Capita Plc · LSE:CPI
Capita — H1 2021 Earnings Presentation
41 slides from Capita's earnings presentation, Aug 6, 2021
Slide 1: Half year results 2021
Half year results 2021 6 August 2021
Slide 2: Disclaimer
Disclaimer This half-year results statement is prepared for and addressed only to the Company's shareholders as a whole and to no other person. The Company, its Directors, employees, agents and advisers accept and assume no liability to any person in respect of this update save as would arise under
Slide 3: Making good progress on our priorities
Making good progress on our priorities Strengthen the balance sheet, grow revenue and implement our new structure • Revenue maintained in H1 as whole, Q2 +4.5%, despite ongoing Covid impact • Operating leverage benefit from stable revenue and efficiency driving margins and profit • Balance sheet str
Slide 4: Financial results
Financial results Tim Weller All figures included within this presentation are on an adjusted basis (AXELOS excluded from adjusted results in both periods, as held for sale at half year 2021), unless otherwise stated. 4
Slide 5: Financial overview
Financial overview • Revenue maintained in line with H1 20 Key financial metrics £m £m £m HY21 HY20 Change • Profit improvement reflecting stabilised revenue Revenue 1,584.7 1,582.1 2.6 and ongoing efficiency delivery Profit/(loss) before tax 45.3 (11.1) 56.4 • Cash generated by operations down on p
Slide 6: Revenue
Revenue £m • Contract losses halved year-on-year reflecting sustained focus on retention and service delivery • Scope and volume reductions reflect pandemic related work in 2020 and projects in Customer Management which did not repeat in 2021 • Growth in transactional revenue mainly driven by Techno
Slide 7: Adjusted profit before tax
Adjusted profit before tax £m • 2020 one-offs include contract asset impairments in Customer Management and contract provisions • Transactional margin recovery particular in Technology Solutions • Margin from contract wins not yet offsetting margin effect of contract losses • Continued efficiency de
Slide 8: Reported profit before tax
Reported profit before tax • Business exits reflect ESS & Irish Life and Pensions disposals (£240m profit on disposal) and classification of Axelos as held-for-sale • Strategic restructuring costs expected to increase to between £75m and £90m for FY21 with implementation of Future Capita structure £
Slide 9: Divisional financial performance
Divisional financial performance Revenue £m Operating Profit £m HY21 HY20 % Change HY21 HY20 % Change Software 121.7 127.4 (4.5)% 22.0 13.2 66.7% People Solutions 232.2 221.5 4.8% 12.2 3.3 269.7% Customer Management 513.5 561.8 (8.6)% 47.6 41.5 14.7% Government Services 401.2 364.8 10.0% 27.5 14.2 9
Slide 10: Future Capita proforma revenue
Future Capita proforma revenue Proforma revenue £m • New divisional structure live from 2 August HY21 HY20 % Change • Two client-focused core divisions with attractive market positions and track record of winning new Capita Public Service 703.5 647.8 8.6% work Capita Experience 596.0 644.6 (7.5)% •
Slide 11: Cash flow and net debt movement
Cash flow and net debt movement • Operating cashflow / EBITDA conversion 121% (2020: £m HY21 HY20 176%) – prior year working capital benefit from £77m of EBITDA 145.6 108.0 Covid-19 related advanced receipts Working capital 21.2 72.4 • Working capital outflow expected in H2 - revenue growth Other 9.
