REG-Capita PLC: Half year results 2017 <Origin Href="QuoteRef">CPI.L</Origin> - Part 3
21/09/2017 07:06
- Part 3: For the preceding part double click ID:nPRrK4B84b
provision Claims and litigation provision Property provision Other Total
£m £m £m £m £m £m £m
At 1 January 2017 49.4 6.0 23.1 41.5 28.0 12.7 160.7
Utilisation (15.4 ) (6.7 ) (0.2 ) (6.6 ) (0.6 ) (8.5 ) (38.0 )
Provided/(released) in the period - net — 56.4 37.5 0.5 (1.0 ) (1.5 ) 91.9
Provisions acquired — — — — (0.1 ) — (0.1 )
Transfer to accruals — — (16.1 ) — — — (16.1 )
Transfer to disposal group (0.1 ) — — — (0.3 ) — (0.4 )
At 30 June 2017 33.9 55.7 44.3 35.4 26.0 2.7 198.0
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 2 years.
Business exit provision: the provision relates to the cost of exiting
businesses through disposal or closure, including professional fees related to
business exits and the costs of separating the businesses being disposed.
Refer to note 5 for further detail. The provision is expected to unwind over 2
years.
Asset Services settlements:
1. Arch Cru: the parties to the CF Arch Cru Funds litigation have entered into
a full and final settlement of the proceedings on confidential terms.
2. Connaught: 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 as noted
above.
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. The Company has taken a prudent approach to this
provision reflecting the early stages of our discussions with 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.
3. Capita plc as part of the sale of the Asset Services business has provided
an indemnity against certain legacy claims. The provisions held, namely the
Asset Services settlement provision which includes provisions for Arch Cru,
Connaught and other legacy claims, have therefore been retained within the
Group and not transferred to held for sale assets. Legacy claims have been
settled post the balance sheet date and as the precise value of settlement is
known, the provision reflects a transfer from provisions to accruals, the cash
settlement of these claims occurring in July 2017.
Giving due consideration to these claims, the Group has a provision of £44.3m
at 30 June 2017 (31 December 2016: £23.1m).
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 insurance 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 operations and
existing provisions where more information on the progress of the claim has
become apparent. The Group's exposure to claims is mitigated by having 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. As at 30 June 2017, £5.0m of such assets are held on
the Group's consolidated balance sheet (31 December 2016: £15.5m). Due to
the nature of these claims the Group can not give an estimate of the period
over which the provision will unwind.
Property provisions: includes a discounted provision for the difference
between the market value of the property leases acquired in 2011 with Ventura
and Vertex Private Sector 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.
Other provision: relates to provisions in respect of potential claims arising
due to the nature of some of the operations that the Group provides, and an
onerous contract provision. These are likely to unwind over a period of 1 to
3 years.
15 Additional cash flow information
Operating cash flow for the 6 months ended 30 June
2017 2016
Notes £m £m
Cash flows from operating activities
Operating profit before interest and taxation from continuing operations 62.6 87.3
Adjustment for underlying non-cash items:
Depreciation 33.4 36.0
Amortisation of intangible assets (treated as depreciation) 9.9 8.1
Share based payment expense 3.5 5.0
Employee benefits 5.4 (1.8 )
Adjustment for non-underlying non-cash items:
Accelerated depreciation on business closure 5 1.7 —
Accelerated amortisation on business exit 5 6.3 —
Amortisation of intangible assets recognised on acquisition 7 63.9 72.6
Contingent consideration 7 (0.1 ) 0.6
Non-underlying provisions 14 93.4 —
Non-underlying trading (0.5 ) —
Movement in underlying provisions - net (32.3 ) 0.2
Net movement in payables and receivables (5.6 ) 147.2
Cash generated from continuing operations before non-underlying cash items (1) 241.6 355.2
Income tax refunded/(paid) 16.0 (32.0 )
Net interest paid (28.7 ) (29.1 )
Purchase of property, plant and equipment (30.5 ) (44.5 )
Purchase of intangible assets (19.2 ) (35.8 )
