REG-Capita PLC: Half-yearly Report <Origin Href="QuoteRef">CPI.L</Origin> - Part 3
29/07/2015 07:00
- Part 3: For the preceding part double click ID:nPRrS7226b
Unsecured loan notes - - - - 0.2 0.2
Bonds - - - - 1,306.8 1,306.8
Long term bank loans - - - - 300.0 300.0
Cash flow hedges - - - 18.7 - 18.7
Non-designated foreign exchange - 1.2 - - - 1.2
forward contracts
Currency swaps in relation to US$ - - - 0.6 - 0.6
denominated bonds
Contingent consideration - - - - 56.1 56.1
Deferred consideration - - - - 23.1 23.1
Obligations under finance leases - - - - 11.9 11.9
Public sector subsidiary partnership - - - - 54.3 54.3
payment
Put options of non-controlling - - - - 109.4 109.4
interests
Fixed rate interest rate swaps - 63.3 - - - 63.3
- 64.5 - 19.3 2,291.6 2,375.4
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 2015, the Group held the following financial instruments measured
at fair value:
30 June 31
2015 December
2014
£m £m
Assets measured at fair value
Non-designated foreign exchange forward contracts 0.6 -
Interest rate swaps in relation to GBP denominated bonds 7.4 9.8
Currency swaps in relation to US$ denominated bonds 159.3 175.6
167.3 185.4
Liabilities measured at fair value
Bonds 1,345.2 1,181.8
Cash flow hedges 18.1 18.7
Non-designated foreign exchange forward contracts 2.3 1.2
Currency swaps in relation to US$ denominated bonds 0.4 0.6
Fixed rate interest rate swaps 60.0 63.3
Public sector subsidiary partnership payment 55.4 54.3
Contingent consideration 37.3 56.1
1,518.7 1,376.0
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 2015, 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 £37.3m. 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 £3.0m. A 10% decrease in the probability
of the contingent consideration being paid results in a decrease in potential
contingent consideration of £4.8m.
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 4 to 10. 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 £3m.
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 £10.0m
increase/decrease in the valuation; a 1% increase/decrease in the discount rate
applied to the valuation results in a £5.1m decrease/£5.4m increase in the
valuation.
The following table shows the reconciliation from the opening balances to the
closing balances for level 3 fair values:
Contingent Subsidiary Put options of
consideration partnership non-controlling
payment interests
£m £m £m
At 1 January 2015 56.1 54.3 109.4
Arising from acquisitions in the period 7.6 - 9.8
Income statement - administrative expenses 1.3 - -
Income statement - finance expense - 1.1 -
Equity movement - fair value movement in put - - 4.2
options
Utilised (27.7 ) - -
At 30 June 2015 37.3 55.4 123.4
13 Capital commitments
At 30 June 2015, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment amounted to £
0.2m (30 June 2014: £0.2m).
14 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 6 months
30 June 30 June
2015 2014
£m £m
Short term employment benefits 3.3 3.1
Post employment benefits 0.1 0.1
Share based payments 3.9 2.1
7.3 5.3
Gains on share options exercised in the period by key management personnel
totalled £7.1m (30 June 2014: £3.3m).
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 23
July 2015 was as below:
Shareholder No. of % of voting
shares rights
Invesco Asset Management 68,877,348 10.41 %
Veritas Asset Management LLP 48,291,643 7.30 %
Woodford Investment Management LLP 35,060,250 5.30 %
BlackRock, Inc 34,201,181 5.14 %
Marathon Asset Management LLP 22,933,805 3.46 %
Legal & General Group Plc 19,920,066 3.01 %
15 Contingent liabilities
The Group has provided, through the normal course of its business, performance
bonds and bank guarantees of £91.5m (31 December 2014: £86.0m).
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 2014. A list of current Directors is maintained on
the Group website: www.capita.co.uk.
By order of the Board
A Parker A N Greatorex
Chief Executive Group Finance Director
28 July 2015
END
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