REG-Capita PLC: Final Results <Origin Href="QuoteRef">CPI.L</Origin> - Part 2
25/02/2016 07:10
- Part 2: For the preceding part double click ID:nPRrO741Aa
based payments
Income tax - - - - 3.8 - - 3.8 - 3.8
deduction on
exercise of stock
options
Shares issued - 1.7 - - - - - 1.7 - 1.7
Equity dividends - - - - (199.3 ) - - (199.3 ) (1.2 ) (200.5 )
paid
Investment in - - - - - - - - 6.7 6.7
non-controlling
interest
Put option of - - - - (9.8 ) - - (9.8 ) - (9.8 )
non-controlling
interest acquired
Movement in put - - - - (17.4 ) - - (17.4 ) - (17.4 )
options held by
non-controlling
interest
At 31 December 13.8 500.7 (0.3 ) 1.8 196.5 (21.2 ) (12.0 ) 679.3 74.0 753.3
2015
Consolidated cash flow statement
for the year ended 31 December 2015
2015 2014
Note £m £m
Cash generated from operations before non-underlying cash 9 685.8 641.2
items
Asset Services settlement provision cash paid 8 (21.7 ) (4.3 )
Business exit provision cash paid 8 (21.6 ) (18.8 )
Cash generated from operations 642.5 618.1
Income tax paid (93.5 ) (93.7 )
Net interest paid (47.2 ) (35.6 )
Net cash inflow from operating activities 501.8 488.8
Cash flows from investing activities
Purchase of property, plant and equipment (118.5 ) (110.5 )
Purchase of intangible assets (85.1 ) (40.8 )
Proceeds from sale of property, plant and equipment 5.9 5.3
Acquisition of public sector subsidiary partnerships 7 (20.0 ) -
Acquisition of subsidiary undertakings and businesses (376.8 ) (325.5 )
Cash acquired with subsidiary undertakings 7 20.2 29.7
Debt repaid on acquisition of subsidiary undertakings 7 (48.3 ) (21.5 )
Proceeds on disposal of subsidiary undertakings 2 34.7 -
Cash disposed of with subsidiary undertakings 2 (8.7 ) (2.8 )
Deferred consideration 7 (11.6 ) (35.5 )
Contingent consideration 7 (32.1 ) (9.2 )
Purchase of financial assets (2.4 ) (1.0 )
Xchanging transactions 3 3.7 -
Investment loan - (5.0 )
Net cash outflow from investing activities (639.0 ) (516.8 )
Cash flows from financing activities
Issue of share capital 1.7 7.9
Dividends paid (200.5 ) (180.5 )
Capital element of finance lease rental payments 9 (5.0 ) (4.9 )
Repayment of loan notes 9 (0.2 ) (10.2 )
Repayment of bonds 9 (97.0 ) (10.6 )
Proceeds on issue of term debt 9 - 100.0
Proceeds on issue of bonds 9 496.6 -
Financing arrangement costs (1.1 ) (0.3 )
Net cash inflow/(outflow) from financing activities 194.5 (98.6 )
Increase/(decrease) in cash and cash equivalents 57.3 (126.6 )
Cash and cash equivalents at the beginning of the period 29.1 157.8
Impact of movement in exchange rates (1.1 ) (2.1 )
Cash and cash equivalents at 31 December 85.3 29.1
Cash and cash equivalents comprise:
Cash at bank and in hand 534.0 458.9
Overdrafts (448.7 ) (429.8 )
Total 85.3 29.1
Notes to the financial statements
1 Segmental information
The Group's operations are organised and managed separately according to the
nature of the services provided, with each segment representing a strategic
business unit offering a different package of related services across the
Group's markets. No operating segments have been aggregated to form the
reportable operating segments below. The information disclosed below represents
the way in which the results of the businesses were reported to the Group
Board. The reported segmental structure has been changed in the year and
therefore the comparatives have been restated accordingly.
Before eliminating sales between business units on consolidation, the Group
accounts for sales between business units as if they were to a third party at
market rates.
