvements in the profitability
of IT Services and Property & Infrastructure, helped by the macroeconomic
backdrop. These positives were partially offset by Insurance & Benefits and
Health & Wellbeing, and the end of the Disclosure and Barring contract in
March 2014.

The aggregate value of new and extended major contracts secured in 2014 was 
£1.7bn, representing a 1 in 2 win rate. We are pleased to report that
we have secured £1.1bn new business since the year end and an increase in the
bid pipeline to £5.1bn since the IMS in November 2014 (£4.1bn). We are seeing
good levels of activity in both the private sector, across telecoms, financial
services and utilities, and the public sector, particularly in health, local
government and defence.

We continued to focus upon acquiring small to medium sized businesses in 2014,
to enter new markets, build capability in existing areas and enhance our sales
propositions to facilitate future organic growth. Weinvested a total of £310m
on acquisitions (excluding deferred and contingent considerations), 
acquiring 17 organisations in markets such as utilities and transport software,
IT networking, mortgage administration and Germany.

Financial review

- Revenue: the Group increased underlying revenue 1  by 14% to
£4,372m 2 (2013: £3,851m 3 ). This comprised 9% organic growth (net of
attrition)and 5% from acquisitions, comprising 3% from those completed within
the year and the remainder from 2013 acquisitions. The most significant
contributors to organic growth were the full year benefit from new contracts
with Telefónica UK (O2), Ministry of Justice electronic monitoring, DWP
Personal Independence Payment (PIP) assessments, London Borough of Barnet,
npower and AXELOS, which drove strong underlying growth in Justice & Secure
Services, Customer Management & International, Property & Infrastructure and
Workplace Services.

- Operating profit: underlying operating profit 1  rose by 11% to
£576.3m 2  (2013: £516.9m 3 ). Strong performances from Workplace Services,
Justice & Secure Services and Customer Management & International were driven
by the aforementioned contracts and, following last year's management changes,
there were significant improvements in trading in IT Services and Property &
Infrastructure, supported by the macroeconomic backdrop. These positives were
partially offset by the impact of planned step downs in Insurance & Benefits
and contract churn in Health & Wellbeing (DWP PIP in; NHS Choices out).

- Operating margin: underlying operating margin 1  was 13.2% 2 
(2013: 13.4% 3 ), partly reflecting the end of the Disclosure and Barring
contract in March 2014. We continue to closely manage operating costs to
ensure that the business is growing profitably, leveraging our scale,
purchasing power and lean corporate structure, and remain selective in bidding
and delivering differentiated client propositions. This underpins our
confidence that underlying Group operating margins will be maintained in the
range of 12.5% to 13.5% for the foreseeable future.

- Profit before tax: underlying profit before tax 1  increased by
13% to £535.7m 2  (2013: £475m 3 ). The net interest charge was £40.6m (2013:
£41.9m).

- Earnings per share: underlying earnings per share 1  rose by 10%
to 65.2p 2  in 2014 (2013: 59.4p 3 ), after an increase in the underlying
minority charge to £7.3m (2013: £(4.4)m) due to the initial contribution from
AXELOS. Our underlying tax rate was 18.5% (2013: 19%). The Group's EPS has
grown at a compound annual rate of 11% over the five years to 31 December
2014.

- Cash flow: underlying cash flow from operations was £644m 2 
(2013: £546m 3 ), with an underlying operating profit to cash conversion ratio
of 112% 2  (2013: 106% 3 ). We continue to pro-actively manage working capital
across the Group and expect our annual cash conversion ratio to remain at or
above 100% for the foreseeable future.

Net capital expenditure was £146m (2013: £144m), which represents
3.3% of revenue (2013: 3.7%). We aim to contain capex at or below 4% of
revenue and there are currently no indications of significant capex
requirements in our business forecasts or bid pipeline that would take us over
this threshold. Underlying free cash flow 2  (defined as operating cash flow
less net capital expenditure, interest and taxation) was £368m (2013:
£312m 3 ).

- Net debt: net debt at end December 2014 was £1,405m (2013:
£1,203m). As at 31 December 2014, we had £1,122m of private placement bond
debt of which £97m matures in 2015 and the remainder gradually matures over
the period up to 2021. In addition, we have £300m of bank debt, of which £200m
matures in January 2016. In August 2014, we refinanced our £425m revolving
credit facility with a new £600m 5+1+1 year revolving credit facility maturing
in August 2019. This facility was unutilised at 31 December 2014.

Our annualised net debt to EBITDA 1  ratio in 2014 was 2.1 2 
(2013: 2.0 3 ) and interest cover 1  was 14 2  times (2013: 12 3  times). Our
aim continues to be to keep the ratio of net debt to EBITDA in the range of 2
to 2.5 over the long term and we would be unlikely to incur borrowings which
would reduce interest cover below 7 times.

- Dividends: the Board is recommending a final dividend of 19.6p
per ordinary share (2013: 17.8p), making a total of 29.2p for the year (2013:
26.5p), representing an increase of 10%. Dividend cover 1  is 2.2 times 2  for
2014. The final dividend will be payable on 28 May 2015 to shareholders on the
register at the close of business on 17 April 2015. The Group's total dividend
has grown at a compound annual rate of 12% over the five years to 31 December
2014.

- Return on capital employed: our post-tax return on average
capital employed (ROCE) 1  in 2014 was 14.8% 2  (2013: 15.5% 3 ), which
compares to our estimated post-tax WACC of 7.2%.

ROCE reflects how productively we deploy capital to fuel future
growth. In 2014, it was incorporated into senior management's long term
incentives, 25% of which is now based upon performance against ROCE targets
and 75% remains based upon EPS growth targets.

