REG-Capita PLC: Final Results <Origin Href="QuoteRef">CPI.L</Origin> - Part 3
02/03/2017 07:05
- Part 3: For the preceding part double click ID:nPRr23445b
10.3 15.6 0.5 — 0.5 16.1
Re-class from property, plant and equipment — 0.6 — — — 0.6 0.6 1.3 1.9 2.5
Asset retirement (21.7 ) (19.5 ) (62.2 ) (168.7 ) — (272.1 ) (1.9 ) (0.5 ) (2.4 ) (274.5 )
Fair value adjustments in 2016 relating to 2015 acquisitions — — — — 1.7 1.7 — — — 1.7
Exchange movement 1.7 2.2 — 26.1 16.2 46.2 0.8 0.3 1.1 47.3
At 31 December 2016 69.3 96.5 75.3 742.7 2,327.6 3,311.4 197.0 57.9 254.9 3,566.3
Amortisation and impairment
At 1 January 2015 29.5 25.1 74.7 383.6 57.1 570.0 10.6 5.4 16.0 586.0
Business disposal — — — — — — — — — —
Accelerated amortisation — — — — — — 2.2 — 2.2 2.2
Amortisation 7.9 17.3 14.7 125.1 — 165.0 10.4 2.8 13.2 178.2
Disposals — — — — — — — (0.1 ) (0.1 ) (0.1 )
Transfers to assets held for sale (0.2 ) — — (15.5 ) (82.9 ) (98.6 ) (0.5 ) — (0.5 ) (99.1 )
Impairment on transfer to assets held for sale — — — — 82.9 82.9 — — — 82.9
Impairment — — — — 28.3 28.3 — — — 28.3
Asset retirement — — — — — — (1.2 ) (1.0 ) (2.2 ) (2.2 )
Exchange movement — (0.1 ) — (0.5 ) — (0.6 ) (0.2 ) (0.1 ) (0.3 ) (0.9 )
At 31 December 2015 37.2 42.3 89.4 492.7 85.4 747.0 21.3 7.0 28.3 775.3
Business disposal — — — (0.7 ) — (0.7 ) — — — (0.7 )
Accelerated amortisation — — — — — — — — — —
Amortisation 12.3 13.3 8.7 117.9 — 152.2 11.7 5.7 17.4 169.6
Disposals — — — — — — — (0.3 ) (0.3 ) (0.3 )
Transfers from assets held for sale — — — 3.6 — 3.6 0.4 — 0.4 4.0
Impairment on business closure — — — 4.2 — 4.2 — — — 4.2
Impairment 0.6 — — 14.1 66.6 81.3 41.8 4.2 46.0 127.3
Asset retirement (21.7 ) (19.5 ) (62.2 ) (168.7 ) — (272.1 ) (1.9 ) (0.5 ) (2.4 ) (274.5 )
Exchange movement 0.2 0.6 — 5.5 — 6.3 0.6 0.3 0.9 7.2
At 31 December 2016 28.6 36.7 35.9 468.6 152.0 721.8 73.9 16.4 90.3 812.1
Net book value
At 1 January 2015 16.4 78.3 54.9 316.3 2,079.8 2,545.7 48.7 25.0 73.7 2,619.4
At 31 December 2015 25.1 70.9 48.1 366.2 2,149.5 2,659.8 107.6 42.6 150.2 2,810.0
At 31 December 2016 40.7 59.8 39.4 274.1 2,175.6 2,589.6 123.1 41.5 164.6 2,754.2
8 Intangible assets (continued)
Goodwill impairments: refer to note 9.
Intangible assets acquired in business combination impairments: following the
impairment of certain goodwill, intangible assets relating to the Financial
Services CGU were impaired by £14.7m (refer to note 3), and on the closure of
a business in the period, acquired intangibles were impaired by £4.2m (refer
to note 3).
Capitalised software development impairment: in light of the difficult market
conditions experienced by the Group during the year, management conducted a
review of contract related balances on major contracts across the Group.
This review has led to Capitalised software development being written down by
£41.9m (refer to note 3), being the amount the carrying value exceeds the
recoverable amount.
Other intangible asset impairments: the impact of the dispute with the
Co-Operative Bank plc on the financial statements includes a write down of
software licence costs of £4.2m (refer to note 3).
