REG-Capita PLC: Half year results 2017 <Origin Href="QuoteRef">CPI.L</Origin> - Part 1
21/09/2017 07:06
Half year results for the 6 months to 30 June 2017
Creating a simpler business well positioned for the future
Financial highlights - continuing operations Underlying (1)2017 Underlying (1)2016 YOY change Reported 2017 Reported 2016 Reported YOY change
Revenue £2,066m £2,131m (3 %) £2,127m £2,156m (1 %)
Operating profit £228m £166m +38 % £63m £87m (28 %)
Profit before tax £195m £134m +46 % £28m £37m (26 %)
Earnings/(loss) per share 22.92p 16.12p +42 % (0.11)p 4.66p (102 %)
Interim dividend per share 11.1p 11.1p — 11.1p 11.1p —
Free cash flow £179m £214m (16 %) £182m £199m (9 %)
Highlights
Strategic initiatives: re-positioning going to plan
• Disposal of our Asset Services businesses for £888m to Link Group,
expected to complete in Q4 2017
• Completed disposal of transactional specialist recruitment businesses
• Cost initiatives on track to realise around £57m savings by the end of
2018
• Implemented new simplified market facing organisation structure.
2017 H1 financial summary: trading broadly in line with expectations
• Early adopted IFRS 15 from 1 January 2017 on a fully retrospective basis
• Underlying revenue declined by 3%. Growth on a like for like basis(1) was
1% including 0.5% organic decline
• Underlying profit before tax(1) up 46% to £195m (H1 2016: £134m)
• Underlying earnings per share(1) up 42% to 22.92p (H1 2016: 16.12p)
• Maintained interim dividend of 11.1p (H1 2016: 11.1p)
• Free cash flow before non-underlying items(1) £179m (H1 2016: £214m) and
after non-underlying items £182m (H1 2016: £199m)
• Net debt at end June 2017 of £1,596m (H1 2016 £1,901m)
• Reported profit before tax £28m (H1 2016: £37m)
• Reported loss per share (0.11)p (H1 2016: 4.66p).
Major sales: win rate improved in quiet market
• £403m of major contract wins (H1 2016: £879m)
• Major contract win rate 1 in 2 (2016: 1 in 3)
• Bid pipeline £3.1bn (March 2017: £3.8bn), with a weighted average
contract length of 5.5 years (March 2017: 7 years). Annual value of bids
maintained.
Outlook
• Underlying pre-tax profits before significant new contracts and
restructuring to rise modestly in the second half, compared to the first half
of 2017
• Leverage at the end of 2017 around the bottom of our 2.0 to 2.5 times
range, prior to the impact of IFRS 15 and potential unwind of receivables
financing
• We remain confident that the actions we commenced last year are making
Capita a simpler business, well positioned for the future under new
leadership.
Nick Greatorex of Capita plc, commented:
“In the first half of 2017, we made good progress on executing the plans
laid out at the end of last year to reposition the Group: we announced the
sale of our Asset Services businesses, completed the disposal of our
specialist recruitment business and commenced a number of cost initiatives. We
remain confident that these actions are making Capita a simpler business, well
positioned for the future under new leadership."
1 Refer to appendix 1 for calculation of Alternative Performance Measures. Capita Asset Services has been treated as a discontinued operation.
__________________________________________________________________________________________
Analyst & investor presentation:
Ian Powell Chairman and Nick Greatorex Interim CEO and Group Finance Director
of Capita plc will host a presentation of our results in London at 08:30 UK
time today.
There will also be a live video webcast and a telephone dial-in facility of
the presentation on the day, at 08.30am UK time, with an on-demand version
available on our website www.capita.com/investors later that day.
Please find the webcast link and dial-in details below:
Webcast link
http://www.investis-live.com/capita/594d0292e8adb21200ac6f59/hsre
To register for the webcast please paste the link above into your browser and
follow the on-screen instructions.
Telephone dial-in:
Location you are dialling from: Number to dial:
United Kingdom 020 3059 8125
All other locations + 44 20 3059 8125
Participant password: Capita - this must be quoted to the Operator in order
for participants to gain access to the conference.
_____________________________________________________________________________________
For further information:
Capita plc
Tel: 020 7799 1525
Shona Nichols, Executive Director, Communications
Andrew Ripper, Head of Investor Relations
Media enquiries
Powerscourt Tel: 020 7250 1446
capita@powerscourt-group.com
Victoria Palmer-Moore and Andy Jones
This announcement contains inside information.
