Capita Plc · LSE:CPI
Capita — FY2019 Earnings Presentation
57 slides from Capita's earnings presentation, Mar 5, 2020
Slide 1: Full year results 2019
Full year results 2019 5 March 2020
Slide 2: Disclaimer
Disclaimer This full-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: Overview
Overview We have made good progress with the transformation • Creating a purpose-led organisation to drive long term sustainable success • Significant progress in fixing legacy issues and reducing “cost of poor quality” • Rebuilding trust with our colleagues and clients • More investment needed than
Slide 4: Transformation recap: our plan is to do fewer things, better
Transformation recap: our plan is to do fewer things, better Simplify Strengthen Succeed • Focus on strong positions • Strengthen leadership and • Progressive, purpose-led, with growth potential governance responsible business • Use common, scalable • Investment in asset base, • Innovative and creat
Slide 5: We have made significant progress, but there is more to do
We have made significant progress, but there is more to do 2017 By December 2020 2020 BALANCE SHEET Extended RCF in Leverage 2.3x and place; extended debt increasing maturity planned. Poor governance & GOVERNANCE, OPERATING MODEL AND PEOPLE New operating model discipline, no people supporting revenu
Slide 6: Financial results
Financial results Patrick Butcher 6
Slide 7: Financial overview
Financial overview • Overall revenue decline in line with expectations, £m £m % Key financial metrics FY19 FY18 Change mainly driven by Specialist Services Revenue • Profit before tax in line with expectations, impact 3,647.4 3,814.7 (4) of lost revenue, lower margins on contract Operating profit 30
Slide 8: Change in revenue
Change in revenue £m Overall revenue declined; lower than expected growth from contract wins in H2 was offset by slower handbacks on local authority contracts • one-offs in 2018 relate to release of deferred income on termination of the Prudential and Marsh contracts • Contract losses includes: • An
Slide 9: Revenue changes: an alternative view
Revenue changes: an alternative view • We have described elements of the Life and Pensions Business and certain multi-service £2bn Change local government contract as structurally H1 18 – H2 19 challenged/run off 375.2 321.3 283.6 260.0 (115) • This analysis provides more detail on this breakdown •
Slide 10: Revenue changes: progress on our digitally enabled revenue
Revenue changes: progress on our digitally enabled revenue Revenue excluding H1 19 to H2 structurally challenged £m £m 19 contracts H1 19 H2 19 % Change Software 185.7 189.7 2.2% People Solutions 246.7 247.4 0.3% • Revenue growth in H2, in 5 divisions, even Customer Management 399.2 403.3 1.0% thoug
Slide 11: Cost reduction – out performing
Cost reduction – out performing • Disciplined management of cost £m Expected reduction has led to significant flow £m financial benefits through to Expected FY20 of cumulative • Over the last two years savings £m FY18 £m FY19 savings achieved savings to FY20 have been generated through 2018 year on
Slide 12: Profit before tax
Profit before tax £m • Profit before tax in line with expectations; impact of lost revenue, lower margins on contract renewals and investment offset by cost out and one-off benefits • Improved performance on three challenging contracts by £32m – PCSE, RPP and mobilcom-debitel • Net contract movement
Slide 13: Divisional margins improved to 12.2%
Divisional margins improved to 12.2% • Software reflects investment in products, Profit £m Margin % US market entry costs and creation of FY19 FY18 FY19 FY18 Digital Delivery Centre • People Solutions reflects investment in Software 102.9 109.6 27.4% 28.8% improving operational delivery People Solut
Slide 14: There are a number of items excluded from adjusted PBT
There are a number of items excluded from adjusted PBT • Amortisation of acquired intangible assets is run down £m £m FY19 FY18 of previously acquired intangibles and an impairment recognised in the Customer Management division in Adjusted PBT 275.0 281.2 2018 Amortisation and impairment of (49.9) (
Slide 15: Capital Expenditure
Capital Expenditure Invested £182m in capital expenditure in 2019 £m £m Net capital expenditure FY19 FY18 • Maintenance: • Investment in systems, finance, sales and HR Maintenance 75.8 82.9 • Data centre remediation Organisation 9.4 25.2 • Technology and Growth Technology and Growth 82.1 26.6 • Inve