9 Goodwill
Goodwill acquired through business combinations has been allocated to
Cash-Generating Units (CGUs), for impairment testing purposes, on the basis of
the expected benefit that will accrue to the individual CGU through synergies
realised from the acquisition and integration with the Group as a whole. These
represent the lowest level within the Group at which goodwill can be allocated
on a reasonable and consistent basis.
Carrying amount of goodwill allocated to groups of Cash-Generating Units
Financial Services £m Life & Pension Services £m Customer Management £m IT & Software Services £m Secure Information Solutions £m Property Services £m Workplace Services £m Balance of non-significant CGUs £m Total £m
2016
Goodwill 122.6 178.9 110.1 317.8 265.2 138.5 189.5 853.0 2,175.6
2015
Goodwill 139.6 184.4 110.1 317.8 243.1 138.5 189.5 826.5 2,149.5
Disclosed above are the significant groups of CGUs identified, with the
remaining CGUs included in the ‘non-significant balance’ column. The
non-significant CGUs included within the balance do not individually exceed 5%
of the Group’s total goodwill balance.
Following the difficult trading conditions witnessed in 2016 as a result of
certain economic and political factors and having reviewed the constituent
businesses and markets in which Capita operates and the underlying assumptions
used to calculate the value in use for each CGU, goodwill has been impaired by
£66.6m. This comprises: £17.0m relating to the Financial Services CGU
(within the Asset Services division); £5.5m relating to the Life & Pension
Services CGU (within the Insurance and Benefits division), and £44.1m
relating to four non-significant individual business CGUs (included within the
non-significant CGU balance above) of which the most significant is £30.0m
relating to an IT business (within the IT Enterprise Services division).
In addition, £3.4m of goodwill was written-off non-significant CGUs on
disposals of businesses in the year.
The impairment test
The impairment test is completed through a 3-stage process:
• the net assets of each CGU are identified, and allocated,
including the goodwill above;
• the key assumptions are identified, which are used to determine
the recoverable amount per CGU to be measured against the net assets; and
• the final stage is to identify any shortfall, where the
carrying value of net assets exceeds the recoverable amount determined through
the value in use calculation - this would then be disclosed as an impairment
of that CGU in the income statement.
The calculation of the recoverable amount is based on a value in use
calculation, i.e. how much cash will be generated over the life of the asset
net of any capital expenditure needed to maintain and grow those cash flows.
This recoverable amount is established using a number of key assumptions which
drive the result.
The starting point is the identification of the cash flows per CGU based on
the latest 1 year budget forecast approved by senior management. The budget is
a result of a bottom-up business planning process which identifies each of a
number of factors that lead to what is expected to be a challenging but
achievable forecast, reflecting the performance in 2016.
The major factors considered per CGU are:
• continuation of past performance;
• is the market in which the CGU operates experiencing change or
further competitive pressures;
• the route to new sales and renewals is clearly understood;
• whether management resource is suitable to achieve and deliver
the budget; and
• the efficiency of the cost base and whether it is at the
correct level for the business currently and supportive of future growth.
These plans are delivered and presented to the Board for their review and
acceptance and are challenged to ensure they are realistic and achievable.
This budget is then extrapolated for a further 4 years, before applying an
appropriate terminal value. The resulting cash flows are then discounted at a
rate that recognises their CGU specific characteristics and is based on the
overall Group Weighted Average Cost of Capital (WACC).
The major assumptions in this extrapolation are:
• growth rates applied to the year 1 cash flows;
• the pre-tax discount rates to be used; and
• the long-term growth rate used for the terminal value
calculation.
Growth rates
The growth rate assumptions are particular to each CGU and are derived from
external research across the breadth of our markets which is provided by Ovum,
a third party provider. These projections are reviewed by senior management to
ensure that they are in line with their understanding of the markets in which
they operate.
9 Goodwill (continued)
Pre-tax discount rates
The Group WACC is calculated by weighting the cost of our debt and equity
financing in line with the amounts of debt and equity that we use to finance
our activities. We have calculated our post-tax WACC assuming a risk-free rate
of 1.22%, a market risk premium of 9.23% and a Beta of 0.79. These assumptions
are based on publicly available sources.