Free cash flow before non-underlying items 179.2 213.8
Non-underlying trading 0.5 —
Asset Services insurance recovery received 9.0 —
Business exit costs paid (6.7 ) (11.3 )
Pension settlement paid — (3.3 )
Free cash flow after non-underlying items 182.0 199.2
(1)see cash flow statement
Reconciliation of net cash flow to movement in net debt
Non-cash flow movements
Net debt at 1 January 2017 Cash flow movements £m Acquisitions in 2017 £m Foreign exchange movements £m Fair value changes £m Amortisation of bond issue costs £m Net debt at 30 June 2017
£m £m
Cash (+) 565.8 36.0 — (3.2 ) — — 598.6
Loan notes (0.3 ) — — — — — (0.3 )
Bonds* (1,961.7 ) 35.0 — (7.6 ) 79.9 (0.6 ) (1,855.0 )
Currency swaps in relation to US $ denominated bonds* 357.9 — — — (77.7 ) — 280.2
Interest rate swaps in relation to GBP denominated bonds* 7.7 — — — (1.2 ) — 6.5
Term loan (650.0 ) 30.0 — — — — (620.0 )
Finance leases (2.3 ) 1.8 — — — — (0.5 )
Total net liabilities from financing activities (2,248.7 ) 66.8 — (7.6 ) 1.0 (0.6 ) (2,189.1 )
Underlying net debt (1,682.9 ) 102.8 — (10.8 ) 1.0 (0.6 ) (1,590.5 )
Fixed rate interest rate swaps (85.1 ) 84.6 — — 0.5 — —
Deferred consideration (10.8 ) 5.8 — — — — (5.0 )
(1,778.8 ) 193.2 — (10.8 ) 1.5 (0.6 ) (1,595.5 )
(+) Cash comprises cash, cash equivalents and overdrafts. Included in
overdrafts on the Group's consolidated balance sheet are balances totalling
£577.3m (2016: £532.5m) held in the Group's notional cash pools under which
the bank has the right of offset against cash at bank of the same amount.
* The aggregate bond fair value above of £1,855.0m (30 June 2016:
£1,843.1m) includes the GBP value of the US$ denominated bonds. 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 swaps are being used to hedge the exposure to changes in the
fair value of GBP denominated bonds. The sum of these items held at fair value
equates to the underlying value of the Group’s bond debt of £1,568.3m (30
June 2016: £1,491.2m).
In June 2017, the Group repaid USD$50m of Series A bonds at maturity,
equivalent to £33.8m. Of the Group’s bond debt, £90.3m matures in the
next 12 months and the remainder at various maturities to 2027. In February
2017, the Group elected to terminate all of its fixed rate interest rate
swaps. In the period ended 30 June 2017, the Group prepaid £30m on a term
loan. Of the remaining outstanding term loans of £620m, having agreed
amendments and extensions, £520m now matures in September 2018 and £100m
matures in May 2019. In addition as at 30 June 2017, the Group has available
to it a committed Revolving Credit Facility of £600m of which £81m matures
in August 2020 and £519m matures in August 2021. This facility is available
for the Group's immediate use and £nil was drawn down at 30 June 2017.
Non-cash flow movements
Net debt at 1 January 2016 £m Cash flow movements £m Acquisitions in 2016 £m Foreign exchange movements £m Fair value changes £m Amortisation of bond issue costs £m Net debt at 30 June 2016 £m
Cash+ 85.3 405.7 — 8.9 — — 499.9
Bonds* (1,749.4 ) 70.0 — (31.1 ) (132.3 ) (0.3 ) (1,843.1 )
Currency swaps in relation to US $ denominated bonds* 213.9 — — — 128.7 — 342.6
Interest rate swaps in relation to GBP denominated bonds* 6.9 — — — 2.4 — 9.3
Term loan (300.0 ) (500.0 ) — — — — (800.0 )
Finance leases (7.0 ) 2.4 (0.8 ) — — — (5.4 )
Total net liabilities from financing activities (1,835.6 ) (427.6 ) (0.8 ) (31.1 ) (1.2 ) (0.3 ) (2,296.6 )
Underlying net debt (1,750.3 ) (21.9 ) (0.8 ) (22.2 ) (1.2 ) (0.3 ) (1,796.7 )
Fixed rate interest rate swaps (67.0 ) — — — (22.8 ) — (89.8 )
Deferred consideration (21.5 ) 6.7 — — — — (14.8 )
(1,838.8 ) (15.2 ) (0.8 ) (22.2 ) (24.0 ) (0.3 ) (1,901.3 )
16 Financial instruments
Carrying values and fair values of financial instruments
The following table analyses by classification and category the Group’s
financial instruments (excluding short term debtors, creditors, fund
payables/receivables and cash in hand) that are carried in the financial
statements. The values below represent the carrying amounts. The fair values
are the same as the carrying values other than twelve fixed rate bonds
totalling £601.0m (31 December 2016: £593.1m), included below in the bond
value of £1,855.0m (31 December 2016: £1,961.7m), with a carrying value of
£601.0m (31 December 2016: £593.1m) and a fair value of £632.9m (31
December 2016: £616.9m).