Slide 12: Cash flow headwinds as expected
Cash flow headwinds as expected • Full year 2021 reported cash flow is, as previously outlined, expected to be impacted by a number of one-off items which we have set out aside • Deferred VAT benefit c£120m in full year 2020 expected to largely reverse in 2021 • Agreement with Trustees in respect of
Slide 13: Strengthening the balance sheet
Strengthening the balance sheet £m £m • Substantial liquidity at 30 June 2021 with wholly Liquidity HY21 FY20 undrawn RCF and £242m of unrestricted cash Revolving credit facility (RCF) 452.0 452.0 • Existing RCF maturing 31 August 2022 now Backstop (bridge) facility - 150.0 supplemented with £300m R
Slide 14: Summary
Summary • Encouraging first half financial performance in line with expectations • Platform for revenue growth into second half • Net debt expected to be broadly flat over second half before further disposals • On track for sustainable free cash flow in 2022 • Substantial progress in strengthening t
Slide 15: Strategic update
Strategic update Jon Lewis, CEO 15
Slide 16: Our Purpose: Our licence to operate
Our Purpose Our licence to operate A responsible and responsive employer A good corporate citizen • Over 40,000 colleagues working from home • Helped train 22,000 young people • Published our Ethnicity Pay Gap for the first with essential skills needed for the time to help identify and address world
Slide 17: Driving revenue growth, margins and cash
Driving revenue growth, margins and cash Virtuous circle to raise cash and profit margins Efficient Improving execution cash margin On the right Improved terms reputation Winning Focusing on more work client needs 17
Slide 18: Growing revenue in 2021
Growing revenue in 2021 Strong sales performance in H1 £2.57bn • Encouraging start to the year with 70% increase in TCV • 9% growth excluding Royal Navy Training 0.8 in 2019 1.6 • Turnaround in reputation for delivery now supports growth in order book and book to bill 76% • Customer Net Promoter Sco
Slide 19: Strong pipeline of increasingly attractive mix of business
Strong pipeline of increasingly attractive mix of business Order book 8 Data supports expectations for revenue 7 growth and changing mix 6 • Growing order book - £0.8bn increase 5 from FY 2020 4 £bn • Strong pipeline - £2bn added to 2022 pipeline in last 12 months 3 2 • Changing mix in the pipeline
Slide 20: Sales benefiting from greater focus on customers and products
Sales benefiting from greater focus on customers and products Focusing on customers’ needs Top 10 market offerings in H1 by TCV • 98% of TCV sold to our top 10 key Employee Trustmarque accounts Digital Experience Connectivity People • £1.6bn in new scopes Solutions With scalable, repeatable product
Slide 21: Winning work at the right price to increase Group margins
Winning work at the right price to increase Group margins Disciplined approach to winning work: 11% • Average bid margin1 in double digits Net margin since 2018 6 percentage points Margin average uplift on significant • Lifting margins on renewals recent renewals c.£400m • Rejecting large revenue TC
Slide 22: Strong operational performance drives revenue and margin
Strong operational performance drives revenue and margin Day to day operations are now on par with 91% industry leaders, up 1% on prior year Headline service KPIs Big new contracts being delivered to ‘bid’ margins £80m Good performance offers Additional TCV secured opportunity to win more revenue si
Slide 23: Delivering on new contracts
Delivering on new contracts Legacy problem contracts being finalised Legacy contracts New contracts £(230)m £1.9bn of Current expected lifetime cash TCV won losses between Current forecast Forecast at bid Cash losses to date 2012 to 2021 margin ahead vs bid margin Bid margin Forecast margin Cash los
Slide 24: Operating leverage driving higher returns in the core base
Operating leverage driving higher returns in the core base Cost savings support operational leverage effect on margin Cost savings from: Operational excellence Technology • Ongoing improvements to operational efficiency • Secure sustained benefits from new ways of working Driving • Simplification of
Slide 25: Capita's new structure: client-focused, with shared services and lean overhead
Capita’s new structure: client-focused, with shared services and a lean Group overhead Group and shared services Public Service Experience Portfolio £50m p.a. annual cost savings from 2022 25
Slide 26: Capita Public Service