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 500 sites, including 94 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). Further
information on Capita can be found at: http://www.capita.com.
Results for the 6 months to 30 June 2017
Overview
Capita has early adopted IFRS 15, the new revenue recognition standard, and is
reporting its performance in 2017 against the comparative period in 2016 under
this new standard.
Trading was broadly in line with our expectations in the first half of 2017.
The turn-around of our IT Services division progressed better than expected,
following restructuring of the management team and operating model, but we
continued to be impacted by weakness in a number of discretionary services. We
improved our major contract win rate in a relatively subdued business process
management market in the public sector.
Capita made good progress in the first half of 2017 on executing the plans
laid out at the end of last year to reposition the Group. We announced the
disposal of our Asset Services businesses for £888m to Link Group, which is
expected to complete in Q4 2017 following regulatory approvals, completed the
disposal of our transactional specialist recruitment businesses, implemented
our new organisation structure and progressed a number of cost initiatives.
These actions increase the Group's focus upon technology-enabled Business
Process Management, reduce leverage and leave us better placed to return to
sustainable growth over the course of 2018 and beyond.
Financial review
IFRS 15 Revenue from Contracts with Customers
We have adopted IFRS 15 fully retrospectively from 1 January 2017 to provide
investors with clarity on the impact of the new accounting standard in what is
a transitional year for the Group. IFRS 15 gives rise to changes in the timing
of revenue and cost recognition, better aligning Capita’s financial results
with the delivery of its high value complex solutions to clients.
IFRS 15 will not impact upon the lifetime profitability of contracts, the cash
flow of contracts or the majority of our transactional businesses. The main
changes for Capita from the adoption of IFRS 15 are on its long term contracts
and software businesses, in particular:
• Revenue is more evenly phased over the life of contracts and active
software licences in line with the delivery of outcomes to clients and,
consequently, the timing of profits is re-profiled.
• Capita will potentially recognise lower profits or losses in the early
years of contracts where there are significant upfront restructuring costs or
higher operating costs prior to transformation, with a compensating increase
in profits in later years. The total net impact at Group level is a function
of the balance of contracts in early or late stage of their life cycle at
transition to IFRS 15 and in subsequent years. As a result contract profits,
and in certain cases contract losses, are now reported in the comparative
periods.
• The Group's balance sheet includes:
- new “contract fulfilment assets” created in the process of transforming
services; and
- an increased level of deferred income in relation to contracts where
payments have been received from clients to undertake transformation prior to
the planned outcomes being delivered. The majority of deferred income will
unwind within the following 12 months and is expected to be replaced by
similar advanced payments subject to additions or changes to the Group’s
contract portfolio.
Major contracts performance
We have concluded discussions with the Ministry of Defence in relation to the
Defence Infrastructure Organisation ('DIO'), which is now expected to end in
2019. The H1 2017 results include a £16m benefit from the re-shaping of the
DIO contract which is not expected to recur in 2018. We are currently not
expecting to recognise the benefit of any gain share up to the contract
modification date in the second half of 2017. For the remaining two years, we
will focus on supporting the DIO in achieving its goal of being able to
operate effectively in a delegated environment.
Service delivery across our NHS Primary Care Support England ('PCSE) contract
has continued to improve but we are still addressing a number of challenges.
We are continuing to invest in completing the transformation of this service
prior to an inflection point in profitability being achieved. As previously
announced, the cash cost of these continuing improvements has been and will
remain high for the remainder of 2017.
We are still in discussion with a major life and pensions client which may
lead to the continuation of the contract with amended terms or a termination
of the contract. Subject to the outcome of this discussion, we will review the
carrying value of assets related to the contract and may incur associated
costs.
Revenue
Reported revenue decreased by 1% to £2,127m (H1 2016 £2,156m) and underlying
revenue(1) decreased by 3% to £2,066m (H1 2016: £2,131m). Underlying revenue
on a like for like basis(1), excluding results from businesses exited and
assets held for sale in both years, increased by 1% including 0.5% organic
decline and 1.5% growth from acquisitions. Revenue benefited from new
contracts with Tesco Mobile and mobilcom-debital, continued expansion of
Department for Work and Pensions (DWP) PIP assessments, an increase in BBC TV
Licencing revenue after contract modification and improved performances in
network solutions and our other IT businesses. This was offset by attrition
from the loss of part of our Civil Service Learning contract and weakness in
real estate and central government services. Our revenue mix in H1 2017 was
71% long term contractual, 16% short term contractual and 13% transactional.
