REG-Capita PLC: Final Results <Origin Href="QuoteRef">CPI.L</Origin> - Part 1
02/03/2017 07:05
Full year results for the year ended 31 December 2016
Challenging year – decisive actions taken to improve performance
Financial highlights Underlying (1)2016 Underlying (1)2015 Underlying YOY change Reported 2016 Reported YOY change
Revenue £4,898m £4,674m +5% £4,909m +1%
Operating profit £541.3m £639.0m (15)% £148.3m (28)%
Profit before tax £475.3m £585.5m (19)% £74.8m (33)%
Earnings per share 56.67p 70.73p (20)% 5.55p (30)%
Total dividend per share 31.7p 31.7p — 31.7p —
Highlights
2016 financial summary: a challenging year
• Underlying revenue growth on a like-for-like basis(1) of 3.4%,
including 0.1% organic growth
• Underlying cash flow from operations(1) £750m (2015: £686m), a cash
conversion ratio of 139% (2015:
108%)
• Free cash flow after non-underlying items(1) £409m (2015: £304m)
• Net debt at end December 2016 was £1,779m (2015: £1,839m)
• Underlying profit before tax(1) down 19% to £475.3m (2015: £585.5m),
including the recently announced
£39.6m write down of accrued income with regard to our 2016 review
of contracts
• Reported profit before tax £74.8m (2015: £112.1m)
• Underlying earnings per share(1) down 20% to 56.67p (2015: 70.73p)
• Reported earnings per share down 30% to 5.55p (2015: 7.96p)
• Total dividend unchanged at 31.7p (2015: 31.7p).
Major contracts: existing relationships extended and first strategic
partnership in Europe
• £1.3bn of major contract wins and extensions (2015: £1.8bn)
including:
? mobilcom-debitel customer services strategic partnership, worth £197m over
7 years
? Extension of our relationship with Department for Work and Pensions Personal
Independence Payments (PIP) assessments, worth £210m (based on volume
assumptions)
• Major contract win rate 1 in 3
• Bid pipeline £3.8bn (December 2016: £3.8bn), with a weighted average
contract length of 7 years (December 2016: 7 years).
Decisive actions position us better to exploit our fundamental strengths and
return to growth
• Business review: commenced process to exit the majority of Capita
Asset Services and Specialist
Recruitment businesses to increase focus on technology-enabled
business process and customer
management and reduce leverage
• New leaner, simpler organisation and management structure: customer
facing, with better alignment of
sales and operations, shorter reporting lines, less complexity and
more transparency
• Performance improvement initiatives: cost actions and turn-around
commenced in IT Services
• Growth agenda: sales teams re-shaped to drive growth through both major
contracts and additional new,
high value, replicable services to new and existing clients in the
public and private sectors.
Andy Parker, Chief Executive of Capita plc, commented:
“2016 was a challenging year and Capita delivered a disappointing
performance. We are determined to turn this performance around. We have taken
quick and decisive action to reduce our cost base, increase management
accountability, simplify the business, strengthen the balance sheet, and
return the Group to profitable growth.
“We remain very confident that our target markets continue to offer
long-term structural growth. Capita is well placed in these markets with our
unique set of complementary capabilities and the talent of our people. The bid
pipeline of major contract opportunities remains active, and we are also
seeing success in providing additional new, high value, replicable services to
clients.
“The proposed sale of our Asset Services businesses and Specialist
Recruitment businesses are on track. We have received good interest and,
following regulatory approvals where required, we remain confident in
concluding these transactions this year, which will leave us with a more
focussed Group and significantly strengthen our balance sheet.
“We expect 2017 to be a transitional year for the business, as we complete
our disposals, bed down the structural changes inside the business, and
re-position Capita for a return to growth in 2018.”
Analyst & investor presentation:
Andy Parker, Chief Executive of Capita plc, will host an analyst presentation
in London at 8:15 am UK time today.
There will be a conference call and live webcast of the full event. Details
can be found at www.capita.com/investors.
Participant Dial-in: +44 (0)20 3059 8125. Participant password: Capita
(Please dial into the call in time to allow for registration)
Replay: A replay of the conference call will be available for 7 days by
dialling +44 (0)121 260 4861 (access code is 2604602#).
