Capita Regulatory News (CPI)

23 July 2014 Half year results for the 6 months to 30 June 2014 Good financial performance and sales activity Underlying Underlying ReportedFinancial highlights 2014* 2013** Change 2014 Revenue £2,071.0m £1,818.8m +13.9 % £2,071.0mOperating profit £260.2m £226.8m +14.7 % £182.4mProfit before tax £238.0m £205.2m +16.0 % £152.3mEarnings per share 28.88p 25.82p +11.9 % 18.60pInterim dividend per share 9.6p 8.7p +10.3 % 9.6p Highlights Delivering profitable growth £1.3bn of major contract wins secured in H1 2014 including: - £400m strategic partnership contract with the Defence InfrastructureOrganisation (DIO) - £325m framework contract for Scottish Wide Area Network (SWAN) - £145m congestion charging and traffic enforcement schemes contract forTransport for London (TfL) - £93.5m online customer management contract with John Lewis Major contract win rate above 2 in 3 Organic revenue growth of 11% (H1 2013: 3%); full year organicrevenue growth expectation of at least 8%, net of attrition Bid pipeline replenished to a record £5.7bn (Feb 2014: £5.5bn); strongplatform for 2015/16 growth Highest ever level of prospects behind bid pipeline, with opportunitiesacross our diverse markets Active acquisition pipeline; £240m invested to date on 10businesses, expanding capabilities and market reach to fuel future organicgrowth Good financial performance Revenue up 13.9% to £2.1bn (H1 2013: £1.8bn**) Underlying profit before tax* up 16.0% to £238.0m (H1 2013: £205.2m**) Underlying operating margin* of 12.6% (H1 2013: 12.5%**) Operating cash flow up 21.6% to £291m*** (H1 2013: £239m); 112% cashconversion (H1 2013: 105%) Gearing at 2.3 times net debt to EBITDA (H1 2013: 2.2 times) Andy Parker, Chief Executive of Capita plc, commented: "I am pleased to report good financial results for the first 6months of the year, demonstrating the strength of Capita's sales offering andoperational delivery and the health of the UK customer and business processmanagement market. Our breadth of capability across a diversified and growingmarket base enables us to move flexibly across sectors and to maintain a highlevel of selectivity regarding the opportunities that we pursue. We have hadan excellent sales period securing £1.3bn of contracts and we are continuingto see a high level of activity across our markets, particularly in theprivate sector, providing a strong future platform for growth. As a consequence of our sales and acquisition performance in 2013and to date in 2014, we have a high level of revenue visibility for 2014.This, together with the strength of our bid and acquisition pipelines, givesus confidence in our full year performance and provides a good platform forgrowth in 2015 and beyond." *Excludes non-underlying items being: intangible amortisation, acquisition expenses,net contingent consideration movements, impairments, non-cash impact of mark-to-market finance costs.**Includes businesses exited in H2 2013.***Excludes closure costs of businesses exited in H2 2013 and Arch Cru costs. ______________________________________________________________________________ Analyst presentation Andy Parker, Chief Executive of Capita plc, will host an analystpresentation and conference call in London at 8.30am UK time today. There will be a conference call and live webcast of the full event.Details can 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 9825457#). ______________________________________________________________________________ For further information: Capita plc Tel: 020 7799 1525Andy Parker, Chief ExecutiveShona Nichols, Corporate Communications Director Capita Press Office Tel: 020 7654 2152 or 020 7654 2399 out of hours FTI Consulting Tel: 020 7269 7291Andrew Lorenz About Capita Capita plc is the UK's leading provider of customer and business processmanagement (BPM) and integrated professional support service solutions. With64,000 people at more than 350 sites, including 73 business centres across theUK, Europe, India and South Africa, the Group uses its expertise,infrastructure and scale benefits to transform its clients' services, drivingdown costs and adding value. Capita is quoted on the London Stock Exchange(CPI.L), and is a constituent of the FTSE 100 with 2013 revenue of £3.9bn.Further information on Capita plc can be found at: www.capita.co.uk Capita plc Results for the 6 months to 30 June 2014 Overview Capita is today reporting good financial results for the first halfof 2014 underpinned by strong sales and operational performance. Financial results for the first 6 months of the year includerevenue increasing by 13.9% to £2.1bn (H1 2013: £1.8bn**), underlying operatingprofit* up 14.7% to £260.2m (H1 2013: £226.8m**) and underlying profit beforetaxation* increasing by 16.0% to £238.0m (H1 2013: £205.2m**). Underlyingearnings per share* grew by 12% to 28.9p (H1 2013: 25.8p**) and we haveincreased our dividend for the half year by 10.3% to 9.6p per share (H1 2013:8.7p). To date this year, we have secured £1.3bn of major contracts (H12013: £2.0bn, which included our largest ever contract with O2 of £1.2bn),comprising 90% new business and 10% renewed contracts. As a result of strongsales performance in 2013 and to date in 2014, we have generated strongorganic growth in H1 2014 of 11% (H1 2013: 3%). We have also swiftlyreplenished the bid pipeline to £5.7bn (February 2014: £5.5bn), reflectingstrong sales momentum across our 11 private and public sector markets. Inaddition to our established sectors, we continue to see a particularly highlevel of interest in a number of our newer growth areas, including justice andemergency services and across the telecoms, retail, utilities and financialservices sectors. Our divisions are trading well with particularly strong performancein our Workplace Services and Customer Management businesses. Following themanagement changes introduced last year, together with the more positivemacroeconomic environment, our Property & Infrastructure and IT businesses arereporting improved sales and trading performance. We retain our position at the forefront of the customer andbusiness process management market by continually evolving our capability andidentifying changes in market dynamics which create a compelling business casefor outsourcing. The acquisition of small to medium sized businesses extendour capabilities and market reach, enhancing our value creating propositions,facilitating entry into new target sectors and thereby fuelling future organicgrowth. To date in 2014, we have invested £240m in acquiring 10 businesses.This has included establishing a footprint in a new sector for Capita throughthe acquisition of a mortgage processing business. We have also extended ourexisting customer management offering into a new geographic region throughacquiring a niche customer management business in Germany to support ourcurrent and new clients' needs in Europe. Financial update Revenue - In the half year 2014, revenue increased by 13.9% to£2,071m (H1 2013: £1,819m**). This comprised 11% organic growth (net ofattrition), 3% from acquisitions completed in 2013 and 1% to date in 2014,less 1% from businesses exited in H2 2013. We now operate across 11diversified markets with revenue derived 51% private and 49% public sector. Operating profit and margin - In H1 2014, the Group's underlyingoperating margin* was 12.6% (H1 2013: 12.5%**). The increase in margin in thefirst half is due to a combination of factors including the improvement in ourProperty & Infrastructure and IT Services businesses and the disposal of theunderperforming insurance businesses in the second half of 2013. These werepartly offset by the expected start up costs on some key major contracts andthe ending of the Disclosure and Barring contract in March 2014. Our large scale infrastructure, lean corporate overhead, the highlevel of selectivity we maintain regarding bid opportunities and the valuecreating nature of our services enables us to retain double digit Groupoperating margins while providing competitive pricing for clients. We remainconfident that underlying full year Group operating margins will be maintainedin the range of 12.5% to 13.5% for the forseeable future. Dividend - The Board has declared an interim dividend of 9.6p perordinary share (H1 2013: 8.7p) representing an increase of 10.3%. The interimdividend will be payable on 7 October 2014 to shareholders on the register atthe close of business on 29 August 2014. Cash flow - In H1 2014, £291m*** (H1 2013: £239m) was generated byoperations representing an operating profit1 to cash conversion ratio*** of 112%(H1 2013: 105%). This high conversion rate reflects the Group's focus on cashgeneration and working capital management which is firmly embedded through allour divisions and business units. Based on current circumstances, we arecomfortable that we can continue to achieve a medium to long term annual cashconversion ratio at or above 100%. Underlying free cash flow, defined as underlying operating cashflow*, less capital expenditure, interest and taxation for the half year was£170m (H1 2013: £161m). Capital expenditure - We aim to contain capital expenditure at orbelow 4% of revenue. In H1 2014, we met this objective, with net capex at 2.8%of revenue (H1 2013: 2.6%). 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 returnon capital. Over the last 12 months to 30 June 2014, our post-tax return onaverage capital employed was 15.4%* (12 months to 30 June 2013: 15.1%**). Thiscompares to our estimated post-tax WACC which is 7.7%. To further align management interests with those of our shareholders, earlierthis year we introduced ROCE targets to the incentive schemes of our BoardDirectors and our Executive Management Team, alongside the existing EPStargets. With the key driver of ROCE being organic profit growth and soundcapital and cashflow management, we plan to include this measure in all of theGroup's long term employee share incentive schemes. Debt profile - As at 30 June 2014, we have £1,133m of privateplacement bond debt of which only £11m matures in 2014, £97m in 2015 and theremainder gradually maturing to 2021. In addition, we have £300m of bank debtof which £200m matures in July 2015 and a £425m revolving credit facilitymaturing in December 2015. In total, 52% of our debt is subject to fixedinterest rates and 48% is subject to floating rates. We expect to keep the ratio of net debt to EBITDA in the range of 2to 2.5 over the long term and we would be unlikely to incur borrowings whichwould reduce interest cover below 7 times. At 30 June 2014, our annualised netdebt to EBITDA ratio was 2.3 (H1 2013: 2.2**) with annualised interest cover at13 times (H1 2013: 11 times). * Excludes non-underlying items being: intangible amortisation, acquisition expenses,net contingent consideration movements, impairments, non-cash impact of mark-to-market finance costs.** Includes businesses exited in H2 2013.*** Excludes closure costs of businesses exited in H2 2013 and Arch Cru costs. Delivering profitable growth We generate profitable growth by winning major contracts from newand existing customers and through acquiring businesses that broaden ourcapability and market reach, enhancing our sales propositions and creatingfuture organic growth. As demonstrated by our recent sales performance and the health ofour bid pipeline, we are currently experiencing a high level of activity, bothin our central major sales team, which targets contracts over £50m and in ourdivisional sales teams. Opportunities sitting behind our bid pipeline acrossour diverse markets are at their highest ever level. Major contracts: We have made a good start to the year securing 12major contracts with an aggregate value of £1.3bn in the first 6 months (H12013: 6 contracts totalling £2.0bn, which included our largest ever contractwith O2 of £1.2bn). Our major sales win rate in this period was above 2 in 3.This includes: - BAE - signed a strategic partnership contract with BAE SystemsMaritime - Submarines to transform the existing method of IT service deliveryfor its submarine building business in a contract expected to be worth between£60m and £70m over the next five years. We will deliver an enhanced IT servicemodel across the submarine building business which will be aligned with thewider BAE Systems group IT framework. Capita will develop a strategicpartnership capable of delivering innovation alongside a robust and evolvingIT management service to meet the changing needs of BAE Systems Maritime -Submarines. - John Lewis - selected by John Lewis to provide its onlinecontact centre. Under the agreement, which is worth £93.5m over 5 years,Capita will support John Lewis' online growth strategy and deliver a digitalservice, built around John Lewis' customers, that integrates with the fullrange of customer contact channels. Capita will apply the latest technologyand service design methods to deliver an enhanced experience to John Lewis'customers and make it even easier for them to engage with the brand. - Ministry of Defence (MOD) - selected to be the StrategicBusiness Partner for the Defence Infrastructure Organisation (DIO). Capitawill lead a partnership comprising two integrated sub-contractors, URS and PAConsulting. The 10-year contract could be worth around £400m to Capita. Thepartnership will lead the management and transformation of the UK's nationaland international defence infrastructure. It will help to unlock theknowledge, skills and resources that already exist within the DIO while addingcapability to tackle the significant cost-saving targets currently facing theMOD. - Scottish Wide Area Network (SWAN) - signed a framework contractto deliver SWAN, a single public services network for the use of all publicservice organisations within Scotland. The contract value for SWAN is up to£325m over 9 years. More than 4,600 sites will be connected to the initialnetwork including schools, hospitals, GP surgeries, pharmacists and localcouncil offices. As part of the Scottish Government's national digital publicservices strategy, Capita will deliver a platform designed to support the everincreasing need for data sharing and tighter interworking requirements acrossthe wider Scottish public sector. - Transport for London (TfL) - secured a 5 year contract with TfLto operate and enforce the congestion charging, low emission zone and trafficenforcement notice processing schemes. Capita will provide the IT systems,back office and contact centre to run the schemes and the associatedenforcement processes. Capita will take responsibility for the schemes inNovember 2015, following a period of implementation which commences in 2014.The overall agreement, including the implementation period, is expected togenerate revenue of approximately £145m to Capita. - Major contracts worth £25m - £50m: We have secured a further 7contracts worth an aggregate value of £263m including a new contract withGenesis Housing Association and an extension to our Metropolitan Police radiomanaged services contract. Other updates - Electronic Monitoring: Under an interim servicesagreement with the Ministry of Justice, Capita took on responsibility for thefrontline delivery of the existing electronic monitoring operations in March2014. We have now been awarded the contract for the new service which will beintroduced in stages beginning around May 2015. In the meantime, Capita willcontinue to deliver the current service. As previously disclosed, we expectthe new contract to generate revenues of c.