As at 30 June 2017 Available-for-sale At fair value through the income statement Loans and receivables Derivatives used for hedging Other financial liabilities Total
£m £m £m £m £m £m
Financial assets
Unlisted equity securities 2.3 — — — — 2.3
Investment loan — — 5.0 — — 5.0
Investment — — 4.0 — — 4.0
Deferred consideration receivable — — 14.0 — — 14.0
Insurance asset recoverable — — 5.0 — — 5.0
Cash flow hedges — — — 8.7 — 8.7
Non-designated foreign exchange forwards and swaps — 7.5 — — — 7.5
Interest rate swaps in relation to GBP denominated bonds — — — 6.5 — 6.5
Currency swaps in relation to USD denominated bonds — — — 285.8 — 285.8
2.3 7.5 28.0 301.0 — 338.8
Financial liabilities
Overdrafts — — — — 577.3 577.3
Unsecured loan notes — — — — 0.3 0.3
Bonds — — — — 1,855.0 1,855.0
Term loan — — — — 620.0 620.0
Cash flow hedges — — — 3.1 — 3.1
Non-designated foreign exchange forwards and swaps — 1.7 — — — 1.7
Foreign exchange swaps held for foreign net investment — — — 0.1 — 0.1
Currency swaps in relation to USD denominated bonds — — — 5.6 — 5.6
Contingent consideration — — — — 27.0 27.0
Deferred consideration — — — — 5.0 5.0
Obligations under finance leases — — — — 0.5 0.5
Public sector subsidiary partnership payment — — — — 55.1 55.1
Put options of non-controlling interests — — — — 107.8 107.8
Dividends declared — — — — 137.1 137.1
— 1.7 — 8.8 3,385.1 3,395.6
As at 31 December 2016 Available-for-sale At fair value through the income statement Loans and receivables Derivatives used for hedging Other financial liabilities Total
£m £m £m £m £m £m
Financial assets:
Available-for-sale assets 5.6 — — — — 5.6
Investment loan — — 5.0 — — 5.0
Investment — — 4.0 — — 4.0
Deferred consideration — — 17.0 — — 17.0
Insurance asset recoverable — — 15.5 — — 15.5
Cash flow hedges — — — 7.0 — 7.0
Non-designated foreign exchange forwards and swaps — 7.4 — — — 7.4
Interest rate swaps in relation to GBP denominated bonds — — — 7.7 — 7.7
Currency swaps in relation to USD denominated bonds — — — 361.0 — 361.0
5.6 7.4 41.5 375.7 — 430.2
Financial liabilities:
Overdraft — — — — 532.5 532.5
Unsecured loan notes — — — — 0.3 0.3
Bonds — — — — 1,961.7 1,961.7
Term loan — — — — 650.0 650.0
Cash flow hedges — — — 4.2 — 4.2
Non-designated foreign exchange forwards and swaps — 3.3 — — — 3.3
Foreign exchange swaps held for foreign net investment — — — 0.1 — 0.1
Currency swaps in relation to USD denominated bonds — — — 3.1 — 3.1
Contingent consideration — — — — 23.0 23.0
Deferred consideration — — — — 10.8 10.8
Obligations under finance leases — — — — 2.3 2.3
Public sector subsidiary partnership payment — — — — 58.8 58.8
Put options of non-controlling interests — — — — 115.9 115.9
Fixed rate interest rate swaps — 85.1 — — — 85.1
— 88.4 — 7.4 3,355.3 3,451.1
The fair value of financial instruments has been calculated by discounting the
expected future cash flows at prevailing interest rates, except for unlisted
equity securities and investment loans. The valuation models incorporate
various inputs including foreign exchange spot and forward rates and interest
rate curves. Unlisted equity securities and investment loans are held at
amortised cost. The Group enters into derivative financial instruments with
multiple counterparties, all of which are financial institutions with
investment grade credit ratings.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities
Level 2: other techniques for which all inputs which have a significant effect
on the recorded fair value are observable, either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the
recorded fair value that are not based on observable market data.
