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2014 financial highlights

Financial highlights
Underlying 2014*
Underlying
YOY change
Reported
Revenue £4,372m +14% £4,378m
Operating profit £576.3m +11% £388.9m
Profit before tax £535.7m +13% £292.4m
Earnings per share 65.15p +10% 35.79p
Interim dividend per share 29.2p +10% 29.2p
* Excludes non-underlying items detailed in note 2 business disposal, note 3 administrative expenses and note 4 net finance costs, in the notes to the preliminary statement.

2014 highlights

Continuing to deliver shareholder value

Strong financial and operating performance

  • Underlying revenue growth* of 14%, including 9% organic growth
  • Underlying operating margin* 13.2% (2013: 13.4%)
  • Underlying profit before tax* up 13% to £535.7m (2013: £475.0m)
  • Underlying earnings per share* up 10% to 65.15p (2013: 59.4p)
  • Underlying free cash flow* up 18% to £368m (2013: £312m)
  • £1.7bn contract wins (2013: £3.3bn), with contract win rate of 1 in 2 (by value)
  • £310m spent on 17 acquisitions to enhance capability and facilitate future organic growth

An excellent start to 2015

  • £1.1bn contracts secured to date (2014: £588m), including Fera preferred bidder and Sheffield extension
  • Bid pipeline increased to £5.1bn (November 2014: £4.1bn), 53% private and 47% public sector
  • Agreement to acquire avocis adds significant future growth platform in Germany and Switzerland
  • Good visibility of low double digit revenue growth in the full year

2014 overview

Capita is today reporting excellent financial results for the full year 2014. 2014 was a year of double digit revenue and profit growth, with sustained high cash flow and returns, alongside strong acquisition activity.

Underlying revenue1 increased by 14% to £4,372m2 (2013: £3,851m3), including 9% organic and 5% acquisition growth. Underlying operating profit1 rose by 11% to £576.3m2 (2013: £516.9m3) and underlying profit before taxation1 increased by 13% to £535.7m2 (2013: £475.0m3). Underlying earnings per share1 grew by 10% to 65.2p2 (2013: 59.4p3). We increased our total dividend for the full year by 10% to 29.2p per share (2013: 26.5p). Underlying free cash flow1 was up 18% to £368m2 (2013: £312m3) and ROCE1 was 14.8%2 (2013: 15.5%3), which compares to our estimated post-tax WACC of 7.2%.

The majority of our divisions performed well in 2014, with strong growth particularly in Workplace Services and Justice & Secure Services, supported by new contracts, and significant improvements in the profitability of IT Services and Property & Infrastructure, helped by the macroeconomic backdrop. These positives were partially offset by Insurance & Benefits and Health & Wellbeing, and the end of the Disclosure and Barring contract in March 2014.

The aggregate value of new and extended major contracts secured in 2014 was £1.7bn, representing a 1 in 2 win rate. We are pleased to report that we have secured £1.1bn new business since the year end and an increase in the bid pipeline to £5.1bn since the IMS in November 2014 (£4.1bn). We are seeing good levels of activity in both the private sector, across telecoms, financial services and utilities, and the public sector, particularly in health, local government and defence.

We continued to focus upon acquiring small to medium sized businesses in 2014, to enter new markets, build capability in existing areas and enhance our sales propositions to facilitate future organic growth. We invested a total of £310m on acquisitions (excluding deferred and contingent considerations), acquiring 17 organisations in markets such as utilities and transport software, IT networking, mortgage administration and Germany.

1 Excludes non-underlying items being: intangible amortisation, acquisition expenses, net contingent consideration movements, Asset Services settlement provision, non-cash impact of mark-to-market finance costs
2 2014 numbers exclude the sale of our Occupational Health business
3 2013 numbers exclude the partial sale of our Insurance Distribution and planned SIP business closure

Outlook and future prospects

Bid pipeline: Since our IMS in November 2014, we have worked hard to replenish the bid pipeline which now stands at £5.1bn (November 2014: £4.1bn). The pipeline is comprised of 28 bids with an average contract length of 8 years, including 94% new business and 6% renewals and extensions. We are seeing good levels of activity in both the private sector (53% of the pipeline), across telecoms, financial services and utilities, and the public sector (47% of the pipeline), particularly in health, local government and defence. Behind the pipeline is a larger active prospect list of opportunities, from which we expect to be able to replenish the pipeline as decisions come to fruition over the course of this year.

We have good visibility and are on track to deliver low double digit revenue growth in 2015, driven by the conversion of our bid pipeline, the timing of which is likely to be more evenly spread than last year, acquisitions and the full benefit from 2014's contract wins and acquisitions. We expect our operating margin to remain broadly stable and will continue to manage the business to deliver a combination of sustainable growth, high levels of cash flow and return on capital.

Capita operates in a large addressable market with scope to increase penetration supported by a number of structural factors such as fiscal pressure, digitisation, regulation and demographics and our own competitive advantages. We look forward to the medium to long term with confidence.