For further information:
Capita plc Tel: +44 (0)20 7654 2387
Shona Nichols, Executive Director Corporate Communications
Andrew Ripper, Head of Investor Relations
Capita press office Tel: +44 (0)20 7654 2399
Powerscourt Tel: +44 (0)20 72501446
Victoria Palmer-Moore
Peter Ogden
Andy Jones
About Capita
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: http://www.capita.com
Full year results for the year ended 31 December 2016
Chief Executive's Review
2016 was a challenging year and our financial performance was weaker than we
had expected at the outset of the year. There were a number of reasons for
this. The business process management (BPM) market in 2016 was generally more
subdued, some client decisions were deferred and we also won a lower
proportion of major bids than in recent years. Furthermore, some of our
businesses under-performed and we experienced weakness in a number of
discretionary services towards the year end.
This weaker financial performance masked a number of positive developments
over the course of the year. We renewed and extended a significant number of
contracts, including our Department for Work and Pensions Personal
Independence Payments and BBC TV Licensing contracts, and announced our first
strategic transformational customer management partnership in Europe with
mobilcom-debitel.
Most importantly, we took a series of decisive actions in the fourth quarter
to address the weaker trading performance, reposition the Group and create a
simpler business, with a clear pathway to return to sustainable profitable
growth:
• In November, we announced changes to our management and business
structure, effective 1 January 2017, which better align sales and operations
to the markets and customers we address, shorten reporting lines, reduce
complexity and increase management oversight.
• In December, we announced our intention to dispose of a group of
businesses within the Capita Asset Services division and, following
unsolicited interest, our stand-alone Specialist Recruitment businesses to
increase the Group's focus on technology-enabled BPM and reduce leverage.
• We commenced a number of performance improvement initiatives,
including actions to reduce our cost base and the appointment of new
management to drive the turn-around of our IT Services division.
Finally, over the course of 2016, we re-shaped our sales teams to respond to
the evolving needs of our clients in their dynamically changing markets and
drive growth from additional new, high value, replicable solutions alongside
our continued focus on securing major contracts.
These actions position us better to exploit our fundamental strengths of
having leading competitive positions in large, growing addressable markets and
our unique combination of business re-engineering, customer service and IT,
digital and software credentials.
A clear strategy and business model
Capita's strategy is to focus upon providing technology enabled business
process and customer management in both the private and public sector, making
processes smarter, organisations more efficient and customer experiences
better. We aim to maintain our UK market leadership, whilst growing our
presence across selected growth markets overseas, supported by a unique blend
of onshore, nearshore and offshore business centres. We are focused upon
delivering strong financial performance and returns through profitable organic
growth and small to medium sized acquisitions, generating revenues and profits
in two ways:
1. Long-term contracts: c.60% of revenues
Revenues derived from long-term contracts and partnerships, where we contract
with clients in the public and private sector to deliver customer-facing,
middle or back office services. This gives us good visibility of forward
revenues. Our track record of retaining these long-term clients is strong and
we have no material contracts up for rebid until 2019.
2. Shorter term contracts and trading businesses: c.40% of revenues
Revenues are generated from annual or rolling contracts, in areas such as
software, resourcing and business travel, where we have long-standing client
relationships, and the provision of transactional services, such as property
and IT reselling, which are additive to our value propositions.
A simpler structure
In 2016 and effective from January 2017, Capita announced a restructure of the
Group to simplify the business model, better align sales and operations, and
provide greater management strength and depth across all of Capita’s
operations. As a result, we reorganised the previous 11 divisions into six
market-facing divisions. These are:
1. Private Sector Partnerships – business process and customer
management services for corporates in the UK and Europe
2. Public Service Partnerships – business process, customer management
and specialist services for public sector organisations, and real estate and
property services
3. Professional Services – high growth commercial businesses and
partnership models and services to attract, develop and retain workforces
4. Digital & Software Services – sector and task specific software and
services, digital, data and emerging technology solutions
5. IT Services – specialist network solutions, IT management and
infrastructure services and IT equipment solutions
6. Asset Services – shareholder solutions, fund solutions, trust and
corporate services and debt and banking solutions.
This structure has been in place since 1 January 2017. The new structure will
reduce complexity and increase oversight, providing better accountability with
a more streamlined management structure reporting directly to the Chief
Executive.