Cost initiatives
We have commenced a number of short and long term cost initiatives, including
reductions in overheads, the offshoring of some IT applications support,
centralising more of our procurement and rationalising our property estate, to
further increase the efficiency of the Group. The net benefit from these
actions is still expected to be around £57m by the end of 2018, albeit with
slightly less benefit than originally anticipated being realised in the
current year.
Underlying operating profit
Underlying operating profit(1) increased by 38% to £228.4m (H1 2016:
£166.0m). Profit rose as a result of a significant improvement in the
performance of our IT Services division and higher profits from a number of
major contracts which either reached post transformation inflection points or
were renegotiated. This was partially offset by an increase in central costs,
reflecting a re-phasing of incentive schemes and higher professional fees, and
a decline in profits in the Digital & Software Solutions division.
Divisional performance
We have modified our segmental reporting to align it with our management view
of divisional performance. This includes allocating only direct overheads,
such as payroll administration, pension and insurance costs, to the divisions,
and showing central costs separately. The impact of IFRS 15 is to re-profile
the timing of revenue and costs, which is reflected in the discussion of
divisional performance below:
Private Sector Partnerships - underlying revenue increased by 6%, driven by
growth in Capita Europe and an increase in BBC TV Licencing. Profitability
improved due to the dropping out of one-off contract modifications in the
prior year and the renegotiation of our Co-operative Bank contract, partially
offset by lower contributions from remediation services and employee
solutions.
Public Services Partnerships - underlying revenue fell by 6% due to weakness
in central government services and real estate, which is not recovering as
quickly as expected. Underlying profits increased as a result of TfL, which
went live in H2 2016, the aforementioned re-shaping of DIO, lower costs on
PCSE and a good performance from our DWP PIP contract.
Professional Services - underlying revenue fell by 29% as a result of the
disposal of specialist recruitment. Underlying revenue on a like for like
basis fell by 4% due to the loss of part of our Civil Service Learning
contract, which was partially offset by growth in the Army Recruiting
Partnering Project (RPP). Underlying profits increased due to costs reducing
on RPP and growth in Fera and some of our trading businesses.
Digital & Software Solutions - underlying revenue fell by 1% and underlying
profits fell by 13%, as a result of two major long-term active software
licences ending in H2 2016. We are making good progress on the offshoring of
development work to enhance capability and efficiency.
IT Services - underlying revenue increased by 14% due to the acquisitions of
Trustmarque and Acutest and increased volumes in network solutions. Underlying
profits doubled, following our restructuring of the business in the second
half of 2016.
Underlying operating margin
Underlying operating margin(1) was 11.1% (H1 2016: 7.8%).
Underlying net finance costs
The underlying net interest charge(1) was £33.4m (H1 2016: £32.3m). Capita
terminated its higher coupon fixed rate interest rate swaps in the first half
and we now expect underlying interest costs to be in the range of £65m to
£70m in the full year to December 2017, subject to the timing of the
completion of disposals.
Profit before tax
Underlying profit before tax(1) increased by 46% to £195.0m (H1 2016:
£133.7m). Reported profit before tax(1) was £27.6m (H1 2016: £37.2m),
reflecting the impact of business exits and specific charges detailed in notes
5 and 7 of this statement.
Discontinued operations
The results above exclude Capita Asset Services, which was treated as a
discontinued operation, as detailed in note 6 of this statement.
Earnings per share
Underlying earnings per share(1) for continuing operations rose by 42% to
22.9p (H1 2016: 16.1p). Our underlying tax rate was 18.5% (H1 2016: 15.7%) and
we expect our underlying tax rate to be around 19% in the full year to
December 2017. Reported loss per share(1) for total operations was (0.11)p (H1
2016: 4.66p).
Dividend
The Board is recommending an interim dividend of 11.1p per ordinary share (H1
2016: 11.1p). The interim dividend will be payable on 30 November 2017 to
shareholders on the register at the close of business on 20 October 2017.
Cash flow
Free cash flow(1) before non-underlying expenses was £179.2m (H1 2016:
£213.8m) and free cash flow(1) after non-underlying expenses was £182.0m (H1
2016: £199.2m). Net capital expenditure was £50m (H1 2016: £80m) and we
expect capital expenditure in the full year to be slightly lower than 2016.