£400m to Capita over the initial 6year period. Bid pipeline: Following a period of strong sales wins, the pipelinehas been replenished swiftly and currently stands at £5.7bn (February 2014:£5.5bn) including 27 bids of which 90% relates to new business and 10% tocontract renewals. The pipeline is well diversified across our target marketsand is comprised of 47% in the private sector, mainly in financial services,utilities, telecoms and retail and 53% public sector, primarily in justice andlocal government. We are expecting over 50% of bids in the current pipeline toreach decisions by the year end. We announce the pipeline in February, July and November and it istherefore a snapshot of major bid opportunities at a specific point in time.The pipeline typically reflects the health of the outsourcing market and canbe a useful indicator of Capita's potential organic growth. It includes bidsworth £25m or above, capped at £1bn and where we have been shortlisted by theclient to the last 4 bidders or fewer. Contract rebids: We have one material contract up for rebid in 2015(arising from a recent acquisition), and then no further material rebids forthe next 5 years (defined as having forecast annual revenue in excess of 1% of2013 revenue). Securing value enhancing acquisitions Our acquisition strategy is to expand our capability and marketreach to generate further future organic growth. We acquire small to mediumsized businesses which build capability in existing areas and enhance oursales propositions and which also provide accelerated entry into new sectors.This is clearly evidenced by the acquisitions we have made in the last 3 yearswhich are now a key source of our growth, for example, following ouracquisitions in the customer management sector, we were able to securecontracts with O2 and npower and in the justice market, we secured theElectronic Monitoring contract. To date in 2014, we have invested a total of £240m in acquiring 10organisations including: Expanding our presence and capability in the utilities sector: Tosupport our growing presence in the utilities sector and enhance our datamanagement capabilities, we have acquired AMT-SYBEX Group (AMT) a proprietarysoftware business providing software and related services in mobile technologyand smart data management to the utilities and transport sectors. We acquiredthe business for an initial consideration of £82m on a cash free, debt freebasis, plus a contingent consideration of up to £23m (based on the businessreaching specific profit targets over the first 12 months of ownership). Increasing our IT networking capabilities: We have extended ournetworking capabilities with the acquisition of IT network services providerUpdata Infrastructure (UK) for a cash consideration of £80m. Updata provides arange of networking and connectivity services to mainly public sector clientsand is working with Capita on the framework contract to deliver SWAN. Updata'sfully accredited network provides a secure and trusted platform from whichmultiple services can be delivered across both the private and public sectors.Following the acquisition, Capita's existing networking business will becombined with Updata to create the UK's leading networking integrator. Extending our capabilities into a new financial services segment:We have acquired Crown Mortgage Management (`Crown') a provider of residentialand commercial mortgage administration services to banks and financialinstitutions for a cash consideration of £7.5m. Crown is one of the longestestablished residential and small balance commercial mortgage servicers in theUK and has significant experience in managing clients' strategies across bothperforming and non-performing mortgage assets. Capita currently processes£129bn of commercial loans on behalf of banks. The combination of Crown'sspecialist skills with Capita's large scale administration capability andinfrastructure provides us with a strong platform for growth in this sector. Taking our customer management capabilities into a new geographicregion: Earlier this month, we further enhanced this model through theacquisition of tricontes, a Munich based customer management company whichadds to Capita's customer management capability in the UK and enables us tofurther support our existing clients, a number of whom have German or otherEuropean heritage. The acquisition allows Capita to gain experience andexpertise in a new region where there is strong appetite for customermanagement services and provides a solid platform for gradual, organicexpansion. tricontes specialises in delivering a premium service to clients,including contact centre benchmarking and model office services across theretail, telecommunications, utilities and insurance industries. Market landscape The UK customer management and BPM market continues to providesignificant growth potential for Capita. Leading independent industryanalysts, Ovum, estimate that the total UK customer management and BPMaddressable market is £126bn per year (72% private and 28% public sector),with less than 10% (£11.9bn) outsourced in 2013. With this wealth of market opportunity, Capita is well positionedfor future growth, particularly due to its continuous drive to broaden itscapability and expertise, increasing its ability to penetrate the marketfurther. Operating across 11 distinct markets allows Capita to move flexiblyacross sectors and focus our sales and operational resources on the mostattractive contract opportunities where we can meet both our clients'expectations and generate good returns for the Group. Market demand for Capita's services remains high due toorganisations having to evolve rapidly to meet the challenges they face intheir sectors due to structural, regulatory, technology and customer behaviourchange particularly in an increasingly digital and mobile world. Our expertisein insight, analytics-led and technology enabled services allows us to helpour clients meet these challenges by driving organisational change, improvingcustomer experiences and creating enhanced value for private and public sectororganisations. Future prospects The market drivers for customer and business process managementremains strong resulting in high levels of activity across our 11 targetmarkets. This provides a good platform for long term growth in these marketsand new areas where we see opportunity to replicate our experience andexpertise and add value. Our proven business model is underpinned by robustfinancial and governance structures which result in a disciplined salesprocess, robust operational delivery and good, sustainable financialperformance. We have delivered strong organic growth, excellent cash conversionand stable double digit margins in the first half of 2014. The combination ofour good financial and sales performance to date in 2014 and the continuedstrength of our bid and acquisition pipelines gives us confidence in our fullyear performance and provides a steady platform for continued