Capita Plc · LSE:CPI
Capita — FY2018 Earnings Presentation
52 slides from Capita's earnings presentation, Mar 14, 2019
Slide 1: Full year results 2018
Capita plc Full year results 2018 14 March 2019 1 | Capita FY Results 2018
Slide 2: Agenda
Agenda 1. Summary Jon Lewis, CEO 2. Financial results Patrick Butcher, CFO 3. Executing our strategy Jon Lewis, CEO 4. Summary & Questions 2 | Capita FY Results 2018
Slide 3: Disclaimer
Disclaimer This full year results announcement 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 trading update save as would a
Slide 4: Summary
Summary First year of multi-year transformation executed as planned in 2018 - Corporate purpose and strategy defined, and first-ever operating model rolled out - Leadership strengthened and governance improved - Balance sheet strengthened; £1.1bn raised through rights issue and disposals - £282m pro
Slide 5: Financial results
Financial results Patrick Butcher 5 | Capita FY Results 2018
Slide 6: Revenue – focusing on differentiated digitally-enabled services and software
Revenue – focusing on differentiated digitally-enabled services and software Structural changes in two existing markets AND Strategic decisions not to invest in selected markets and activities WITH Strategic focus on digitally-enabled services and software, supporting organisations’ digital transfor
Slide 7: Adjusted results
Adjusted results All figures included in this presentation are on an adjusted basis unless otherwise stated Adjusted profit excludes: • amortisation of acquired intangibles • impairment of goodwill and acquired intangibles • the costs/benefits, if significant, of items associated with acquisition an
Slide 8: Financial overview – simplifying and strengthening
Financial overview – simplifying and strengthening £m £m % Key financial metrics FY18 FY17 Change Revenue 3,867.6 4,091.8 (5.5) Operating profit 335.3 447.5 (25.1) Operating profit margin 8.7% 10.9% - Interest (53.2) (64.4) (17.4) Profit before tax 282.1 383.1 (26.4) Earnings per share (p) 16.37 27.
Slide 9: Change in revenue
Change in revenue • Contract wins including TfL and the full year £4,500m effect of mobilcom-debitel 4,092 25 • Contract losses: £4,000m 3,868 48 (172) (61) (62) (2) - Chose not to rebid – Tascor Escorting & Detention £3,500m - Terminated early – Prudential and Marsh - Insourced – Defence Infrastruc
Slide 10: Change in revenue by division
Change in revenue by division Revenue Change £m % FY18 FY17 Software 396.4 401.7 (1.3) People Solutions 498.3 520.5 (4.3) Customer Management 794.2 828.9 (4.2) Government Services 745.5 861.7 (13.5) IT & Networks 404.0 415.4 (2.7) Specialist Services 992.2 1,022.7 (3.0) Central 37.0 40.9 Total 3,867
Slide 11: Movements in profit before tax by division
Movements in profit before tax by division PBT slightly ahead of our expectations £400m 383 • One-off gains reported in 2017 from £380m Defence Infrastructure Organisation £360m 352 1 contract and a settlement with a supplier £340m (31) • People Solutions: lower volumes in Public Sector Resourcing £
Slide 12: Divisional financial performance
Divisional financial performance Profit £m Margin % FY18 FY17 FY18 FY17 Software 112.4 111.7 28.4 27.8 People Solutions 40.7 62.7 8.2 12.0 Customer Management 39.6 57.8 5.0 7.0 Government Services 35.2 78.7 4.7 9.1 IT & Networks 45.3 62.0 11.2 14.9 Specialist Services 139.5 140.6 14.1 13.7 Central (
Slide 13: Free cash flow
Free cash flow Working capital outflow £372m £m FY18 FY17 • £110m of non-recourse receivables financing fully EBITDA 428.4 519.3 repaid in FY18, a year earlier than planned Working capital (372.4) (263.2) • Normalisation of period end cash flow management activity Receivables financing cleared (110.