Balance sheet and net debt
Net liabilities at end June 2017 were £668.3m (H1 2016: £552.9m). This
includes significant deferred income balances recognised on the adoption of
IFRS 15, as explained in Appendix 2.
Net debt at end June 2017 was £1,596m (H1 2016: £1,901m). This included
£1,568m outstanding private placement bond debt, of which £90.3m matures in
the next 12 months and the remainder at various maturities to 2027. In
addition, we have £620m of bank debt which matures in 2018 and 2019, and an
undrawn £600m revolving credit facility of which £81m matures in August 2020
and £519m in August 2021.
At 30 June 2017, our net debt to annualised EBITDA(1) ratio was 2.9 and
annualised interest cover(1) was 7.8 times. Following the receipt of proceeds
from the disposal of our Asset Services businesses and expected cash flow in
the second half of the year, we expect leverage to fall to around the bottom
of our 2.0 to 2.5 times range at the end of 2017. Subject to the completion of
this disposal, we may choose to unwind our receivables financing which was a
balance of £120m at 30 June 2017 and, in conjunction with the impact of IFRS
15 upon contingent obligations under bonds and guarantees, this may result in
leverage being around the middle of our range.
Return on capital employed
Our post-tax return on average capital employed in the first half of 2017 was
15.2% (FY 2016: 12.9%).
Pension
Capita's pension deficit increased to £381m at 30 June 2017 (FY 2016:
£345m), reflecting a decrease in the discount rate. The latest triennial
valuation commenced in April 2017. We continue to expect a £12m increase in
the IAS 19 pension charge this year and an increase in cash contributions from
June 2018.
Capita has consulted with affected parties and their representatives
concerning its decision to close to future accrual the Group defined benefit
scheme. The defined benefit scheme will be replaced by a defined contribution
scheme for the affected employees. We will provide a further update on our
plans to close the financial deficit in due course, once we have reached
agreement with the scheme's trustees.
Connaught
This is an update on the potential costs in resolving matters relating to the
Connaught Income Series 1 Fund (“The Fund”), of which Capita Financial
Managers Limited ("CFM") was the Operator until September 2009, when it was
replaced by an unrelated company as Operator, following which CFM had no
further involvement with the Fund. The Fund went into liquidation in 2012 and
its liquidator brought a claim against both former Operators, which for its
part, the Group settled in 2016 for a sum of £18.5m.
The Financial Conduct Authority's (FCA) formal review of the activities of
both operators is ongoing. The FCA has recently indicated to the Company
that it is minded to seek a financial penalty against CFM in connection with
its conduct as operator of the Fund and to seek redress for the substantial
losses incurred by all investors when the Fund collapsed three years after
CFM’s involvement, notwithstanding the amount settled during 2016.
The Company is continuing discussions with the FCA in relation to its findings
in respect of CFM‘s conduct and the associated potential financial
penalty. While these discussions with the FCA take place, provision at this
time has been made for the full potential amount of the financial penalty and
associated legal costs (£37m). The Company has taken a prudent approach to
this provision reflecting the early stages of our discussions with the FCA and
the lack of clarity on the basis supporting the FCA's position.
In respect of the redress the Board does not consider that the Company is
liable to pay further sums in addition to the amounts already paid in respect
of the settled claims and therefore no provision has been made at this
time. Based on the information available to date it is not possible at this
stage to determine what the ultimate outcome of the FCA review might be.
1 Refer to appendix for calculation of Alternative Performance Measures. Capita Asset Services has been treated as a discontinued operation.
Major sales and business development
Our Group Business Development team work on major transformation contracts,
which are reported in our sales bid pipeline, and campaigns of replicable
solutions, such as in local government. They also engage with divisional sales
teams to enhance their capability and sales performance.
Capita has secured major contracts with an aggregate total value of £403m in
the year to date (H1 2016 £879m), comprised of 27% new contracts and 73%
renewals and extensions. Our win rate increased to 1 in 2 by value. The market
for major transformation contracts has remained subdued in the public sector
to date in 2017.
We secured a new contract to deliver apprenticeship services to the Civil
Service. Extensions were secured to our Personal Independence Payments
contract with the Department for Communities, Northern Ireland until end July
2019 and our IT services contract with the Northern Ireland Education
Authority to March 2019. The London Borough of Lambeth intends to extend our
revenue, benefits and customer services contract until 2026. We have also
renewed our RSPCA customer management contract, Royal London life and pensions
contracts and mortgage administration contract with Tesco Bank.