growth in 2015and beyond. -Ends- Half year condensed consolidated income statementfor the 6 months ended 30 June 2014 Notes 30 June 2014 30 June 2013 Non- Non- Underlying underlying Total Underlying underlying Total £m £m £m £m £m £mContinuing operations:Revenue 3 2,071.0 -- 2,071.0 1,818.8 -- 1,818.8Cost of sales (1,491.6 ) -- (1,491.6 ) (1,307.4 ) -- (1,307.4 )Gross profit 579.4 -- 579.4 511.4 -- 511.4Administrative expenses (319.2 ) (77.8 ) (397.0 ) (284.6 ) (62.0 ) (346.6 )Operating profit 3 260.2 (77.8 ) 182.4 226.8 (62.0 ) 164.8Net finance costs (22.2 ) (7.9 ) (30.1 ) (21.6 ) 14.3 (7.3 )Profit before tax 3 238.0 (85.7 ) 152.3 205.2 (47.7 ) 157.5Income tax expense (44.0 ) 16.4 (27.6 ) (39.0 ) 9.9 (29.1 )Profit for the period 194.0 (69.3 ) 124.7 166.2 (37.8 ) 128.4Attributable to:Owners of the Company 190.1 (67.7 ) 122.4 167.9 (37.5 ) 130.4Non-controllinginterests 3.9 (1.6 ) 2.3 (1.7 ) (0.3 ) (2.0 ) 194.0 (69.3 ) 124.7 166.2 (37.8 ) 128.4Earnings per share 4- basic 28.88 p (10.28 )p 18.60 p 25.82 p (5.77 )p 20.05 p- diluted 28.62 p (10.19 )p 18.43 p 25.56 p (5.71 )p 19.85 p Half year condensed consolidated statement of comprehensive incomefor the 6 months ended 30 June 2014 30 June 2014 30 June 2013 £m £m £m £m Profit for the period 124.7 128.4Other comprehensive (expense)/incomeItems that will not be reclassified subsequentlyto profit or lossActuarial (loss)/gain on defined benefit pensionschemes (28.0 ) 1.7Deferred tax effect 5.6 (0.4 ) (22.4 ) 1.3 (22.4 ) 1.3Items that will or may be reclassifiedsubsequently to profit or lossExchange differences on translation of foreignoperations (5.2 ) 1.7Gain/(loss) on cash flow hedges 2.3 (0.3 )Reclassification adjustments for losses includedin the income statement 2.8 1.2Income tax effect (1.0 ) (0.2 ) 4.1 0.7 (1.1 ) 2.4Other comprehensive (expense)/income for theperiod net of tax (23.5 ) 3.7Total comprehensive income for the period net oftax 101.2 132.1Attributable to:Owners of the Company 98.9 134.1Non-controlling interests 2.3 (2.0 ) 101.2 132.1 Half year condensed consolidated balance sheetat 30 June 2014 30 June 31 December 2014 2013 £m £mNon-current assetsProperty, plant and equipment 441.3 419.8Intangible assets 2,550.7 2,330.7Financial assets 124.0 166.4Trade and other receivables 71.6 77.6 3,187.6 2,994.5Current assetsFinancial assets 4.6 3.1Funds assets 128.9 100.8Trade and other receivables 1,042.9 892.9Cash 538.6 610.8 1,715.0 1,607.6Total assets 4,902.6 4,602.1Current liabilitiesTrade and other payables 1,173.5 1,023.5Overdrafts 504.6 453.0Financial liabilities 75.9 79.2Funds liabilities 128.9 100.8Provisions 67.6 62.2Income tax payable 49.5 52.5 2,000.0 1,771.2Non-current liabilitiesTrade and other payables 22.3 26.5Financial liabilities 1,802.4 1,729.9Deferred tax liability 2.8 7.1Provisions 38.5 52.7Employee benefits 149.1 118.4 2,015.1 1,934.6Total liabilities 4,015.1 3,705.8Net assets 887.5 896.3Capital and reservesIssued share capital 13.8 13.8Share premium 494.1 491.2Employee benefit trust and treasury shares (0.4 ) (0.4 )Capital redemption reserve 1.8 1.8Foreign currency translation reserve (3.2 ) 2.0Cash flow hedging reserve (20.0 ) (24.1 )Retained earnings 337.5 350.4Equity attributable to owners of the Company 823.6 834.7Non-controlling interests 63.9 61.6Total equity 887.5 896.3 Included in aggregate financial liabilities is an amount of £1,232.6m (31December 2013: £1,267.3m) 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 £120.9m (31 December 2013: £147.1m) included infinancial assets and £21.0m (31 December 2013: £13.5m) included in financialliabilities. Consequently, this gives an effective liability of £1,132.7m (31December 2013: £1,133.7m). Half year condensed consolidated statement of changes in equity for the 6 months ended 30 June 2014 Employee benefit trust Foreign Cash & Capital currency flow Non- Share Share treasury redemption Retained translation hedging controlling Total capital premium shares reserve earnings reserve reserve Total interests equity £m £m £m £m £m £m £m £m £m £mAt 1 January2013 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 the period -- -- -- -- 131.7 1.7 0.7 134.1 (2.0 ) 132.1Share basedpayment -- -- -- -- 5.0 -- -- 5.0 -- 5.0Income taxdeduction onexercise ofshare options -- -- -- -- 0.9 -- -- 0.9 -- 0.9Deferred incometax relating tosharebased payments -- -- -- -- 4.7 -- -- 4.7 -- 4.7Acquisition ofsubsidiary withanon-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 28.2 960.4At 1 January2014 13.8 491.2 (0.4 ) 1.8 350.4 2.0 (24.1 ) 834.7 61.6 896.3Profit for theperiod -- -- -- -- 122.4 -- -- 122.4 2.3 124.7Othercomprehensiveincome/(expense) -- -- -- -- (22.4 ) (5.2 ) 4.1 (23.5 ) -- (23.5 )Totalcomprehensiveincome/(expense)for the period -- -- -- -- 100.0 (5.2 ) 4.1 98.9 2.3 101.2Share basedpayment -- -- -- -- 5.8 -- -- 5.8 -- 5.8Income taxdeduction onexercise ofshare options -- -- -- -- 2.0 -- -- 2.0 -- 2.0Deferred incometax relating tosharebased payments -- -- -- -- 1.1 -- -- 1.1 -- 1.1Fair valuemovement in putoption ofnon-controllinginterest -- -- -- -- (4.6 ) -- -- (4.6 ) -- (4.6 )Shares issued -- 2.9 -- -- -- -- -- 2.9 -- 2.9Equity dividendpaid -- -- -- -- (117.2 ) -- -- (117.2 ) -- (117.2 )At 30 June 2014 13.8 494.1 (0.4 ) 1.8 337.5 (3.2 ) (20.0 ) 823.6 63.9 887.5 Half year condensed consolidated cash flow statementfor the 6 months ended 30 June 2014 30 June 30 June 2014 2013 Notes £m £mCash flows from operating activitiesOperating profit on continuing activities before interest andtaxation 182.4 164.8Adjustment for non-cash items:Depreciation 39.2 38.5Amortisation of intangible assets (treated as depreciation) 3.1 1.3Amortisation of intangible assets recognised on acquisition 71.1 52.9Share based payment expense 5.8 5.0Employee benefits 0.1 1.7Non-underlying items (2.0 ) 1.6Movement in provisions (net) (0.2 ) (0.9 )Loss on disposal of property, plant and equipment 0.7 0.1Movement in receivables and payables (9.3 ) (25.8 )Cash generated from operations before non-underlying cashitems 290.9 239.2Arch Cru (0.7 ) --Movement in restructuring provision (10.5 ) --Cash generated from operations 279.7 239.2Income tax paid (42.0 ) (11.8 )Net interest paid (19.8 ) (19.2 )Net cash inflow from operating activities 217.9 208.2Cash flows from investing activitiesPurchase of property, plant and equipment (55.9 ) (41.5 )Purchase of intangible assets (3.1 ) (5.4 )Proceeds from sale of property, plant and equipment 0.3 --Acquisition of public sector subsidiary partnerships (6.8 ) (24.9 )Debt repaid on acquisition of public sector subsidiarypartnerships -- (9.2 )Acquisition of subsidiary undertakings and businesses (219.6 ) (190.1 )Debt repaid on acquisition of subsidiary undertakings (17.1 ) (1.6 )Cash acquired with subsidiary undertakings 15.7 10.2Deferred consideration paid (23.9 ) --Contingent consideration paid (8.5 ) (14.0 )Purchase of financial assets (5.9 ) (0.7 )Net cash outflow from investing activities (324.8 ) (277.2 )Cash flows from financing activitiesIssue of ordinary share capital 2.9 11.5Dividends paid 5 (117.2 ) (102.1 )Capital element of finance lease rental payments 8 (2.4 ) (4.2 )Proceeds on issue of debt 8 100.0 --Financing arrangement costs (0.2 ) --Repayment of bonds and long term debt 8 -- (32.3 )Net cash outflow from financing activities (16.9 ) (127.1 )Net decrease in cash and cash equivalents (123.8 ) (196.1 )Cash and cash equivalents at the beginning of the period 157.8 306.7Cash and cash equivalents at 30 June 34.0 110.6Cash and cash equivalents comprise:Cash at bank and in hand 538.6 544.1Overdraft (504.6 ) (433.5 )Total 8 34.0 110.6 Notes to the half year condensed consolidated financial statementsfor the 6 months ended 30 June 2014 1 Corporate information Capita plc is a public limited company incorporated in England andWales whose shares are publicly traded. The half year condensed consolidatedfinancial statements of the Company and its subsidiaries (`the Group') for the6 months ended 30 June 2014 were authorised for issue in accordance with aresolution of the Directors on 22 July 2014. 