REG-Capita PLC: Half-yearly Report <Origin Href="QuoteRef">CPI.L</Origin> - Part 2
29/07/2015 07:00
- Part 2: For the preceding part double click ID:nPRrS7226a
Acquisition of public sector subsidiary partnerships (20.0 ) (6.8 )
Acquisition of subsidiary undertakings and businesses (232.6 ) (219.6 )
Debt repaid on acquisition of subsidiary undertakings (41.5 ) (17.1 )
Cash acquired with subsidiary undertakings 11.8 15.7
Cash disposed of with other subsidiary undertakings (1.7 ) -
Deferred consideration paid (6.9 ) (23.9 )
Contingent consideration paid (27.7 ) (8.5 )
Purchase of financial assets (0.2 ) (5.9 )
Net cash outflow from investing activities (375.5 ) (324.8 )
Cash flows from financing activities
Issue of ordinary share capital 1.9 2.9
Dividends paid 8 (130.9 ) (117.2 )
Capital element of finance lease rental payments 11 (2.7 ) (2.4 )
Proceeds on issue of bank loans 11 80.0 100.0
Proceeds on issue of bonds 11 279.5 -
Repayment of loan note 11 (0.1 ) (0.2 )
Financing arrangement costs (1.1 ) -
Net cash inflow/(outflow) from financing activities 226.6 (16.9 )
Net decrease in cash and cash equivalents 76.7 (123.8 )
Cash and cash equivalents at the beginning of the period 29.1 157.8
Impact of movement in exchange rates 11 (0.3 ) -
Cash and cash equivalents at 30 June 105.5 34.0
Cash and cash equivalents comprise:
Cash at bank and in hand 458.7 538.6
Overdraft (353.2 ) (504.6 )
Total 11 105.5 34.0
Notes to the half year condensed consolidated financial statements for the 6
months ended 30 June 2015
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 2015 were authorised for issue in accordance with a resolution of
the Directors on 28 July 2015.
2 Basis of preparation, judgements and estimates, 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 2015 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 2014, which have been prepared in accordance with IFRSs as
adopted by the European Union.
This condensed consolidated half year financial information does not comprise
statutory accounts within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2014 were approved by the
Board of Directors on 25 February 2015 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 2015 have not been audited or reviewed by 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 and
liabilities and 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 2014.
(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 2014, except for the adoption of the following new amendments with an
initial date of application of 1 January 2015.
IAS 19 Amendments: Defined Benefit Plans: Employee Contributions IAS 19
requires an entity to consider contributions from employees or third parties
when accounting for defined benefit plans. Where the contributions are linked
to service, they should be attributed to periods of service as a negative
benefit. These amendments clarify that, if the amount of the contributions is
independent of the number of years of service, an entity is permitted to
recognise such contributions as a reduction in the service cost in the period
in which the service is rendered, instead of allocating the contributions to
the periods of service. This amendment is effective for annual periods
beginning on or after 1 July 2014, and is not expected to have any material
impact on the Group.
Annual Improvements to IFRSs 2010 - 2012 Cycle and 2011-2013 Cycle As part of
its annual improvements cycles the International Accounting Standards Board
amended various standards primarily with a view to removing inconsistencies and
clarifying wording. The adoption of these amendments, which are effective for
annual periods beginning on or after 1 July 2014, did not have any material
impact on the Group.
(d) Principal risks and uncertainties and going concern
The Directors have considered the principal risks and uncertainties affecting
the Group's financial position and prospects in 2015. As described on pages 36
to 44 of the Group's Annual Report for 2014, the Group continues to be exposed
to a number of risks and has well established systems and procedures in place
to identify, assess and mitigate those risks. The risks faced by the Group have
not changed significantly over the first 6 months of 2015 and are not expected
to change materially in the remaining 6 months.
The principal risks include those arising from: failure to meet service level
agreements, possible loss of contracts and damage to brand reputation;
counter-party failure including disruption to supply chains or service
interruption; failure to achieve planned synergies in acquisitions; weaker
economic conditions are a key driver for outsourcing but extreme economic
uncertainty may result in delays in purchasing decisions and reduced
discretionary spend in some market segments; regulatory changes in different
jurisdictions may impact businesses in those locations; failure to attract and
maintain key staff; failure to secure sensitive or confidential data; and
failure to comply with complex laws and regulations.
The Group has considerable financial resources together with long term
contracts with a wide range of public and private sector clients and suppliers.
As a consequence, the Directors believe the Group is well placed to manage its
business risks successfully.
After making enquiries and in accordance with the FRC's "Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting
2014", the Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future, a
period of not less than 12 months from the date of this report. Accordingly,
they consider it appropriate to continue to adopt the going concern basis in
preparing the half year condensed consolidated financial statements.
3 Segmental information
The following tables present revenue and profit information regarding the
Group's operating segments for the six months ended 30 June 2015 and 2014
respectively. The comparative figures have been restated due to a
reorganisation of the Group's business segments and a consequent change in the
way in which the results of the business are reported to the Group Board.