Financial review
• Revenue – the Group increased reported revenue by 1.5% to
£4,909m (2015: £4,837m) and underlying revenue(1) by 4.8% to £4,898m (2015:
£4,674m). Underlying revenue on a like-for-like basis(1), including a
business which was previously held for sale in 2015, increased by 3.4%
including 0.1% organic growth and 3.3% from acquisitions completed in 2015
(1.6%) and 2016 (1.7%). Major contracts growth was 4.8%, including the full
benefit from the Primary Care Support England contract and the continued
expansion of Department for Work and Pensions PIP assessments. Attrition was
3.4%, including the planned step down on Telefónica UK (O2). Divisional
trading was mixed, with a steady performance in the Digital & Software
Solutions division outweighed by organic declines in our specialist
recruitment, property and technology and enterprise solutions businesses.
Looking forward, currently we have booked 2.9% growth from major contracts and
expect 4.4% attrition in 2017. Whilst we have no major contract renewals until
2019, one of our major life and pensions clients is conducting a strategic
review, the outcome of which is uncertain but could result in the termination
of the contract with any associated costs.
• Underlying operating profit – underlying operating profit(1)
fell by 15% to £541.3m (2015: £639.0m). Profit declined as a result of £25m
one-off costs in relation to the delayed delivery of new IT systems on the
Transport for London (TfL) congestion charging contract, the step down on O2
and weak trading in technology solutions and IT enterprise services, property
and Capita Europe. As announced on 21 February, as part of our year-end
process we undertook a comprehensive review across our major contracts.
Following this review we took the decision to write down £39.6m of accrued
income relating to historic deferred costs which were being amortised over the
remaining life of a few specific contracts. The deterioration in performance
in year was partially offset by an increase in property commercialisation
profits, where value is generated from assets that are acquired by Capita as
part of a wider arrangement.
• Underlying operating margin – underlying operating margin(1)
11.1% (2015: 13.7%), reflecting the aforementioned items which have impacted
upon our trading performance.
• Underlying net finance costs – the underlying net interest
charge(1) was £66.0m (2015: £53.5m). We expect underlying interest costs to
be in the range of £70m to £75m in 2017, reflecting an increase in our cost
of debt and a £2m increase in pension finance costs. This is subject to the
timing of disposals.
• Underlying profit before tax – underlying profit before tax(1)
decreased by 19% to £475.3m (2015: £585.5m) after the £39.6m impairment of
accrued income.
• Non-underlying items – non-underlying charges were £400.5m
(2015: £473.4m), including acquired intangible amortisation and impairment of
£166.9m (2015: £165m), goodwill impairment of £66.6m (2015: £28.3m),
restructuring costs of £59.4m in relation to a major reorganisation programme
and contract related asset impairments of £58.3m (2015: £76.7m). These and a
number of other items are detailed in note 3 of this statement.
• Reported profit before tax – reported profit before tax was
£74.8m (2015: £112.1m), reflecting the impact of non-underlying charges
outlined above.
• Underlying earnings per share – underlying earnings per
share(1) fell by 20% to 56.67p (2015: 70.73p). Our underlying tax rate was
18.5% (2015: 18.5%).
• Reported earnings per share – reported earnings per share fell
by 30% to 5.55p (2015: 7.96p).
• Dividends – the Board is recommending a final dividend of 20.6p
per ordinary share (2015: 21.2p), making a total of 31.7p for the year (2015:
31.7p). The final dividend will be payable on 3 July 2017 to shareholders on
the register at the close of business on 26 May 2017.
• Underlying cash flow – underlying cash flow from operations(1)
was £750m (2015: £686m), with an underlying operating profit to cash
conversion ratio of 139% (2015: 108%). In part this is due to working capital
employed decreases through reducing long-term WIP and renegotiating payment
terms on certain contracts. Net capital expenditure was £154m (2015: £198m).
In 2017, we expect our cash conversion to be lower than last year and capital
expenditure to be broadly in line with last year. Underlying free cash
flow(1), defined as operating cash flow less net capital expenditure, interest
and taxation, was £472m (2015: £347m) and free cash flow after
non-underlying expenses was £409m (2015: £304m). We continue to target at or
above 100% cash conversion.
• Net debt – net debt at end December 2016 was £1,779m (2015:
£1,839m). As at 31 December 2016, we had £1,596m of private placement bond
debt of which £124m matures in 2017 and the remainder matures over the period
up to 2027. In addition, we have £650m of bank debt which matures over 2018
and 2019, and an undrawn £600m revolving credit facility of which £81m
matures in August 2020 and £519m in August 2021.