2 Basis of preparation, judgements and estimates, accountingpolicies, principal risks and uncertainties and going concern (a) Basis of preparation The half year condensed consolidated financial statements for the 6months ended 30 June 2014 have been prepared in accordance with the Disclosureand Transparency Rules (DTR) of the Financial Conduct Authority and with IAS34 Interim Financial Reporting. The half year condensed consolidated financial statements do notinclude all the information and disclosures required in the annual financialstatements and should be read in conjunction with the Group's annual financialstatements as at 31 December 2013, which have been prepared in accordance withIFRSs as adopted by the European Union. This condensed consolidated half year financial information doesnot comprise statutory accounts within the meaning of Section 434 of theCompanies Act 2006. Statutory accounts for the year ended 31 December 2013were approved by the Board of Directors on 26 February 2014 and delivered tothe Registrar of Companies. The report of the auditors on those accounts wasunqualified, did not contain an emphasis of matter paragraph and did notcontain any statement under Section 498 of the Companies Act 2006. The half year condensed consolidated financial statements for the 6months ended 30 June 2014 have not been audited or reviewed by auditorspursuant to the Auditing Practices Board guidance on Review of InterimFinancial Information. (b) Judgements and estimates In preparing these half year condensed consolidated financialstatements, management make judgements, estimates and assumptions that affectthe application 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 2013. (c) Significant accounting policies The accounting policies adopted in preparation of the half yearcondensed consolidated financial statements are consistent with those followedin the preparation of the Group's annual financial statements for the yearended 31 December 2013, except for the adoption of the following newstandards, amendments and interpretations with an initial date of applicationof 1 January 2014. IAS 27 Amendment: Separate Financial Statements Reissued as IAS 27 SeparateFinancial Statements (as amended in 2011) previously IAS 27 Consolidated andSeparate Financial Statements (2008). Consolidation requirements previouslyforming part of IAS 27 (2008) have been revised and are now contained in IFRS10 Consolidated Financial Statements. There has been no impact in relation tothis amendment. IAS 28 Amendment: Investments in Associates and Joint Ventures The objectiveof the proposed amendments is to provide additional guidance to IAS 28 on theapplication of the equity method, a method of accounting whereby theinvestment is initially recognised at cost and subsequently adjusted toreflect the change in the investor's share of the investee's net assets.Specifically, it aims to provide guidance on how investors should recognisetheir share of the changes in the net assets of an investee that are notrecognised in profit or loss or other comprehensive income of the investee,and that are not distributions received (`other net asset changes'). There hasbeen no impact as a result of applying this amendment. IAS 32 Amendment: Offsetting Financial Assets and Financial Liabilities Theamendment clarifies that a legal and enforceable right of set-off exists ifthat set-off is not contingent on a future event and is enforceable both inthe normal course of business and in the event of default, insolvency orbankruptcy of the entity and all counterparties; and that some grosssettlement systems may be equivalent to net settlement. The impact of nothaving the right to enforce set-off in the circumstances described, would beto decrease the amounts that could be set-off; there is no impact on the Groupas a result of applying the amended standard. IFRS 10 Consolidated Financial Statements - establishes the principles for thepresentation and preparation of consolidated financial statements when anentity controls one or more other entities. An investor determines whether itis a parent by assessing whether it controls one or more investees. Aninvestor considers all relevant facts and circumstances when assessing whetherit controls an investee. An investor controls an investee when it is exposed,or has rights, to variable returns from its involvement with the investee andhas the ability to affect those returns through its power over the investee.An investor controls an investee if and only if the investor has all of thefollowing elements: - power over the investee, i.e. the investor has existing rights that give itthe ability to direct the relevant activities (the activities thatsignificantly affect the investee's returns) - exposure, or rights, to variable returns from its involvement with theinvestee - the ability to use its power over the investee to affect the amount of theinvestor's returns The Group has conducted a review of the entities that it consolidates toensure that control is exhibited. This exercise demonstrated that the Grouphad the requisite control over these entities and thus the introduction of thenew standard has not impacted these financial statements. IFRS 10, IFRS 12, IAS 27 Amendments: Investment Entities provides an exceptionto the requirement to consolidate for entities that meet the definition of an"Investment entity" under IFRS 10 Consolidated Financial Statements i.e. onewhose sole purpose is to make investments for capital appreciation, investmentincome, or both and who evaluate the performance of those investments on afair value basis. The amendments also set out the disclosure requirements ofsuch entities and requirements for their separate financial statements. As theGroup has no component that would meet the definition as described above,there is no impact from these amendments. IFRS 11 Joint Arrangements involves the assessment of an entity's rights andobligations in respect of a joint arrangement and how it accounts for thoserights and obligations in accordance with the classification of that jointarrangement. The Group has made an assessment of each of its activities thatmight involve a joint arrangement and potentially result in a change inpresentation. On conclusion of this exercise it was determined that there hadbeen no change in presentation required by the new standard as no existingarrangements fall to be treated as proposed. IFRS 12 Disclosure of Interests in Other Entities is a consolidated disclosurestandard requiring a wide range of disclosures about an entity's interests insubsidiaries, joint arrangements, associates and unconsolidated 'structuredentities'. The standard applies to annual financial statements only. Theimpact of the standard will be to introduce extra disclosure into the annualfinancial statements describing the nature of the Group's interests in thetypes of entity referred to above. IFRS 10, IFRS 11, IFRS 12 Amendments: Transition