Capita Regulatory News (CPI)

25 July 2013 Half year results for the 6 months to 30 June 2013 Record sales growth and good financial performance Financial highlights Half year 2013 Half year 2012 Change Revenue £1,819m £1,607m + 13%Underlying operating profit [1] £226.8m £214.1m + 6%Underlying profit before tax [1] £205.2m £186.4m + 10%Underlying earnings per share [1] 25.8p 23.7p + 9%Interim dividend per share 8.7p 7.9p + 10% [1] Adjusted for new pension standard, IAS19 (R). Excludes non-underlyingitems being: intangible amortisation and acquisition expenses of £62m (H12012: £47.4m), the non-cash impact of mark to market movement on financialinstruments of £14.3m credit (H1 2012: £0.5m credit). After thesenon-underlying items: reported operating profit is £164.8m (H1 2012: £166.7m),reported profit before tax is £157.5m (H1 2012: £139.5m) and reported earningsper share is 20.05p (H1 2012: 18.17p). Key points Delivering long term growth - A record £2.0bn of major contract wins secured in H1 2013 (H12012: £1.1bn) [2] including: - Telefónica UK (O2), Capita's largest ever contract win by annual value - Cabinet Office, Best Practice IP joint venture - Carphone Warehouse, customer management contract - London Borough of Barnet, property services contract - Contract win rate of higher than 1 in 2 (by value) - Organic growth of 3%; full year organic growth expectation now atleast 8% - Significant level of sales activity; pipeline steadilyreplenishing, now £4.2bn (Feb 2013: £5.2bn) - Selective acquisitions supporting organic growth; £198m investedto date in 2013 Good financial performance - Revenue up 13% to £1.8bn (H1 2012: £1.6bn) - Underlying profit before tax [1] up 10% to £205.2m (H1 2012: £186.4m) - Underlying operating margin [1] of 12.5% (H1 2012: 13.3%) - Operating cash flow up 20% to £242m (H1 2012: £201m) and 107% cashconversion (H1 2012: 94%) - Gearing remains at 2.2 times net debt to EBITDA Paul Pindar, Chief Executive of Capita plc, commented: "Our strong sales performance over the last 12 months and contributions from2012 and 2013 acquisitions provide us with excellent revenue visibility forthe full year 2013 and already deliver significant incremental revenue growthin 2014. The return of strong organic growth, improved cash conversion, areplenished bid pipeline and a good pipeline of potential acquisitions,underpin our confidence in full year performance and provide a strong platformfor further progress in 2014 and beyond. "We have reported another period of very strong sales growth in the first 6months of 2013, with over £2.0bn of wins secured with clients includingCarphone Warehouse, the Cabinet Office and Telefónica UK (O2). This follows arecord year of sales wins in 2012 and we are therefore implementing a highnumber of major new contracts throughout 2013, including the two largest newcontracts in Capita's history. "Our sales performance has been achieved due to the unrivalled breadth of ourservice offering which has been built up through both internal development anda series of small to medium sized acquisitions over the past 25 years. We havecontinued to enhance our client propositions through further acquisitions thisyear, spending £198m on 9 businesses, and we have further attractive potentialopportunities in our acquisition pipeline." [1] Adjusted for new pension standard, IAS19 (R). Excludes non-underlyingitems being: intangible amortisation and acquisition expenses of £62m (H12012: £47.4m), the non-cash impact of mark to market movement on financialinstruments of £14.3m credit (H1 2012: £0.5m credit). After thesenon-underlying items: reported operating profit is £164.8m (H1 2012: £166.7m),reported profit before tax is £157.5m (H1 2012: £139.5m) and reported earningsper share is 20.05p (H1 2012: 18.17p). [2] As a result of the adjustment we made to the criteria of our pipelineeffective from 1 January 2013, we now report all bids and major sales winsworth £25m or above (previously £10m or above). The major sales wins figurefor H1 2012, which was reported at £1.3bn in July 2012, has therefore beenrestated to £1.1bn to reflect this change. Under the previous criteria,today's reported H1 2013 major contract wins of £2.0bn would have beenapproximately £2.1bn. Analyst presentation Paul Pindar, Chief Executive of Capita plc, will host an analyst presentationand conference call in London at 8.30am UK time today. There will be a conference call and live webcast of the full event. Detailscan be found at www.capita.co.uk/investors (Please dial into the call in time to allow for registration) 8.30am conference call details below: Dial-in number: + 44 20 3059 8125 Replay: A replay of the conference call will be available for 7 days bydialling + 44 121 260 4861 (access code is 5238533#). For further information: Capita plc Tel: 020 7799 1525Paul Pindar, Chief ExecutiveShona Nichols, Corporate CommunicationsDirector Capita Press Office Tel: 020 7654 2152 or 020 7654 2399 out of hours FTI Consulting Tel: 020 7269 7291Andrew Lorenz Capita plc is the UK's leading provider of business process management (BPM)and integrated professional support services. With 52,500 people at more than350 sites, including 70 business centres across the UK, Europe, India andSouth Africa, the Group uses its expertise, infrastructure and scale benefitsto transform its clients' services, driving down costs and adding value.Capita is quoted on the London Stock Exchange (CPI.L), and is a constituent ofthe FTSE 100 with 2012 revenue of £3.4 billion. Further information on Capitaplc can be found at: www.capita.co.uk. Capita plc Results for the 6 months to 30 June 2013 Overview Capita has delivered strong operational and financial performance for thefirst half of 2013 and achieved another highly successful sales period,securing £2.0bn (H1 2012: £1.1bn) of major contract wins to date in 2013. Capita is today reporting robust financial results for the first 6 months ofthe year with revenue increasing by 13% to £1,819m (H1 2012: £1,607m),underlying operating profit [3] up 6% to £226.8m (H1 2012: £214.1m) andunderlying profit before taxation [3] increasing by 10% to £205.2m (H1 2012:£186.4m). Underlying earnings per share [3] grew by 9% to 25.8p (H1 2012:23.7p) and we have increased our dividend for the half year by 10% to 8.7p pershare (H1 2012: 7.9p). The current outsourcing market is active and we are seeing a high level ofbidding activity across both the UK public and private sectors, reflected inour major sales wins and steadily replenishing bid pipeline. As the UK'sleading provider of customer and business process management (BPM) services,we continue to develop our propositions in our established markets, notablycentral and local government and education