Slide 16: Free cash flow
Free cash flow • EBITDA declines as a consequence of lost revenue, £m £m FY19 FY18 margin on new business and investment offset by cost out and one-off benefits EBITDA 394.5 425.3 • Contractual working capital movement due to: Contractual working capital movement (DI, CFA (228.7) (217.0) and AI)* •
Slide 17: Free cash flow to headline net debt
Free cash flow to headline net debt • Pension payment of £71m in line with £m £m FY19 FY18 agreed pension deficit reduction plan • Further investment in restructuring Free cash flow (61.3) (78.8) £149m Pension deficit payment (71.1) (46.9) • Business exits and discontinued Restructuring (148.5) (100
Slide 18: Continued Investment
Continued Investment Investment outlined in 2018 prospectus (multi year transformation) £m • Beginning of 2018 expected to invest £720m Targeted investments 500.0 over 3 years Transformation Programme 220.0 • By end of 2019, invested £650m, with further Total 720.0 operating expenditure, restructuri
Slide 19: Headline net debt
Headline net debt • Increase in headline net debt and leverage ratio £m £m FY19 FY18 • Term loan - £100m repaid in May 2019 Opening headline net debt (466.1) (1,117.0) • USPPN - £86m, net of swaps, repaid in July 2019 Cash movement in headline net debt (334.9) 654.1 • Revolving credit facility and b
Slide 20: Financial outlook
Financial outlook • Revenue modest organic growth • Working capital Contractual outflows to reduce by over £120m and further benefits from debtor/creditor improvements • Free cash flow at least £160 million • Net debt modest rise All figures are on an adjusted basis unless otherwise stated and pre-I
Slide 21: CEO update
CEO update Jon Lewis 21
Slide 22: Significant progress over two years, more to do
Significant progress over two years, more to do 2018 - “model broken” after years of under investment Initial assessment Losing clients, revenue, cash No / low-growth markets Invest in our people and culture Better governance to reduce future risk Reducing cost of poor quality Simplify, Rebuild repu
Slide 23: Investing in our people and culture
Investing in our people and culture • 2 employee directors • Fair Tax Mark accreditation • Hampton-Alexander diversity • Founder signatory of Good target met A responsible A good Business Charter • and responsive corporate Minimum real living wage for • Positive reputation all UK employees from Apri
Slide 24: Better governance has embedded reduced future risk
Better governance has embedded reduced future risk Contract Review Committee embedded in pre-bid process for major contracts since early 2018 Data-led, structured approach, aligned to Post win review processes • Responsible business focus • Ensuring implementation remains on track • Strategy • Feedb
Slide 25: Reducing the 'cost of poor quality' (COPQ)
Reducing the ‘cost of poor quality’ (COPQ) • Remain on track to break-even in 2020 Reduction in customer penalty payments in 20191 on three legacy problem contracts 100 • Investment over last two years has led to sustainably better performance 80 Rebased - KPIs now at 92% 60 - Major reduction in cli
Slide 26: Rebuilding our reputation with our clients
Rebuilding our reputation with our clients Winning our clients trust Stemming revenue attrition Client net promoter score (cNPS) • Sold £3.2bn in 2019: £2.2bn of order book + £1bn transactional work • 91% contract renewal rate1 in 2019 • Government supplier status improved: Tier 4 to Tier 1 1 Exclud
Slide 27: RPP Army Recruiting contract update
RPP Army Recruiting contract update • Regular soldier recruitment target will be achieved in 2019/20, first time since contract began • Operational and process improvements implemented • Faster candidate journeys • Enhanced medical triage • Lower drop out rates • Contributes to improved Cabinet Offi
Slide 28: Simplifying the portfolio
Simplifying the portfolio • Continue to review and assess the portfolio - aligning better around growth markets • Update on ‘Specialist Services’: operations either • Moved back into ‘core growth’ divisions, or • Prepared for disposal, with options being explored • Further updates as we progress • L
Slide 29: Significant progress over two years, more to do
Significant progress over two years, more to do 2018 - “model broken” after years of under investment Initial assessment Losing clients, revenue, cash No / low-growth markets Invest in our people and culture Better governance to reduce future risk Reducing cost of poor quality Simplify, Rebuild repu