Guidance The amendments areintended to provide additional transition relief in IFRS 10 , IFRS 11 JointArrangements and IFRS 12 Consolidated Financial Statements, IFRS 11 Disclosureof Interests in Other Entities, by "limiting the requirement to provideadjusted comparative information to only the preceding comparative period".Also, amendments were made to IFRS 11 and IFRS 12 to eliminate the requirementto provide comparative information for periods prior to the immediatelypreceding period. IAS 36 Amendments: Recoverable Amount Disclosures for Non-Financial AssetsThese amendments remove the unintended consequences of IFRS 13 Fair ValueMeasurement on the disclosures required for IAS 36 Impairment of assets. Inaddition, these amendments require disclosure of the recoverable amounts forthe assets or cash-generating units for which an impairment loss has beenrecognised or reversed during the period. IAS 39 Amendments: Novation of Derivatives and Continuation of HedgeAccounting These amendments provide relief from discontinuing hedge accountingwhen novation of a derivative designated as a hedging instrument meets certaincriteria. These amendments have no impact on the Group as the Group has notnovated any derivatives in the current or prior period. IFRIC 21 Levies is effective for annual periods beginning or after 1 January2014 and is applied retrospectively. It provides guidance on when to recognisea liability for a levy imposed by a government, both for levies that areaccounted for in accordance with IAS 37 Provisions, Contingent Liabilities andContingent Assets and those where the timing and amount of the levy iscertain. The Interpretation covers the accounting for outflows imposed onentities by governments (including government agencies and similar bodies) inaccordance with laws and/or regulations. However, it does not include incometaxes, fines and other penalties, liabilities arising from emissions tradingschemes and outflows within the scope of other Standards. There has been noimpact on these financial statements as a result of adopting thisinterpretation. (d) Principal risks and uncertainties and going concern The Directors have considered the principal risks and uncertaintiesaffecting the Group's financial position and prospects in 2014. As describedon pages 35 to 39 of the Group's Annual Report for 2013, the Group continuesto be exposed to a number of risks and has well established systems andprocedures in place to identify, assess and mitigate those risks. The risksfaced by the Group have not changed significantly over the first 6 months of2014 and are not expected to change materially in the remaining 6 months. The principal risks include those arising from: failure to meetservice level agreements, possible loss of contracts and damage to brandreputation; counter-party failure including disruption to supply chains orservice interruption; failure to achieve planned synergies in acquisitions;weaker economic conditions are a key driver for outsourcing but extremeeconomic uncertainty 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. Although the Group is not directly exposed to significant overseassovereign and currency risks, it is exposed indirectly to increasedcounter-party risk. The Group attempts to mitigate this risk by counter-partymonitoring and the avoidance of concentrations of counter-party risk. The Group has considerable financial resources together with longterm contracts 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 "GoingConcern and Liquidity Risk: Guidance for Directors of UK Companies 2009", theDirectors have a reasonable expectation that the Group has adequate resourcesto continue 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 informationregarding the Group's operating segments for the six months ended 30 June 2014and 2013 respectively. 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 2014 2013 Inter- Inter- Total segment External Total segment External revenue revenue revenue evenue revenue revenueAnalysis of segment revenue £m £m £m £m £m £m Health & Wellbeing 96.3 (11.7 ) 84.6 106.7 (10.8 ) 95.9IT Services 295.4 (60.0 ) 235.4 283.0 (53.7 ) 229.3Professional Services 335.4 (63.3 ) 272.1 312.9 (56.5 ) 256.4Justice & Secure Services 262.5 (19.8 ) 242.7 194.4 (19.2 ) 175.2Property & Infrastructure 159.5 (16.4 ) 143.1 140.7 (15.3 ) 125.4Workplace Services 361.8 (16.1 ) 345.7 292.0 (17.0 ) 275.0Customer Management &International 343.1 (8.3 ) 334.8 198.2 (10.2 ) 188.0Asset Services 131.3 (11.0 ) 120.3 121.2 (10.5 ) 110.7Insurance & Benefits Services 332.4 (40.1 ) 292.3 399.8 (36.9 ) 362.9Total segments 2,317.7 (246.7 ) 2,071.0 2,048.9 (230.1 ) 1,818.8 6 months to 6 months to 30 June 2014 30 June 2013Analysis of segment profit £m £m Health & Wellbeing 9.5 15.5IT Services 15.3 10.0Professional Services 62.7 59.6Justice & Secure Services 30.9 30.8Property & Infrastructure 10.1 6.9Workplace Services 43.6 33.4Customer Management & International 36.9 21.2Asset Services 29.4 27.6Insurance & Benefits Services 21.8 21.8Total underlying segment profit 260.2 226.8Net underlying finance costs (22.2 ) (21.6 )Underlying profit before tax 238.0 205.2Non-underlying items:Intangible amortisation (71.1 ) (52.9 )Acquisition costs (8.7 ) (7.5 )Other operating income/(expense) 2.0 (1.6 )Finance (expense)/income (7.9 ) 14.3Profit before tax 152.3 157.5 4 Earnings per share The average number of shares in issue during the period was 658.2m(30 June 2013: 650.2m). The diluted earnings per share have been calculated onthe profit for the period attributable to shareholders of £122.4m (30 June2013: £130.4m) and an average diluted number of shares of 664.2m (30 June2013: 657.0m). As at July 22, 2014, there were 658.8m shares in issue. 5 Dividends The interim dividend of 9.6p (2013: 8.7p) per share (not recognisedas a liability at 30 June 2014) will be payable on 7 October 2014 to ordinaryshareholders on the register at the close of business on 29 August 2014. Thedividend disclosed in the cash flow statement represents the final ordinarydividend of 17.8p (2013: 15.6p) per share as proposed in the 31 December 2013financial statements and approved at the Group's AGM (not recognised as aliability at 31 December 2013). 6 Business combinations The Group has made a number of acquisitions in the period which are shown inaggregate below: Provisional fair value to Group £m Property, plant and equipment 7.3Intangible assets 99.0Trade and other receivables < 1 year 42.3Trade and other receivables > 1 year 0.9Cash and cash equivalents 15.7Trade and other payables < 1 year (51.5 )Accruals < 1 year (16.3 )Trade and other payables > 1 year (4.8 )Provisions (2.6 )Income tax (0.2 )Deferred tax (16.4 )Employee benefits liability (0.2 )Long term debt (17.1 )Net assets 56.1Goodwill arising on acquisition 191.7 247.8Discharged by:Cash consideration paid 215.4Contingent consideration accrued 32.4 247.8The full exercise to determine the fair value of intangible assetsacquired is still to be completed, thus the above numbers are provisional. Inrespect of the acquisitions made in 2014, the Group has agreed to pay thevendors additional consideration dependent on the achievement of performancetargets in the periods post acquisition. These performance periods are of upto 4 years in duration and will be settled in cash and loan notes on theirpayment date on achieving the relevant target. The range of the additionalconsideration payment is estimated to be between £20m and £40m. The Group hasincluded £32.4m as contingent consideration related to the additionalconsideration, which represents its fair value at the acquisition date.Contingent consideration has been calculated based on the Group's expectationof what it will pay in relation to the post-acquisition performance of theacquired entities by weighting the probability of a range of payments to givean estimate of the final obligation. Further cash consideration was paid in respect of previousacquisitions of £39.2m. 7 Provisions Insurance Restructuring captive Property provision provision provision Other Total £m £m £m £m £m At 1 January 2014 41.3 25.1 36.6 11.9 114.9Utilisation (10.5 ) (1.1 ) (1.1 ) (4.0 ) (16.7 )Additional provisions in the period -- -- 1.8 3.5 5.3Provisions acquired -- -- 2.6 -- 2.6At 30 June 2014 30.8 24.0 39.9 11.4 106.1 The restructuring provision is for unavoidable costs which will be incurreddue to the decision in 2013 to dispose of the insurance distribution businessand to close the SIP business. The provision is expected to unwind over 2years. 