REG-Capita PLC: Pre-close update & proforma historical financial info

CapitaAnnouncement

13/12/2021 07:05

Capita plc

13 December 2021

Pre-close update and proforma historical financial information

Summary
*
Capita has delivered revenue growth of just under 1% in the 11 months to 30
November 2021:
*
Strong performance by Capita Public Service;
*
Capita Experience revenue decline reflecting previously announced contract
attrition;
*
Solid performance from most businesses within Capita Portfolio but slower than
expected recovery from Covid.
*
We are continuing to deliver on our plans to strengthen the balance sheet:
*
Recently announced disposals of Secure Solutions and Services and Specialist
Insurance, together with the disposals of ESS and Axelos earlier in the year,
means £620m proceeds now achieved toward target of £700m by H1 2022;
*
Further reduction of outstanding financial debt in H2 2021; total of £210m of
maturities repaid in 2021;
*
Continuing to target further reduction in debt and pension liability.
*
FY 2021 net debt expected to be broadly flat vs half year, as previously
guided
*
We continue to expect sustainable free cash flow(1) generation in 2022

Jon Lewis, Chief Executive Officer, said:

“We have continued in recent months to make progress with our corporate
transformation, particularly in our Public Service division.  However, Covid
has continued to impact some businesses within our Portfolio division. This,
combined with the anticipated revenue attrition in our Experience division has
slowed the overall rate of top line growth this year.

“We have delivered our disposals programme, which now totals more than
£620m proceeds for the year, strengthening our balance sheet and providing
the funds to further reduce our outstanding financial debt in 2022.

“We have established the foundations for future long term sustainable
revenue growth. We continue to expect the Group to generate sustainable free
cash flow in 2022.”

Trading

Group revenue(2) for the 11 months to 30 November 2021 increased by 0.6% to
£2,882m.

Capita Public Service has grown by 11% to £1,292m, driven in particular by
Royal Navy training, as well as recent new contract wins and renewals with
HMRC, the Standards and Testing Agency, and the Ministry of Justice.

Capita Experience revenue has declined by 8% to £1,083m, reflecting
previously announced contract losses mainly as a result of client corporate
actions, as well as ongoing revenue attrition in the closed book Life &
Pensions segment.  However, whilst Capita Experience remains earlier in its
transformation, the division has also won and extended contracts with the,
RSPCA, a major UK bank, a FTSE 100 pensions client and with Thames Water.

Our non-core businesses, held in the Capita Portfolio division, have grown
revenue by 0.4% to £507m, with a solid revenue performance in most businesses
offset by slower than expected recovery in Covid-affected transactional
businesses such as Agiito (Travel and Events), Enforcement, and Optima.

Operationally, we continue to execute well on contracts, in particular with
the successful go-live of the extension to the Ultra-Low Emission Zone (ULEZ)
in London at the end of October, and the resolution of all outstanding issues
on our PCSE and EMS contracts. This has resulted in another year of improving
client Net Promoter Score.

We have continued to deliver cost savings in the last year of the
transformation programme, improving our profitability this year, as well as
further efficiencies from our new organisational structure (including the
£50m of savings targeted for 2022), which we expect to continue into the
future. These will help to partially offset certain inflationary pressures
that we expect to impact the business in 2022 as a result of the current macro
environment and challenged labour market.

Net debt and balance sheet

As noted at the half-year results, we have seen a material working capital
outflow in the second half, reflecting the unwind of advanced customer
payments as well as structural working capital movements in our long-term
contracts.

Post-IFRS 16 net debt(3) at 31 December 2021 is expected to be broadly in line
with the £894m reported at the half year, as previously guided.

We have continued to execute on our disposal programme to strengthen the
balance sheet and simplify the business.

Including the Secure Solutions and Services and Specialist Insurance
disposals, we have now achieved £620m towards our target of £700m by H1
2022.

We will continue with our plans to dispose of non-core businesses in the
Portfolio division to further reduce our debt and will launch another two
disposal processes early in the new year.

Recognising that the forthcoming year-end marks the culmination of Capita’s
period of corporate transformation, as part of the 2021 annual accounts
preparation process the Board expects to review the status of certain balance
sheet items, in particular relating to the closed book Life & Pensions
business and the Group’s finance systems. Any accounting adjustment arising
from this review would be non-cash in nature and would not affect our
expectations for 2022.

Proforma divisional information

We will report Full Year 2021 in our new organisation structure. The table
below sets out the historical proforma financial performance(4) of the
divisions for the last two years.