The Group’s post-tax weighted average cost of capital (WACC) of 7.11% (2015:
7.44%) has been used as a basis for calculating the discount rate used for
each CGU. This has been done by adjusting the rate, where appropriate, to
reflect the risks specific to the market in which the CGU operates.
The rate adjustment takes into account the relative risks in the business
through adjustment to the risk premium and the weighting of the funding levels
provided per CGU, whilst retaining a constant cost of debt.
Long-term growth rates
The terminal value included in the calculation is based on the Year 5 cash
flow and the pre-tax discount rate for the CGU adjusted for a long-term growth
factor which is set at an estimate of the long-term rate of UK GDP growth of
2.3% (2015: 2.3%).
Below is a table setting out the growth and pre-tax discount rates used in the
calculations described above.
Third party market growth rates Pre-tax WACC
2016 2015 2016 2015
Financial Services 2.0 % 3.8 % 8.3 % 7.9 %
Life & Pensions Services 2.0 % 5.0 % 7.2 % 8.2 %
Customer Management 2.9 % 4.2 % 8.1 % 7.6 %
IT & Software Services 2.9 % 3.0 % 7.2 % 8.3 %
Secure Information Solutions 3.0 % 5.8 % 7.2 % 7.7 %
Property Services 3.0 % 2.9 % 8.9 % 8.9 %
Workplace Services 3.0 % 4.7 % 8.3 % 9.0 %
Non-significant CGUs Range 1.4% - 4.1% Range 2.9% - 5.8% Range 7.2% - 14.4% Range 7.6% - 10.8%
Sensitivity analysis
The impairment testing as described is reliant on the accuracy of
management’s forecasts and the assumptions that underlie them and also on
the selection of the discount and growth rates to be applied. In order to
gauge the sensitivity of the result to a change in any one, or combination of
the assumptions that underlie the model, a number of scenarios have been run
to identify the range of reasonably possible alternatives and measure which
CGUs are the most susceptible to an impairment should the assumptions used be
varied.
The sensitivity analysis on CGU cash flows has been carried out using a 100bps
increase in the pre-tax discount rate, a 100bps reduction in growth rates, and
a 100bps decrease in CGU year 1 operating margins (between 2% and 41% impact
on operating profit depending on CGU).
The CGUs impaired in the year are the most sensitive to a change in a single
or combination of assumptions, and therefore any deterioration in assumptions
would lead to further impairment. In the scenario where the base case for
these CGUs, as per the assumptions stated above, are combined with a 100bps
adverse change in the operating margin, the discount rate and growth rates,
the total additional impairment of goodwill would be £98.0m.
There are 5 non-significant CGUs, which are also sensitive to changes in the
assumptions, but movements would be individually immaterial. In the scenario
where the base case for these smaller CGUs, as per the assumptions stated
above, are combined with a 100bps adverse change in the operating margin, the
discount rate and the growth rates, the total impairment would be £13.4m.
Management continue to monitor closely the performance of all CGUs.
In conclusion, other than disclosed above with regard to those CGUs impaired
in the year and some non-significant CGUs, management believe there is no
reasonably possible change in the underlying assumptions that would result in
a CGU becoming impaired and thus recognising an impairment charge in the
Income Statement.
10 Business combinations
2016 acquisitions
The Group made a number of acquisitions in 2016 which are shown in aggregate.
The fair values of the identifiable assets and liabilities acquired are
disclosed in the table below:
Fair value to Group recognised on acquisition
£m
Property, plant and equipment 2.7
Intangible assets 50.7
Trade and other receivables due in less than one year 41.4
Corporation tax (3.1 )
Cash and cash equivalents 4.0
Trade and other payables (excluding accruals) due in less than one year (21.2 )
Accruals due in less than one year (31.7 )
Provisions (1.0 )
Deferred tax (8.3 )
Finance leases (0.8 )
Net assets 32.7
Goodwill arising on acquisition 69.6
102.3
Discharged by:
Cash 93.5
Contingent consideration accrued 8.8
102.3
In all cases, 100% of the ordinary share capital was acquired. The companies
acquired have been mainly in the areas of IT, and Digital and Software
solutions 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 £10.7m of deferred consideration and £18.5m of
contingent consideration payments with regard to previous acquisitions, all of
which had been accrued.