and also to build our offering inour newer market areas, including justice and emergency services, health andthe private sector, particularly telecoms, retail and utilities. As a result of the strong sales performance reported over the previous 12months and following the recent contract win with Telefónica UK (O2), ourlargest ever contract win by annual value, we raised our organic growthexpectations for the full year from 6% to at least 8% and we remain confidentof achieving this target. We continue to secure small to medium sized acquisitions which directlysupport our sales offering by enabling us to enter new markets and evolve andenhance our sales propositions. To date in 2013, we have invested £198m inacquiring 9 companies across a number of areas including customer and debtmanagement, justice and emergency services, education and workplace services. The majority of our underlying businesses are trading well, in particular theCustomer Management & International, Workplace Services and Investor andBanking Services divisions. The trading activities of 2 of our divisions,Property Services and parts of our IT business, continue to be affected bychallenging economic conditions. We have therefore taken steps to strengthenthe management and operational teams which will support the long termperformance of these businesses. As our General Insurance operations continueto face challenges in some of their more competitive market segments, we areundertaking a review to determine the future positioning of operations inthese areas. Financial update Revenue - In the half year 2013, revenue increased by 13% to £1,819m (H1 2012:£1,607m). This comprised 3% organic growth and 10% from acquisitions completedin 2012 (6%) and to date in 2013 (4%). Operating profit & margin - In H1 2013, the Group's underlying operatingmargin was 80bp lower at 12.5% (H1 2012: 13.3%) [3]. [3] See footnote 1. Following a successful sales period over the last 9 months, we are undertakinga record volume of new contract implementations in 2013 with their associatedstart up costs. In the first half, large scale implementations included theStaffordshire County Council joint venture, the 2 Personal IndependencePayment assessments contracts (Central England & Wales and Northern Ireland),Fire Service College and Carphone Warehouse. We are also integrating a number of larger acquisitions including Reliancewhich we purchased in August 2012 (Justice & Secure Services) and NorthgateManaged Services (IT Services) which we acquired in March 2013. The challengesfaced by some of our General Insurance operations, mentioned above, have alsoimpacted margins. In H2 2013, we will have further implementation costs due to, in particular,the start of our O2 strategic partnership (1 July 2013), the Best Practice IPJV with the Cabinet Office (1 July 2013) and some initial work for the LondonBorough of Barnet. Based on current circumstances, we expect to achieve fullyear margins in the range of 12.5% to 13.5% for the foreseeable future. Dividend - The Board has declared an interim dividend of 8.7p per ordinaryshare (H1 2012: 7.9p) representing an increase of 10%. The interim dividendwill be payable on 7 October 2013 to shareholders on the register at the closeof business on 23 August 2013. Cash flow - In H1 2013, £242m (H1 2012: £201m) was generated by operationsrepresenting an operating profit to cash conversion ratio [4] of 107% (H12012: 94%). Based on current circumstances, we are comfortable that we cancontinue to achieve a medium to long term annual cash conversion ratio at oraround 100%. Free cash flow, defined as operating cash flow, less capital expenditure,interest and taxation for the half year was £164m (H1 2012: £95m). [4] Defined as cash generated from operations divided by underlying operatingprofit for the year. Capital expenditure - We aim to contain capital expenditure at or below 4% ofrevenue. In H1 2013, we met this objective, with net capex at 2.6% of annualrevenue (H1 2012: 3.4%). There are currently no indications of significantcapex increases in our business forecasts or bid pipeline. Return on capital employed - We focus on driving a healthy return on capital.Over the last 12 months to 30 June 2013, our post-tax return on averagecapital employed was 15.1% (12 months to 30 June 2012: 16.1%). This comparesto our estimated post-tax WACC which is 7.2%. Debt profile - As at 30 June 2013, we have £1,117m of private placement bonddebt of which only £66m matures before August 2015 with the remaindergradually maturing to 2021. In addition, we have £185m of bank debt under a 2year term loan facility maturing in February 2014, offset by £126m of net cashand an undrawn £425m revolving credit facility. We aim to keep the ratio of net debt to EBITDA in the range of 2 to 2.5 overthe long term and we would be unlikely to incur borrowings which would reduceinterest cover below 7 times. At 30 June 2013, our annualised net debt toEBITDA ratio was 2.2 (H1 2012: 2.2) [5] with annualised interest cover at 11times (H1 2012: 9 times). [5] See footnote 1. Developing our propositions and market reach We generate profitable growth by winning business from new and existingclients supported by an effective acquisition strategy which enhances ourpropositions and provides entry into new market areas where we have identifiedgrowth potential. Major contract wins We have made a strong start to 2013, securing 6 major contracts with a totalvalue of £2.0bn in the first 6 months (H1 2012: 11 contracts totalling £1.1bn)[6], comprised of 80% new business and 20% extensions. The last 12 months havebeen a highly successful sales period for Capita where we have delivered a winrate (by value) of higher than 1 in 2. [6] See footnote 2. Major contract wins in 2013 to date include: - Telefónica UK (O2) - a 10 year strategic partnership to delivercustomer management services. Building on our existing long term partnershipwith O2, we will manage O2's customer service centres and support O2 as it enhancesand expands its digital service offering to customers. This new 10 year relationshipis worth approximately £1.2bn and commenced on 1 July 2013. - Cabinet Office - selected to form a joint venture (JV) with theCabinet Office to deliver and commercialise the Government's proprietaryportfolio of leading and globally renowned project and IT management trainingtools, including PRINCE2® and ITIL®. The JV, in which Capita holds 51%, ownsin perpetuity the intellectual property of the portfolio and manages theaccredited service organisations through which revenue is generated. It isanticipated that the JV will triple the current revenues of approximately £40mper annum by year 10, through further commercialising and developing