Capita Plc · LSE:CPI
Capita — FY2007 Earnings Presentation
50 slides from Capita's earnings presentation, February 2008
Slide 1: Results for the year ended 31 December 2007
Results for the year ended 31 December 2007
Slide 2: Highlights
Highlights Paul Pindar Chief Executive
Slide 3: Highlights
Highlights Excellent organic growth Continued margin progression Strong free cash flow Material dividend increase plus special dividend Record contract wins Highly active markets A consistent strategy, consistently applied “Well positioned for 2008”
Slide 4: Financial results
Financial results Gordon Hurst Group Finance Director
Slide 5: Financial performance – turnover
Financial performance – turnover Annual growth 19% 5 year compound growth 18% 1/2 Year 2073 2007 Full Year 1739 2006 1436 2005 1282 2004 1081 2003 898 2002 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 £m
Slide 6: Financial performance – turnover by market
Financial performance – turnover by market Private sector 48% (2006: 48%) Public sector 52% (2006: 52%) Life and pensions 11% (8%) Insurance 10% (10%) 6 1 11 Financial services 4% (4%) 13 10 Corporate 23% (26%) 4 Local government 20% (17%) 12 Central government 12% (14%) Education 13% (14%) 23 20 Tr
Slide 7: Financial performance – organic growth
Financial performance – organicgrowth – organic growth £m 2007 £m 2006 Growth % Turnover 2073 1739 19% 2007 acquisitions (51) - (3%) 2006 acquisitions 2001 (20) 2002 - 2003 2004 (1%) Organic 2002 1739 15%
Slide 8: Financial performance – profit before tax and amortisation
Financial performance – profit before tax and amortisation Annual growth 19% 5 year compound growth 19% 1/2 Year 238.4 2007 Full Year 200.1 2006 169.6 2005 143.9* 2004 121.2 2003 98.3* 2002 0 50 100 150 200 250 300 £m * excluding exceptional items
Slide 9: Financial performance – operating profit before amortisation
Financial performance – operating profit before amortisation Annual growth 21% 5 year compound growth 20% 1/2 Year 271.3 2007 Full Year 225.1 2006 183.1 2005 155.8 2004 131.4 2003 107.3 2002 0 50 100 150 200 250 300 £m
Slide 10: Operating margin
Operating margin Operating margin Annual increase 14 bpts 14 13 13.1 12.8 12.9 Margin % 12 12.2 12.2 12.0 11 10 9 2002 2003 2004 2005 2006 2007
Slide 11: Financial performance – earnings per share before amortisation
Financial performance – earnings per share Financial performance – earnings per share before amortisation before amortisation Annual growth 22% 5 year compound growth 22% 1/2 Year 28.10 2007 Full Year 23.10 2006 18.60 2005 2004 15.34 * 13.04 2003 2002 10.47 * 0 5 10 15 20 25 30 Pence * excluding one
Slide 12: Financial performance – dividends
Financial performance – dividends Annual growth 33% 5 year compound growth 32% Dividend cover 2.35x 1/2 Year 12.00* 2007 Full Year 9.00 2006 7.00 2005 5.35 2004 4.00 2003 3.00 2002 0 2 4 6 8 10 12 14 Pence * Excluding 25p special dividend
Slide 13: Financial performance – dividend cover
Financial performance – dividend cover 4 3.5 3.3 2.9 3 2.7 2.6 2.35 Cover 2 1 0 2002 2003 2004 2005 2006 2007
Slide 14: Financial performance – cash flow statement
Financial performance – cash flow statement £m 2007 £m £m2006 2006 Underlying cash flow from operating activities 334 279 Net interest paid (32) (22) Taxation paid (46) (40) Capital expenditure (72) (63) Underlying free cash flow 184 154 Acquisitions and disposals (107) (48) Equity dividends paid (2
Slide 15: Financial performance – cash flow from operating activities
Financialperformance Financial performance – cash – cash flowoperating flow from from activities operating activities Annual growth 20% 5 year compound growth 23% 2007 334 2006 279 2005 232 2004 200 2003 158 2002 117 0 50 100 150 200 250 300 350 £m exceptional pension payment £50m
Slide 16: Financial performance – free cash flow
Financial performance – free cash flow Annual growth 19% 5 year compound growth 49% 2007 184 2006 154 2005 127 2004 106 2003 83 2002 25 0 20 40 60 80 100 120 140 160 180 200 £m exceptional pension payment £50m
Slide 17: Capex as % turnover
Capex as % turnover 7 6 6.3 5 %4 3.6 3.7 3.6 3 3.4 3.5 2 1 0 2002 2003 2004 2005 2006 2007
Slide 18: Net return on capital
Net return on capital Net return on capital 19.6 20 18.5 * 17.1 16.1 16 14.6 13.2 Actual % return 12 WACC 8 8.5 8.5 8.5 8.2 8.4 8.6 4 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 PBIT 107 * 131 156 * 183 225 271 Avg capital (£m) 575 645 696 776 880 998 Tax (%) 29.1 28.1 28.1 27.7 27.7
Slide 19: Free cash flow return on capital