Slide 14: Capital expenditure: addressing historic underinvestment
Capital expenditure: addressing historic underinvestment £m £m Invested £140m in 2018 Net capital expenditure FY18 FY17 Capability/efficiency/productivity 50 41 • Ongoing upgrade of Capita’s financial system - To improve our financial reporting, processes and controls Maintenance 70 70 • Property Gr
Slide 15: Free cash flow to net debt
Free cash flow to net debt £m FY18 FY17 • Restructuring costs £101m including professional fees Adjusted free cash flow (82.5) 75.4 • Pension deficit cash payment £47m Known commitments: (225.6) 787.0 • Cash used by discontinued operations £99m, including: Restructuring (100.8) (45.0) - Connaught se
Slide 16: Balance sheet gearing
Balance sheet gearing Reduction in net debt and leverage ratio £m £m FY18 FY17 • Loan notes Opening net debt (1,117.0) (1,778.8) - £581m repaid in FY18 (£307m in H1) Cash movement in net debt 654.1 683.2 - Covenants have been renegotiated • Bank debt maturity Non-cash movements (3.2) (21.4) - £100m
Slide 17: Update on pensions
Update on pensions* Pension valuation completed Amounts charged to income £m £m statement FY18 FY17 • IAS 19 deficit reduced from £407m to £219m at 31 Dec 18 as bond yields fall Defined contribution scheme 94.9 86.2 Defined benefit schemes 27.1 40.0 • 31 March 17 actuarial deficit £185m Total in the
Slide 18: FY19 financial guidance – second year of a major transformation
FY19 financial guidance* – second year of a major transformation Net finance costs c.£40m Profit before tax PBT expected to be between £265m and £295m Net debt** Net Debt to EBITDA ratio to be in the upper half of our target range of 1 to 2 times 18 | Capita FY Results 2018 *All guidance is pre adop
Slide 19: Executing our strategy
Executing our strategy Jon Lewis 19 | Capita FY Results 2018
Slide 20: Transformation recap: our plan is to do fewer things, better
Transformation recap: our plan is to do fewer things, better • Focus on strong positions with • Strengthen leadership and • More predictable business, lower growth potential governance risk • Align organisation around growth • Up to £500m investment in asset • At least £200m of sustainable free mark
Slide 21: Transformation recap: focus on digitally-enabled services and software
Transformation recap: focus on digitally-enabled services and software Focus on differentiated, digitally-enabled services Specialist and software software Tech-led Offshore IT services Large, long-term, structural growth opportunity Data analytics and AI Digital services • Build on existing strengt
Slide 22: Transformation programme: simplify, strengthen, succeed scorecard
Transformation programme: simplify, strengthen, succeed scorecard 2017 January 2018 By 2020 BALANCE SHEET Leverage 1 - 2x* Leverage 2.3x and Lower interest costs, increasing more flexible Purpose, operating Poor governance & 1. GOVERNANCE, OPERATING MODEL AND PEOPLE model, governance, discipline, no
Slide 23: Transformation programme: year 1 – on track
Transformation programme: year 1 – on track 2017 At March 2019 By 2020 BALANCE SHEET Leverage 1 - 2x* Leverage 2.3x and Lower interest costs, increasing more flexible Purpose, operating Poor governance & 1. GOVERNANCE, OPERATING MODEL AND PEOPLE model, governance, discipline, no people and people wo
Slide 24: Transformation programme: the plan for 2019
Transformation programme: the plan for 2019 2017 By December 2019 By 2020 BALANCE SHEET Leverage 1 - 2x* Leverage 2.3x and Lower interest costs, increasing more flexible Purpose, operating Poor governance & 1. GOVERNANCE, OPERATING MODEL AND PEOPLE model, governance, discipline, no people and people
Slide 25: Governance: running Capita as a responsible business
1 Governance: running Capita as a responsible business Why we exist Purpose ‘We create better outcomes’ How we act Values & Operating Code of Behaviours Model Conduct Simplify Strengthen Succeed Focus on digitally-enabled What we do services and software More predictable business, lower risk 25 | Ca
Slide 26: Operating Model: driving a consistent way of working
1 Operating Model: driving a consistent way of working The ‘Blue Book’ is the blueprint that defines the way we work • First ever for Capita, launched January 2019 • Driven by purpose, values and behaviours framework Professionalising the way the business is run • Clear accountabilities with better,