6 months ended 30 June 2015 2014
Total Inter- External Total Inter- External
revenue segment revenue revenue segment revenue
revenue revenue
Analysis of segment revenue £m £m £m £m £m £m
Digital & Software Solutions 287.1 (39.6 ) 247.5 243.7 (32.8 ) 210.9
Integrated Services 237.1 (26.6 ) 210.5 204.0 (18.7 ) 185.3
Local Government, Health & 359.6 (33.5 ) 326.1 360.1 (51.8 ) 308.3
Property
Workplace Services 328.3 (26.3 ) 302.0 291.3 (13.5 ) 277.8
IT Enterprise Services 338.6 (63.5 ) 275.1 346.7 (63.3 ) 283.4
Asset Services 196.7 (18.1 ) 178.6 167.4 (15.0 ) 152.4
Customer Management & 327.7 (8.6 ) 319.1 292.6 (7.1 ) 285.5
International
Capita Europe 82.3 (0.2 ) 82.1 7.0 (0.2 ) 6.8
Insurance & Benefits Services 423.2 (81.5 ) 341.7 404.9 (44.3 ) 360.6
Underlying segment revenue 2,580.6 (297.9 ) 2,282.7 2,317.7 (246.7 ) 2,071.0
Non-underlying segment revenue 6.2 - 6.2 - - -
Total segment revenue 2,586.8 (297.9 ) 2,288.9 2,317.7 (246.7 ) 2,071.0
Note 6 months 6 months
to 30 to 30
June 2015 June
2014
Analysis of segment profit £m £m
Digital & Software Solutions 61.1 51.1
Integrated Services 23.6 25.8
Local Government, Health & Property 35.4 32.1
Workplace Services 32.7 29.0
IT Enterprise Services 23.1 21.7
Asset Services 44.2 38.4
Customer Management & International 32.3 28.5
Capita Europe 8.4 0.7
Insurance & Benefits Services 28.0 32.9
Total underlying trading result 288.8 260.2
Non-underlying trading result 4 (3.7 ) -
Total trading result 285.1 260.2
Non-trading items:
Intangible amortisation 5 (80.5 ) (71.1 )
Acquisition costs 5 (8.7 ) (8.7 )
Asset Services settlement provision 10 (12.3 ) -
Business exit provision 4 (12.2 ) -
Contingent consideration movement 5 (1.3 ) 2.0
Operating profit 170.1 182.4
Finance expense (net) 6 (22.3 ) (30.1 )
Loss on business disposal 4 (1.7 ) -
Profit before tax 146.1 152.3
Income tax (27.4 ) (27.6 )
Profit for the period 118.7 124.7
4 Businesses exited
In the 6 months to 30 June 2015, the Group exited some of its small non-core
health businesses.
Income statement impact Non-trading
Trading Cash Non-cash Total Total
£m £m £m £m £m
Revenue 6.2 - - - 6.2
Cost of sales (9.1 ) - - - (9.1 )
Gross profit (2.9 ) - - - (2.9 )
Administrative expenses (0.8 ) (7.7 ) (4.5 ) (12.2 ) (13.0 )
Operating loss (3.7 ) (7.7 ) (4.5 ) (12.2 ) (15.9 )
Loss on business disposal - (1.7 ) - (1.7 ) (1.7 )
Loss before tax (3.7 ) (9.4 ) (4.5 ) (13.9 ) (17.6 )
Taxation 0.7 1.5 0.5 2.0 2.7
Loss after tax (3.0 ) (7.9 ) (4.0 ) (11.9 ) (14.9 )
Trading revenue and costs represent the trading performance of these businesses
in the period to the date of exit.
Non-trading costs include the costs of exiting a number of small non-core
health businesses and ongoing stranded costs such as IT, property lease and
redundancy payments. It is expected that these expenses will be incurred over
the next twelve months.