In addition to the above, we have also secured £45m of new local government
campaign wins in the year to date.
We are continuing with our period of exclusive engagement with British Airways
to explore forming a potential partnership to support its global customer
contact operations, which currently handles approximately 9.5 million calls
per annum.
Bid pipeline
Our bid pipeline shows the total contract value of our major sales bids at a
specific point in time. It contains all bids with total contracted revenue
worth between £25m and a capped ceiling of £1bn, where we have been
short-listed to the last 4 or fewer. The total contract value of the bid
pipeline currently stands at £3.1bn (March 2017: £3.8bn), comprised of 28
bids including 79% new business and 21% renewals and extensions. The weighted
average contract length of bids in the pipeline is 5.5 years (March 2017: 7
years) and the annual value of the bid pipeline has been maintained. We expect
decisions on the majority of bids within the next 12 months and continue to
have a large, active prospect list of opportunities behind the pipeline.
Rebids
There are no material contracts, defined as being in excess of 1% of Group
revenue, up for rebid in 2017 and 2018. Our next major contract renewal is the
Department for Work & Pensions Personal Independence Payments contract in mid
2019.
Disposals and acquisitions
In June, we announced the sale of our Asset Services businesses to Link
Administration Holdings ("Link Group") for a cash free, debt free
consideration of £888m. The transaction is subject to certain regulatory and
other approvals and is expected to complete in Q4 2017.
Upon completion of the sale, after the deduction of transaction expenses
(including certain separation related costs and a £17 million one-off pension
contribution) of approximately £72 million, the net cash proceeds are
intended to be used to reduce indebtedness.
We have completed the disposal of our stand-alone, transactional specialist
recruitment businesses (education, social care and health personnel) to
Endless. We are committed to our remaining Workplace Services businesses which
include our public and private recruitment process outsourcing (‘RPO’),
executive search, vetting, employer branding agency and learning services
businesses.
We made two small acquisitions in the first half of 2017, Acutest, a provider
of software testing services, and NYS, a travel management business. The
aggregate consideration for these businesses was £10m, excluding deferred and
contingent consideration.
Group Board
Andy Parker stepped down from the Board and left Capita on 15 September 2017.
Andy has contributed strongly to the Company over the last 17 years and played
a key role in leading Capita, as Chief Executive, for the past three years and
through the challenges of 2016. Nick Greatorex, Capita’s Group Finance
Director, was appointed as Interim Chief Executive from that date until a
successor takes up the post as Capita’s new Chief Executive. During this
interim period, Nick will also continue with his responsibilities as Group
Finance Director. The Board is pleased with progress in our search process for
a successor.
Future prospects
We expect underlying pre-tax profits before significant new contracts and
restructuring to rise modestly in the second half, compared to the first half
of 2017, supported by the cumulative benefit from cost initiatives, partially
offset by some of our trading businesses which are not improving as quickly as
expected.
Following the receipt of proceeds from the disposal of our Asset Services
businesses and expected cash flow in the second half of the year, we expect
leverage to fall to around the bottom of our 2.0 to 2.5 times range at the end
of 2017. Subject to the completion of this disposal, we may choose to unwind
our receivables financing and, in conjunction with the impact of IFRS 15 upon
contingent obligations under bonds and guarantees, this may result in leverage
being around the middle of our range.
We remain confident that the actions we commenced last year are making Capita
a simpler business, well positioned for the future under new leadership.