Capita Public Service: The largest strategic BPS supplier to UK government Provides consultancy, applied digital transformation and Business Process Services (BPS) to improve the productivity of government operations and the citizen experience of public services Market positioning H1 wins Pipeline O
Slide 27: Capita Public Service: Royal Navy collaboration
Capita Public Service Royal Navy – close collaboration with client and partners • Capita leading the team which is already performing at the level required to achieve operational outputs with all KPIs on track • Relationship and strong collaboration with client and partners is at the heart of delive
Slide 28: Capita Experience
Capita Experience: Superior customer service propositions We are experts in designing, transforming and delivering frictionless experiences for the Life Moments that really matter. Market positioning H1 wins Pipeline Outlook £55bn £5.1bn 3-year outlook: 2020 Global market for CX £514m TCV • Initial
Slide 29: Capita Experience: Southern Water
Capita Experience Southern Water - putting the customer first through quality service Without the support of Capita, we wouldn’t have progressed this • 68% reduction in complaints since 2015 quickly. They’ve accommodated • 76% reduction in billing queries every request for support and put the custom
Slide 30: Capita Portfolio: Structured to dispose of non-core businesses
Capita Portfolio Structured to dispose of non-core businesses People Property Technology Software Public Travel Fera Capita Real Estate & Trustmarque AMT-SYBEX Enforcement Agiito Fera JV Resourcing Infrastructure Unified Comms Healthcare Tascor Evolvi Security GL Hearn Decisions Watchdog Capita Opti
Slide 31: Summary
Summary • Encouraging H1 financial performance – stable revenue and profit improvement • On track for organic revenue growth in 2021, first time since 2015 • Balance sheet strengthening well underway • New organisational structure now operational: more client-focused and efficient • Revenue growth,
Slide 32: Q&A
Q&A 32
Slide 33: Appendix
Appendix
Slide 34: Software
Software £m HY21 HY20 Revenue Revenue 121.7 127.4 • Lower volumes in AMT Sybex and the cessation of certain SSS Divisional profit 22.0 13.2 support contracts Divisional profit margin 18.1% 10.4% • Offset by recovery of volumes within the Pay 360 business EBITDA 27.1 18.5 Profit Working capital/other
Slide 35: People Solutions
People Solutions £m HY21 HY20 Revenue Revenue 232.2 221.5 • Royal Navy and Royal Marines Training contract win in H1 21 Divisional profit 12.2 3.3 • Offset in part by historical contract losses. Retention rates have Divisional profit margin 5.3% 1.5% remained high since early 2020 8.5 EBITDA 16.8 Pr
Slide 36: Customer Management
Customer Management £m HY21 HY20 Revenue Revenue 513.5 561.8 • Reduced business volumes in the Life & Pensions business Divisional profit 47.6 41.5 • Debenhams, VWG, First Group contract losses not replaced in year Divisional profit margin 9.3% 7.4% Profit EBITDA 59.5 55.0 • Improvement due to conti
Slide 37: Government Services
Government Services £m HY21 HY20 Revenue Revenue 401.2 364.8 • Royal Navy and Royal Marines Training & Job Entry Targeted Support Divisional profit 27.5 14.2 contract wins in H1 21 Divisional profit margin 6.9% 3.9% • Full half year benefit of DFRP EBITDA 30.6 16.8 Profit Working capital/other 39.8
Slide 38: Technology Solutions
Technology Solutions £m HY21 HY20 Revenue Revenue 211.6 190.5 • Increased business volumes in the TfL Networks contract and in the Divisional profit 18.7 12.7 Trustmarque business offset contract losses with NHS BSA and AAH Divisional profit margin 8.8% 6.7% Pharmaceuticals EBITDA 27.9 22.2 • One-of
Slide 39: Specialist Services
Specialist Services £m HY21 HY20 Revenue Revenue 95.3 102.4 • Lower transactional revenue from the continued impact of Covid-19 Divisional profit 0.3 (4.1) restrictions on the travel and enforcement businesses and contract Divisional profit margin 0.3% (4.0%) losses within the Tascor business EBITDA
Slide 40: Order book bridge FY20 to HY21
Order book* bridge FY20 to HY21 Relevant to approximately 75% of revenue £8.0bn base £7.0bn 6,704 • Includes contracted revenue and software 2,139 licences 5,851 (143) £6.0bn • Excludes contract growth and non- contracted revenue £5.0bn (1,143) Wins in 2021 include the Royal Navy and £4.0bn Royal Ma
Slide 41: Definitions
Definitions Scope and Volume: includes revenue and profit movements from unwind of current secured orderbook contracts, revenue awarded through framework contracts, volumetric and variable revenue (which is not transactional), change control, scope changes, impact of SLA’s and indexation Sustainable