Included within non-trading administrative expenses in the table above are:
£m
Provision made in respect of business exit costs 7.7
Accelerated depreciation on business exit 1.0
Accelerated amortisation on business exit 2.2
Working capital derecognised on business exit 1.3
Total 12.2
The table below summarises the loss on disposal:
£m
Cash 1.7
Total net assets disposed of 1.7
Net proceeds received £nil -
Loss on business disposal 1.7
5 Administrative expenses
Included within administrative expenses in the other non-underlying column are:
6 months to 30 June 2015 6 months to 30 June 2014
Cash Cash in Non-cash Cash Cash Non-cash
in future Total in in Total
year year future
Notes £m £m £m £m £m £m £m £m
Amortisation of acquired - - 80.5 80.5 - - 71.1 71.1
intangibles
Contingent consideration 12 - - 1.3 1.3 - - (2.0 ) (2.0 )
movements
Asset Services settlement 10 - 12.3 - 12.3 - - - -
provision
Professional fees regarding 4.1 4.1 - 8.2 3.2 4.0 - 7.2
acquisitions
Stamp duty paid on 0.5 - - 0.5 1.5 - - 1.5
acquisitions
Total 4.6 16.4 81.8 102.8 4.7 4.0 69.1 77.8
6 Net finance costs
6 months to 6 months
to
30 June 30 June
2015 2014
£m £m
Bank interest receivable (0.1 ) (0.1 )
Interest receivable (0.1 ) (0.1 )
Bonds 16.5 16.0
Finance lease 0.2 0.3
Bank loans and overdrafts 4.1 3.6
Net interest cost on defined benefit pension schemes 3.2 2.4
Interest payable 24.0 22.3
Underlying net finance costs 23.9 22.2
Fixed rate interest rate swaps - mark to market (3.3 ) 6.9
Discount unwind on public sector subsidiary partnership 1.1 1.0
payment
Non-designated foreign exchange forward contracts - mark 0.5 0.5
to market
Derivatives' counterparty credit risk adjustment - mark to 0.2 (0.3 )
market
Derivatives' own credit risk adjustment - mark to market (0.1 ) (0.2 )
Non-underlying net finance costs (1.6 ) 7.9
Total net finance costs 22.3 30.1
7 Earnings per share
Basic earnings per share have been calculated using the weighted average number
of shares in issue during the period of 661.6m (30 June 2014: 658.2m). The
diluted average number of shares is 665.1m (30 June 2014: 664.2m) having
adjusted the weighted average number of shares for shares yet to be issued that
will be dilutive.
The profits used to calculate the measures are the underlying profit
attributable to shareholders of £211.9m (30 June 2014: £190.1m) and the total
profit attributable to shareholders of £117.0m (30 June 2014: £122.4m).
As at 24 July 2015, there were 662.3m shares in issue.
8 Dividends
The interim dividend of 10.5p (2014: 9.6p) per share (not recognised as a
liability at 30 June 2015) will be payable on 30 November 2015 to ordinary
shareholders on the register at the close of business on 23 October 2015. The
dividend disclosed in the statement of changes in equity represents the final
ordinary dividend of 19.6p (2014: 17.8p) per share as proposed in the 31
December 2014 financial statements and approved at the Group's AGM (not
recognised as a liability at 31 December 2014).
9 Business combinations
The Group has made a number of acquisitions in the period which are shown in
aggregate below:
avocis Public Other Provisional
sector acquisitions fair value
subsidiary to Group
partnership
£m £m £m £m
Property, plant and equipment 7.2 3.4 1.0 11.6
Intangible assets 105.1 10.9 31.1 147.1
Trade and other receivables < 1 year 47.4 2.7 18.8 68.9
Cash and cash equivalents 6.4 - 5.4 11.8
Trade and other payables < 1 year (19.8 ) (1.8 ) (10.4 ) (32.0 )
Accruals < 1 year (8.4 ) (1.1 ) (7.8 ) (17.3 )
Provisions (3.6 ) - (1.3 ) (4.9 )
Income tax (7.0 ) - (0.9 ) (7.9 )
Deferred tax (21.5 ) (2.2 ) (3.9 ) (27.6 )
Employee benefits liability (4.3 ) - - (4.3 )
Long term debt (39.3 ) - (2.2 ) (41.5 )
Net assets 62.2 11.9 29.8 103.9
Goodwill arising on acquisition 75.2 14.8 68.4 158.4
Non-controlling interest - (6.7 ) - (6.7 )
137.4 20.0 98.2 255.6
Discharged by:
Cash consideration paid 137.4 20.0 90.6 248.0
Contingent consideration accrued - - 7.6 7.6
137.4 20.0 98.2 255.6
The full exercise to determine the fair value of intangible assets is still to
be completed, thus the above numbers are provisional. In respect of the
acquisitions made in 2015, the Group has agreed to pay the vendors additional
consideration dependent on the achievement of performance targets in the
periods post acquisition. These performance periods are of up to 3 years in
duration and will be settled in cash on their payment date on achieving the
performance criteria. The range of the additional consideration payment is
estimated to be between £5m and £13m. The Group has included £7.6m 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.
Further cash consideration was paid in respect of previous acquisitions of £
34.6m.
10 Provisions
Business Asset Insurance Property Other Total
exit services provision provision
provision settlement
provision
£m £m 123.4 123.4
interests
Fixed rate interest rate swaps - 60.0 - - - 60.0
- 62.3 - 18.5 2,542.1 2,622.9
As at 31 December 2014 Available-for-sale At fair Loans and Derivatives Other Total
value receivables used for financial
through hedging liabilities
the income
statement
£m £m £m £m £m £m
Financial assets
Unlisted equity securities 2.5 - - - - 2.5
Investment loan - - 5.0 - - 5.0
Interest rate swaps in relation to - - - 9.8 - 9.8
GBP denominated bonds
Currency swaps in relation to US$ - - - 175.6 - 175.6
denominated bonds
2.5 - 5.0 185.4 - 192.9
Financial liabilities
Overdrafts - - - - 429.8 429.8
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