-Ends-
Half year condensed consolidated income statement
for the 6 months ended 30 June 2017
Notes 30 June 2017 30 June 2016 (restated)
Underlying Business exit Specific items Total Underlying Business exit Specific items To
ta
l
£m £m £m £m £m £m £m £m
Continuing operations:
Revenue 3 2,065.9 61.4 — 2,127.3 2,131.3 24.6 — 2,155.9
Cost of sales (1,524.3 ) (49.7 ) — (1,574.0 ) (1,656.6 ) (17.9 ) — (1,674.5 )
Gross profit 541.6 11.7 — 553.3 474.7 6.7 — 481.4
Administrative expenses 5,7 (313.2 ) (75.6 ) (101.9 ) (490.7 ) (308.7 ) (6.7 ) (78.7 ) (394.1 )
Operating profit 3 228.4 (63.9 ) (101.9 ) 62.6 166.0 — (78.7 ) 87.3
Net finance costs 8 (33.4 ) — 2.1 (31.3 ) (32.3 ) — (17.7 ) (50.0 )
Loss on disposal 5 — (3.7 ) — (3.7 ) — (0.1 ) — (0.1 )
Profit before tax 3 195.0 (67.6 ) (99.8 ) 27.6 133.7 (0.1 ) (96.4 ) 37.2
Income tax expense (36.0 ) (0.1 ) 12.2 (23.9 ) (21.0 ) — 18.2 (2.8 )
Profit for the period from continuing operations 159.0 (67.7 ) (87.6 ) 3.7 112.7 (0.1 ) (78.2 ) 34.4
Discontinued operations:
Profit for the period 6 — 25.8 — 25.8 — 23.5 (2.2 ) 21.3
Total profit for the period 159.0 (41.9 ) (87.6 ) 29.5 112.7 23.4 (80.4 ) 55.7
Attributable to:
Owners of the Company 152.5 (41.9 ) (85.5 ) 25.1 106.9 23.4 (78.1 ) 52.2
Non-controlling interests 6.5 — (2.1 ) 4.4 5.8 — (2.3 ) 3.5
159.0 (41.9 ) (87.6 ) 29.5 112.7 23.4 (80.4 ) 55.7
Earnings/(loss) per share 9
Continuing operations:
– basic 22.92 p (10.18) p (12.85) p (0.11) p 16.12 p (0.02) p (11.44) p 4.66 p
– diluted 22.87 p (10.15) p (12.83) p (0.11) p 16.03 p (0.01) p (11.38) p 4.64 p
Total operations:
– basic 22.92 p (6.30) p (12.85) p 3.77 p 16.12 p 3.53 p (11.78) p 7.87 p
– diluted 22.87 p (6.29) p (12.82) p 3.76 p 16.03 p 3.51 p (11.71) p 7.83 p
Half year condensed consolidated statement of comprehensive income
for the 6 months ended 30 June 2017
30 June 2017 30 June 2016 (restated)
£m £m £m £m
Profit for the period 29.5 55.7
Other comprehensive (expense)/income
Items that will not be reclassified subsequently to profit or loss
Actuarial loss on defined benefit pension schemes (25.5 ) (88.9 )
Deferred tax effect 4.3 16.0
(21.2 ) (72.9 )
Items that will or may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations 1.9 36.9
Net investment hedge (2.4 ) (20.0 )
Gain on cash flow hedges 2.8 4.2
Reclassification adjustments for losses included in the income statement — 1.5
Income tax effect (0.5 ) (1.0 )
2.3 4.7
1.8 21.6
Other comprehensive expense for the period net of tax (19.4 ) (51.3 )
Total comprehensive income for the period net of tax 10.1 4.4
Attributable to:
Owners of the Company 5.7 0.9
Non-controlling interests 4.4 3.5
10.1 4.4
Half year condensed consolidated balance sheet
at 30 June 2017
30 June 2017 31 December 2016 (restated)
Notes £m £m
Non-current assets
Property, plant and equipment 311.8 394.7
Intangible assets 2,449.1 2,754.2
Contract fulfilment assets 12 255.3 240.6
Financial assets 16 274.9 337.6
Deferred taxation 177.1 222.4
Trade and other receivables 37.6 48.8
3,505.8 3,998.3
Current assets
Financial assets 16 63.9 92.6
Contract fulfilment assets 12 43.1 41.6
Disposal group assets held for sale 5 755.3 —
Funds assets — 173.6
Trade and other receivables 692.7 801.1
Cash 1,122.6 1,098.3
2,677.6 2,207.2
Total assets 6,183.4 6,205.5
Current liabilities
Trade and other payables 797.0 977.0
Deferred income 1,472.9 1,374.9
Overdrafts 16 577.3 532.5
Financial liabilities 16 292.2 224.2
Disposal group liabilities held for sale 5 346.3 —
Funds liabilities — 173.6
Provisions 14 182.9 112.5
Income tax payable 8.8 18.6
3,677.4 3,413.3
Non-current liabilities
Trade and other payables 21.9 21.0
Deferred income 212.9 216.7
Financial liabilities 16 2,526.1 2,694.4
Deferred taxation 17.5 19.6
Provisions 14 15.1 48.2
Employee benefits 380.8 345.2
3,174.3 3,345.1
Total liabilities 6,851.7 6,758.4
Net liabilities (668.3 ) (552.9 )
Capital and reserves
Issued share capital 13.8 13.8
Share premium 501.3 501.3
Employee benefit trust and treasury shares (0.2 ) (0.2 )
Capital redemption reserve 1.8 1.8
Foreign currency translation reserve (6.7 ) (6.2 )
Cash flow hedging reserve 2.3 —
Retained earnings (1,253.2 ) (1,131.6 )