Slide 27: People: fundamental to creating a sustainable business
1 People: fundamental to creating a sustainable business Leadership and governance strengthened The Capita Academy • Executive Committee in place • Culture of openness, transparency and accountability Valuing and investing in our people Leadership Developing Managing • Engaged, skilled colleagues cr
Slide 28: Challenging contracts: real progress in 2018
2 Challenging contracts: real progress in 2018 RPP Army Recruiting • Rebuilt partnership with Army and MOD • Strong start to ‘Your Army’ recruitment campaign – seeing improvement in performance metrics • Financial performance starting to improve • Capita is now a Strategic Supplier to the MOD NHS PC
Slide 29: Challenging contracts: improving financial performance
2 Challenging contracts: improving financial performance RPP Army Recruiting Aggregate contract losses/profit + NHS PCSE mobilcom-debitel (£50) m FY17 FY18 F 2019 F 2020 29 | Capita FY Results 2018
Slide 30: Cost competitiveness: transformation plan (April 2018)
3 Cost competitiveness: transformation plan (April 2018) Target areas by 2020 F 2018 F 2019 F 2020 F Total Cost to deliver savings £40m £70m £40m £150m (in year) SG&A Cumulative savings £70m £140m >£175m >£175m Procurement Systems & processes 30 | Capita FY Results 2018
Slide 31: Cost competitiveness: accelerating cost savings in 2019
3 Cost competitiveness: accelerating cost savings in 2019 F 2018 F 2019 F 2020 F Total • Higher P&L cost in 2018 to accelerate savings in 2019 Cost to deliver savings £55m £95m £150m • Investing some of savings to drive future (in year) growth Cumulative savings £70m £175m >£175m >£175m 31 | Capita
Slide 32: Investing in capabilities: increasing spend on growth in 2019
4 Investing in capabilities: increasing spend on growth in 2019 Investment focus 1 2 Fixing the basics Funding future growth • Capabilities – e.g. digital delivery • Leadership and governance centres • Finance, people and CRM systems • Digitally-enabled services & software • IT infrastructure • New
Slide 33: Innovation hubs One for each division and one group-wide
4 Investing in capabilities: supporting digitally-enabled services and software Creating scalable repeatable Digital Delivery Centres (DDC) One for each division and one group-wide propositions for software and digitally-enabled services Cross-Capita capability Collaboration Product Portfolio Innova
Slide 34: Investing in capabilities: new digitally-enabled services & software
4 Investing in capabilities: new digitally-enabled services & software Digital technologies that power our client offerings Payments Parental Pre- Customer Omnichannel facilitation engagement app employment experience practice messaging screening platform Public safety Resource Employee Housing plat
Slide 35: Reigniting growth: foundations for growth now in place
5 Reigniting growth: foundations for growth now in place New growth leadership team in place Products Fundamental shift in approach to creating own sales Brand and and opportunities marketing propositions Capita-wide strategic account management Introducing new product and proposition development CL
Slide 36: Capita order book
5 Reigniting growth: resilience of digital services and software order book Order book 2018 order intake £1.8bn £7bn Structural change -33% /run-off* New Capita order book Flat Digitally- enabled Renewals services and /extensions software FY17 FY18 36 | Capita FY Results 2018 * Structurally changing
Slide 37: Capita revenue mix
5 Reigniting growth: digital services and software platform for growth Order book Revenue £4bn Structural change £7bn Structural /run-off* change -33% /run-off* Capita revenue mix Capita order book Flat Digitally- enabled Digitally- services and enabled software services and software FY17 FY18 FY18
Slide 38: Divisional transformation update: plans progressing well
Divisional transformation update: plans progressing well 2018 Progress/2019 priorities Market/wins/positioning • Now one pure-play Software business, with standardised processes • Higher growth in cross sector products, improving order intake Software • Internationalising – entered US for selected p