Slide 30: The markets for our products and services are growing
The markets for our products and services are growing Consult We work collaboratively with clients as partners, drawing on our practical experience of delivering solutions. Mkt Growth size UK BPO1 £41bn +3% UK Government2 £372bn +3% UK Software3 £10bn +5% UK Consulting4 £11bn +6% UK Digital Transfor
Slide 31: Structure now in place to generate growth
Structure now in place to generate growth Brand Client survey in Q1, brand refresh rolled-out in September Brand and Products and marketing propositions Focus investment in scalable, repeatable products and services Investing in 6 transformational capabilities and software products CLIENT Investing
Slide 32: Refreshing Capita's brand
Refreshing Capita’s brand • 3rd party study commissioned in early 20191 • Clients told us Capita is a reliable delivery Brand affinity partner • At our best we compete with almost any brand in the industry • New brand launched in September Knowledge of my Knowledge of my Broad service Expert in tech
Slide 33: Investing in our software portfolio
Investing in our software portfolio Product Market Value Proposition Cloud / SaaS An open platform ecosystem unlocks the potential of SIMS MIS – Education SIMS 8, SIMS Pay, SIMS Finance, SIMS Parent, Curriculum-led financial planning dashboards, Literacy360 & 3rd party APIs Cloud enabling our Local
Slide 34: Focus investment in 6 'transformation capabilities'
Focus investment in 6 ‘transformation capabilities’ Capability Recent wins/activity Customer experience (CX) Multi-channel CX contracts (e.g. O2), local government citizen experiences, Dragonfly Data and Insight Artificial intelligence, law enforcement capability, FSCS insight Cloud Cloud architectu
Slide 35: Capita has one of the UK's largest automation capabilities
Capita has one of the UK’s largest automation capabilities Capita’s capabilities Client application • ‘Enterprise Automation as a Service’ built Cloud-first • More accurate, faster, reliable, consistent • Technology agnostic - partnering with all key providers • Cost efficiencies • Portfolio deliver
Slide 36: Capita operates what will be the UK's largest IOT network
Capita operates what will be the UK’s largest IOT network Capita’s capabilities Client application • Deliver secure, reliable and scalable IoT managed platform • Unlock new sources of data, make devices smart, resulting in with cloud services smarter business decisions and better customer experience
Slide 37: Capita Consulting launched in Q4 2019
Capita Consulting launched in Q4 2019 2019 progress Current team profile Pull through revenue model • Bringing together existing consulting practices for first Partner 50 time • Investment in senior hires Principals/ 170 • Revenue £12m, Loss £(5)m Senior consultants Consultants 130 Consult Change De
Slide 38: Capita Consulting – early progress
Capita Consulting – early progress 5 Practices – aligned to transformational capabilities • Experience • Data science • Cloud engineering • People/Culture • Internet of Things 38
Slide 39: Good account management delivers better value for both parties
Good account management delivers better value for both parties 250% increase in annual revenue since 2017 New Capita Focus on better Toxicity charge ULEZ delivered operational account project on time and on team appointed management delivered on budget time and on budget Congestion AWN1 contracts UL
Slide 40: Summary
Summary • 2019 a year of hard work and continued progress in multi-year transformation • Priority shifting to delivering growth • Foundations now in place, after significant investment • Improved market positioning, better outlook for Government spending • 2020 priorities • Deliver organic revenue g
Slide 41: Q&A
See eee eens nee Q&A
Slide 42: Appendix
Appendix 42
Slide 43: Revenue stabilising
Revenue stabilising Capita’s Order Book Revenue £8bn £4bn 736 2551 786 1628 697 544 1396 3,598 3,312 3,118 3,104 5,640 5,468 5,324 FY17 FY18 FY19 FY16 FY17 FY18 FY19 Digital services and software Digital services and software Structural change/run-off* Structural change/run-off* *Structurally challe
Slide 44: Order book bridge FY18 to FY19
Order book* bridge FY18 to FY19 Relevant to approximately c.70% of £9.0bn revenue base £8.0bn • Includes contracted revenue and 7,096 2,179 6,720 software licences £7.0bn (63) • Excludes contract growth, framework and £6.0bn non-contracted revenue £5.0bn Wins yet to offset revenue earnt £4.0bn (2,49