Equity attributable to owners of the Company (740.9 ) (621.1 )
Non-controlling interests 72.6 68.2
Total equity (668.3 ) (552.9 )
Half year condensed consolidated statement of changes in equity
for the 6 months ended 30 June 2017
Share capital Share premium Employee benefit trust & treasury shares Capital redemption reserve Retained earnings Foreign currency translation reserve Cash flow hedging reserve Total Non-controlling interests Total equity
£m £m £m £m £m £m £m £m £m £m
At 1 January 2016, as reported 13.8 500.7 (0.3 ) 1.8 196.5 (21.2 ) (12.0 ) 679.3 74.0 753.3
Impact of change in accounting standards - IFRS 15 — — — — (934.7 ) — — (934.7 ) (7.6 ) (942.3 )
At 1 January 2016, restated 13.8 500.7 (0.3 ) 1.8 (738.2 ) (21.2 ) (12.0 ) (255.4 ) 66.4 (189.0 )
Profit for the period, restated — — — — 52.2 — — 52.2 3.5 55.7
Other comprehensive (expense)/income — — — — (72.9 ) 16.9 4.7 (51.3 ) — (51.3 )
Total comprehensive (expense)/income for the period — — — — (20.7 ) 16.9 4.7 0.9 3.5 4.4
Share based payment — — — — 5.0 — — 5.0 — 5.0
Income tax deduction on exercise of share options — — — — 0.9 — — 0.9 — 0.9
Deferred income tax relating to share based payments — — — — (11.7 ) — — (11.7 ) — (11.7 )
Fair value movement in put option of non-controlling interest — — — — (2.4 ) — — (2.4 ) — (2.4 )
Shares issued — 0.6 — — — — — 0.6 — 0.6
Equity dividends paid — — — — (140.9 ) — — (140.9 ) (4.2 ) (145.1 )
At 30 June 2016, restated 13.8 501.3 (0.3 ) 1.8 (908.0 ) (4.3 ) (7.3 ) (403.0 ) 65.7 (337.3 )
At 1 January 2017, as reported 13.8 501.3 (0.2 ) 1.8 (102.3 ) (6.2 ) — 408.2 75.2 483.4
Impact of change in accounting standards - IFRS 15 — — — — (1,029.3 ) — — (1,029.3 ) (7.0 ) (1,036.3 )
At 1 January 2017, restated 13.8 501.3 (0.2 ) 1.8 (1,131.6 ) (6.2 ) — (621.1 ) 68.2 (552.9 )
Profit for the period — — — — 25.1 — — 25.1 4.4 29.5
Other comprehensive (expense)/income — — — — (21.2 ) (0.5 ) 2.3 (19.4 ) — (19.4 )
Total comprehensive income/(expense) for the period — — — — 3.9 (0.5 ) 2.3 5.7 4.4 10.1
Share based payment — — — — 3.5 — — 3.5 — 3.5
Fair value movement in put option of non-controlling interests — — — — 8.1 — — 8.1 — 8.1
Equity dividends declared (see note 10) — — — — (137.1 ) — — (137.1 ) — (137.1 )
At 30 June 2017 13.8 501.3 (0.2 ) 1.8 (1,253.2 ) (6.7 ) 2.3 (560.3 ) 72.6 (668.3 )
Half year condensed consolidated cash flow statement
for the 6 months ended 30 June 2017
30 June 2017 30 June 2016 (restated)
Total Total
Notes £m £m
Cash generated from operations before non-underlying cash items 15 241.6 355.2
Non-underlying trading 5 0.5 —
Asset Services insurance recovery received 9.0 —
Business exit costs paid 14 (6.7 ) (11.3 )
Pension settlement paid — (3.3 )
Cash generated from continuing operations 244.4 340.6
Cash generated from discontinued operations 13.6 7.4
Income tax refunded/(paid) 16.0 (32.0 )
Net interest paid (28.7 ) (29.1 )
Net cash inflow from operating activities 245.3 286.9
Cash flows from investing activities
Purchase of property, plant and equipment (30.5 ) (44.5 )
Purchase of intangible assets (19.2 ) (35.8 )
Acquisition of subsidiary undertakings and businesses 13 (16.7 ) (91.6 )
Cash acquired on acquisition of subsidiary undertakings 13 4.2 12.3
Debt repaid on acquisition of subsidiary undertakings — —
Proceeds on disposal of subsidiary undertakings 5 16.4 25.0
Cash disposed of with subsidiary undertakings — (5.4 )
Deferred consideration received 3.0 —
Public sector subsidiary partnership payment (4.7 ) —
Deferred consideration paid (0.8 ) (6.7 )
Contingent consideration paid (2.1 ) (9.0 )
Purchase of financial assets — (0.2 )
Investing activities from discontinued operations (7.5 ) (8.4 )
Net cash outflow from investing activities (57.9 ) (164.3 )
Cash flows from financing activities
Issue of ordinary share capital — 0.6
Dividends paid 10 — (145.1 )
Capital element of finance lease rental payments 15 (1.8 ) (2.4 )
Proceeds from term loans 15 — 500.0
Repayment of fixed rate swaps 15 (84.6 ) —
Repayment of term loan 15 (30.0 ) —
Repayment of bonds 15 (33.8 ) (70.0 )
Financing arrangement costs 15 (1.2 ) —
Net cash (outflow)/inflow from financing activities (151.4 ) 283.1