Slide 39: Recap: on track to deliver significant financial transformation
Recap: on track to deliver significant financial transformation On Our commitment made in April 2018 Progress to date track Greater Annualised initial cost out of >£175m by 2020 £70m delivered, £175m to be delivered efficiency One-off cost of £150m to achieve by end 2019 £300m disposal proceeds in
Slide 40: Appendix
Appendix 40 | Capita FY Results 2018
Slide 41: Divisional financial performance
Divisional financial performance Revenue Profit Margin % £m FY18 FY17 FY18 FY17 FY18 FY17 Software 396.4 401.7 112.4 111.7 28.4 27.8 People Solutions 498.3 520.5 40.7 62.7 8.2 12.0 Customer Management 794.2 828.9 39.6 57.8 5.0 7.0 Government Services 745.5 861.7 35.2 78.7 4.7 9.1 IT & Networks 404.0
Slide 42: IFRS 16 Leases: impact of new accounting standard
IFRS 16 Leases: impact of new accounting standard • New accounting standard (IFRS 16) being adopted from 1 January 2019, which replaces the current standard (IAS 17) • Net present value of future rental payments will be included as lease liability on the balance sheet • Right of use Asset recognised
Slide 43: Order book bridge FY17 to FY18
Order book* bridge FY17 to FY18 Relevant to approx. half of revenue base £9.0bn • Includes contracted revenue and software licences 8,191 £8.0bn 1,760 • Excludes contract growth and non-contracted revenues 7,096 • Prudential termination £200m reduction £7.0bn (653) £6.0bn FY19 visibility (2,202) • R
Slide 44: 2018 reported PBT bridge to adjusted PBT
2018 reported PBT bridge to adjusted PBT Increase Decrease Total Business exits: £500m 177 19 • £310m gain on disposals completed £450m in FY18 £400m - ParkingEye (£171m), £350m Constructionline (£126m) £300m 273 110 5 282 - Capita Specialist Insurance (5) £250m Services, Projen and Medicals Direct
Slide 45: Overall revenue split
Overall revenue split • Revenue split – based on IFRS 15 definitions: Adjusted revenue split 2018 - 72% long term contractual - 15% short term contractual - 13% transactional Transactional 13% • Considerable variation by division Categories are consistent with those presented in previous Short term
Slide 46: Software
Software What we do FY18 Financial metrics* Markets • Pure-play specialised enterprise software business • Education: #1 UK • Serving sector specific and cross-sector markets - UK and overseas £396m £112.4m • Emergency services: #1 UK and Australia • Forms a differentiating component of the digitall
Slide 47: People Solutions
People Solutions What we do FY18 Financial metrics* Products & Markets • Full suite of HR offerings across employment life cycle • #1 in learning process • Leading market positions in recruitment process outsourcing, learning & talent consulting, learning process outsourcing, HR advisory and payroll
Slide 48: Customer Management
Customer Management What we do FY18 Financial metrics* Products & Markets • Leading provider of multi-channel customer contact • #1 in UK customer management services in the UK, Switzerland and Germany • Primarily serving clients in telecommunications/media, £794m £39.6m • #1 in Switzerland • #2 Ger
Slide 49: Government Services
Government Services What we do FY18 Financial metrics* Products & Markets • Government’s trusted partner for transformation and • Leading UK government BPO delivery tech-enabled business services • Processing, administration & IT services to local £746m £35.2m provider – 13% market share • Central –
Slide 50: IT & Networks
IT & Networks What we do FY18 Financial metrics* Products & Markets • End-to-end enterprise IT services • Top 10 ITO player • Managed network solutions, datacentre and cloud infrastructure, managed IT support, testing, cyber & £404m £45.3m • Focus on mid-tier clients • Scope to grow share in consult
Slide 51: Specialist Services
Specialist Services What we do FY18 Financial metrics* Key clients • Includes our financial and regulated operations • Government and specialist commercial partnerships – AXELOS, Fera £992m £139.5m • Vertical market services – real estate & infrastructure, revenue profit travel, translation services
Slide 52: 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