theproduct portfolio in existing and new markets in the UK and internationally.The JV assumed management of current contracts on 1 July 2013 with fulloperational delivery from 1 January 2014. - Carphone Warehouse - contract to provide all Carphone Warehouse'snon-store customer contact in a number of different areas across the businessand support all aspects of customer service strategy. The contract is wortharound £160m over 10 years and commenced on 1 April 2013. - London Borough of Barnet - selected as preferred bidder to deliverdevelopment and regulatory services including highways management, planningand development, regeneration and environmental health and trading standardsservices. The contract, which will be delivered by our property andinfrastructure business, is expected to be worth approximately £154m over 10years and is scheduled to commence on 1 October 2013. - Civil Service Learning agreement - extension to existing contractwith the Cabinet Office, worth at least £60m over 2 years to end March 2016. - University of Strathclyde - selected as strategic technologypartner to support the delivery of significant communications and technologyimprovements in a contract estimated to be worth up to £40m over 5 years.Capita will work with the University of Strathclyde to design and deliver along term ICT strategy to integrate and rationalise ICT processes andresources to better support the University. Bid pipeline & market update Bid pipeline: Our bid pipeline contains all bids worth £25m or above, cappedat £1bn and where we have been shortlisted to the last 4 or fewer. We announcethe value of the pipeline three times a year and it is therefore a snapshot ata specific point in time. The pipeline is replenishing steadily following this unprecedented period ofsales wins and now stands at £4.2bn, (February 2013: £5.2bn), including 97%new business and 3% extensions. The current pipeline comprises 32 bids, withan average contract length of 8 years. The most active markets are localgovernment, the private sector, particularly retail, telecoms and utilities,and central government. We are also seeing a high level of activity in ourprospect and suspect lists which contain bid opportunities which are yet toreach shortlist stage. This provides us with a high level of confidence forour medium to long term organic growth prospects. Contract rebids: Over the next 6 years to 31 December 2019, we have only 1material contract coming up for renewal which is the Phoenix contract in 2019. Active market: As demonstrated by our strong recent sales performance and thesteady replenishment of our bid pipeline, we are continuing to experiencebuoyant activity across the business process management market in both publicand private sectors. The rapidly evolving digital landscape is transforming at a rapid pace the wayin which private and public organisations interact with customers andcitizens. This is creating significant demand for third party expertise andinfrastructure to transform existing services and to support and deliverfuture innovation. We are increasingly harnessing advances in behaviouralinsight and analytics to inform the adaption and transformation of processesacross multi-channel customer interactions. To address increased marketdemand, we have developed our propositions and expertise in this area and arewell placed to support existing and new clients in adapting to changingcustomer engagement. Ongoing financial pressure also continues to create an environment whereclients are seeking alternative operating models to drive down costs withoutadversely impacting service quality. The Government's recent ComprehensiveSpending Review detailed a further £11.5bn of savings including a 10% budgetcut for local government and reduced budgets for a number of key departments.In the private sector, organisations across a range of industries continue toface challenging trading conditions and we are working with them to developservice solutions that support their financial and operational goals, inparticular assisting them to increase sales and improve debt management. Acquisitions We acquire organisations which enable us to enter and build capability in newmarket areas and enhance our service offering therefore supporting our futuresales opportunities. This is evidenced by the acquisitions we have made in thelast 3 years which are already generating positive investment returns throughdelivering significant organic growth. Combined with our existing customermanagement expertise, the acquisitions in 2011 of Ventura and Vertex (privatesector), which cost £105m in aggregate, have resulted in Capita securing 5 newcontracts in the last 18 months, including the £1.2bn contract with O2. Our£150m investment in 8 acquisitions in the justice and secure services area hascreated a business with FY 2012 annual revenue of some £200m, servicing 46police forces in the UK and Ireland and 31 UK fire and rescue services. To date in 2013, we have invested a total of £198m in acquiring 9 businesseswhich have further strengthened our offering in a number of key areas: Customer Management & International - we have established an end to end debtmanagement offering and strengthened our analytics expertise which is anessential component of both debt management and our overall customermanagement offering by acquiring: - iQor UK - provider of outsourced debt collection services to boththe public and private sectors in the UK. iQor UK helps companies andorganisations to manage high risk customers and ensure revenue collection, anarea where we are seeing strong potential for growth. Acquired for anenterprise value of £42m. - Euristix - is a small boutique data analytics and risk managementbusiness which provides portfolio management, value realisation, diagnosticsand due diligence services to debt and financial services clients, togetherwith debt purchasers. Key customers include UKAR, Apollo, Brighthouse, Lowell,Capquest and First Credit. Justice & Secure Services - continued enhancement of our offering to thismarket and the ability to cross sell into other market sectors, acquiring: - G2G3 - provider of immersion and simulation-based training forcorporations in the UK and overseas. The application of game dynamics and gamethinking to non-game activities is a rapidly growing method for trainingemployees. The company will continue to develop simulations for globalcorporations as well as for existing and new clients in Capita's key targetsectors: police, emergency services, justice, security, nuclear and oil andgas industries. - STL Technologies - provider of software and ICT to the criminaljustice system, including courts and the police, and to asylum and immigrationtribunals. STL