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H1 2014 financial highlights

Financial highlights
Underlying
20141
Change
Reported
2014
Revenue £2,071.0m +13.9% £2,071.0m
Operating profit £260.2m +14.7% £182.4m
Profit before tax £238.0m +16.0% £152.3m
Earnings per share 28.8p +11.9% 18.60p
Interim dividend per share 9.6p +10.3% 9.6p
1 Excludes non-underlying items being: intangible amortisation, acquisition expenses, net contingent consideration movements, impairments, non-cash impact of mark-to-market finance costs.

H1 2014 highlights

Delivering profitable growth

  • £1.3bn of major contract wins secured in H1 2014 including:
    • £400m strategic partnership contract with the Defence Infrastructure Organisation (DIO)
    • £325m framework contract for Scottish Wide Area Network (SWAN)
    • £145m congestion charging and traffic enforcement schemes contract for Transport 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 organic revenue growth expectation of at least 8%, net of attrition
  • Bid pipeline replenished to a record £5.7bn (Feb 2014: £5.5bn); strong platform for 2015/16 growth
  • Highest ever level of prospects behind bid pipeline, with opportunities across our diverse markets
  • Active acquisition pipeline; £240m invested to date on 10 businesses, expanding capabilities and market reach to fuel future organic growth

Good financial performance

  • Revenue up 13.9% to £2.1bn (H1 2013: £1.8bn2)
  • Underlying profit before tax1 up 16.0% to £238.0m (H1 2013: £205.2m2)
  • Underlying operating margin1 of 12.6% (H1 2013: 12.5%2)
  • Operating cash flow up 21.6% to £291m3 (H1 2013: £239m); 112% cash conversion (H1 2013: 105%)
  • Gearing at 2.3 times net debt to EBITDA (H1 2013: 2.2 times)

H1 2014 overview

Capita is today reporting good financial results for the first half of 2014 underpinned by strong sales and operational performance.

Financial results for the first 6 months of the year include revenue increasing by 13.9% to £2.1bn (H1 2013: £1.8bn2), underlying operating profit1 up 14.7% to £260.2m (H1 2013: £226.8m2) and underlying profit before taxation1 increasing by 16.0% to £238.0m (H1 2013: £205.2m2). Underlying earnings per share1 grew by 12% to 28.9p (H1 2013: 25.8p2) and we have increased 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 (H1 2013: £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 strong sales performance in 2013 and to date in 2014, we have generated strong organic growth in H1 2014 of 11% (H1 2013: 3%). We have also swiftly replenished the bid pipeline to £5.7bn (February 2014: £5.5bn), reflecting strong sales momentum across our 11 private and public sector markets. In addition to our established sectors, we continue to see a particularly high level of interest in a number of our newer growth areas, including justice and emergency services and across the telecoms, retail, utilities and financial services sectors.

Our divisions are trading well with particularly strong performance in our Workplace Services and Customer Management businesses. Following the management changes introduced last year, together with the more positive macroeconomic environment, our Property & Infrastructure and IT businesses are reporting improved sales and trading performance.

We retain our position at the forefront of the customer and business process management market by continually evolving our capability and identifying changes in market dynamics which create a compelling business case for outsourcing. The acquisition of small to medium sized businesses extend our capabilities and market reach, enhancing our value creating propositions, facilitating entry into new target sectors and thereby fuelling future organic growth. To date in 2014, we have invested £240m in acquiring 10 businesses. This has included establishing a footprint in a new sector for Capita through the acquisition of a mortgage processing business. We have also extended our existing customer management offering into a new geographic region through acquiring a niche customer management business in Germany to support our current and new clients' needs in Europe.

1 Excludes non-underlying items being: intangible amortisation, acquisition expenses, net contingent consideration movements, impairments, non-cash impact of mark-to-market finance costs.
2 Includes businesses exited in H2 2013.

H1 2014 – outlook and future prospects

Bid pipeline: Following a period of strong sales wins, the pipeline has 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% to contract renewals. The pipeline is well diversified across our target markets and is comprised of 47% in the private sector, mainly in financial services, utilities, telecoms and retail and 53% public sector, primarily in justice and local government. We are expecting over 50% of bids in the current pipeline to reach decisions by the year end.

The market drivers for customer and business process management remains strong resulting in high levels of activity across our 11 target markets. This provides a good platform for long term growth in these markets and new areas where we see opportunity to replicate our experience and expertise and add value. Our proven business model is underpinned by robust financial and governance structures which result in a disciplined sales process, robust operational delivery and good, sustainable financial performance.

We have delivered strong organic growth, excellent cash conversion and stable double digit margins in the first half of 2014. The combination of our good financial and sales performance to date in 2014 and the continued strength of our bid and acquisition pipelines gives us confidence in our full year performance and provides a steady platform for continued growth in 2015 and beyond.