Where this can be determined, the acquired subsidiaries contributed a loss
before tax of £1.6m to the profit before tax of the Group. If these
acquisitions had occurred on 1 January 2016. Reported Group revenue would have
been an estimated £4,989.9m and Reported Group profit before tax would have
been an estimated £72.0m. In determining these amounts, management has
assumed that the fair value adjustments that arose on the date of acquisition
would have been the same if the acquisition had occurred on 1 January 2016.
During the year, some of the acquired businesses have been completely
integrated into the existing business of the Group and therefore their
post-acquisition performance cannot be determined.
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
£nil (2015: £44.4m).
The fair value exercise has been completed on a provisional basis for
acquisitions made in 2016. The Group will complete this review in 2017, though
any adjustment to the carrying value is likely to be insignificant to the
individual acquisition. In total, the effect of revisions made to fair value
adjustments in the current year that had been determined provisionally at the
immediately preceding balance sheet date increases goodwill by £1.7m.
Contingent consideration
In respect of the acquisitions made in 2016, 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 4 years in duration and will be settled in cash and loan notes on their
payment date on achieving the relevant targets. The range of the additional
consideration payment is estimated to be between £1m and £23m. The Group has
included £8.8m 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 £9.0m 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.
11 Provisions
Restructuring provision £m Business exit provision £m Asset Services settlement provision £m Claims and litigation provision £m Property provision £m Other £m Total £m
At 1 January 2016 — 21.7 23.4 36.6 35.3 1.4 118.4
Provided in the year (net) 59.4 (1.3 ) 22.9 15.0 (4.9 ) 9.6 100.7
Utilisation (10.0 ) (14.4 ) (23.2 ) (10.1 ) (3.2 ) (4.7 ) (65.6 )
Provisions acquired — — — — 1.0 — 1.0
Disposal of subsidiaries — — — — — (0.5 ) (0.5 )
Transfer from disposal group liabilities — — — — — 6.9 6.9
Transfer from accruals — — — — (0.2 ) — (0.2 )
At 31 December 2016 49.4 6.0 23.1 41.5 28.0 12.7 160.7
The provisions made above have been shown as current or non-current on the
balance sheet to indicate the Group’s expected timing of the matters
reaching conclusion.
Restructuring provision: The provision is in respect of the cost of the major
restructuring activities undertaken by the Group commencing in the last
quarter of 2016. It represents the cost of reducing role count where there
is a constructive obligation created through communication to affected
employees which has crystallised a valid expectation that roles are at risk.
Additionally it reflects the onerous nature of property lease provisions (net
of any sub-letting opportunity) on a discounted basis, where due to the
reduced requirement for space due to the redundancy programme there is
additional surplus capacity. The provision, due to the tail of the property
lease run-offs, is expected to unwind over 1-2 years.
Business exit provision: The provision relates to the cost of exiting
businesses through disposal or closure. As described in note 2, in 2015,
additional provision was made in light of the program of business exits
completed or in an active sales process. The provision is expected to unwind
over the next 3 years.
Asset Services settlements provision: relates to three matters:
1. Arch Cru: The parties to the CF Arch Cru Funds group litigation
have entered into a full and final settlement of the proceedings on
confidential terms. Whilst this matter is almost concluded it is expected
that it will close in 2017.
2. Connaught: The potential costs in resolving the matter relating to
Connaught Income Series 1 Fund (“The Fund”), of which CFM was the Operator
until September 2009, when it was replaced by another Operator company
unrelated to Capita (following which CFM had no further involvement with the
Fund). The Fund went into liquidation in 2012 and its liquidator has bought a
claim against both former Operators. The Financial Conduct Authority (FCA) was
supporting the negotiations being undertaken between all parties but on 10
March 2015 confirmed that it had withdrawn from the negotiations and has
decided to formally review the activities of both Operators. At this time no
conclusion has been reached on whether any wrongdoing has occurred and whether
any enforcement action will be taken. Whilst there can be no certainty that a
liability will not arise in respect of this matter, the Group is unable to
determine what the outcome of the FCA review might be and as such no provision
for a potential outflow of funds has been made. Due to the requirement to
await the outcome of the formal review commenced by the FCA, this matter is
now likely to come to a conclusion in the second half of 2017.