specialises in case management applications for organisationsincluding Her Majesty's Courts Service, the Ministry of Justice, the ScottishCourt Service and case preparation and custody applications for West MidlandsPolice. IT Services - expanded its managed IT services resources and geographic reachby acquiring: - Northgate Managed Services (NMS) - based in Northern Ireland, aprovider of cloud-based, infrastructure solutions and specialist managedservices to public, private and third sector organisations, acquired for anenterprise value of £65m. Workplace Services - enhanced our ability to deliver a wide range of learningand development services in the most cost effective manner across all deliverychannels, acquiring: - Blue Sky Performance Improvement - a UK based learning anddevelopment business that specialises in behaviour change and improvedemployee productivity. Blue Sky provides bespoke, high quality solutions forexecutive level employees, through to field based and frontline employees forprivate and public sector clients, including 20% of the FTSE 100 such asBritish Gas, BT, Barclays, RBS and RSA. - Creating Careers - a provider of accredited e-learning to furtherand secondary education students via distance learning. The company is focusedon providing those who have been disengaged from traditional educationtechniques with a route to accredited, nationally recognised qualifications. - KnowledgePool Group - provider of learning managed services,including its three core service components of supplier management, trainingadministration and learning consultancy. The company manages all learningactivity and operations through a single channel that maximises return ontraining investment for its clients. Professional Services - enhanced our offering to the education and localauthority markets by acquiring: - MLS - a provider of library and resource management systems. Future prospects Our strong sales performance over the last 12 months and contributions from2012 and 2013 acquisitions provide us with excellent revenue visibility forthe full year 2013 and already deliver significant incremental revenue growthin 2014. The return of strong organic growth, improved cash conversion, areplenished bid pipeline with opportunities broadly spread across both privateand public sectors and a good pipeline of potential acquisitions, underpin ourconfidence in full year performance and provide a strong platform for furtherprogress in 2014 and beyond. -Ends- Half year condensed consolidated income statementfor the 6 months ended 30 June 2013 30 June 30 June 2012 2013 (restated) Non- Underlying underlying Total Underlying Non-underlying Total Notes £m £m £m £m £m £mContinuing operations:Revenue 3 1,818.8 - 1,818.8 1,607.3 - 1,607.3Cost of sales (1,307.4) - (1,307.4) (1,140.6) - (1,140.6)Gross profit 511.4 - 511.4 466.7 - 466.7Administrative expenses (284.6) (62.0) (346.6) (252.6) (47.4) (300.0)Operating profit 3 226.8 (62.0) 164.8 214.1 (47.4) 166.7Net finance costs 3 (21.6) 14.3 (7.3) (27.7) 0.5 (27.2)Profit before tax 3 205.2 (47.7) 157.5 186.4 (46.9) 139.5Income tax expense (39.0) 9.9 (29.1) (39.0) 12.7 (26.3)Profit for the period 166.2 (37.8) 128.4 147.4 (34.2) 113.2Attributable to:Owners of the parent 167.9 (37.5) 130.4 147.4 (34.2) 113.2Non-controllinginterests (1.7) (0.3) (2.0) - - - 166.2 (37.8) 128.4 147.4 (34.2) 113.2Earnings per share 4- basic 25.82p (5.77)p 20.05p 23.66p (5.49)p 18.17p- diluted 25.56p (5.71)p 19.85p 23.55p (5.47)p 18.08p Half year condensed consolidated statement of comprehensive incomefor the 6 months ended 30 June 2013 30 June 30 June 2012 2013 (restated) £m £m £m £m Profit for the period 128.4 113.2Other comprehensive income/(expense)Items that will not be reclassified subsequentlyto profit or lossActuarial gain/(loss) on defined benefit pension 1.7 (36.8)schemesDeferred tax effect (0.4) 8.0 1.3 (28.8) 1.3 (28.8)Items that will or may be reclassifiedsubsequently to profit or lossExchange differences on translation of foreign 1.7 (2.2)operationsLosses on cash flow hedges (0.3) (11.0)Reclassification adjustments for gains/(losses) 1.2 (0.7)included in the income statementIncome tax effect (0.2) 2.7 0.7 (9.0) 2.4 (11.2)Other comprehensive income/(expense) for the 3.7 (40.0)period net of taxTotal comprehensive income for the period net of 132.1 73.2taxAttributable to:Owners of the parent 134.1 73.2Non-controlling interests (2.0) - 132.1 73.2 Half year condensed consolidated balance sheetat 30 June 2013 31 December 30 June 2012 2013 (restated) £m £mNon-current assetsProperty, plant and equipment 384.6 358.3Intangible assets 2,189.6 1,919.9Financial assets 264.5 236.2Deferred taxation - 1.3Trade and other receivables 58.1 72.7 2,896.8 2,588.4Current assetsFinancial assets 3.4 8.0Funds receivables 182.7 108.0Trade and other receivables 985.0 839.1Cash 559.7 737.9 1,730.8 1,693.0Total assets 4,627.6 4,281.4Current liabilitiesTrade and other payables 1,083.4 971.1Financial liabilities 529.9 539.5Funds payables 198.3 121.2Provisions 26.7 23.6Income tax payable 61.8 46.7 1,900.1 1,702.1Non-current liabilitiesTrade and other payables 33.5 12.5Financial liabilities 1,568.1 1,539.7Deferred tax liability 1.9 -Provisions 41.2 40.9Employee benefits 122.4 108.1 1,767.1 1,701.2Total liabilities 3,667.2 3,403.3Net assets 960.4 878.1Capital and reservesIssued share capital 13.9 13.8Share premium 481.8 470.4Employee benefit trust and treasury shares (0.4) (0.4)Capital redemption reserve 1.8 1.8Foreign currency translation reserve 3.4 1.7Net unrealised gains reserve (16.6) (17.3)Retained earnings 448.3 408.1Equity attributable to owners of the parent 932.2 878.1Non-controlling interests 28.2 -Total equity 960.4 878.1 Included in aggregate financial liabilities is an amount of £1,362.3m (31December 2012: £1,370.1m) which represents the fair value of the Group's bondswhich should be considered in conjunction with the aggregate value of currencyand interest rate swaps of £245.3m (31 December 2012: £222.4m) included infinancial assets and £nil (31 December 2012: £0.3m) included in financialliabilities. Consequently, this gives an effective liability of £1,117.0m (31December 2012: £1,148.0m). Cash and overdrafts (included within financialliabilities) are shown gross therefore the Group's net cash position is thecash shown above net of overdrafts of £433.5m (31 December 2012: £418.0m),giving an effective cash balance of £126.2m (31 December 2012: £319.9m). Half year condensed consolidated statement of changes in equityfor the 6 months ended 30 June 2013 Foreign Net Non- Employee Capital currency unrealised Total Share Share benefit redemption Retained translation gains shareholders' controlling Total capital premium trust reserve earnings reserve