As at 30 June 2017, the Group held the following financial instruments
measured at fair value:
30 June 2017 31 December 2016
£m £m
Assets measured at fair value
Cash flow hedges 8.7 7.0
Non-designated foreign exchange forwards and swaps 7.5 7.4
Interest rate swaps in relation to GBP denominated bonds 6.5 7.7
Currency swaps in relation to USD denominated bonds 285.8 361.0
308.5 383.1
Liabilities measured at fair value
Bonds 1,254.0 1,368.6
Cash flow hedges 3.1 4.2
Non-designated foreign exchange forwards and swaps 1.7 3.3
Foreign exchange swaps held for foreign net investment 0.1 0.1
Currency swaps in relation to USD denominated bonds 5.6 3.1
Fixed rate interest rate swaps — 85.1
Public sector subsidiary partnership payment 55.1 58.8
Put options of non-controlling interests 107.8 115.9
Contingent consideration 27.0 23.0
1,454.4 1,662.1
During both periods the Group only had Level 2 assets or liabilities measured
at fair value apart from contingent consideration, the public sector
subsidiary partnership payment and the put options of non-controlling
interests which are Level 3 liabilities. It is the Group’s policy to
recognise transfers between levels of the fair value hierarchy at the end of
the reporting period during which the transfer occurred. During the 6 months
ended 30 June 2017, there were no transfers between Level 1 and Level 2 fair
value measurements and no transfers into or out of Level 3 fair value
measurements.
Contingent consideration arises in business acquisitions where 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 on their payment date on achieving the performance criteria. The Group
makes provision for such contingent consideration for each acquisition based
on an assessment of 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. A sensitivity analysis was performed on
the expected contingent consideration of £27.0m. The sensitivity analysis
performed adjusted the probability of payment of the contingent amounts. A 10%
increase in the probability of contingent consideration being paid results in
an increase in potential contingent consideration of £3.9m. A 10% decrease in
the probability of the contingent consideration being paid results in a
decrease in potential contingent consideration of £3.3m.
The public sector subsidiary partnership payment liability is an estimate of
the annual preferred payments to be made by Axelos Limited (the partnership
formed with the Cabinet Office) to the Cabinet Office in years 2017 to 2023.
This payment is funded by Axelos Limited and is contingent on profits. The
fair value has been derived by discounting the expected payment at the Group
cost of debt to arrive at its present value. If the discount rate was to
increase/decrease by 1% the present value would decrease/increase by £2.0m.
The put options of the non-controlling interests are measured at amortised
cost based on the expected redemption value of the shares that will be paid in
cash by the Group. This value is determined by reference to the expected
date of exercise of the options, which is then discounted to arrive at a
present value. The sensitivity of the valuation to movements in both the
discount rate and the cash flows that have been used to calculate it, are as
follows: a 10% increase/decrease in the earnings potential of the business
results in a £10.7m increase/decrease in the valuation; a 1%
increase/decrease in the discount rate applied to the valuation results in a
£2.0m decrease/£2.0m increase in the valuation.
The following table shows the reconciliation from the opening balances to the
closing balances for level 3 fair values:
Contingent consideration Subsidiary partnership payment Put options of
non-controlling interests
£m £m £m
At 1 January 2017 23.0 58.8 115.9
Arising from business combinations in the period 6.2 — —
Profit and loss movement - administrative expenses (0.1 ) — —
Discount unwind - net finance costs — 1.0 —
Movement of put options recognised in equity — — (8.1 )
Utilised (2.1 ) (4.7 ) —
At 30 June 2017 27.0 55.1 107.8
17 Capital commitments
At 30 June 2017, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment amounted to
£7.5m (31 December 2016: £10.0m).
18 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
Compensation of key management personnel (including Directors of the parent
company):
6 months 30 June 2017 6 months 30 June 2016
£m £m
Short term employment benefits 4.2 3.5
Post employment benefits 0.2 0.1
Share based payments 0.4 2.4
4.8 6.0
Gains on share options exercised in the period by key management personnel
totalled £0.4m (30 June 2016: £9.9m).
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
15 September 2017 was as below:
Shareholder No. of shares % of voting rights
Veritas Asset Management LLP 92,861,962 13.91%
Invesco Asset Management 59,067,929 8.85%
Woodford Investment Management LLP 56,727,196 8.50%
The Capital Group Companies, Inc. 52,017,183 7.79%
Baillie Gifford & Co Limited 48,627,828 7.29%
BlackRock, Inc. 47,468,674 7.11%
T. Rowe Price 25,441,630 3.81%
Marathon Asset Management LLP 22,093,405 3.31%
19 Contingent liabilities
The Group has provided, through the normal course of its business, performance
bonds and bank guarantees of £91.1m (31 December 2016: £91.7m).