The tables below present revenue and result for the Group's business segments
for the years 2015 and 2014. All operations are continuing. The 2014
consolidated income statement has not been restated for the impact of business
exits and other non-underlying items. If the 2014 underlying consolidated
income statement was restated, revenue would be reduced by £192.8m and profit
before tax would reduce by £10.9m.
Year ended 31 December 2015
Segment revenue Segment profit
Underlying Inter-segment Third Non-underlying Total Underlying Non-underlying Total
trading revenue party trading segment trading trading trading
revenue revenue revenue profit profit
Trading £m £m £m £m £m £m £m £m
Digital & Software 637.0 (69.0 ) 568.0 - 568.0 142.0 - 142.0
Solutions
Integrated Services 503.6 (50.8 ) 452.8 84.4 537.2 51.2 (3.4 ) 47.8
Local Government, 753.5 (73.2 ) 680.3 - 680.3 81.3 - 81.3
Property & Health
Workplace Services 650.6 (40.7 ) 609.9 - 609.9 75.7 - 75.7
IT Enterprise Services 707.9 (132.4 ) 575.5 - 575.5 54.9 - 54.9
Asset Services 451.0 (47.1 ) 403.9 - 403.9 100.3 - 100.3
CM & International 648.8 (58.2 ) 590.6 - 590.6 59.1 - 59.1
Capita Europe 180.2 (1.7 ) 178.5 - 178.5 19.8 - 19.8
Insurance & Benefits 741.7 (126.9 ) 614.8 78.2 693.0 54.7 2.2 56.9
Services
Total 5,274.3 (600.0 ) 4,674.3 162.6 4,836.9 639.0 (1.2 ) 637.8
Non-trading
Business exit costs1 (136.9 )
Intangible amortisation2 (165.0 )
Impairment of property, plant, and equipment2 (76.7 )
Impairment of goodwill2 (28.3 )
Xchanging transaction2 3.7
Acquisition costs2 (16.2 )
Contingent consideration movements2 5.4
Asset Services settlement provision2 (17.2 )
Operating profit 206.6
Net finance costs 3 (68.2 )
Loss on business disposal (26.3 )
1
Profit before tax 112.1
Income tax expense (56.5 )
Profit for the year 55.6
1 see note 2
2 see note 3
3 see note 4
1 Segmental information (continued)
Year ended 31 December 2014
Segment revenue Segment profit
Underlying Inter-segment Third Non-underlying Total Underlying Non-underlying Total
trading revenue party trading segment trading trading trading
revenue revenue revenue profit profit
Trading £m £m £m £m £m £m £m £m
Digital & Software 547.3 (60.5 ) 486.8 - 486.8 120.8 - 120.8
Solutions
Integrated Services 478.8 (44.5 ) 434.3 - 434.3 64.5 - 64.5
Local Government, 735.6 (90.5 ) 645.1 5.8 650.9 71.3 (3.1 ) 68.2
Property & Health
Workplace Services 592.4 (35.7 ) 556.7 - 556.7 67.2 - 67.2
IT Enterprise Services 714.9 (133.5 ) 581.4 - 581.4 46.4 - 46.4
Asset Services 374.3 (41.8 ) 332.5 - 332.5 81.9 - 81.9
CM & International 611.6 (24.5 ) 587.1 - 587.1 60.7 - 60.7
Capita Europe 20.5 (0.8 ) 19.7 - 19.7 2.3 - 2.3
Insurance & Benefits 822.9 (94.2 ) 728.7 - 728.7 61.2 - 61.2
Services
Total trading 4,898.3 (526.0 ) 4,372.3 5.8 4,378.1 576.3 (3.1 ) 573.2
Non-trading
Business exit costs (4.0 )
Intangible amortisation 2 (147.1 )
Acquisition costs 2 (14.2 )
Contingent consideration movements 2 9.4
Asset Services settlement provision 2 (28.4 )
Operating profit 388.9
Net finance costs 3 (78.7 )
Loss on business (17.8 )
disposal
Profit before tax 292.4
Income tax expense (52.5 )
Profit for the year 239.9
2 see note 3
3 see note 4
2 Business exit
With the continued growth of Capita across our target markets and a greater
focus on technology enabled solutions, we have reviewed a number of small low
growth businesses which lack strategic fit and taken the decision to exit
certain small health businesses and disposed of National Dental Plan Limited.