Free cash flow return on capital 24 20 21.6 19.9 % return 18.2 16 17.0 14.4 12 8 6.0 4 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 FCF (pre interest) 34 93 118 * 141 176 216 Avg capital (£m) 575 645 696 776 880 998 * excluding exceptional pension payment
Slide 20: Balance sheet gearing
Balance sheet gearing £m 2007 £m 2006 Net debt Bond debt 479 379 Bank facilities drawn / (deposit) 45 (9) Loan notes 2 22 Total net debt 526 392 Interest cover 8x 9x Net debt to EBITDA 1.7 1.5
Slide 21: Returns to shareholders in respect of 2007
Returns to shareholders in respect of 2007 6.6m shares (1.1% of share capital) cancelled at average of 665p - Cost £44m (including stamp duty) Special dividend of £155m paid in Oct 2007 with a share consolidation cancelling a further 20m shares Shares in issue at 31.12.07 – 609m Including pr
Slide 22: Fuelling growth through contract wins & acquisitions
Fuelling growth through contract wins & acquisitions Paul Pindar Chief Executive
Slide 23: Contracts won in 2007
Contracts won in 2007 Countrywide Swindon Southampton OSPT Borough Council City Council New contract Updated value New contract New contract £19m Initial value: £290m £12m 15 years £140m / 10 yrs 10 years 10 years Now signed at: £243m / 15 yrs Service Resolution CIS Prudential Birmingham Customer Ne
Slide 24: Service Birmingham
Service Birmingham £142m over 10 years Set up by Birmingham City Council and Capita to support ICT and business transformation within the Council ICT transformation substantially completed and key performance indicators (KPIs) consistently being met In May 2007, the Council approved the busine
Slide 25: Resolution plc
Resolution plc £580m over 12 years Selected as strategic partner to deliver customer services, IT services, policy servicing, claims and new business processing for 4.5m policyholders and future new business Contract involves both closed and open book policies Service commenced on 1 August 200
Slide 26: Prudential
Prudential £722m over 15 years Strategic outsourcing partner to administer 7m life and pensions policies including group and individual pensions, investment bonds and life and endowment policies Providing customer servicing, policy administration, new business processing, claims activity and rel
Slide 27: Contracts announced in 2008
Contracts announced in 2008 Marsh Ltd British Islamic eircom Insurance Preferred bidder Preferred bidder New contract £200m £87m £17m 10 years 8 years 5 years Teachers’ Pension Scheme Extension £10m 1 year Total major contracts secured to date 2008: £314m
Slide 28: Bid activity
Bid activity In last 3 months, clients decided £1.5bn opportunities from bid pipeline Capita won 68% by value Pipeline* is steadily being replenished Bid pipeline of £2.5bn comprising 25 bids (Feb 2007: £2.6bn; 12 bids) Most active markets: Life and pensions, local government and general i
Slide 29: Rebid of existing major contracts
Rebid of existing major contracts 2008 2009 2010 None None DCSF*: National Strategies £35m p.a. 2011 2012 None TV Licensing £50m p.a. CRB £40m p.a. Criteria: more than 1% of 2007 turnover * Formerly DfES
Slide 30: Acquisitions
Acquisitions In 2007, assessed over 100 opportunities and completed 12 acquisitions and investments We continue to acquire small to medium sized companies that: – create new market opportunities – strengthen existing market positions – bring complementary skills and services – access a new custo
Slide 31: 2007 major acquisitions & investments
2007 major acquisitions & investments Spectrum Harry Weeks CPFR GFA NHS CMGL Solutions Partners Software Travel admin Software Fund admin Resourcing Insurance £1.75m £21m + £3m + £2m + £1.9m + £32m £12m £10m £2.5m £0.9 MVRA PwC CI LLP Higham Aspen TMG* McKeags* Dunnett Shaw Insurance Trust Pensions
Slide 32: PricewaterhouseCoopers CI LLP
PricewaterhouseCoopers CI LLP Rationale: increasing scale and capacity of our trust administration offering Trust administration business providing trust information and on- going administration services Successfully integrated with Capita’s other trust administration businesses in Jersey Incr
Slide 33: Higham Dunnett Shaw
Higham Dunnett Shaw Rationale: adds valuable new expertise and capacity to Capita Hartshead’s core pensions management and administration business and enhances our overall life and pensions outsourcing offering Provides synergies with our existing business and adds important new services, such as
Slide 34: Building scale for future growth
Building scale for future growth Simon Pilling Joint Chief Operating Officer
Slide 35: Our business model – business centres
Our business model – business centres Onshore - UK Nearshore – Ireland, Offshore - India Channel Islands, Gibraltar 48 business centres 4 business centres 2 business centres Back office admin Customer services Data validation & entry Customer services Life & pensions admin Claims & polic