One of the Group’s major life and pensions clients is conducting a strategic
review, the outcome of which is uncertain but could result in the continuation
of the contract with amended terms or the termination of the contract. If
the operation is terminated, the Group will incur associated costs, including
the costs of transferring the service provided, and the impairment of
associated contract assets, off-set by the release of contract liabilities.
As the outcome of the client's review is uncertain, the Group has not made any
provision for a future outflow of funds or for any asset impairments that
might result from the eventual outcome. The review is expected to conclude
in 2017 and any outflow of funds will likely be in late 2017 or early 2018.
Further narrative on contingent liabilities, specifically in regard to the
Connaught Fund matter, can be seen in note 14.
INDEPENDENT REVIEW REPORT TO CAPITA PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2017 which comprises the condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed
consolidated balance sheet, condensed consolidated statement of changes in
equity, condensed consolidated cash flow statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2017 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU and the Disclosure Guidance and Transparency Rules (“the
DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”).
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Whilst the company has previously produced a half-yearly report containing a
condensed set of financial statements, those financial statements have not
previously been subject to a review by an independent auditor. As a
consequence, the review procedures set out above have not been performed in
respect of the comparative period for the six months ended 30 June 2016.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the condensed
set of financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Robert Brent
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
20 September 2017
Statement of Directors’ responsibilities
The Directors confirm, to the best of their knowledge, that this condensed set
of financial statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the Half Year Management Report includes a fair
review of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of the
Disclosure and Transparency Rules of the United Kingdom Financial Conduct
Authority.
The names and functions of the Directors of Capita plc are as listed in the
Group’s Annual Report for 2016. A list of current Directors is maintained on
the Group website: www.capita.com.
By order of the Board
A N Greatorex
Interim Chief Executive & Group Finance Director
20 September 2017
Appendix 1 - Alternative Performance Measures (APMs) used in the half yearly
report for the 6 months to 30 June 2017
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 5, 6 and 7)
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 2017 2016 (restated) % change Source or calculation
Revenue
Total revenue as reported £2,127.3 m £2,155.9 m (1.3)% Line item in income statement
2016 disposals reported H1 2016 £— m (£24.6 m) Line item in income statement
2017 disposals (£61.4 m) £— m
Underlying revenue £2,065.9 m £2,131.3 m (3.1)%
2016 disposals reclassed from business exit in H2 £— m £16.5 m
2017 disposals £— m (£101.9 m) Line item in income statement
Underlying revenue on a like-for-like basis £2,065.9 m £2,045.9 m 1.0% Underlying revenue excluding businesses exited
2016 acquisitions (24.0 ) £0.0 m (1.2)% Additional contribution in H1 2017 of acquisitions acquired in 2016
2017 acquisitions (6.5 ) £0.0 m (0.3)% Contribution in H1 2017 of acquisitions acquired in 2017
Underlying organic revenue £2,035.4 m £2,045.9 m (0.5)% Underlying revenue excluding businesses exited
Profit
Operating profit from continuing operations as reported £62.6 m £87.3 m (28.3)% Line item in income statement
Business exit £63.9 m £— m Line item in income statement
Specific items £101.9 m £78.7 m Line item in income statement
Underlying operating profit from continuing operations £228.4 m £166.0 m 37.6% Line item in income statement
Businesses held for sale like-for-like comparison n/a (£5.6 m) Businesses reported in H1 2016 as underlying reported in H1 2017 as non-underlying
Like-for-like operating profit £228.4m £160.4 m 42.4% Underlying operating profit excluding businesses exited
Underlying profit before tax from continuing operations £195.0 m £133.7 m 45.8% Line item on income statement
Underlying operating margin 11.1 % 7.8 % Calculation (underlying operating profit/underlying revenue)
Like-for-like operating margin 11.2 % 7.8 % 340 b.p. Calculation (like-for-like operating profit/like-for-like underlying revenue)
Profit before tax from continuing operations as reported £27.6 m £37.2 m (25.8)% Line item in income statement
Underlying profit before tax from continuing operations £195.0 m £133.7 m 45.8% Line item in income statement
Basic earnings per share from continuing operations
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