Capita plc · LSE:CPI
Capita — H1 2007 Earnings Presentation
55 slides from Capita's earnings presentation, 2007
Slide 1: Results for the 6 months to 30 June 2007
Results for the 6 months to 30 June 2007
Slide 2: Agenda
Agenda Financial results – Gordon Hurst Fuelling growth through contract wins and acquisitions – Paul Pindar Realising the benefits of scale – Simon Pilling - Building scale in local government - Building scale in life & pensions – Steve Parkinson Market opportunities and outlook – Paul Pind
Slide 3: Building value for shareholders
Building value for shareholders Excellent organic growth Continued margin progression Strong free cash flow Material dividend increase plus special dividend Record contract wins Markets remain highly active A consistent strategy, consistently applied
Slide 4: Financial results
Financial results Gordon Hurst Group Finance Director
Slide 5: Turnover
Turnover Comparative growth 17% 391 1/2 Year 2002 Full Year 898 532 2003 1,081 617 2004 1,282 687 2005 1,436 845 2006 1,739 985 2007 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 £m
Slide 6: Turnover by market
Turnover by market Public sector 52% (2006: 52%) Private sector 48% (2006: 48%) Central government 12% (14%) Local government 20% (17%) 12 Education 13% (14%) 26 Health 1% (1%) 20 Transport 6% (6%) 3 Insurance 10% (10%) 9 Life & pensions 9% (8%) 13 Financial services 3% (4%) 10 1 6 Other private sec
Slide 7: Half year organic growth
Half year organic growth £m 2007 £m 2006 Growth % Turnover 985 845 17% 2007 acquisitions (13) - - 2006 acquisitions (15) 2001 (36) - 2003 2004 - Organic 957 845 13%
Slide 8: Profit before tax and amortisation
Profit before tax and amortisation Comparative growth 18% 40.2 1/2 Year 2002 98.3* Full Year 51.0 2003 121.2 61.0 2004 143.9 * 71.3 2005 169.3 88.3 2006 200.1 103.8 2007 0 50 100 150 200 250 £m * excluding one-off items
Slide 9: Operating profit before amortisation
Operating profit before amortisation Comparative growth 20% 44.3 1/2 Year 2002 107.3 Full Year 56.1 2003 131.4 66.5 2004 155.8 77.8 2005 183.1 99.1 2006 225.1 118.9 2007 0 50 100 150 200 250 £m
Slide 10: Half year operating margin after share based payment
Half year operating margin after share based payment 13 12 12.1 11.7 % 11 11.3 11.3 10.8 10.6 10 9 2002 2003 2004 2005 2006 2007
Slide 11: Drivers behind widening margin
Drivers behind widening margin Adding value to our clients’ business – Selecting opportunities which focus on innovation, not price – Identifying ways of enhancing customer’s P & L Benefits of scale – Ever increasing economies of scale and use of technology – Increased utilisation of business ce
Slide 12: Earnings per share before amortisation
Earnings per share before amortisation Comparative growth 22% 4.3 1/2 Year 2002 10.5 Full Year 5.38 2003 13.0 6.63 2004 15.3 7.72 2005 18.6 9.96 2006 23.1 12.13 2007 0 10 20 30 Pence
Slide 13: Dividends
Dividends Comparative growth 48% 1.0 1/2 Year 2002 3.0 Full Year 1.3 2003 4.0 1.75 2004 5.4 2.1 2005 7.0 2.7 2006 9.0 4.0 2007 0 2 4 6 8 10 Pence
Slide 14: Special dividend
Special dividend Increasing and predictable cash flow Undergeared balance sheet 25p special dividend (returning £155m to shareholders) Share consolidation Currently the best use of excess cash Still substantial headroom for acquisitions & investments Additional interest of £2.5m in 200
Slide 15: Cash flow statement
Cash flow statement £m 6 months to £m 6 months to 30 June 2007 30 June 2006 Cash flow from operating activities 145 122 Net interest paid (15) (11) Taxation paid (15) (20) Capital expenditure (32) (33) Free cash flow 83 58 Acquisitions and disposals (52) (27) Equity dividends paid (39) (32) Share bu
Slide 16: Cash flow from operating activities
Cash flow from operating activities Comparative growth 19% 41 1/2 Year 2002 117 Full Year 61 2003 158 82 2004 200 95 2005 232 122 2006 279 145 2007 0 50 100 150 200 250 300 £m Exceptional pension payment
Slide 17: Free cash flow
Free cash flow Comparative growth 43% 3 1/2 Year 2002 25 Full Year 31 2003 83 40 2004 106 38 2005 127 58 2006 154 83 2007 0 50 100 150 200 £m Exceptional pension payment
Slide 18: Half year capex as % of turnover
Half year capex as % of turnover 7 6.3% 6 5 % 4 4.1% 3.6% 3.9% 3 3.4% 3.2% 2 1 0 2002 2003 2004 2005 2006 2007
Slide 19: Net return on capital
% Net return on capital (debt plus equity) – 12 months to 30 June 2007 20 18.6 Actual 17.9 16.7 WACC 16 15.1 13.4 % return 11.7 12 8 8.6 8.1 8.5 8.0 7.8 8.1 4 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 PBIT (normalised) 90 119 142 167 204 245 Avg Capital (£m) 542 634 674 719 823 954
Slide 20: Free cash flow return on capital
% Free cash flow return on capital (debt plus equity) – 12 months to 30 June 2007 20 18.8 17.9 16.3 16 15.3 % return 12 9.9 8 6.4 4 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 FCF (pre interest) 35 63 103* 117 147 179 Avg Capital (£m) 542 634 674 719 823 954 * Exceptional pension pay