Our adjusted net debt to adjusted EBITDA(1) ratio in 2016 was 2.89 (2015:
2.45) and interest cover(1) was 8.8 times (2015: 13.2 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.
• Pension - at the end of 2016 our pension deficit was £345m. The
next full valuation date is April 2017 and we expect a £12m increase in the
IAS 19 pension charge this year, including the aforementioned £2m increase in
pension finance costs.
• Return on capital employed - our post-tax return on average
capital employed(1) (ROCE) in 2016 was 12.7% (2015: 15.0%), which compares to
our estimated post-tax WACC of 7.1%.
Disposals and acquisitions
In December, we announced our intention to dispose of a group of businesses
within the Capita Asset Services division which deliver shareholder, fund,
debt and banking solutions and trust and corporate services. These businesses
are stand-alone, with little integration or synergy with other divisions,
operate in regulated markets and, in some cases, are looking to grow into
areas at the outer edge of our risk appetite. They contributed around £300m
revenue and £60m underlying operating profit in 2016. The Board believes that
they will be better positioned to prosper under different ownership.
There has been good initial interest in the Capita Asset Services businesses.
The disposal process is on track, we are about to commence active marketing
and we continue to expect completion, following regulatory approvals, during
the second half of 2017.
Following unsolicited approaches, we have also commenced a process to dispose
of our Specialist Recruitment businesses which are not integral to supporting
our technology-enabled outsourced solutions. This includes Capita Education
Recruitment, Monarch, Team24 and Medicare First, the aggregate contribution
from which was around £160m revenue and £8m underlying operating profit in
2016.
The sale of these businesses will leave Capita more focused on the provision
of technology-enabled business process and customer management services and
will significantly strengthen the balance sheet.
Capita acquires small to medium sized businesses to build capability in
existing markets, enter new markets and enhance our future organic growth
potential. In 2016, we invested a total of £86.5m, excluding deferred and
contingent considerations, in acquiring 8 businesses, the largest of which was
Trustmarque, a software reseller and provider of software asset management, IT
and cloud services, for £57m. We also completed the disposals of Capita
Medical Reporting and Fish Administration in 2016, both of which were held for
sale at the 2015 year-end.
We expect a limited amount of acquisition activity over the next 12 to 18
months.
Sales and business development review
In 2016, we commenced an initiative to re-align our major sales efforts to the
dynamically changing needs of our clients, broadening sources of growth.
Our Group Business Development team continue to focus on securing major
outsourcing, partnering and asset commercialisation contracts, shaping and
bidding for contracts across our target vertical markets. These opportunities
are reported in our major sales bid pipeline.
Group Business Development additionally now work on campaigns of new,
replicable, high value disruptive solutions. These provide good opportunities
to increase client penetration, such as digital and procurement solutions in
local government and our new technology enabled proposition in the social care
market. These opportunities are not captured in our bid pipeline but should
generate good returns on investment and are potentially meaningful to future
profit growth. Finally, Group Business Development engage with the divisional
sales teams to enhance their capability and sales performance.
We were pleased to announce new and extended contracts with a total aggregate
value of £1.34bn in 2016 (2015: £1.8bn), comprising 46% new business and 54%
extensions and renewals. Our win rate was 1 in 3 by value in 2016, reflecting
a lower conversion rate in the private sector where we missed out on a large
mortgage administration opportunity in the first half of the year.
Major contracts announced in 2016
Private sector
• mobilcom-debitel - selected as strategic partner to deliver
transformational customer services, with a 7 year contract expected to be
valued at €230m (£197m). This transformational partnership, our first in
Continental Europe, is outcome based and will deliver significant advances in
digitisation and service improvements. It commenced on 1 March 2017.
• Tesco Mobile - selected by leading mobile telecommunications
company Tesco Mobile to form an initial 5 year strategic partnership for
customer management services, including customer care, technical support,
sales, upgrades and retention. The contract is expected to be worth £140m
over 5 years and started in August 2017.
• Debenhams Retail plc - extended its existing customer services
partnership with Capita Customer Management, worth £72m to 1 September 2022.
• BBC TV Licensing - extended its license collections partnership
with Capita for a further 2 years to June 2022. Capita will introduce further
enhancement to its insight and analytical capability, and introduce new
technologies to enhance service further.
Local government
• Five Councils: South Oxfordshire, Vale of White Horse, Hart, Havant
and Mendip District Councils - selected to introduce an innovative, flexible,
shared services platform, delivering a suite of corporate services, including
revenues and benefits, customer services, HR, ICT and procurement, worth
£139m over 9 years.