3. Further to the above provisions £20m has been provided for
potential additional legacy claims related to activities of businesses that
were instigated prior to the acquisition by the Group. A £7.5m asset has
been recognised in respect of an insurance recovery that is virtually certain
to be received in connection with this matter. The expected timeline to
resolution of these matters cannot be known for certain but it is expected to
be within one year.
Claims and litigation provision: In addition to the Asset Services settlement
provision the Group is exposed to other claims and litigation. The Group
makes a provision when a claim has been made where it is more probable than
not that a loss might occur. These provisions are reassessed regularly to
ensure that the level of provisioning is consistent with the claims that have
been reported. The range of values attached to these claims, can be
significant and, where obligations are probable and estimable, provisions are
made representing the Group's best estimate of the expenditure to be
incurred. The Group robustly defends its position on each claim and they are
often settled for amounts significantly smaller than the initial claim and may
result in no transfer of economic benefits.
In the period, the Group has settled a number of liabilities which it had
provided for in previous years. Additionally, it has made provision for new
claims, which originate due to the nature of the Group's activities and
revised existing provisions where more information on the progress of the
claim has become apparent. The Group's exposure to claims is mitigated by
having in place a number of large insurers providing cover for the Group's
activities, albeit insurance recoveries are only recognised as an asset at the
point the recovery is virtually certain. An asset has been recognised of
£5.0m in respect of recoveries under an indemnity, no other recovery assets
have been recognised. Due to the nature of these claims the Group cannot
give an estimate of the period over which this provision will unwind.
Property provision: Includes a provision, on a discounted basis, for the
difference between the market value of property leases acquired in 2011 with
the Ventura and Vertex Private Sector acquisitions and the lease obligations
committed to at the date the leases were signed by the previous owners. This
is in accordance with IFRS 3 (revised) which requires the use of fair value
measurement. The remaining property provision is made on a discounted basis
for the future rent expense and related cost of leasehold property (net of
estimated sub-lease income) where the space is vacant or currently not planned
to be used for ongoing operations. The expectation is that this expenditure
will be incurred over the remaining periods of the leases which range from 1
to 24 years.
11 Provisions (continued)
Other provision: relates to provisions in respect of other potential exposures
arising due to the nature of some of the operations that the Group provides.
These are likely to unwind over a period of 1 to 3 years.
The transfer from disposal group liabilities of £6.9m relates to a provision
for an onerous contract within a business that at 31 December 2015 the Group
was in an active process to sell. During the year, the Directors' assessed
the business no longer met the criteria to be held for sale, and the onerous
contract provision at that date was transferred into Provisions. The
provision is expected to unwind over a period of 1 to 2 years.
12 Additional cash flow information
Operating cash flow for the year ended 31 December 2016
2016 2015
Note £m £m
Cash flows from operating activities
Operating profit before interest and taxation from continuing operations 148.3 206.6
Adjustment for underlying non-cash items:
Depreciation 7 81.9 82.1
Amortisation of intangible assets (treated as depreciation) 8 17.4 13.2
Share based payment (4.5 ) 11.4
Employee benefits (4.1 ) (1.9 )
(Profit)/loss on sale of property, plant and equipment 0.8 (1.2 )