Net increase in cash and cash equivalents 36.0 405.7
Cash and cash equivalents at the beginning of the period 565.8 85.3
Impact of movement in exchange rates 15 (3.2 ) 8.9
Cash and cash equivalents at 30 June 598.6 499.9
Cash and cash equivalents comprise:
Cash at bank and in hand 1,122.6 935.0
Cash held by discontinued operations 53.3 —
Overdraft (577.3 ) (435.1 )
Total 15 598.6 499.9
Notes to the half year condensed consolidated financial statements
for the 6 months ended 30 June 2017
1 Corporate information
Capita plc is a public limited company incorporated in England and Wales whose
shares are publicly traded. The half year condensed consolidated financial
statements of the Company and its subsidiaries (‘the Group’) for the 6
months ended 30 June 2017 were authorised for issue in accordance with a
resolution of the Directors on 20 September 2017.
2 Basis of preparation, judgements and estimates, significant accounting
policies, principal risks and uncertainties and going concern
(a) Basis of preparation
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2017 have been prepared in accordance with the Disclosure and
Transparency Rules (DTR) of the Financial Conduct Authority and with IAS 34
Interim Financial Reporting.
The half year condensed consolidated financial statements do not include all
the information and disclosures required in the annual financial statements
and should be read in conjunction with the Group’s annual financial
statements as at 31 December 2016, which have been prepared in accordance with
IFRSs as adopted by the European Union.
The half year condensed consolidated financial statements do not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006. The statutory accounts for the year ended 31 December 2016 were approved
by the Board of Directors on 1 March 2017 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under Section 498 of the Companies Act 2006.
The half year condensed consolidated financial statements for the 6 months
ended 30 June 2017 have been reviewed by the Group's auditors pursuant to the
Auditing Practices Board guidance on Review of Interim Financial Information.
(b) Judgements and estimates
In preparing these half year condensed consolidated financial statements,
management make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amount of assets,
liabilities, income and expense. Actual results may differ from these
estimates. The significant judgements made by management in applying the
Group’s accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the consolidated financial statements
as at the year ended 31 December 2016 other than those additional areas which
have arisen as a consequence of the early adoption of IFRS 15 Revenue from
Contracts with Customers - see appendix 2 where these are explained.
(c) Significant accounting policies
The accounting policies adopted in preparation of the half year condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group’s annual financial statements for the year ended 31
December 2016, except for the early adoption of IFRS 15 Revenue from Contracts
with Customers.
Initial adoption of IFRS 15 Revenue from Contracts with Customers
The standard has an effective date of 1 January 2018 but the Group has decided
to early adopt this standard with a date of initial application to the Group
of 1 January 2017.
IFRS 15 replaces all existing revenue requirements in IFRS and applies to all
revenue arising from contracts with customers unless the contracts are within
the scope of other standards such as IAS 17 Leases.
The standard outlines the principles entities must apply to measure and
recognise revenue with the core principle being that entities should recognise
revenue at an amount that reflects the consideration to which the entity
expects to be entitled in exchange for fulfilling its performance obligations
to a customer.
The principles in IFRS 15 must be applied using the following 5 step model:
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the
contract
5. Recognise revenue when or as the entity satisfies its performance
obligations
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