• Blackburn with Darwen Council - signed a new technical services
partnership, expected to be worth at least £60m for an initial term of 5
years, with the ability to extend for another 5 years. The contract includes
highways and property services and a wider £2bn framework, which allows other
public organisations to directly procure Capita's services for infrastructure
and development projects.
• Urban Vision - Salford City Council extended Urban Vision, a joint
venture between itself, Capita and Galiford Try. The partnership delivers
services such as property, regulatory planning, engineering infrastructure,
and design and highway operations to over 240 clients across both the public
and private sectors. The extension is expected to be worth £60m to Capita
over 3 years to 2020.
Central government
• Department for Work and Pensions - agreed a 2 year extension of our
PIP contract, worth £210m to 2019 (based on volume assumptions).
• The Pensions Regulator - agreed an extension to its partnership
with Capita for a further 3 years to ensure the continued successful roll-out
of automatic enrolment to small and micro employers. The contract extension is
worth an additional £37m and will run from October 2018.
For further details on our contract wins, visit www.capita.com
Bid pipeline
Our bid pipeline shows the total contract value of our major sales bids at a
specific point in time, which we disclose 3 times a year. It contains all bids
with total contracted revenue worth between £25m and a capped ceiling of
£1bn, where we have been shortlisted to the last 4 or fewer. The total
contract value of the bid pipeline currently stands at £3.8bn (December 2016:
£3.8bn), comprised of 26 bids including 78% new business and 22% renewals and
extensions, 61% private sector and 39% public sector, with a weighted average
contract length of 7 years (December 2016: 7 years). We continue to have a
large, active prospect list of opportunities behind the pipeline.
Our next material contract renewal is the DWP PIP contract, which is expected
to exceed 1% of Group revenue this year and is due for renewal in 2019,
following the recent 2 year extension.
Market review
We operate predominantly in the business process management (BPM) and customer
management markets in the private (53% of revenue) and public (47% of revenue)
sectors in the UK, Ireland and Northern Europe. These are large addressable
markets with good long-term growth fundamentals and there is significant scope
for us to increase penetration of them to drive growth over the medium to
long-term.
Ovum, one of the UK’s leading independent industry analysts, estimates that
Capita’s total addressable market for BPM and customer management services
in the UK is £140bn per annum and that the value of outsourced services was
£13.9bn in 2016 (2015: £13.7bn). Ovum ranks Capita as the number one
provider of BPM and customer management services in the UK by revenue, with an
increased market share of 29.2% in 2016, significantly larger than its nearest
competitors. The competitive landscape varies across the breadth of sectors
which we address but remains broadly stable.
Outsourced BPM and customer management services growth was a relatively
subdued 1% last year, reflecting a reduction in new opportunities coming to
market, particularly in central government, and delays in client decision
making, which were likely compounded by the UK's referendum decision to leave
the EU market. There are still good structural drivers of growth across our
markets, including the transformation and modernisation of services,
digitisation, the enhancement of customer experiences, changes in regulation,
public service funding challenges and clients’ need to commercialise and
maximise the value of their assets.
The public sector accounts for £3.9bn of the outsourced market. In local
government, changes in business rate funding mean that authorities have more
scope to generate income and flexibility to develop service offerings and are
seeking help to develop place-based agendas to ensure their regions thrive
socially and economically. Funding issues are also focusing them on immediate
solutions, which is creating opportunities in areas such as digital,
procurement and social care. In central government, we are well placed to
support our public sector partners to maintain tight control of spending,
realise more value from assets and drive better services through
technology-enabled change. Although the referendum decision may continue to
limit central government activity in 2017, we expect new opportunities to
emerge over the medium term, as the UK's administrative responsibilities
increase over time.
The private sector accounts for £10bn of the outsourced market. Companies
continue to face pressure to reduce costs, improve customer service across
multiple platforms and better utilise digital technologies. In sectors such as
telecoms, retail and utilities, clients are increasingly focused upon
delivering the best possible service at optimum cost and this suits our
outcome based commercial model where we share the benefits of automating
contact or moving it to self-serve, aligning our economic interest with
achieving our clients' goals. In markets such as financial services and life
and pensions, there are still significant opportunities to deploy new
platforms and automation to both new and existing clients, transforming their
cost base and meeting the self-service demands from policy holders. In
Northern Europe we have an opportunity to shift the customer management market
from buying short-term services on a volume basis from multiple vendors to
buying multichannel, digitally focused services from a single partner on a
multi-year basis, with new ways of working that improve efficiency and
customer service. Our new contract with mobilcom-debitel is the first
transformational contract of this type.