Write down of accrued income 39.6 —
Adjustments for business exit non-cash items:
Accelerated depreciation on business exit — 2.2
Other assets written-off on business exit 2 — 1.4
Business exit provision 2 (1.3 ) 16.8
Non-underlying trading 2 (2.7 ) —
Accelerated depreciation on business closure — 0.1
Adjustment for non-underlying non-cash items:
Asset Services settlement provision 11 22.9 17.2
Remeasurement of businesses held for disposal — 116.4
Amortisation of intangible assets recognised on acquisition 3 152.2 165.0
Impairment of contract related assets and investment loan 3 60.9 76.7
Impairment of goodwill 3 81.3 28.3
Contingent consideration 3 1.2 (5.4 )
Co-op dispute costs 18.4 —
Movement in restructuring provision 11 59.4 —
Movement in underlying provisions (net) 11 1.7 5.7
Xchanging transactions 3 — (3.7 )
Net movement in payables and receivables 76.1 (45.1 )
Underlying cash flow from operations 749.5 685.8
Income tax paid (63.7 ) (93.5 )
Net interest paid (59.4 ) (47.2 )
Purchase of property, plant and equipment (82.4 ) (118.5 )
Purchase of intangible assets (72.2 ) (85.1 )
Proceeds from sale of property, plant and equipment 0.6 5.9
Underlying free cash flow 472.4 347.4
12 Additional cash flow information (continued)
Reconciliation of net cash flow to movement in net funds/(debt)
Non-cash flow movements
Net debt at 1 January 2016 Cash flow movements £m Acquisitions in 2016 £m Foreign exchange movements £m Fair value changes £m Other (2 )£m Net debt at 31 December 2016
£m £m
Cash, cash equivalents and overdrafts 85.3 467.6 — 12.9 — — 565.8
Loan notes — (0.3 ) — — — — (0.3 )
Bonds (1) (1,749.4 ) (29.2 ) — (36.0 ) (145.8 ) (1.3 ) (1,961.7 )
Currency swaps in relation to US$ denominated bonds (1) 213.9 — — — 144.0 — 357.9
Interest rate swaps in relation to GBP denominated bonds (1) 6.9 — — — 0.8 — 7.7
Term loan (300.0 ) (350.0 ) — — — — (650.0 )
Finance leases (7.0 ) 5.5 (0.8 ) — — — (2.3 )
Total net liabilities from financing activities (1,835.6 ) (374.0 ) (0.8 ) (36.0 ) (1.0 ) (1.3 ) (2,248.7 )
Underlying net debt (1,750.3 ) 93.6 (0.8 ) (23.1 ) (1.0 ) (1.3 ) (1,682.9 )
Fixed rate interest rate swaps (67.0 ) — — — (18.1 ) — (85.1 )
Deferred consideration (21.5 ) 10.7 — — — — (10.8 )
(1,838.8 ) 104.3 (0.8 ) (23.1 ) (19.1 ) (1.3 ) (1,778.8 )
Non-cash flow movements
Net debt at 1 January 2015 £m Cash flow movements £m Acquisitions in 2015 £m Foreign exchange movements £m Fair value changes £m Other (2)£m Net debt at 31 December 2015 £m
Cash, cash equivalents and overdrafts 29.1 57.3 — (1.1 ) — — 85.3
Loan notes (0.2 ) 0.2 — — — — —
Bonds (1) (1,306.8 ) (398.5 ) — (6.8 ) (36.5 ) (0.8 ) (1,749.4 )
Currency swaps in relation to US$ denominated bonds (1) 175.0 — — — 38.9 — 213.9
Interest rate swaps in relation to GBP denominated bonds (1) 9.8 — — — (2.9 ) — 6.9
Long-term debt — (48.3 ) 48.3 — — — —
Term loan (300.0 ) — — — — — (300.0 )
Finance leases (11.9 ) 5.0 (0.1 ) — — — (7.0 )
Total net liabilities from financing activities (1,434.1 ) (441.6 ) 48.2 (6.8 ) (0.5 ) (0.8 ) (1,835.6 )
Underlying net debt (1,405.0 ) (384.3 ) 48.2 (7.9 ) (0.5 ) (0.8 ) (1,750.3 )
Fixed rate interest rate swaps (63.3 ) — — — (3.7 ) — (67.0 )
Deferred consideration (23.1 ) 11.6 (10.0 ) — — — (21.5 )
(1,491.4 ) (372.7 ) 38.2 (7.9 ) (4.2 ) (0.8 ) (1,838.8 )
(1) The sum of these items held at fair value equates to the underlying value
of the Group’s bond debt of £1,596.1m (2015: £1,528.6m; 2014:£1,122.0m).
(2) Other comprises the amortisation of bond issue costs and the amortisation
of the discount on the Euro debt issue.
The aggregate bond fair value above of £1,961.7m (2015: £1,749.4m) includes
the GBP value of the US$ denominated bonds at 31 December 2016. To remove the
Group’s exposure to currency fluctuations it has entered into currency swaps
which effectively hedge the movement in the underlying bond fair value. The
interest rate swap is being used to hedge the exposure to changes in the fair
value of GBP denominated bonds.