Slide 21: Balance sheet gearing
Balance sheet gearing 30 June 2007 (£m) 30 June 2006 (£m) Net debt Bond debt 379 302 Bank facilities drawn 31 127 Loan notes 6 23 Total net debt 416 452 Interest cover 8x 10x Net debt to EBITDA 1.4 1.8
Slide 22: Share buybacks
Share buybacks We undertake opportunistic share buybacks where market conditions allow 2007 update: 4.5m shares (0.7% of share capital) cancelled at average of £6.44 Cost £29m (including stamp duty) Shares in issue at 30.06.07 – 620m £248m to be returned this year to shareholders through s
Slide 23: Fuelling growth through contract wins & acquisitions
Fuelling growth through contract wins & acquisitions Paul Pindar Chief Executive
Slide 24: Contracts secured to date in 2007
Contracts secured to date in 2007 Countrywide Swindon Southampton Borough Council City Council New contract Updated value New contract* £19m Initial value: £290m 15 years £140m / 10 yrs 10 years Now signed at: £243m / 15 yrs OSPT Service Resolution Birmingham New contract Customer New contract servi
Slide 25: Rebid of existing major contracts
Rebid of existing major contracts 2007 2008 2009 None None TfL: CC £56m p.a. DSGi: Sheffield £18m p.a. 2010 2011 DCSF*: None National Strategies £35m p.a. Criteria: more than 1% of 2006 turnover * Formerly DfES
Slide 26: Bid activity
Bid activity Exceptional period for new contract wins - £1.15bn to date (2006: £655m) Despite major wins, pipeline* has been swiftly replenished Bid pipeline of £3bn (comprising 15 bids) Life & pensions and local government particularly strong Current win rate 1:2 (long term rate 1:3) Pr
Slide 27: Acquisitions
Acquisitions We continue to acquire small to medium sized companies that: – create new market opportunities – strengthen existing market positions – help us to grow organically – access a new customer base – build economies of scale
Slide 28: 2007 acquisitions
2007 acquisitions Spectrum Harry Weeks CPFR CMGL Solutions Software Travel admin Software Insurance £1.8m £21m + £3.1m + £32m £12m £10m NHS Partners GFA MVRA Resourcing Fund admin Insurance £1.9m + £2m + £1.3m + £0.9 £2.5m £1.6m Total spent on acquisitions in 2007 to date: £63m
Slide 29: CMGL
CMGL Rationale: strengthen existing market position, expand management capability and access new customer segment CMGL is a leading provider of outsourced claims and insurance management services 440 staff in London, Cheltenham, Birmingham & overseas Offers our customers complete end-to-end se
Slide 30: Global Fund Administration (GFA)
Global Fund Administration (GFA) Rationale: strengthens existing market position and provides access to new customer segment GFA is a leading provider of fund administration services to 20 fund managers and 45 hedge funds £1 billion of assets under administration Rapidly growing marketplace
Slide 31: NHS Partners
NHS Partners Rationale: build market position and access to a new customer segment Acquisition of NHS Partners increases our capability in employee surveys, pay & labour research Strengthens our existing position in the health market and expands our HR offering HR outsourcing is one of the fas
Slide 32: Realising the benefits of scale
Realising the benefits of scale Simon Pilling Joint Chief Operating Officer
Slide 33: Our business model – business centres
Our business model – business centres Nearshore – Ireland, Onshore - UK Channel Islands, Gibraltar Offshore - India 48 business centres 4 business centres 2 business centres (Currently securing 3rd site) Back office admin Customer services Customer services Life & pensions admin Data valid
Slide 34: Benefits of scale
Benefits of scale We have developed our capability and scale over time by securing new contracts and acquiring niche companies Economies of scale have allowed us to develop compelling propositions for clients in terms of price and specialist skills We have the financial strength, proven operat
Slide 35: Blended onshore/offshore delivery
Blended onshore/offshore delivery Offshore is an integral part of the Group offering – another business centre Clients are favourable to our approach which can seamlessly mix the delivery to suit their requirements Enables clients to take a staged approach rather than wholesale offshore Serv
Slide 36: Building scale – offshore
Building scale – offshore Quality management team 2 sites in Mumbai with 1000 staff Seat capacity for 2000 staff Securing a 3rd site in Chennai - excellent infrastructure and large supply of skilled BPO staff Plan to be operational in early 2008 Good progress offshoring internal function
Slide 37: Building scale - local government
Building scale Operational - local scale government – local government Revenues Revenues&&benefits benefits HR HR&&payroll payroll Property Propertyconsultancy consultancy Advisory +70% +70%ofofall allLAs LAs Advisory 8000 8000employees employees are areclients clients Treasury Treasury Eastgate Eas
Slide 38: Capita's major local government centres