Our Board and people
On 1 February 2017 we appointed Matthew Lester as an Independent Non-Executive
Director and to the Nomination, Remuneration and Audit and Risk Committees,
with effect from 1 March 2017. Matthew will also be appointed as Chair of the
Audit and Risk Committee once Paul Bowtell steps down from the Board on 31 May
2017. Matthew is a Chartered Accountant with over 20 years of experience in
senior finance roles. He is currently the Group Chief Financial Officer of
Royal Mail plc and a Non-Executive Director of Man Group plc, where he is
Chair of the Audit Committee.
The Board would like to take this opportunity to thank all our people for
their hard work and dedication which ensures that we can continue to deliver
quality services for clients. Our employees join us through direct
recruitment, contracts or acquisitions and their commitment and enthusiasm
play a vital role in helping us to meet client expectations and sustain our
growth.
Future prospects
2017 is a transitional year for Capita, as we complete our disposals, bed down
the structural changes inside the business and re-position the Group for a
return to growth in 2018.
The headwinds we faced in the second half of 2016 will affect trading
performance in the first half of 2017, which we expect to be slightly weaker
than the second half of last year excluding the write down of accrued income.
The structural and cost reduction actions we announced toward the end of 2016
will support progress in the second half of 2017. For the full year, we expect
a similar trading performance to 2016 before the impact of the expected
increase in pension charge. This excludes the write down of accrued income and
the potential impact from planned disposals.
We are confident that the decisive actions we are taking will make Capita a
simpler business, better positioned to exploit our fundamental strengths with
a clear pathway to return to sustainable profitable growth from 2018 and
beyond.
Consolidated income statement
for the year ended 31 December 2016
2016 2015
Non-underlying Non-underlying
Note Underlying Business exit Other non-underlying(note 3) Total Underlying £m Business exit £m Other non-underlying £m Total £m
£m (note 2) £m £m
£m
Continuing operations:
Revenue 1 4,897.9 11.3 — 4,909.2 4,674.3 162.6 — 4,836.9
Cost of sales (3,627.7 ) (6.7 ) (7.5 ) (3,641.9 ) (3,367.7 ) (123.8 ) — (3,491.5 )
Gross profit 1,270.2 4.6 (7.5 ) 1,267.3 1,306.6 38.8 — 1,345.4
Administrative expenses 2,3 (728.9 ) (1.8 ) (388.3 ) (1,119.0 ) (667.6 ) (176.9 ) (294.3 ) (1,138.8 )
Operating profit 2,3 541.3 2.8 (395.8 ) 148.3 639.0 (138.1 ) (294.3 ) 206.6
Net finance costs 4 (66.0 ) — (7.6 ) (73.6 ) (53.5 ) — (14.7 ) (68.2 )
Gain/(loss) on business disposal 2 — 0.1 — 0.1 — (26.3 ) — (26.3 )
Profit before tax 475.3 2.9 (403.4 ) 74.8 585.5 (164.4 ) (309.0 ) 112.1
Income tax expense (87.9 ) 0.5 54.9 (32.5 ) (108.3 ) 2.4 49.4 (56.5 )
Profit for the year 387.4 3.4 (348.5 ) 42.3 477.2 (162.0 ) (259.6 ) 55.6
Attributable to:
Owners of the Company 376.7 3.4 (343.2 ) 36.9 468.4 (162.0 ) (253.7 ) 52.7
Non-controlling interests 10.7 — (5.3 ) 5.4 8.8 — (5.9 ) 2.9
387.4 3.4 (348.5 ) 42.3 477.2 (162.0 ) (259.6 ) 55.6
Earnings per share
– basic 5 56.67 p 0.51 p (51.63 )p 5.55 p 70.73 p (24.46 )p (38.31 )p 7.96 p
– diluted 5 56.67 p 0.51 p (51.63 )p 5.55 p 69.85 p (24.16 )p (37.83 )p 7.86 p
Consolidated statement of comprehensive income
for the year ended 31 December 2016
2016 2015
£m £m £m £m
Profit for the year 42.3 55.6
Other comprehensive expense:
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit pension schemes (157.7 ) 13.0