In addition, the Group is in an active process to sell a further specialist
insurance business, a health business and a justice business and is therefore
treating these businesses as a disposal group held for sale. Since the year
end, the health business has been sold (note 11) and the sale of the remaining
two businesses is expected to complete in the next 12 months.
None of our 2015 business exits or businesses in the process of being exited
meet the definition of "discontinued operations" as stipulated by IFRS 5, which
requires disclosure and comparatives to be restated where the relative size of
a disposal or business closure is significant, which is normally understood to
mean a reported segment. Accordingly, the separate presentation described below
does not fall within the requirements of IFRS 5 concerning discontinued
operations and comparatives have not been restated.
Income statement impact
Non-trading
Trading Cash Non-cash Total Total
£m £m £m £m £m
Revenue 162.6 - - - 162.6
Cost of sales (123.8 ) - - - (123.8 )
Gross profit 38.8 - - - 38.8
Administrative expenses (40.0 ) (26.8 ) (110.1 ) (136.9 ) (176.9 )
Operating loss (1.2 ) (26.8 ) (110.1 ) (136.9 ) (138.1 )
Loss on business disposal (see below) - 26.0 (52.3 ) (26.3 ) (26.3 )
Loss before tax (1.2 ) (0.8 ) (162.4 ) (163.2 ) (164.4 )
Taxation 0.2 1.7 0.5 2.2 2.4
Loss after tax (1.0 ) 0.9 (161.9 ) (161.0 ) (162.0 )
Trading revenue and costs represent the current year trading performance of
these businesses being exited or disposed.
Non-trading administrative expenses
Disposal/ Held for Total
closure disposal
£m £m £m
Cash paid, or to be paid
Provision in respect of disposal and closure costs (16.8 ) (10.0 ) (26.8 )
Non-cash
Accelerated depreciation on property, plant and equipment (0.1 ) - (0.1 )
Accelerated amortisation on intangible assets (2.2 ) - (2.2 )
Other assets written-off (1.4 ) (23.5 ) (24.9 )
Goodwill impairment - (82.9 ) (82.9 )
(3.7 ) (106.4 ) (110.1 )
Loss before tax (20.5 ) (116.4 ) (136.9 )
Analysed above are non-trading administrative expenses which include cash costs
from exiting the disposed businesses, the ongoing stranded costs such as
property and redundancy payments and impairment losses recognised in the
disposal group. The provision in respect of disposal/closure costs is expected
to be utilised over 3 years.
The other assets impairment charge of £23.5m includes £14.1m of provisions for
certain debtors unlikely to be recovered, mainly being in relation to a
customer that entered administration during the year.
There are no cumulative income or expenses included in Other Comprehensive
Income relating to the disposal group.
Where an asset has been presented as being held for sale it must be carried at
the value that is expected to be recovered through sale. In the table above
the amounts for goodwill impairment and other assets impairment represent the
reduction in the carrying value of these assets. The carrying value of the
assets and liabilities of the disposal group held for sale are shown overleaf.