reserve equity interests equity £m £m £m £m £m £m £m £m £m £mAt 1 January 2012 13.0 459.4 (0.4) 1.8 50.3 7.5 (7.5) 524.1 - 524.1Profit for theperiod - restated - - - - 113.2 - - 113.2 - 113.2Othercomprehensiveincome/(expense) -restated - - - - (28.8) (2.2) (9.0) (40.0) - (40.0)Totalcomprehensiveincome/(expense) for theperiod - - - - 84.4 (2.2) (9.0) 73.2 - 73.2Share basedpayment - - - - 4.8 - - 4.8 - 4.8Income taxdeduction onexercise of shareoptions - - - - 0.5 - - 0.5 - 0.5Deferred incometax relatingto share basedpayments - - - - 2.8 - - 2.8 2.8Shares issued 0.8 2.6 - - 270.6 - - 274.0 - 274.0Equity dividendspaid - - - - (86.7) - - (86.7) - (86.7)At 30 June 2012 13.8 462.0 (0.4) 1.8 326.7 5.3 (16.5) 792.7 - 792.7At 1 January 2013 13.8 470.4 (0.4) 1.8 408.1 1.7 (17.3) 878.1 - 878.1Profit for theperiod - - - - 130.4 - - 130.4 (2.0) 128.4Othercomprehensiveincome/(expense) - - - - 1.3 1.7 0.7 3.7 - 3.7Totalcomprehensiveincome/(expense) for theperiod - - - - 131.7 1.7 0.7 134.1 (2.0) 132.1Share basedpayment - - - - 5.0 - - 5.0 - 5.0Income taxdeduction onexercise of shareoptions - - - - 0.9 - - 0.9 - 0.9Deferred incometaxrelating to sharebased payments - - - - 4.7 - - 4.7 - 4.7Investment bynon-controllinginterest - - - - - - - - 30.2 30.2Shares issued 0.1 11.4 - - - - - 11.5 - 11.5Equity dividendspaid - - - - (102.1) - - (102.1) - (102.1)At 30 June 2013 13.9 481.8 (0.4) 1.8 448.3 3.4 (16.6) 932.2 28.2 960.4 Half year condensed consolidated cash flow statementfor the 6 months ended 30 June 2013 30 June 2012 30 June 2013 (restated) Notes £m £mCash flows from operating activitiesOperating profit on continuing activities before interest andtaxation 164.8 166.7Depreciation 38.5 38.5Amortisation of intangible assets 54.2 41.2Share based payment expense 5.0 4.8Pensions 1.7 (3.0)Movement in provisions (0.9) (0.4)Loss on disposal of property, plant and equipment 0.1 -Movement in receivables and payables (21.8) (46.5)Cash generated from operations 241.6 201.3Income tax paid (11.8) (29.5)Net interest paid (19.2) (22.8)Net cash inflow from operating activities 210.6 149.0Cash flows from investing activitiesPurchase of property, plant and equipment (46.9) (55.0)Proceeds from sale of property, plant and equipment - 1.0Purchase of financial assets (0.7) -Acquisition of subsidiary undertakings and businesses (204.1) (106.2)Debt repaid on acquisition of subsidiary undertakings (1.6) (42.2)Cash acquired with subsidiary undertakings 10.2 0.2Acquisition of public sector subsidiary arrangements (24.9) -Debt repaid on acquisition of public sector subsidiaryarrangements (9.2) -Net cash outflow from investing activities (277.2) (202.2)Cash flows from financing activitiesIssue of ordinary share capital 11.5 276.6Share transaction costs - (2.6)Dividends paid 5 (102.1) (86.7)Capital element of finance lease rental payments 8 (4.2) (1.1)Proceeds on issue of debt 8 - 185.0Revolving credit facility 8 - (178.0)Financing arrangement costs - (1.1)Repayment of bonds and long term debt 8 (32.3) (24.7)Net cash (outflow)/inflow from financing activities (127.1) 167.4Net (decrease)/ increase in cash and cash equivalents (193.7) 114.2Cash and cash equivalents at the beginning of the period 319.9 71.5Cash and cash equivalents at 30 June 126.2 185.7Cash and cash equivalents comprise:Cash at bank and in hand 559.7 481.9Overdraft (433.5) (296.2)Total 8 126.2 185.7 Notes to the half year condensed consolidated financial statementsfor the 6 months ended 30 June 2013 1 Corporate information Capita plc is a public limited company incorporated in England and Wales whoseshares are publicly traded. The half year condensed consolidated financialstatements of the Company and its subsidiaries (`the Group') for the 6 monthsended 30 June 2013 were authorised for issue in accordance with a resolutionof the Directors on 24 July 2013. 2 Basis of preparation, judgements and estimates, accounting policies,principal risks and uncertainties and going concern (a) Basis of preparation The half year condensed consolidated financial statements for the 6 monthsended 30 June 2013 have been prepared in accordance with the Disclosure andTransparency Rules (DTR) of the Financial Conduct Authority and with IAS 34Interim Financial Reporting. The half year condensed consolidated financial statements do not include allthe information and disclosures required in the annual financial statementsand should be read in conjunction with the Group's annual financial statementsas at 31 December 2012, which have been prepared in accordance with IFRSs asadopted by the European Union. This condensed consolidated half year financial information does not comprisestatutory accounts within the meaning of Section 434 of the Companies Act2006. Statutory accounts for the year ended 31 December 2012 were approved bythe Board of Directors on 27 February 2013 and delivered to the Registrar ofCompanies. The report of the auditors on those accounts was unqualified, didnot contain an emphasis of matter paragraph and did not contain any statementunder Section 498 of the Companies Act 2006. The half year condensed consolidated financial statements for the 6 monthsended 30 June 2013 have not been audited or reviewed by auditors pursuant tothe Auditing Practices Board guidance on Review of Interim FinancialInformation. (b) Judgements and estimates In preparing these half year condensed consolidated financial statements,management make judgements, estimates and assumptions that affect theapplication of accounting policies and the reported amount of assets andliabilities and income and expense. Actual results may differ from theseestimates. The significant judgements made by management in applying theGroup's accounting policies and the key sources of estimation uncertainty werethe same as those that applied to the consolidated financial statements as atthe year ended 31 December 2012. (c) Significant accounting policies The accounting policies adopted in preparation of the half year condensedconsolidated financial statements are consistent with those followed in thepreparation of the Group's annual financial statements for the year ended 31December 2012, except for the adoption of the following new standards andamendments with an initial date of application of 1 January 2013. IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS1 As a result of the amendments to IAS 1, the Group has modified thepresentation of items in its condensed consolidated statement of othercomprehensive income to present separately items that would be classified toprofit or loss in the future from those that would never be. Comparativeinformation has also been re-presented. The amendment affected presentationonly and had no impact on the Group's financial position