Deferred tax effect 26.5 (6.5 )
(131.2 ) 6.5
(131.2 ) 6.5
Items that will or may be reclassified subsequently to profit or loss
Exchange differences of translation of foreign operations 26.7 (14.0 )
Net investment hedge of foreign operations (11.7 ) (3.5 )
Income tax effect — 0.6
(11.7 ) (2.9 )
Gain on cash flow hedges arising during the year 14.3 0.8
Reclassification adjustments for losses included in the income statement 3.3 3.1
Income tax effect (5.6 ) (1.1 )
12.0 2.8
27.0 (14.1 )
Other comprehensive expense for the year net of tax (104.2 ) (7.6 )
Total comprehensive income for the year net of tax (61.9 ) 48.0
Attributable to:
Owners of the Company (67.3 ) 45.1
Non-controlling interests 5.4 2.9
(61.9 ) 48.0
Consolidated balance sheet
As at 31 December 2016
2016 2015
Note £m £m
Non-current assets
Property, plant and equipment 7 394.7 406.0
Intangible assets 3,8 2,754.2 2,810.0
Financial assets 337.6 186.6
Deferred taxation 32.0 18.8
Trade and other receivables 128.4 86.1
3,646.9 3,507.5
Current assets
Financial assets 92.6 44.3
Disposal group assets held for sale 2 — 84.1
Funds assets 173.6 161.7
Trade and other receivables 976.0 1,011.9
Cash 1,098.3 534.0
2,340.5 1,836.0
Total assets 5,987.4 5,343.5
Current liabilities
Trade and other payables 1,297.6 1,144.0
Overdrafts 532.5 448.7
Financial liabilities 224.2 230.8
Disposal group liabilities held for sale 2 — 40.4
Funds liabilities 173.6 161.7
Provisions 11 112.5 69.4
Income tax payable 18.6 46.2
2,359.0 2,141.2
Non-current liabilities
Trade and other payables 35.1 29.3
Financial liabilities 2,694.4 2,163.4
Deferred taxation 22.1 19.0
Provisions 11 48.2 49.0
Employee benefits 345.2 188.3
3,145.0 2,449.0
Total liabilities 5,504.0 4,590.2
Net assets 483.4 753.3
Capital and reserves
Issued share capital 13.8 13.8
Share premium 501.3 500.7
Employee benefit trust and treasury shares (0.2 ) (0.3 )
Capital redemption reserve 1.8 1.8
Foreign currency translation reserve (6.2 ) (21.2 )
Cash flow hedging reserve — (12.0 )
Retained earnings (102.3 ) 196.5
Equity attributable to owners of the Company 408.2 679.3
Non-controlling interests 75.2 74.0
Total equity 483.4 753.3
Consolidated statement of changes in equity
for the year ended 31 December 2016
Share capital £m Share premium£m Employee benefit trust & treasury shares £m Capital redemption reserve £m Retained earnings £m Foreign currency translation reserve £m Cash flow hedging reserve £m Total £m Non-controlling interests £m Total equity £m
At 1 January 2015 13.8 499.0 (0.3 ) 1.8 354.7 (4.3 ) (14.8 ) 849.9 65.6 915.5
Profit for the year — — — — 52.7 — — 52.7 2.9 55.6
Other comprehensive expense — — — — 6.5 (16.9 ) 2.8 (7.6 ) — (7.6 )
Total comprehensive income/(expense) for the year — — — — 59.2 (16.9 ) 2.8 45.1 2.9 48.0
Share based payment — — — — 11.4 — — 11.4 — 11.4
Deferred income tax relating to share based payments — — — — (6.1 ) — — (6.1 ) — (6.1 )
Income tax deduction on exercise of stock options — — — — 3.8 — — 3.8 — 3.8
Shares issued — 1.7 — — — — — 1.7 — 1.7
Equity dividends paid — — — — (199.3 ) — — (199.3 ) (1.2 ) (200.5 )
Investment in non-controlling interest — — — — — — — — 6.7 6.7
Put option of non-controlling interest acquired — — — — (9.8 ) — — (9.8 ) — (9.8 )
Movement in put options held by non-controlling interests — — — — (17.4 ) — — (17.4 ) — (17.4 )
At 1 January 2016 13.8 500.7 (0.3 ) 1.8 196.5 (21.2 ) (12.0 ) 679.3 74.0 753.3
Profit for the year — — — — 36.9 — — 36.9 5.4 42.3
Other comprehensive expense — — — — (131.2 ) 15.0 12.0 (104.2 ) — (104.2 )
Total comprehensive income/(expense) for the year — — — — (94.3 ) 15.0 12.0 (67.3 ) 5.4 (61.9 )