Loss on business disposal
Cash Non-cash Total
£m £m £m
Property, plant and equipment - (0.2 ) (0.2 )
Intangible assets - (49.4 ) (49.4 )
Trade and other receivables - (6.0 ) (6.0 )
Trade and other payables - 3.3 3.3
Cash disposed of (8.7 ) - (8.7 )
Total net assets disposed of (8.7 ) (52.3 ) (61.0 )
Proceeds received 34.7 - 34.7
Loss on business disposal 26.0 (52.3 ) (26.3 )
Assets and liabilities of disposal group held for sale
At 31 December 2015, the disposal group comprised the following assets and
liabilities:
2015
£m
Property, plant and equipment 0.7
Intangible assets 32.7
Trade and other receivables 50.7
Assets held for sale 84.1
Trade and other payables (40.4 )
Liabilities held for sale (40.4 )
3 Administrative expenses
Included within administrative expenses within the other non-underlying column
are:
2015 2014
Cash in Cash in Non-cash Total Cash Cash in Non-cash Total
year future in future
year
£m £m £m £m £m £m £m £m
Amortisation of acquired - - 165.0 165.0 - - 147.1 147.1
intangibles
Contingent consideration - - (5.4 ) (5.4 ) - - (9.4 ) (9.4 )
movements
Asset Services settlement 11.5 5.7 - 17.2 3.6 24.8 - 28.4
provision (see note 8)
Impairment of property, plant & - - 76.7 76.7 - - - -
equipment
Impairment of goodwill - - 28.3 28.3 - - - -
Xchanging transaction (3.7 ) - - (3.7 ) - - - -
Professional fees re 8.0 7.0 - 15.0 5.2 6.7 - 11.9
acquisitions
Stamp duty paid on acquisitions 1.2 - - 1.2 2.3 - - 2.3
Total 17.0 12.7 264.6 294.3 11.1 31.5 137.7 180.3
Impairment of property, plant and equipment
As a result of changes in the marketplace, including the introduction of new
legislation in the form of the Pensions Freedom Act, Management conducted a
review of the IT platform on which the Group delivers its Life and Pensions
administration capability. This review led to assets with a total net book
value of £76.7m being fully written down.
Impairment of goodwill
The impairment of goodwill is in relation to the Group's insurance business,
which historically has been the most sensitive to changes in the underlying
assumptions in calculating its value in use and thus its carrying value on the
Group's balance sheet. Having reviewed the business, the assumptions and in
light of disposals made and to be made, it was determined that goodwill
exceeded the value that was recoverable through use and consequently has been
impaired by £28.3m.
Xchanging transaction
The Xchanging transaction relates to the net gain on sale of our 9.9% Xchanging
holding (purchased during 2015).
4 Net finance costs
2015 2014
£m £m
Interest receivable - (0.1 )
Bonds 31.0 24.2
Fixed rate interest rate swaps - realised 5.4 1.8
Finance lease 0.4 0.6
Bank loans and overdrafts 10.3 9.1
Net interest cost on defined benefit pension schemes 6.4 5.0
Interest payable 53.5 40.7
Underlying net finance costs 53.5 40.6
Fixed rate interest rate swaps - mark to market 3.7 36.7
Discount unwind on public sector subsidiary partnership 2.2 2.1
payment
Fair value movement in trade investments 0.3 -
Non-designated foreign exchange forward contracts - mark to 8.0 (0.4 )
market
Derivatives' counterparty credit risk adjustment - mark to 0.4 (0.1 )
market
Derivatives' own credit risk adjustment - mark to market 0.1 (0.2 )
Non-underlying net finance costs 14.7 38.1
Total net finance costs 68.2 78.7
5 Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year plus the
weighted average number of ordinary shares that would be issued on the
conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
2015 2014
£m £m
Net profit attributable to ordinary equity holders of the 52.7 235.9
parent from operations
2015 2014
Number Number
million million
Weighted average number of ordinary shares (excluding trust 662.2 658.9
and treasury shares) for basic earnings per share
Dilutive potential ordinary shares:
Employee share options 8.4 5.9
Weighted average number of ordinary shares (excluding trust 670.6 664.8
and treasury shares) adjusted for the effect of dilution
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of completion of these
financial statements.
The earnings per share figures are calculated based on underlying earnings
attributable to ordinary equity holders of the parent of £468.4m (2014: £
429.3m) and, after non-underlying costs, earnings of £52.7m (2014: £235.9m).
They are both included to provide a better understanding of the trading
performance of the Group.
2015 2014
p p
Basic earnings per share - underlying 70.73 65.15
- after non-underlying 7.96 35.79
Diluted earnings per share - underlying 69.85 64.58
- after non-underlying 7.86 35.48
6 Dividends paid and proposed
2015 2014
£m £m
Declared and paid during the year
Ordinary shares (equity):
Final for 2014 paid: 19.6p per share (2013: 17.8p per 129.7 117.2
share)
Interim for 2015 paid: 10.5p per share (2014: 9.6p per 69.6 63.3
share)
Dividends paid to shareholders 199.3 180.5
Dividends paid to non-controlling interest 1.2 -
Total dividend paid 200.5 180.5
Proposed for approval at AGM (not recognised as a liability
at 31 December)
Ordinary shares (equity):
Final for 2015: 21.2p per share (2014: 19.6p per share) 140.3 129.7
7 Business combinations
2015 acquisitions
The Group made a number of acquisitions in 2015 which are shown in aggregate.