Slide 45: Divisional financial performance
Divisional financial performance Revenue £m Profit £m Margin % £m FY19 FY18 FY19 FY18 FY19 FY18 % H1 H2 Total % Change Change Software 185.7 189.7 375.4 379.9 (1.2) 102.9 109.6 (6.1%) 27.4% 28.8% People Solutions 250.5 250.0 500.5 494.6 1.2 34.9 45.0 (22.4%) 7.0% 9.1% Customer Management 399.2 403.3
Slide 46: Overall revenue split
Overall revenue split Revenue split – based on IFRS 15 definitions: Adjusted revenue split FY19 • 72% long term contractual • 15% short term contractual • 13% transactional Transactional 13% Considerable variation by division Categories are consistent with those presented in Short term previous year
Slide 47: IFRS 16 Leases: key points
IFRS 16 Leases: key points Key impacts of adoption: No impact on: • Right of Use Asset (RoUA) recognised on balance sheet of £568m • Total cash flow • Net present value of future rental payments included as lease liability • Prior year comparatives as on the balance sheet of £644m elected modified r
Slide 48: Impact of IFRS 16
Impact of IFRS 16 £m £m £m £m £m IFRS 16 Pre-IFRS £m IFRS 16 Pre-IFRS 16 Balance Sheet as at 31 Dec 19 FY19 adjustment 16 FY19 Profit/(loss) FY19 adjustment FY19 Non-current assets 2,777.0 497.3 2,279.7 EBITDA 505.4 110.9 394.5 Right-of-use assets 480.9 480.9 0.0 Financial assets 82.2 11.3 70.9 Depr
Slide 49: Impact of IFRS 16 cont.
Impact of IFRS 16 cont. £m £m Other £m IFRS 16 Pre-IFRS US PP financing Balance Sheet gearing FY19 adjustment 16 FY19 Leverage ratio* Headline covenants agreements Opening net debt (466.1) - (466.1) Net debt / EBITDA 2.0x 1.7x 2.2x Adoption of IFRS 16 (643.9) (643.9) - Cash movement in net debt (241
Slide 50: A progressive, purpose-led, responsible business
A progressive, purpose-led, responsible business responding to the global challenges of importance to our stakeholders • Two employee non-executive directors appointed • Fair Tax Mark accreditation to board in 2020 • Pension deficit payment: £71m payment in 2019 • Good Business Charter in 2020 • Rea
Slide 51: Software
Software Strategy & growth What we do Competitive position • Transforming 29 siloed businesses into a • Specialist enterprise software business • Education MIS: #1 UK single software business • Serving sector specific and cross-sector markets – • Emergency services: #1 UK and UK and overseas Austral
Slide 52: People Solutions
People Solutions Strategy & growth What we do Competitive position** • #1 in recruitment process • New leadership in H2 • Solve complex people issues across employment lifecycle outsourcing • Market-leading portfolio of solutions • #1 in benefits administration • Growth to be driven by account manag
Slide 53: Customer Management
Customer Management Strategy & growth What we do Competitive position • Build partnerships based on shared outcomes • Leading provider of multi-channel customer engagement • #1 in UK customer management and value services in the UK, Germany and Switzerland • #2 Germany • Primarily serving clients in
Slide 54: Government Services
Government Services Strategy & growth What we do Competitive position • Strategy for government services • Socially responsible business and strategic partner to • Leading UK government BPO government in the application of digital transformation to provider – 13% market share • Re-align business aro
Slide 55: Technology Solutions
Technology Solutions Strategy & growth What we do Competitive position • Previously IT & Networks • Digital IT and connectivity solutions in the UK • Top 10 ITO player • Consult, transform and deliver digital solutions to provide • Focus on mid-tier enterprise • New automation hub – provide consulti
Slide 56: Specialist Services
Specialist Services Strategy & growth What we do Key clients & partners • Portfolio management to maximise value • Includes our financial and regulated operations • During 2020, operations either • Government and specialist commercial partnerships – • Moved back into growth divisions, or AXELOS, Fer
Slide 57: Glossary
Glossary Acronym Division Description Software Software • Specialist enterprise software, in specific vertical markets • Leader in education, emergency services, local government & utilities PS People Solutions • Full suite of HR offerings across employment life cycle • Leading market positions in r