or performance. IAS 19 Employee Benefits (Revised 2011) - IAS 19R IAS 19R includes a number of amendments to the accounting for defined benefitplans, including actuarial gains and losses that are now recognised in othercomprehensive income (OCI) and permanently excluded from profit and loss (thishad no impact on the Group as it had never adopted the `corridor' approach);expected returns on plan assets that are no longer recognised in profit orloss, instead, there is a requirement to recognise interest on the net definedbenefit liability (asset) in profit or loss, calculated using the discountrate used to measure the defined benefit obligation, and; unvested pastservice costs are now recognised in profit or loss at the earlier of when theamendment occurs or when the related restructuring or termination costs arerecognised. Other amendments include new disclosures, such as, quantitativesensitivity disclosures. In the case of the Group, the transition to IAS 19R has had an impact on boththe condensed consolidated income statement and the condensed consolidatedstatement of other comprehensive income due to the difference in accountingfor interest on plan assets. The effect of the adoption of IAS 19R is toreduce profit before tax by £5.0m (2012: £4.3m) and reduce the tax on profitcharge by £1.2m (2012: £1.0m), a net impact on profit for the period of £3.8m(2012: £3.3m). There was an equal and opposite effect on the total of othercomprehensive income for the period such that there has been no overall changeto total comprehensive income for the period nor any change in equity. Inaddition, the Group has reclassified the interest cost element of the pensioncharge to finance costs from administrative expenses. The impact of this hasbeen to reclassify as finance costs £2.4m (2012: £1.8m). Comparatives havebeen restated accordingly. IFRS 7 Financial Instruments: Disclosures - Offsetting Financial Assets andFinancial Liabilities - Amendment to IFRS 7 The amendment requires an entity to disclose information about rights toset-off financial instruments and related arrangements (eg, collateralagreements). The new disclosures are required for all recognised financialinstruments that are set off in accordance with IAS 32. The disclosures alsoapply to recognised financial instruments that are subject to an enforceablemaster netting arrangement or similar agreement, irrespective of whether thefinancial instruments are set off in accordance with IAS 32. The amendment hashad no impact on the Group's financial position or performance. The Group hasgrossed up its cash at bank and overdraft positions. IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair valuemeasurements. IFRS 13 does not change when an entity is required to use fairvalue, but rather provides guidance on how to measure fair value under IFRSwhen fair value is required or permitted. The application of IFRS 13 has notmaterially impacted the fair value measurements carried out by the Group. IFRS13 also requires specific disclosures on fair values, some of which replaceexisting disclosure requirements in other standards, including IFRS 7Financial Instruments: Disclosures. Some of these disclosures are specificallyrequired for financial instruments by IAS 34.16A(j), thereby affecting theinterim condensed consolidated financial statements for the period. The Groupprovides these disclosures in Note 9. In accordance with the transitionalprovisions of IFRS 13, the Group has applied the new fair value measurementguidance prospectively and has not provided any comparative information fornew disclosures. Improvements to IFRSs - 2009 - 2011 Cycle issued in May 2012 The International Accounting Standards Board issued an omnibus of amendmentsto its standards, primarily with a view to removing inconsistencies andclarifying wording. The adoption of these amendments did not have any impacton the financial position or performance of the Group. (d) Principal risks and uncertainties and going concern The Directors have considered the principal risks and uncertainties affectingthe Group's financial position and prospects in 2013. As described on pages 36to 39 of the Group's Annual Report for 2012, the Group continues to be exposedto a number of risks and has well established systems and procedures in placeto identify, assess and mitigate those risks. The risks faced by the Grouphave not changed significantly over the first 6 months of 2013 and are notexpected to change materially in the remaining 6 months. The principal risks include those arising from: failure to meet service levelagreements, possible loss of contracts and damage to brand reputation;counterparty failure including disruption to supply chains or serviceinterruption; failure to achieve planned synergies in acquisitions; weakereconomic conditions are a key driver for outsourcing but extreme economicuncertainty may result in delays in purchasing decisions and reduceddiscretionary spend in some market segments; regulatory changes in differentjurisdictions may impact businesses in those locations; failure to attract andmaintain key staff; failure to secure sensitive or confidential data; andfailure to comply with complex laws and regulations. The Directors have considered the issues raised in the FRC's "Update fordirectors of listed companies: Responding to heightened country and currencyrisk in interim financial reports" and can report that, although the Group isnot directly exposed to significant overseas sovereign and currency risks, itis exposed indirectly to increased counterparty risk. The Group attempts tomitigate this risk by counterparty monitoring and the avoidance ofconcentrations of counterparty risk. The Group has considerable financial resources together with long termcontracts with a wide range of public and private sector clients andsuppliers. As a consequence, the Directors believe the Group is well placed tomanage its business risks successfully. After making enquiries and in accordance with the FRC's "Going Concern andLiquidity Risk: Guidance for Directors of UK Companies 2009", the Directorshave a reasonable expectation that the Group has adequate resources tocontinue in operational existence for the foreseeable future. Accordingly,they continue to adopt the going concern basis in preparing the half yearcondensed consolidated financial statements. 3 Segmental information The following tables present revenue and profit information regarding theGroup's operating segments for the six months ended 30 June 2013 and 2012respectively. The comparative figures have been restated due to areorganisation of the Group's business segments and a consequent change in theway in which the results of the business are reported to the Group Board. 