Capita Plc · LSE:CPI
Capita — H1 2020 Earnings Presentation
47 slides from Capita's earnings presentation, Aug 18, 2020
Slide 1: Half year results 2020
Half year results 2020 18 August 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: A big thank you
A big thank you 3
Slide 4: Overview
Overview Continuing to improve the business • Fixing underperforming contracts, improving operational delivery and strengthening client relationships • £73m delivered in the cost transformation programme • Winning and renewing significant contracts with more opportunities in the pipeline Robust resp
Slide 5: Our plan: to do fewer things, better
Our plan: 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 creative capabilities technol
Slide 6: Financial results
Financial results Patrick Butcher All figures included within this presentation are on an adjusted basis, post IFRS 16, unless otherwise stated. Impact of IFRS 16 on profit is £6m loss, impact to net debt is £529m 6
Slide 7: Financial overview
Financial overview • Revenue lower because of expected 2019 contract £m £m Key financial metrics HY20 HY19 Change losses and COVID-19 impacts • Profit before tax impacted by lower revenue and lower Revenue 1,652.2 1,815.5 (163.3) margins on some contract renewals, partially offset by Divisional prof
Slide 8: Change in revenue
Change in revenue £m 5% Reduction 4% Reduction Overall revenue declined; driven by the following: • 2019 contract losses, mainly (£62m) local government hand-backs (sign posted in 2018) e.g. Birmingham, and Southampton Councils, DIO and BAE Systems in Technology Solutions • Contract wins include the
Slide 9: Cost saving
Cost saving • Programmatic approach continues to deliver gross cost savings £m £m Expected flow • Savings delivered in H1 achieved through: £m £m through to H2 Expected 2018/2019 H1 20 cumulative 20 of savings • Increased process efficiency through achieved savings to FY20 automation and use of Glob
Slide 10: Profit before tax
Profit before tax £m Reduction in profit before tax: • Margin on contract wins not enough to offset Savings - £129.5m contract losses • “Scope and volume” includes the impact of lower margins on contract renewals and the impact of contract provisions (£6m) and impairments (£6m) • Reduction in transa
Slide 11: Group income statement summary
Group income statement summary • Lower revenue has reduced divisional operating £m H1 20 H1 19 profit by £75m which is explained on the following Revenue 1,652.2 1,815.5 pages Divisional operating profit 122.7 197.8 • Group Support Services increased by £13m and is analysed below Group Support Servi
Slide 12: Summary Financial performance by Division
Summary Financial performance by Division Cash from trading Revenue £m Profit £m Margin % operations £m HY20 HY19 HY20 HY19 HY20 HY19 HY20 HY19 • This table provides an overview of the results by Software 173.4 170.7 38.2 46.6 22.0% 27.3% 86.5 90.9 division which are covered in People Solutions 245.
Slide 13: Software
Software Revenue £m H1 20 H1 19 • Underlying revenue has grown due to “Go-Lives” Revenue 173.4 170.7 and license upgrades which have offset contracts Divisional profit 38.2 46.6 ending in Secure Solutions and Services and AMT Sybex Divisional profit margin 22.0% 27.3% • Revenue has been resilient in
Slide 14: People Solutions
People Solutions Revenue £m H1 20 H1 19 • Public sector contract losses in the Resourcing Revenue 245.7 271.6 business and a decline in transactional revenue in Divisional profit 17.8 28.5 the division, were not offset by contract wins • Transactional revenue in the Learning (£9m)and Divisional prof
Slide 15: Customer Management
Customer Management Revenue £m H1 20 H1 19 • The impact of new business (including additional scope Revenue 561.8 569.5 with Southern Water, a UK retail bank and projects with Divisional profit 41.6 53.9 the BBC) broadly offsets volume decline in existing contracts (Deutsche Telekom, closed book L&P
Slide 16: Government Services
Government Services Revenue £m H1 20 H1 19 • Local government contract terminations £62m Revenue 364.8 424.2 have driven most of the year on year decline Divisional profit 14.3 20.0 partially offset by the impact of the first full year of contract wins with STA and DFRP Divisional profit margin 3.9%
Slide 17: Technology Solutions
Technology Solutions Revenue £m H1 20 H1 19 • Contract exits in 2019, including BAE Systems, and Revenue 190.5 224.2 reduced demand for our professional services, have Divisional profit 14.9 28.7 been partially offset by increased scope across TFL • COVID-19 has impacted transactional revenue due Di