- Total shareholder returns: over the 10-year period to 31
December 2014, Capita has delivered £1.5bn (net of £274m equity raising in
April 2012) to shareholders through dividends, share buybacks and a special
dividend. Capita's total shareholder return over the same period is 269%
compared to 108% for the FTSE All Share Index.

- Reported profit before tax: reported profit before tax, after
the effect of non-underlying charges, increased by 36% to £292.4m (2013:
£215.0m). Non-underlying charges included £25m in relation to business
disposals and £218m in relation to those items detailed in notes 3 and 4 of
the preliminary statement.

Sales and business development review

Our major sales team focuses upon value enhancing transformational outsourcing
and partnering opportunities, where the Group has sustainable competitive
advantage and can leverage its unique blend of commercial skills. We are also
increasing our emphasis upon expanding existing client relationships in our
targeted vertical markets. We have made a good start to 2015, with £1.1bn
aggregate contracts secured to date, and are pleased to report that our bid
pipeline has increased to £5.1bn from £4.1bn as reported in our IMS last
November. The pipeline does not include frameworks.

Major contracts announced to date in 2015

- Fera: appointed preferred bidder by the Department for
Environment, Food & Rural Affairs (Defra) to form a joint venture, operate and
grow the Food and Environment Research Agency (Fera), which is expected to
achieve at least £700m revenue over its first 10 years. Fera provides
scientific services to government and commercial customers, such as food
retailers and manufacturers of crop protection products, across the food and
agriculture supply chains in the UK and overseas. The joint venture will
utilise Capita's commercial expertise, Fera's scientific capability and
partners such as Newcastle University to drive growth and efficiency. As part
of the agreement, it has secured a long term 10 year service agreement with
Defra and the Health & Safety Executive and a 10 year sole supplier framework
for other Crown bodies. Capita is acquiring a 75% stake in the joint venture
for £20m cash and expects to generate a post-tax ROCE in line with the Group's
target in the first full year, increasing thereafter.

- Sheffield extension: we have extended our existing service
delivery contract with Sheffield City Council by six years, worth around £140m
- £170m from January 2016 to January 2022. Capita will continue to deliver the
core range of services on behalf of the Council, including ICT, revenues,
benefits, HR and payroll and financial business transactions and also provide
additional business change capacity where it will work in partnership with the
Council to define and deliver projects designed to raise revenue and generate
additional savings over the life of the extended contract.

NHS Support Services Framework

- Capita has been approved by NHS England to join the new Lead Provider 
Framework for Commissioning Support Services. Clinical Commissioning
Groups (CCGs) will be required to re-procure many of their support services by
April 2016 in order to comply with EU procurement law. NHS England anticipates
that between £3-5bn of services will be procured through the framework,
including back office finance and HR, GP IT, contracting, engagement, business
intelligence and services for commissioners to support medicines procurement.

Major contract awards in 2014

The aggregate value of new and extended major contracts secured in 2014 was
£1.7bn (2013: £3.3bn), representing a 1 in 2 win rate for the Group by value.
Contracts gained include:

- Ministry of Defence (MOD: selected to be the Strategic Business
Partner for the Defence Infrastructure Organisation (DIO). The 10 year
contract is expected to be worth around £400m to Capita. The Group is leading
a partnership comprising two integrated sub-contractors, URS and PA
Consulting, to manage and transform the UK's national and international
defence infrastructure. It will help to unlock the knowledge, skills and
resources that already exist within the DIO while adding capability to tackle
the significant cost-saving targets currently facing the MOD.

- The Co-operative Bank: selected preferred bidder to transform
The Co-operative Bank's mortgage servicing operation in the UK. The contract
is worth up to £325m over 10 years, subject to final terms and approvals.
Under the terms of the deal, if agreed, Capita would take over and transform
The Co-operative Bank's mortgage operations in Leek in Staffordshire and
Plymouth, servicing more than 250,000 mortgage customers and £23bn of lending.
Capita would install new systems, designed to drive efficiency while
simplifying business processes in a regulated environment, to improve the
experience for The Co-operative Bank's customers and support business growth.
This represents good progress in establishing a strong presence in retail
mortgage servicing and builds upon our recent acquisition of Crown Mortgage
Services.

- Scottish Wide Area Network (SWAN): signed a framework contract
to deliver SWAN, a single public services network for the use of all public
service organisations within Scotland. The contract value for SWAN is up to
£325m over 9 years. More than 4,600 sites will be connected to the initial
network including schools, hospitals, GP surgeries, pharmacists and local
council offices. As part of the Scottish Government's national digital public
services strategy, Capita will deliver a platform designed to support the ever
increasing need for data sharing and tighter interworking requirements across
the wider Scottish public sector.

- Transport for London (TfL): secured a 5 year, £145m contract
with TfL to operate and enforce the congestion charging, low emission zone and
traffic enforcement notice processing schemes. Capita will take full
responsibility for the schemes in November 2015, following a period of
implementation which commenced in 2014. Capita has taken over the existing
London Road User Charging agreement for both Congestion Charging and the Low
Emission Zone ahead of go-live of the new contracts in November 2015, which is
worth in excess of £30m in addition to the above.

- Major contracts worth up to £100m including: the John Lewis
online contact centre contract worth £93.5m over 5 years, an IT services
strategic partnership with BAE Systems Maritime worth between £60m and £70m
over 5 years, a new contract with Genesis Housing Association and an extension
to our Metropolitan Police radio managed services contract.

For further details on our contract wins, visit www.capita.co.uk

Bid pipeline replenished

Since our IMS in November 2014, we have worked h