6 months ended 30 June 2013 2012 Inter- Inter- Total segment External Total segment External revenue revenue revenue revenue revenue revenueAnalysis of segment revenue £m £m £m £m £m £mHealth & Wellbeing 106.7 (10.8) 95.9 93.3 (9.3) 84.0IT Services 283.0 (53.6) 229.4 279.8 (45.8) 234.0Professional Services 250.7 (52.4) 198.3 214.6 (44.8) 169.8Justice & Secure Services 164.4 (17.2) 147.2 93.0 (14.7) 78.3Property Services 140.7 (15.3) 125.4 133.1 (13.1) 120.0Workplace Services 250.7 (14.3) 236.4 170.4 (12.3) 158.1Customer Management & International 147.8 (6.9) 140.9 126.5 (5.9) 120.6Investor & Banking Services 121.2 (10.5) 110.7 119.1 (9.0) 110.1Integrated Services 188.2 (12.4) 175.8 173.8 (10.6) 163.2Insurance & Benefits Services 395.5 (36.7) 358.8 400.6 (31.4) 369.2Total segments 2,048.9 (230.1) 1,818.8 1,804.2 (196.9) 1,607.3 6 months 6 months to to 30 June 30 June 2013 2012Analysis of segment profit £m £mHealth & Wellbeing 15.4 16.4IT Services 10.0 7.7Professional Services 48.4 41.1Justice & Secure Services 19.7 15.2Property Services 6.9 8.1Workplace Services 29.4 18.6Customer Management & International 18.6 13.6Investor & Banking Services 27.6 27.1Integrated Services 29.0 29.3Insurance & Benefits Services 21.8 37.0Total underlying segment profit 226.8 214.1Net underlying finance costs (21.6) (27.7)Underlying profit before tax 205.2 186.4Intangible amortisation (52.9) (41.2)Acquisition costs (7.5) (6.2)Contingent consideration movement (1.6) -Financial instruments - mark to market 14.3 0.5Profit before tax 157.5 139.5 4 Earnings per share The average number of shares in issue during the period was 650.2m (30 June2012: 622.9m). The diluted earnings per share have been calculated on theprofit for the period of £130.4m (30 June 2012: £113.2m) and an averagediluted number of shares of 657.0m (30 June 2012: 625.8m). As at 24 July 2013,there were 655.2 m shares in issue. 5 Dividends The interim dividend of 8.7p (2012: 7.9p) per share (not recognised as aliability at 30 June 2013) will be payable on 7 October 2013 to ordinaryshareholders on the register at the close of business on 23 August 2013. Thedividend disclosed in the cash flow statement represents the final ordinarydividend of 15.6p (2012: 14.2p) per share as proposed in the 31 December 2012financial statements and approved at the Group's AGM (not recognised as aliability at 31 December 2012). 6 Business combinations The Group has made a number of acquisitions in the period which are shown inaggregate below: Provisional fair value to Group £mProperty, plant and equipment 23.0Intangible assets 94.6Debtors - gross 68.2Provision for doubtful debts (1.7)Income tax 2.1Cash and cash equivalents 10.2Creditors (104.7)Provisions (4.3)Deferred tax (10.6)Employee benefits liability (11.9)Finance lease (25.4)Long term debt (10.8)Net assets 28.7Goodwill arising on acquisition 223.4 252.1Discharged by:Cash consideration paid 207.5Non-controlling interest investment 30.2Contingent consideration accrued 14.4 252.1 The full exercise to determine the fair value of intangible assets acquired isstill to be completed, thus the above numbers are provisional. Further cashconsideration was paid in respect of previous acquisitions of £14.0m. 7 Provisions Insurance captive Property provision provision Total £m £m Other £m £mAt 1 January 2013 16.0 39.4 9.1 64.5Utilisation (6.4) (2.5) (2.7) (11.6)Additional provisions in the period 9.7 0.2 0.8 10.7Provisions acquired - 4.3 - 4.3At 30 June 2013 19.3 41.4 7.2 67.9 The insurance provision is made in relation to the Group's ProfessionalIndemnity, Motor and Employee Liability exposures. The Group uses a captiveinsurer to reduce the cost of providing this cover for its operations; claimsthat are in excess of the Captive's liability are reinsured with a number oflarge insurance underwriters. The Group makes provision when a claim has beenmade where it is more probable than not that an insured loss will occur. Theseprovisions are reassessed regularly to ensure that the level of provisioningis consistent with the claims that have been reported. The property provision includes a discounted provision for the differencebetween the market value of the property leases acquired in 2011 with Venturaand Vertex and the lease obligations committed to at the date the leases weresigned by the previous owners. This is in accordance with IFRS 3 (revised)which requires the use of fair value measurement. The remaining propertyprovision is made on a discounted basis for the future rent expense andrelated cost of leasehold property (net of estimated sub-lease income) wherethe space is vacant or currently not planned to be used for ongoingoperations. The expectation is that this expenditure will be incurred over theremaining periods of the leases which range from 1 to 15 years. Other relates to provisions in respect of potential claims arising due to thenature of some of the operations that the Group provides. These are likely tounwind over a period of 1 to 3 years. 8 Movement in net debt Net debt Net debt at 1 Acquisitions Non-cash at January in 2013 Cash flow flow 30 June 2013 £m movements movements 2013 £m £m £m £mCash+ 319.9 10.2 (203.9) - 126.2Unsecured loan notes (0.5) - - - (0.5)Bonds* (1,370.1) - 32.3 (24.5) (1,362.3)Term loan (185.0) - - - (185.0)Currency swaps in relation to US $denominated bonds* 206.2 - - 27.8 234.0Interest rate swaps in relation to GBPdenominated bonds* 15.9 - - (4.6) 11.3Long term debt - (10.8) 10.8 - -Obligations under finance leases (2.7) (25.4) 4.2 0.5 (23.4)Underlying net debt (1,016.3) (26.0) (156.6) (0.8) (1,199.7)Fixed rate interest rate swaps (52.9) - - 15.9 (37.0) (1,069.2) (26.0) (156.6) 15.1 (1,236.7) + Cash comprises cash, cash equivalents and overdrafts. * The aggregate bond fair value above of £1,362.3m (30 June 2012: £1,415.4m)includes the GBP value of the US$ denominated bonds. To remove the Group'sexposure to currency fluctuations it has entered into currency swaps whicheffectively hedge the movement in the underlying bond fair value. The interestrate swaps are being used to hedge the exposure to changes in the fair valueof GBP denominated bonds. The sum of these items held at fair value equates tothe underlying value of the Group's bond debt of £1,117.0m (30 June 2012:£1,151.0m). Net debt Net debt at Acquisitions Non-cash at 1 January in 2012 Cash flow flow 30 June 2012 £m movements movements 2012 £m £m £m £mCash+ 71.5 0.2 114.0 - 185.7Unsecured loan notes (2.3) - - (0.6) (2.9)Bonds* (1,432.2) - 24.7 (7.9) (1,415.4)Term loan - - (185.0) - (185.0)Revolving credit facility (176.1) - 178.0 (1.9) -Currency swaps in relation to US $ denominatedbonds* 242.4 - - 7.5 249.9Interest rate swaps in relation to GBPdenominated bonds* 13.5 - - 1.0 