Slide 18: Specialist Services
Specialist Services Revenue £m H1 20 H1 19 • A number of contracts ended in 2019, including Revenue 102.4 143.2 HS2 and Sussex Police. These have not offset Divisional profit (4.1) 20.1 by new contract wins • Revenue in the transactional businesses of Divisional profit margin (4.0%) 14.0% Travel and
Slide 19: Cash flow and net debt movement
Cash flow and net debt movement £m HY20 HY19 • Contractual working capital reflects favourable movements in Government Services and Customer EBITDA 150.8 241.3 Management, resulting in a small increase in cash Contractual working capital movement 42.5 (53.5) from trading operations (DI, CFA and AI)
Slide 20: Key COVID-19 Cost and Cash Actions
Key COVID-19 Cost and Cash Actions Key Cost Actions £m HY20 Potential future impact • The staff cost actions of £25m will largely phase out as crisis phase ends, but more Staff 24.5 Furlough/Pay reductions end Q4 may be needed depending on recovery Discretionary 28.6 Benefits in Q3/Q4, with 2021 pot
Slide 21: Net debt and covenants
Net debt and covenants • Cash conservation actions have £m £m reduced net debt by £257m. Net Debt metrics* HY20 FY19 Adjusted net debt (excluding IFRS 16 and • IFRS 16 increases net debt by £529m restricted cash) 609.5 832.7 • Pre IFRS 16 the net debt/EBITDA ratio Adjustments (41.6) (42.1) was 1.9 t
Slide 22: Liquidity and debt maturities
Liquidity and debt maturities £m £m Liquidity HY20 FY19 Liquidity RCF 452.0 414.0 • Cash conservation actions in H1 have improved liquidity by £209m to £704m Backstop (bridge) facility 93.5 - • Backstop facility added giving £94m additional RCF borrowings (170.0) - liquidity; increased to £150m in A
Slide 23: Forward Planning Assumptions
Forward Planning Assumptions The uncertainties created by the current and potential future impact of the COVID-19 on our business means that forecasting is inherently uncertain and so guidance is not provided, however our current planning assumptions are: Revenue: expected to continue in line with o
Slide 24: CEO update
CEO update Jon Lewis 24
Slide 25: COVID-19 Response: Our Pandemic Framework
COVID-19 Response Our Pandemic Framework Making sure our people are safe Maintaining services for clients Cash preservation 25
Slide 26: COVID-19 – decisive action to maintain service delivery and preserve cost and cash
COVID-19 – decisive action to maintain service delivery and preserve cost and cash Fast and effective shift to remote working capability Securing £57m of additional savings Customer Management UK £4m Discrectionary £28m People £25m Property and other 02/03/2020 02/04/2020 02/05/2020 02/06/2020 In Of
Slide 27: Strengthening operations to drive revenue, profit and cash margins
Continuing the transformation: Strengthening operations to drive revenue, profit and cash margins Fixing underperforming contracts Improving operational efficiency Renew contracts on better terms Target higher margin digital BPO contracts 2018 2020 27
Slide 28: Fixing underperforming contracts
Fixing underperforming contracts • Prioritise delivering on our commitments to our clients Remedial contract examples: RPP, PCSE, mobilcom-debitel • Strengthening operational delivery Improving profit and reducing cash losses Profit Cash losses • Stabilise revenue – contract renewal rate at 70% 0 -1
Slide 29: Sustainable cost savings through operational efficiency
Sustainable cost savings through operational efficiency £63m in sustainable savings delivered in H1 2020; • Measuring and reducing • Digitising Customer cost of poor quality Experience • Better contract management Operational • Automation and RPA • Planning, process, excellence Technology • Digital
Slide 30: Winning more of the right work
Winning more of the right work Major contract wins in H1 European telco client £114m Technical and fulfilment services for residential and business customers Teachers Pensions £60m Greater digital and data elements to pension administration for 1.3m people Irish Water £60m Digital transformation, CX
Slide 31: Simplifying the software portfolio
Simplifying the software portfolio We continue to prepare our commercial off-the-shelf products for sale e.g. ESS Software capability is critical to Capita’s consulting, transformation and digitally-enabled services strategy Consolidating all our software development capability in the Digital Devel
Slide 32: Strategic update: Software