13 Related party transactions
Compensation of key management personnel
2016 2015
£m £m
Short-term employment benefits 11.1 11.9
Pension 0.3 0.2
Share based payments 0.8 6.0
12.2 18.1
The following companies are substantial shareholders in the Company and
therefore a related party of the Company (in each case, for the purposes of
the Listing Rules of the UK Listing Authority). The number of shares held on
17 February 2017 was as below:
Shareholder No. of shares % of voting rights
Veritas Asset Management LLP 81,163,342 12.17
Woodford Investment Management LLP 72,080,139 10.80
Invesco Asset Management 65,536,317 9.82
The Capital Group Companies, Inc. 60,297,424 9.04
Baillie Gifford & Co Limited 50,632,716 7.59
BlackRock Inc 38,567,956 5.78
14 Post balance sheet event
No post balance sheet is noted.
15 Preliminary announcement
Copies of the announcement can be obtained from the Company's registered
office at 71 Victoria Street, Westminster, London SW1H 0XA, or on the
Company's corporate website www.capita.com/Investors.
It is intended that the Annual Report and Accounts will be posted to
shareholders in April 2017. It will be available to members of the public at
the registered office and on the Company's Corporate website
www.capita.co.uk/investors/Pages/Investors.aspx from that date.
16 Statement of Directors responsibilities
The Directors confirm that, to the best of their knowledge the extracts from
the consolidated financial statements included in this report, which have been
prepared in accordance with International Financial Reporting Standards,
as adopted by the European Union, (IFRS), IFRIC interpretations, and those
parts of the Companies Act 2006 applicable to companies reporting under IFRS,
fairly presents the assets, liabilities, financial position and profit of the
Group taken as a whole and that the management report contained in this report
includes a fair review of the development and performance of the business.
By order of the Board
A
Parker
N Greatorex
Chief
Executive
Group Finance Director
1 March 2017
Appendix - Alternative Performance Measures
The Group presents various APMs as the Directors believe that these are useful
for users of the financial statements in helping to provide a balanced view
of, and relevant information on, the Group’s financial performance, position
and cash flows. These APMs are mainly measures which disclose the
‘underlying’ performance of the Group excluding specific items which are
regarded as non-underlying. The Group separately presents intangible
amortisation, asset impairments, acquisition contingent consideration
movements, acquisition expenses, the financial impact of business exits or
businesses in the process of being exited, movements in the mark to market
valuation of certain financial instruments and other specific items in the
income statement which, in the Directors’ judgement, need to be disclosed
separately (see notes 4, 5 and 6) by virtue of their nature, size and
incidence in order for users of the financial statements to obtain a proper
understanding of the financial information and the underlying performance of
the business.
In addition, the Group presents other APMs including Key Performance
Indicators (KPIs) such as return on capital employed and interest cover by
which we monitor our performance and others such as organic and acquisition
revenue growth which provide useful information to users which is not
otherwise readily available from the financial statements.
APMs presented 2016 2015 % change Source or calculation
Total revenue as reported £4,909.2 m £4,836.9 m 1.5 % Line item in income statement
Businesses held for sale (£11.3 m) (£162.6 m) Line item in income statement
Underlying revenue £4,897.9m £4,674.3m 4.8 % Line item in income statement
Disposals — (£10.2 m)
Justice business transferred from held for sale — £71.8 m
Underlying revenue on a like-for-like basis £4,897.9m £4,735.9m 3.4 % Underlying revenue excluding businesses exited
2015 acquisitions (£76.2 m) — (1.6 )% Additional contribution in 2016 of acquisitions acquired in 2015
2016 acquisitions (£81.4 m) — (1.7 )% Contribution in 2016 of acquisitions acquired in 2016
Underlying organic revenue £4,740.3m £4,735.9m 0.1 % Underlying revenue excluding businesses exited and acquired
Underlying operating profit £541.3 m £639.0 m (15.3 )% Line item in income statement
Businesses held for sale like-for-like comparison n/a (£4.7 m) Business exited during 2016 and businesses that were held for sale in 2015 but not exited in 2016
Like-for-like operating profit £541.3 m £634.3 m (14.7 )% Underlying operating profit excluding businesses exited
Underlying operating margin 11.1 % 13.7 % Calculation (underlying operating profit/underlying revenue)
Like-for-like operating margin 11.1 % 13.4 % Calculation (like-for-like operating profit/like-for-like underlying revenue)
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