Capita’s major local government centres Blackburn with Darwen Strategic partnership Cumbria Strategic partnership Salford Property consultancy Coventry - Congestion Charging Scheme - Customer service centre of excellence Bromley Birmingham Revenue collection centre Strategic partnership of excellenc
Slide 39: Birmingham City Council
Birmingham City Council Largest Local Authority in the UK Core ICT contract £475m over 10 years commenced in April 2006 Contract progressing well Governance arrangements for additional business transformation programmes were introduced at the outset of the relationship: – 1st programme appro
Slide 40: Swindon Borough Council
Swindon Borough Council Incremental strategic partnership worth approximately £243m over 15 years (originally announced at £140m over 10 years) Commenced on 1 February 2007 Delivery of customer services, business support, HR & payroll, ICT, property (design and technical services) & facilities
Slide 41: Southampton City Council
Southampton City Council Preferred bidder to develop a 10 year strategic partnership valued at approximately £290 million Deliver a wide range of services including customer services, IT, property and the administration of HR, payroll, revenues and benefits, and procurement Transfer of 600 sta
Slide 42: Building scale – life & pensions
Building scale – life & pensions Steve Parkinson Managing Director Capita Life & Pensions Services
Slide 43: Building scale - Life & pensions timeline
Building scale - Life & pensions timeline • Alba Life contract win – • Alba Life contract win – group pensions admin • Selected as strategic • Entry into pensions group pensions admin • Selected as strategic • Entry into pensions • Selected as partner to partner to support administration with • Prud
Slide 44: Benefits of scale – realising cost savings
Benefits of scale – realising cost savings £180 £160 Administration costs per policy (£) £140 £120 £100 £80 £60 £40 £30 per policy £20 £10 per policy £0 0 5 10 15 20 25 Current average Number of policies (millions) Acceptable long book size 800,000 term unit cost Source: Troika analysis/DTI returns
Slide 45: Capita's major life & pensions centres
Capita’s major life & pensions centres Glasgow Belfast Manchester Dublin Sheffield Salisbury Gloucester/ Cheltenham Swindon
Slide 46: 750 FTEs completing life and pensions processes offshore by 2008
750 FTEs will be completing live life and pensions processes offshore by 2008
Slide 47: Zurich
Zurich £300m over 10 years, service commenced 1 February 2006 Open book, 2.8m policies 1200 staff transferred to Capita Seamless transfer of operation Contract progressing well with improvements across the service: Prior to transfer % Today % Call abandonment 11.6 2.3 Process all new busin
Slide 48: Benefits of outsourcing – what it means to Zurich
Benefits of outsourcing – what it means to Zurich L iv in g th e th e o ry - O u ts o u rc in g re a lity w ith C a p ita S tra te g ic F le xib ility ; Z u ric h m a in ta in s fle xib ility o f c lo su re , d ive s titu re , a c qu is itio n o r s e cu ritis a tio n fo r b o o k s o r lin e s o f
Slide 49: Resolution
Resolution New contract worth £580m over 12 years (includes existing books of business) Largest ever contract for Capita Delivery of customer services, IT services, policy servicing, claims and new business processing for approx 4.5m policies Relationship expected to grow as Resolution devel
Slide 50: Resolution
Resolution Proven Proven experience experience of of large-scale large-scale Cost Costreduction reduction business business transformation transformation Customer Customer Customerservice service Customer service service focus focus improvement improvement Experience Experience of of delivering deli
Slide 51: Resolution – transition plan
Resolution – transition plan Transfer Transfer Transfer Transferservices servicesfrom fromWythall Wythall in-scope in-scopepeople people to toGlasgow Glasgow Transfer TransferITIT infrastructure infrastructure&& Transfer Services start Transfersome someservices services applications from application
Slide 52: Life & pensions - capability
Life & pensions - capability FSAVC FSAVC Income drawdown Income drawdown Critical Criticalillness illness Personal pensions Personal pensions Group Grouppensions pensions Portfolio Portfoliobonds Administer bonds 7000 Administer15m 15m Stakeholder pensions 7000employees employees life Stakeholder pe
Slide 53: Market opportunities and outlook
Market opportunities and outlook Paul Pindar Chief Executive
Slide 54: Ingredients for continued growth
Ingredients for continued growth Excellent conditions for growth across our 9 markets Consistently focused on the UK and Ireland where opportunities are strong The BPO market in the UK is valued at £94.8bn with only £4.6bn outsourced in 2006* Our big ticket and business sales teams are proac
Slide 55: Results for the 6 months to 30 June 2007
Results for the 6 months to 30 June 2007