Share based payment — — — — (4.5 ) — — (4.5 ) — (4.5 )
Deferred income tax relating to share based payments — — — — (12.6 ) — — (12.6 ) — (12.6 )
Income tax deduction on exercise of stock options — — — — 6.8 — — 6.8 — 6.8
Shares issued — 0.6 0.1 — (0.1 ) — — 0.6 — 0.6
Equity dividends paid — — — — (214.8 ) — — (214.8 ) (4.2 ) (219.0 )
Movement in put options held by non-controlling interests — — — — 20.7 — — 20.7 — 20.7
At 31 December 2016 13.8 501.3 (0.2 ) 1.8 (102.3 ) (6.2 ) — 408.2 75.2 483.4
Consolidated cash flow statement
for the year ended 31 December 2016
2016 2015
Note £m £m
Cash generated from operations before non-underlying cash items 12 749.5 685.8
Non-underlying net movement in payables and receivables 2 (12.3 ) —
Asset Services settlement provision cash paid 11 (23.2 ) (21.7 )
Business exit provision cash paid 11 (14.4 ) (21.6 )
Gwent pension settlement (3.3 ) —
Restructuring cash paid 11 (10.0 ) —
Cash generated from operations 686.3 642.5
Income tax paid (63.7 ) (93.5 )
Net interest paid (59.4 ) (47.2 )
Net cash inflow from operating activities 563.2 501.8
Cash flows from investing activities
Purchase of property, plant and equipment 7 (82.4 ) (118.5 )
Purchase of intangible assets 8 (72.2 ) (85.1 )
Proceeds from sale of property, plant and equipment 0.6 5.9
Acquisition of public sector subsidiary partnerships — (20.0 )
Acquisition of subsidiary undertakings and businesses (100.5 ) (376.8 )
Cash acquired with subsidiary undertakings 10 4.0 20.2
Debt repaid on acquisition of subsidiary undertakings 10 — (48.3 )
Proceeds on disposal of subsidiary undertakings 2 30.6 34.7
Cash disposed of with subsidiary undertakings 2 (4.2 ) (8.7 )
Deferred consideration received 3.0 —
Deferred consideration paid 12 (10.7 ) (11.6 )
Contingent consideration paid 10 (18.5 ) (32.1 )
Purchase of financial assets (0.9 ) (2.4 )
Xchanging transactions 3 — 3.7
Net cash outflow from investing activities (251.2 ) (639.0 )
Cash flows from financing activities
Issue of share capital 0.6 1.7
Dividends paid 6 (219.0 ) (200.5 )
Capital element of finance lease rental payments 12 (5.5 ) (5.0 )
Repayment of loan notes 12 — (0.2 )
Repayment of bonds 12 (141.0 ) (97.0 )
Proceeds on issue of term debt 12 350.0 —
Proceeds on issue of bonds 12 170.8 496.6
Proceeds on issue of loan note 12 0.3 —
Financing arrangement costs 12 (0.6 ) (1.1 )
Net cash inflow from financing activities 155.6 194.5
Increase in cash and cash equivalents 467.6 57.3
Cash and cash equivalents at the beginning of the period 85.3 29.1
Impact of movement in exchange rates 12.9 (1.1 )
Cash and cash equivalents at 31 December 565.8 85.3
Cash and cash equivalents comprise:
Cash at bank and in hand 1,098.3 534.0
Overdrafts (532.5 ) (448.7 )
Total 565.8 85.3
Notes to the financial statements
Basis of preparation
The preliminary announcement is prepared in accordance with International
Financial Reporting Standards as adopted by the European Union. The
preliminary announcement has been prepared under IFRS where certain financial
instruments and the pension assets have been measured at fair value. The
carrying value of recognised assets and liabilities that are hedged are
adjusted to record changes in the fair values attributable to the risks that
are being hedged. The preliminary announcement is presented in pounds sterling
and all values are rounded to the nearest tenth of a million (£m) except when
otherwise indicated.
In assessing the basis of preparation for the year 31 December 2016, the
directors have considered the principles of
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