Public Service

                                     H1 '21  H1 '20  FY '20  FY '19  
 Revenue (£m)                          708     649    1,273   1,436  
 Revenue Growth %                      9%       -     (11%)     -    
 Operating Profit (£m)                 41      17      13      85    
 Operating Margin %                    6%      3%      1%      6%    
 EBITDA (£m)                           66      56      88      155   
 Cash generated by operations (£m)     88      86      96      46    
 Cash conversion %                    133%    154%    109%     30%   

Experience

                                     H1 '21  H1 '20  FY '20  FY '19  
 Revenue (£m)                          600     651    1,307   1,337  
 Revenue Growth %                     (8%)      -     (2%)      -    
 Operating Profit (£m)                 31      24      81      100   
 Operating Margin %                    5%      4%      6%      7%    
 EBITDA (£m)                           68      55      142     186   
 Cash generated by operations (£m)     29      35      145     80    
 Cash conversion %                     43%     64%    102%     43%   

Portfolio

                                     H1 '21  H1 '20  FY '20  FY '19  
 Revenue (£m)                          277     282     558     681   
 Revenue Growth %                     (2%)      -     (18%)     -    
 Operating Profit (£m)                 21       8      42      95    
 Operating Margin %                    8%      3%      8%      14%   
 EBITDA (£m)                           38      29      81      113   
 Cash generated by operations (£m)     84      97      142     99    
 Cash conversion %                    221%    334%    175%     88%   

Group

                                H1 '21  H1 '20  FY '20  FY '19  
 Revenue (£m)                      -       -       -       -    
 Revenue Growth %                  -       -       -       -    
 Operating Loss (£m)             (26)    (33)    (57)    (58)   
 Operating Margin %             (100%)  (100%)  (100%)  (100%)  
 EBITDA (£m)                     (26)    (32)    (53)    (52)   
 Cash used by operations (£m)    (25)    (28)    (50)    (51)   
 Cash conversion %               (96%)   (88%)   (94%)   (98%)  

Total Adjusted

                                     H1 '21  H1 '20  FY '20  FY '19  
 Revenue (£m)                         1585    1582    3138    3454   
 Revenue Growth %                      0%       -     (9%)      -    
 Operating Profit (£m)                 67      16      79      222   
 Operating Margin %                    4%      1%      3%      6%    
 EBITDA (£m)                           146     108     258     402   
 Cash generated by operations (£m)     176     190     333     174   
 Cash conversion %                    121%    176%    129%     43%   

A brief commentary on the proforma performance is set out below:

The performance of the Capita Public Service division over the last two years
reflects a major turnaround through the transformation, moving from
significant revenue attrition to strong top line growth which, supported by
our ongoing efficiency programme, is translating into strong profit
progression and cash flow generation.

Capita Experience is at an earlier stage in its transformation. The priority
for this division has been to focus on client service, to drive contract
retention and mitigate recent contract losses, and to deliver efficiencies in
the cost base. This will help us to start to grow revenue, profit and cash
flows in the future. The closed book Life & Pensions business unit remains
structurally challenging. Over the longer term, Capita Experience will benefit
from its blue-chip client base, strong markets and market position and more
efficient delivery platform.

Capita Portfolio’s businesses have been severely affected by the Covid
lockdowns, particularly transactional businesses in certain industries such as
Travel & Events and Enforcement.

Capita has invested in its Group functions as part of the transformation, in
order to gain control and insight into the business. Shared Services costs,
for the provision of finance, HR and IT services, have now been allocated to
the divisions, using appropriate drivers such as headcount.

The following table shows the impact on adjusted revenue and profit from
disposals that have been made this year, subject to regulatory clearances:

 FY ‘20  (£m)     Reported results  Adjusted results  Axelos  Restated FY ’20 excluding Axelos    Secure Solutions  Specialist Insurance  Restated adjusted FY ‘20    
 Revenue                3,324             3,181         43                   3,138                       73                  26                      3,039            
 PBT                    (49)               65           32                    33                          9                   6                       18              

Full Year results are planned for March 2022.

Notes

1 Sustainable free cash flow = reported free cash flow excluding the impact of
disposals

2 Like-for-like adjusted revenue, adjusted for disposals and businesses held
for sale

3 Net debt post IFRS 16. Pre-IFRS 16 net debt at H1 2021 was £427m

4 Proforma numbers exclude Axelos and therefore agree to adjusted numbers
presented at H1 2021 results

For further information:

Capita                                

Stuart Morgan, Investor Relations Director          T +44 (0) 7989 665
484

Capita press
office                                                    
T +44 (0) 20 7654 2399

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