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. In the year the Grouphas settled a number of insurance liabilities which it had provided for inprevious years. Additionally it has made provision for new claims andincreased or decreased existing provisions where more information on theprogress of the claim has become available. Within the property provisions there is included a discounted provision forthe difference between the market value of the property leases acquired in2011 with Ventura and Vertex Private Sector and the lease obligationscommitted to at the date the leases were signed by the previous owners. Thisis in accordance with IFRS 3 (revised) which requires the use of fair valuemeasurement. The remaining property provision is made on a discounted basisfor the future rent expense and related cost of leasehold property (net ofestimated sub-lease income) where the space is vacant or currently not plannedto be used for ongoing operations. The expectation is that this expenditurewill be incurred over the remaining periods of the leases which range from 1to 25 years. Other relates to provisions in respect of potential claims arising due to thenature of some of the operations that the Group provides and a provision foran onerous contract in relation to contracts acquired with the Reliance SecureTask Management acquisition. These are likely to unwind over a period of 1 to3 years. 8 Movement in net debt Net debt at Non-cash 1 January Acquisitions Cash flow flow Net debt at 2014 in 2014 movements movements 30 June 2014 £m £m £m £m £m Cash+ 157.8 15.7 (139.5 ) -- 34.0Unsecured loan notes (10.4 ) -- 0.2 -- (10.2 )Bonds* (1,267.3 ) -- -- 34.7 (1,232.6 )Currency swaps in relation to US $denominated bonds* 125.9 -- -- (33.5 ) 92.4Interest rate swaps in relation to GBPdenominated bonds* 7.7 -- -- (0.2 ) 7.5Term loan (200.0 ) -- (100.0 ) -- (300.0 )Long term debt -- (17.1 ) 17.1 -- --Obligations under finance leases (17.3 ) -- 2.6 -- (14.7 )Underlying net debt (1,203.6 ) (1.4 ) (219.6 ) 1.0 (1,423.6 )Fixed rate interest rate swaps (26.6 ) -- -- (6.9 ) (33.5 ) (1,230.2 ) (1.4 ) (219.6 ) (5.9 ) (1,457.1 ) + Cash comprises cash, cash equivalents and overdrafts. * The aggregate bond fair value above of £1,232.6m (30 June 2013:£1,362.3m) includes the GBP value of the US$ denominated bonds. To remove theGroup's exposure to currency fluctuations it has entered into currency swapswhich effectively hedge the movement in the underlying bond fair value. Theinterest rate swaps are being used to hedge the exposure to changes in thefair value of GBP denominated bonds. The sum of these items held at fair valueequates to the underlying value of the Group's bond debt of £1,132.7m (30 June2013: £1,117.0m). In May 2014, the Group raised £100m of bank debt under a 5 year term loanfacility. Non-cash Net debt at Net debt at Acquisitions Cash flow flow 30 June 1 January 2013 in 2013 movements movements 2013 £m £m £m £m £m Cash+ 306.7 10.2 (206.3 ) -- 110.6Unsecured loan notes (0.5 ) -- -- -- (0.5 )Bonds* (1,370.1 ) -- 32.3 (24.5 ) (1,362.3 )Currency swaps in relation to US $denominated bonds* 206.2 -- -- 27.8 234.0Interest rate swaps in relation to GBPdenominated bonds* 15.9 -- -- (4.6 ) 11.3Term loan (185.0 ) -- -- -- (185.0 )Long term debt -- (10.8 ) 10.8 -- --Obligations under finance leases (2.7 ) (25.4 ) 4.2 0.5 (23.4 )Underlying net debt (1,029.5 ) (26.0 ) (159.0 ) (0.8 ) (1,215.3 )Fixed rate interest rate swaps (52.9 ) -- -- 15.9 (37.0 ) (1,082.4 ) (26.0 ) (159.0 ) 15.1 (1,252.3 )9 Financial instruments Carrying values and fair values of financial instruments The following table analyses by classification and category theGroup's financial instruments (excluding short term debtors, creditors, fundpayables/receivables and cash in hand) that are carried in the financialstatements. The values below represent the carrying amounts. The fair valuesare the same as the carrying values other than two fixed rate bonds totalling£125.0m, included below in the bond value of £1,232.6m, with a carrying valueof £125.0m and a fair value of £126.7m. At fair value through the Derivatives Other Available- income Loans and used for financialAs at 30 June 2014 for-sale statement receivables hedging liabilities Total £m £m £m £m £m £mFinancial assetsUnlisted equity securities 2.3 -- -- -- -- 2.3Investment loan -- -- 5.0 -- -- 5.0Non-designated foreign exchangeforward contracts -- 0.4 -- -- -- 0.4Interest rate swaps in relation toGBP denominated bonds -- -- -- 7.5 -- 7.5Currency swaps in relation to US$denominated bonds -- -- -- 113.4 -- 113.4 2.3 0.4 5.0 120.9 -- 128.6Financial liabilitiesOverdrafts -- -- -- -- 504.6 504.6Unsecured loan notes -- -- -- -- 10.2 10.2Bonds -- -- -- -- 1,232.6 1,232.6Term loan -- -- -- -- 300.0 300.0Cash flow hedges -- -- -- 25.1 -- 25.1Non-designated foreign exchangeforward contracts -- 2.5 -- -- -- 2.5Currency swaps in relation to US$denominated bonds -- -- -- 21.0 -- 21.0Contingent consideration -- -- -- -- 57.1 57.1Deferred consideration -- -- -- -- 27.8 27.8Obligations under finance leases -- -- -- -- 14.7 14.7Public sector subsidiary partnershippayment -- -- -- -- 53.2 53.2Put options of non-controllinginterests -- -- -- -- 100.6 100.6Fixed rate interest rate swaps -- 33.5 -- -- -- 33.5 -- 36.0 -- 46.1 2,300.8 2,382.9 At fair value through the Derivatives Other Available- income Loans and used for financialAs at 31 December 2013 for-sale statement receivables hedging liabilities Total £m £m £m £m £m £mFinancial assetsUnlisted equity securities 1.5 -- -- -- -- 1.5Investment loan -- -- 20.8 -- -- 20.8Non-designated foreign exchangeforward contracts -- 0.1 -- -- -- 0.1Interest rate swaps in relation toGBP denominated bonds -- -- -- 7.7 -- 7.7Currency swaps in relation to US$denominated bonds -- -- -- 139.4 -- 139.4 1.5 0.1 20.8 147.1 -- 169.5Financial liabilitiesOverdrafts -- -- -- -- 453.0 453.0Unsecured loan notes -- -- -- -- 10.4 10.4Bonds -- -- -- -- 1,267.3 1,267.3Term loan -- -- -- -- 200.0 200.0Cash flow hedges -- -- -- 30.2 -- 30.2Non-designated foreign exchangeforward contracts -- 1.8 -- -- -- 1.8Currency swaps in relation to US$denominated bonds -- -- -- 13.5 -- 13.5Contingent consideration -- -- -- -- 35.2 35.2Deferred consideration -- -- -- -- 58.6 58.6Obligations under finance leases -- -- -- -- 17.3 17.3Public sector subsidiary partnershippayment -- -- -- -- 52.2 52.2Put options of non-controllinginterests -- -- -- -- 96.0 96.0Fixed rate interest rate swaps -- 26.6 -- -- -- 26.6 -- 28.4 -- 43.7 2,190.0 2,262.1 The fair value of financial instruments has been calculated bydiscounting the expected future cash flows at prevailing interest rates,except for unlisted equity securities and investment loans. The valuationmodels incorporate various inputs including foreign exchange spot and forwardrates and interest rate curves. Unlisted equity securities and investmentloans are held at amortised cost. The Group enters into derivative financialinstruments with multiple counterparties, all of which are financialinstitutions with investment grade credit ratings. Fair value hierarchy The Group uses the following hierarchy for determining anddisclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identicalassets or liabilities Level 2: other techniques for which all inputs which have asignificant effect on the recorded fair value are observable, either directlyor indirectly Level 3: techniques which use inputs which have a significanteffect on the recorded fair value that are not based on observable marketdata. As at 30 June 2014, the Group held the following financial instrumentsmeasured at fair value: 30 June 31 December 2014 2013 £m £mAssets measured at fair valueNon-designated foreign exchange forward contracts -- 0.1Interest rate swaps in relation to GBP denominated bonds 7.5 7.7Currency swaps in relation to US$ denominated bonds 113.4 139.4 120.9 147.2Liabilities measured at fair valueBonds 1,107.6 1,142.3Cash flow hedges 25.1 30.2Non-designated foreign exchange forward contracts 2.5 1.8Currency swaps in relation to US$ denominated bonds 21.0 13.5Fixed rate interest rate swaps 33.5 26.6Public sector subsidiary partnership payment 53.2 52.2Put option of non-controlling interests 100.6 96.0Contingent consideration 57.1 35.2 1,400.6 1,397.8 During both periods the Group only had Level 2 assets orliabilities measured at fair value apart from contingent consideration, thepublic sector subsidiary partnership payment and the put options ofnon-controlling interests which are Level 3 liabilities. It is the Group'spolicy to recognise transfers between levels of the fair value hierarchy atthe end of the reporting period during which the transfer occurred. During the6 months ended 30 June 2014, there were no transfers between Level 1 and Level2 fair value measurements and no transfers into or out of Level 3 fair valuemeasurements. Contingent consideration arises in business acquisitions where theGroup has agreed to pay the vendors additional consideration dependent on theachievement of performance targets in the periods post acquisition. Theseperformance periods are of up to 3 years in duration and will be settled incash and loan notes on their payment date on achieving the relevant target.The Group makes provision for such contingent consideration for eachacquisition based on an assessment of its fair value at the acquisition date.Contingent consideration has been calculated based on the Group's expectationof what it will pay in relation to the post-acquisition performance of theacquired entities by weighting the probability of a range of payments to givean estimate of the final obligation. A sensitivity analysis was performed onthe expected contingent consideration of £57.1m. The sensitivity analysisperformed adjusted the probability of payment of the contingent amounts. A 10%increase in the probability of contingent consideration being paid results inan increase in potential contingent consideration of £2.1m. A 10% decrease inthe probability of the contingent consideration being paid results in adecrease in potential contingent consideration of £3.2m. The public sector subsidiary partnership payment liability is anestimate of the annual preferred payments to be made by Axelos Limited (thepartnership formed with the Cabinet Office) to the Cabinet Office in years 4to 10. This payment is funded by Axelos Limited and is contingent on profits.The fair value of £53.2m has been derived by discounting the expected paymentat the Group cost of debt to arrive at its present value. If the discount ratewas to increase/decrease by 1% the present value would decrease/increase by£3m. The put options of the non-controlling interests are valued basedon the expected redemption value of the shares that will be paid in cash bythe Group. This value is determined by reference to the expected date ofexercise of the options, which is then discounted to arrive at a presentvalue. The sensitivity of the valuation to movements in both the discount rateand the cash flows that have been used to calculate it, are as follows: a 10%increase/decrease in the earnings potential of the business results in a £9.0mincrease/decrease in the valuation; a 1% increase/decrease in the discountrate applied to the valuation results in a £4.6m decrease/£4.9m increase inthe valuation. The following table shows the reconciliation from the openingbalances to the closing balances for level 3 fair values: Subsidiary Put options of Contingent partnership non-controlling consideration payment interests £m £m £m At 1 January 2014 35.2 52.2 96.0Arising from business combinations in the period 32.4 -- --Profit and loss movement - administrative expenses (2.0 ) -- --Profit and loss movement - finance expense -- 1.0 --Equity movement - Fair value movement in put -- -- 4.6optionsUtilised (8.5 ) -- --At 30 June 2014 57.1 53.2 100.6 10 Capital commitments At 30 June 2014, amounts contracted for but not provided in thefinancial statements for the acquisition of property, plant and equipmentamounted to £0.2m (30 June 2013: £0.1m). 11 Related party transactions Transactions between the Company and its subsidiaries, which arerelated parties, have been eliminated on consolidation and are not disclosedin this note. Compensation of key management personnel (including Directors ofparent company) 6 months 6 months 30 June 30 June 2014 2013 £m £m Short term employment benefits 3.1 2.8Post employment benefits 0.1 0.1Share based payments 2.1 2.0 5.3 4.9 Gains on share options exercised in the period by key managementpersonnel totalled £3.3m (30 June 2013: £7.4m). The following companies are substantial shareholders in the Companyand therefore a related party of the Company (in each case, for the purposesof the Listing Rules of the UK Listing Authority). The number of shares heldon 17 July 2014 was as below: % of votingShareholder No. of shares rights Woodford Investment Management LLP 20,672,123 3.13 %BlackRock Inc 34,081,348 5.16 %Invesco Limited 78,545,228 11.88 %Legal & General Group Plc 19,818,538 3.00 %Veritas Asset Management (UK) Limited 42,647,140 6.45 %12 Contingent liabilities The Group has provided, through the normal course of its business,performance bonds and bank guarantees of £81.2m (31 December 2013: £88.4m). Statement of Directors' responsibilities The Directors confirm, to the best of their knowledge, that thiscondensed set of financial statements has been prepared in accordance with IAS34 as adopted by the European Union and that the Half Year Management Reportincludes a fair review of the information required by Rules 4.2.4, 4.2.7 and4.2.8 of the Disclosure and Transparency Rules of the United Kingdom FinancialConduct Authority. The names and functions of the Directors of Capita plc are aslisted in the Group's Annual Report for 2013. A list of current Directors ismaintained on the Group website: www.capita.co.uk. By order of the Board A Parker G M HurstChief Executive Group Finance Director

22 July 2014