Slide 36: Building scale – offshore
Building scale – offshore Integral to Group offering Quality management team 2 sites in Mumbai with 1,300 staff Seat capacity for 2,000 staff Service delivery continues to exceed expectations Currently processing more than 1m transactions per month
Slide 37: Building scale – offshore
Building scale – offshore Resolution, Prudential and Marsh – significant increase in scale and capability of our offshore operation Employee numbers will almost double with 1,250 transferring from Prudential’s offshore operation, adding a 3rd site in Mumbai Securing a 4th site in Pune - excell
Slide 38: Building scale - life & pensions
Building scale - life & pensions • •Entry • •Selected Selectedas asstrategic Entryinto intopensions pensions • •Alba AlbaLife Lifecontract contractwin win–– • •Selected Selectedas aspartner partnertoto partner strategic administration administrationwith with group pensions admin group pensions admin
Slide 39: Building scale - life & pensions
Building scale - life & pensions Policies (millions) • Individual life & pensions policies administration • Zurich 2.9 • Resolution 4.2 • Co-Op Financial Services 4.7 • Prudential (from 1 April) 7.4 • Other providers 2.0 • Child Trust Funds 0.8 22.0 • Group pension scheme administration 3.2 • Total
Slide 40: Life & pensions – market size & share
Life & pensions – market size & share Total market Estimated UK policies in force (excluding group schemes and CTF): circa 120m Outsourced market Number of policies outsourced to date estimated to be in the range 42m-47m (c35% of market) Capita’s share of the outsourced market (excluding group schem
Slide 41: Capita’s major life & pensions centres
Capita’s major life & pensions centres Glasgow Belfast Manchester Dublin Sheffield Salisbury Gloucester/ Cheltenham Swindon
Slide 42: Building scale – general insurance services
• General insurance virtual insurer start-up Feb 08 • Broker back office services Jan 08 Building scale – general insurance services • FNOL Jun 07 • Motor Repair Network • Claims management • Outsourced claims Apr 07 • Insurance management services • Fraud management Jan 07 • AVS • Training • Delega
Slide 43: Marsh – broker BPO services
Marsh – broker BPO services 10 year agreement worth £200m supporting Marsh’s London Market based back office Onshore/offshore model including creation of a centre of excellence in Norwich and transfer of work to our offshore operation in Pune, India Circa 800 staff transferring/joining in Norw
Slide 44: BIIH – “Virtual” insurer start up
BIIH – “Virtual” insurer start up 8 year deal for insurer start up delivering full end-to-end back office services UK based insurer offering insurance products to the Islamic community Initial home & motor product launch in Q2 2008 with further products planned for Q4 2008 including entry into
Slide 45: Building scale - financial services
Building scale - financial services Four businesses: - Registrars - Fund administration - Fiduciary - Treasury advice Strong growth – £30m turnover in 2000; £175m now 1,800 staff
Slide 46: Capita’s Fiduciary acquisitions
Capita’s Fiduciary acquisitions Royal Royal&&SunSunAlliance Alliance Stirling StirlingTrustees, Trustees,Jersey, Jersey, Niewenhuis NiewenhuisServices ServicesB.V B.V Trust Trust Companies–– Companies 19 staff, £2.2m turnover 19 staff, £2.2m turnover (NHS Amsterdam), Trust (NHS Amsterdam), Trust Lon
Slide 47: Capita Fiduciary Group
Capita Fiduciary Group Capita CapitaFiduciary FiduciaryGroup Group Jersey Jersey (Head (HeadOffice) Office) Guernsey Guernsey London London Dublin Dublin Amsterdam Amsterdam 190 190staff staff Trust & company business Corporate trustee services Corporate financial services SPV administration
Slide 48: Capita Fiduciary Group today and the future
Capita Fiduciary Group today and the future 260 staff 75% professionally qualified or studying towards a professional qualification Anticipate margin of c.25% on revenues of £29m in 2008 Total acquisition cost approx £40m Continued strong organic growth of 15% per annum Complements offsh
Slide 49: Market opportunities and outlook
Market opportunities and outlook Paul Pindar Chief Executive
Slide 50: Ingredients for continued growth
Ingredients for continued growth Healthy trading conditions across the Group Current economic climate increasing focus on outsourcing Our big ticket and business sales teams are proactively targeting new opportunities and new market areas Ingredients for a successful 2008 are already in plac