14.5Long term debt - (42.2) 42.2 - -Obligations under finance leases (3.1) - 1.1 - (2.0)Underlying net debt (1,286.3) (42.0) 175.0 (1.9) (1,155.2)Fixed rate interest rate swaps (44.7) - - (0.6) (45.3) (1,331.0) (42.0) 175.0 (2.5) (1,200.5) 9 Financial instruments Carrying values and fair values of financial instruments The following table analyses by classification and category the Group'sfinancial instruments (excluding short term debtors, creditors, fundpayables/receivables and cash in hand) that are carried in the financialstatements. The values below represent the carrying amounts. The fair valuesare the same as the carrying values other than a £50.0m fixed rate bond,included below in the bond value of £1,362.3m, with a carrying value of £50.0mand a fair value of £53.4m. At fair value through the Derivatives Other Available- income Loans and used for financial for-sale statement receivables hedging liabilities Total £m £m £m £m £m £mFinancial assetsUnlisted equity securities 1.8 - - - - 1.8Investment loan - - 20.8 - - 20.8Interest rate swaps in relation toGBP denominated bonds - - - 11.3 - 11.3Currency swaps in relation to US$denominated bonds - - - 234.0 - 234.0 1.8 - 20.8 245.3 - 267.9Financial liabilitiesOverdrafts - - - - 433.5 433.5Unsecured loan notes - - - - 0.5 0.5Bonds - - - - 1,362.3 1,362.3Term loan - - - - 185.0 185.0Cash flow hedges - - - 21.6 - 21.6Non-designated foreign exchangeforward contracts - 0.9 - - - 0.9Contingent consideration - - - - 33.8 33.8Obligations under finance leases - - - - 23.4 23.4Fixed rate interest rate swaps - 37.0 - - - 37.0 - 37.9 - 21.6 2,038.5 2,098.0 The fair value of financial instruments has been calculated by discounting theexpected future cash flows at prevailing interest rates, except for unlistedequity securities and investment loans. The valuation models incorporatevarious inputs including foreign exchange spot and forward rates and interestrate curves. Unlisted equity securities and investment loans are held atamortised cost. The Group enters into derivative financial instruments withmultiple counterparties, all of which are financial institutions withinvestment grade credit ratings. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fairvalue of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets orliabilities Level 2: other techniques for which all inputs which have a significant effecton the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on therecorded fair value that are not based on observable market data. As at 30 June 2013, the Group held the following financial instrumentsmeasured at fair value: £mAssets measured at fair valueInterest rate swaps in relation to GBPdenominated bonds 11.3Currency swaps in relation to US$denominated bonds 234.0 245.3Liabilities measured at fair valueBonds 1,312.3Term loan 185.0Unsecured loan notes 0.5Cash flow hedges 21.6Non-designated foreign exchange forward 0.9contractsFixed rate interest rate swaps 37.0Contingent consideration 33.8 1,591.1 During both periods the Group only had Level 2 assets or liabilities measuredat fair value apart from contingent consideration which is a Level 3liability. It is the Group's policy to recognise transfers between levels ofthe fair value hierarchy at the end of the reporting period during which thetransfer occurred. During the period ended 30 June 2013, there were notransfers between Level 1 and Level 2 fair value measurements and no transfersinto or out of Level 3 fair value measurements. Contingent consideration, the only level 3 item, arises in businessacquisitions where the Group has agreed to pay the vendors additionalconsideration dependent on the achievement of performance targets in theperiods post acquisition. These performance periods are of up to 3 years induration and will be settled in cash and loan notes on their payment date onachieving the relevant target. The Group makes provision for such contingentconsideration based on an assessment of its fair value at the acquisitiondate. Contingent consideration has been calculated based on the Group'sexpectation of what it will pay in relation to the post-acquisitionperformance of the acquired entities by weighting the probability of a rangeof payments to give an estimate of the final obligation. A change in theweighting given to the range of payments of +5%/-5% has an impact of +ve£3.6mand -ve£1.2m to the value carried as contingent consideration. A reconciliation of the movements in the contingent consideration provision inthe period is set out below: £mAt 1 January 2013 26.8Arising from business combinations in the period 14.4Profit and loss movement - administrative expenses 1.6Reclassified from current liabilities 5.0Utilised (14.0)At 30 June 2013 33.8 10 Capital commitments At 30 June 2013, amounts contracted for but not provided in the financialstatements for the acquisition of property, plant and equipment amounted to£0.1m (30 June 2012: £1.0m). 11 Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Invesco Limited, a substantial shareholder in the Company and therefore arelated party of the Company (in each case, for the purposes of the ListingRules of the UK Listing Authority), had a holding of 144,177,938 shares in theCompany at 24 July 2013. Compensation of key management personnel (including Directors of parentcompany) 6 months 6 months 30 June 30 June 2013 2012 £m £mShort term employment benefits 2.8 2.1Post employment benefits 0.1 0.1Share based payments 2.0 1.0 4.9 3.2 Gains on share options exercised in the period by key management personneltotalled £7.4m (30 June 2012: £4.9m). 12 Contingent liabilities The Group has provided, through the normal course of its business, performancebonds and bank guarantees of £68.0m (31 December 2012: £58.2m). Further consideration may be due, dependent on certain performance criteria,on acquisitions completed by the Group since 2010 up to a maximum of £55.9m ofwhich £33.8m has been provided. The Group expects that these payments, ifultimately due, will be satisfied by the end of 2016. Statement of Directors' responsibilities The Directors confirm, to the best of their knowledge, that this condensed setof financial statements has been prepared in accordance with IAS 34 as adoptedby the European Union and that the Half Year Management Report includes a fairreview of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of theDisclosure and Transparency Rules of the United Kingdom Financial ConductAuthority. The names and functions of the Directors of Capita plc are as listed in theGroup's Annual Report for 2012. A list of current Directors is maintained onthe Group website: www.capita.co.uk. By order of the Board P R M Pindar G M Hurst Chief Executive Group Finance Director

24 July 2013