Strategic update: Software £173m Revenue • Reputational benefits recognised as a result of rapid response to £1,652m COVID-19 COVID-19 • 97% of SLAs being delivered £38m PBT £123m • Increasing move to microservices and digital componentry as a catalyst for pan- Capita digital services £87m • Continu
Slide 33: Strategic update: People Solutions
Strategic update: People Solutions £246m Revenue • Improved client relationships and COVID response leading to £1,652m COVID-19 extensions + willingness to review terms on certain contracts £18m PBT • New leadership team delivering improved client service and identifying £123m opportunities for stru
Slide 34: Strategic update: Customer Management
Strategic update: Customer Management £562m Revenue • Mobilisation of COVID-related work in short time scales; £1,652m COVID-19 • High service levels to clients maintained despite challenges in operational delivery £42m PBT £123m • Low staff attrition rate leading to recruitment, training and custom
Slide 35: Strategic update: Government Services
Strategic update: Government Services £365m Revenue • Significant support for Central Government – gateway to wider £1,652m COVID-19 Capita contract wins (NHS, DWP) £14m • Last year of expected Local Government net losses PBT • Contract performance has improved, with better execution and a material
Slide 36: Strategic update: Technology Solutions
Strategic update: Technology Solutions £191m Revenue • Agile response to customer demands has enabled them to £1,652m COVID-19 continue operating as normal • Supported 35,000 Capita employees to move to remote working £15m PBT £123m • Core digital offerings are all increasingly in demand as the mark
Slide 37: Strategic update: Specialist Services
Strategic update: Specialist Services £102m Revenue • 11 mostly transactional businesses - impacted by COVID- £1,652m COVID-19 19 in varying degrees • 11 mostly transactional businesses - impacted by COVID-19 in varying degrees (£4m) PBT • Insurance, Page One, Tascor and Translation & Interpreting h
Slide 38: Strengthening the balance sheet
Strengthening the balance sheet • Addressing elevated leverage with short term and long term actions • Initiatives generating £304m of cash benefit in H1 • Operating cash flow beginning to improve as transformation accelerates; though sustainable operating cash flow now 1-2 years away • £500m of deb
Slide 39: Summary
Summary Robust response to COVID-19 • Focus on our colleagues and delivering client services • Deliver cost and cash mitigation programmes Simplify the portfolio and strengthen the balance sheet • Disposal of ESS; proceeds to strengthen balance sheet • Expect to meet 31 December covenants Strategic
Slide 40: Q&A
See eee eens nee Q&A
Slide 41: Appendix
Appendix 41
Slide 42: 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 £m £m run down from previously acquired businesses H1 20 H1 19 • Significant restructuring represents costs of Reported PBT (28.5) 31.2 previously communicated Group multi-year transformation plan,
Slide 43: Revenue changes: an alternative view
Revenue changes: an alternative view • We have described elements of the Life and Pensions Business and £2bn Change certain multi-service local H1 18 – H1 20 government contract as structurally 363.2 309.1 271.3 247.6 (48%) challenged/run off 187.8 • This analysis provides more detail on this breakd
Slide 44: Order book bridge FY19 to H120
Order book* bridge FY19 to H120 Relevant to approximately half of revenue £8.0bn base £7.0bn 6,720 770 • Includes contracted revenue and software 6,275 licences £6.0bn (16) • Excludes contract growth and non- (1,199) £5.0bn contracted revenue £4.0bn Wins yet to offset revenue earnt Wins in H1 includ
Slide 45: Overall revenue split
Overall revenue split Revenue split – based on IFRS 15 definitions: Adjusted revenue split FY19 • 74% long term contractual • 14% short term contractual Transactional • 12% transactional 12% Considerable variation by division Categories are consistent with those presented in Short term contractual p
Slide 46: Impact of IFRS 16
Impact of IFRS 16 £m £m £m £m Profit/(loss) H1 20 IFRS 16 Pre-IFRS 16 £m IFRS 16 £m adjustment H1 20 Balance Sheet gearing H1 20 adjustment H1 20 EBITDA 150.8 (53.7) 97.1 Opening net debt (1,353.2) 562.6 (790.6) Depreciation (72.5) 44.5 (28.0) Cash movement in net debt 307.5 (61.4) 246.1 Non-cash mo
Slide 47: Glossary
Glossary Acronym Division Description • Specialist enterprise software, in specific vertical markets Software Software • Leader in education, emergency services, local government & utilities • Full suite of HR offerings across employment life cycle PS People Solutions • Leading market positions in r