The fair values of the identifiable assets and liabilities acquired are
disclosed in the table below:
avocis Public Other Fair value
sector acquisitions to Group
subsidiary recognised
partnership on
- FERA acquisition
£m £m £m £m
Property, plant and equipment 5.7 3.4 2.2 11.3
Intangible assets 105.1 10.9 102.7 218.7
Trade and other receivables due in less than one 37.1 2.7 45.3 85.1
year
Corporation tax (8.6 ) - (0.4 ) (9.0 )
Cash and cash equivalents 6.4 - 13.8 20.2
Trade and other payables (excluding accruals) due (9.5 ) (1.8 ) (21.4 ) (32.7 )
in less than one year
Accruals due in less than one year (10.1 ) (1.1 ) (29.4 ) (40.6 )
Provisions (3.6 ) - (3.7 ) (7.3 )
Deferred tax (19.5 ) (2.1 ) (14.7 ) (36.3 )
Employee benefits liability (4.3 ) - - (4.3 )
Finance leases - - (0.1 ) (0.1 )
Long term debt (39.3 ) - (9.0 ) (48.3 )
Net assets 59.4 12.0 85.3 156.7
Goodwill arising on acquisition 78.0 14.7 167.8 260.5
137.4 26.7 253.1 417.2
Discharged by:
Cash 137.4 20.0 230.2 387.6
Contingent consideration accrued - - 12.9 12.9
Deferred consideration accrued - - 10.0 10.0
Non-controlling interest - 6.7 - 6.7
137.4 26.7 253.1 417.2
"Public sector subsidiary partnership" represents a 75% controlling interest in
Fera Science Limited. In all other cases 100% of the share capital or business
assets and liabilities was acquired. The businesses acquired have been mainly
in the areas of IT and software, customer and debt management, mortgage
administration, and property services, which complement or extend the Group's
existing skill sets and provide opportunities for growth into these markets. In
addition during the year the Group settled £32.1m of contingent consideration
and £11.6m of deferred consideration payments with regard to previous
acquisitions, all of which had been accrued.
Goodwill has arisen on the acquisitions because the fair value of the acquired
assets was lower than the consideration paid; the goodwill represents the value
to the Group that can be driven from these underlying assets over the life of
the acquired businesses, particularly from synergies, and the capabilities of
the acquired workforce. The total amount of goodwill recognised in the period
that is expected to be deductible for tax purposes is £44.4m (2014: £9.6m).
Contingent consideration
In respect of the acquisitions made in 2015, the Group has agreed to pay the
vendors additional consideration dependent on the achievement of performance
targets in the periods post acquisition. These performance periods are of up to
3 years in duration and will be settled in cash and loan notes on their payment
date on achieving the relevant target. The range of the additional
consideration payment is estimated to be between £5m and £22m. The Group has
included £12.9m as contingent consideration related to the additional
consideration, which represents its fair value at the acquisition date.
Contingent consideration has been calculated based on the Group's expectation
of what it will pay in relation to the post-acquisition performance of the
acquired entities by weighting the probability of a range of payments to give
an estimate of the final obligation.
Acquisition related costs
The Group incurred acquisition related costs of £16.2m related to professional
fees paid for due diligence, general professional fees and legal related costs.
These costs have been included in non-underlying administrative expenses in the
Group's consolidated income statement.
8 Provisions
Business Asset Claims and Property Other Total
exit Services litigation provision £m £m
provision settlement provision £m
£m provision £m
£m
At 1 January 2015 26.5 24.8 22.5 35.4 2.4 111.6
Utilisation (21.6 ) (21.7 ) (4.3 ) (5.1 ) (1.8 ) (54.5 )
Provided in the year (net) 16.8 17.2 12.4 (2.3 ) 6.8 50.9
Provisions acquired - - - 7.3 - 7.3
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