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H1 2015 financial highlights

Financial highlights
Underlying1
2015
Underlying1,2
2014
YOY
change
Reported
2015
Revenue £2,283m £2,071m +10 % £2,289m
Operating profit £288.8m £260.2m +11 % £170.1m
Profit before tax £264.9m £238.0m +11 % £146.1m
Earnings per share 32.03p 28.88p +11 % 17.69p
Interim dividend per share 10.5p 9.6p +9 % 10.5p
1. Excludes non-underlying items being: intangible amortisation, acquisition expenses, net contingent consideration movements, specific non-recurring items, non-cash impact of mark-to-market finance costs and businesses exited
2. H1 2014 includes Occupational Health disposed in H2 2014

H1 2015 highlights

Robust financial results

  • Underlying revenue growth1 of 10%, including 3% organic growth3
  • Underlying operating margin1 of 12.7% (H1 20142: 12.6%)
  • Underlying profit before tax1 up 11% to £265m (H1 20142: £238m)
  • Underlying operating cash1 conversion rate of 104% (H1 20142: 112%)
  • Underlying free cash flow1 up 6% to £180m (H1 20142: £170m)
  • Post tax ROCE1 14.5% (FY 2014: 14.8%).

Generating growth: contract wins, bid pipeline and win rate all increased

  • £1.6bn of major contract wins (H1 2014: £1.3bn) including milestone contracts and frameworks in health and science:
    • Sole provider on £1bn NHS England Primary Care Support Services framework, with initial contract valued at up to £400m over 7 to 10 years
    • Fera joint venture with 10 year Defra contract, anticipated revenue of £700m over first 10 years, provides a strong platform for penetration of wider science market
    • Central London Community Health NHS Trust contract, worth £80m over 10 years
    • Sheffield City Council extension, worth £140m - £170m over 6 years from January 2016
  • Major contract win rate above 2 in 3
  • Bid pipeline £5.4bn (Feb 2015: £5.1bn), swiftly replenished after significant gains in the first half
  • Active period for acquisitions: £279m invested in 11 businesses
  • Formation of Capita Europe, following the acquisition of avocis, adds an exciting new growth platform
  • Vertex Mortgage Services acquisition supports our ambition to become the mortgage processing partner of choice for existing mortgage providers and challenger banks
  • New organisational structure: further alignment of capabilities and sectors to drive additional growth.

1 Excludes non-underlying items being: intangible amortisation, acquisition expenses, net contingent consideration movements, specific non-recurring items, non-cash impact of mark-to-market finance costs and businesses exited
2 H1 2014 includes Occupational Health disposed in H2 2014
3 Excludes the Occupational Health disposal in 2014 and the organic growth within the non-core health businesses exited in 2015

H1 2015 overview

Capita has reported good financial results for the first half of 2015, underpinned by strong sales and operational performance.

Underlying revenue1 increased by 10% to £2,283m (H1 20142: £2,071m), including 3% organic growth3, net of attrition, and 7% acquisition growth. Underlying operating profit1 increased by 11% to £288.8m (H1 20142: £260.2m) and underlying profit before tax1 rose by 11% to £264.9m (H1 20142: £238.0m). Underlying earnings per share1 rose by 11% to 32.0p (H1 20142: 28.9p) and we increased our dividend for the half year by 9% to 10.5p per share (H1 2014: 9.6p).

The majority of our divisions performed well in the first half of 2015, with strong growth particularly in our Asset Services and Digital & Software Solutions divisions and a pleasing initial contribution from Capita Europe. Our Workplace Services, Customer Management and Local Government, Health & Property divisions also delivered good growth.

To date this year, we have secured 10 major contracts with an aggregate value of £1.6bn (H1 2014: £1.3bn), comprising 76% new business and 24% renewed contracts and representing a win rate of above 2 in 3 for the Group by value. These included contracts with Defra, NHS England and Central London Community Health NHS Trust (CLCH) and we were also approved by NHS England to join the Lead Provider Framework for Commissioning Support Services, all strategically significant contract wins and frameworks in the science and health sectors. The bid pipeline currently stands at £5.4bn (February 2015: £5.1bn), comprised of 30 bids with a weighted average contract length of 8 years, including 97% new business and 3% renewals and extensions.

We continued to make acquisitions in the first half of 2015 to build capability in existing markets, enter new markets and enhance our future organic growth potential. We invested a total of £279m, excluding deferred and contingent considerations, in acquiring 11 businesses in the period, including avocis, which provides a key platform for Capita Europe, and Vertex Mortgage Services, the completion of which is subject to approval by the Financial Conduct Authority.

1 Excludes non-underlying items being: intangible amortisation, acquisition expenses, net contingent consideration movements, specific non-recurring items, non-cash impact of mark-to-market finance costs and businesses exited
2 H1 2014 includes Occupational Health disposed in H2 2014
3 Excludes the Occupational Health disposal in 2014 and the organic growth within the non-core health businesses exited in 2015

Outlook and future prospects

Bid pipeline: Our bid pipeline shows the total contract value of our major sales bids at a specific point in time, which we disclose 3 times a year. It contains all bids with total contracted revenue worth between £25m and a capped ceiling of £1bn, where we have been short-listed to the last 4 or fewer. The bid pipeline currently stands at £5.4bn (February 2015: £5.1bn), comprised of 30 bids with a weighted average contract length of 8 years, including 97% new business and 3% renewals and extensions. The bid pipeline contains 2 new opportunities in Europe which we have originated since the acquisition of avocis.

The Group is increasing its emphasis on technology enabled business process services and targeting more growth and asset based bid opportunities. We are seeing good activity in both the private sector (61% of the pipeline), particularly in telecoms and financial services, and the public sector (39% of the pipeline), which accounted for the bulk of our contract gains in the first half. We have no material contracts, defined as having forecast annual revenue in excess of 1% of 2014 revenue, up for rebid until 2019.

Future prospects: Our good operational, sales and financial performance in the first half positions us well and we continue to expect to deliver low double digit revenue growth in 2015, with a slight increase in organic growth in the second half of the year, following the delayed start of some new contracts. We expect organic growth to accelerate in 2016, supported by the conversion of our bid pipeline.

Capita operates in a large addressable market with scope to increase penetration due to our own competitive advantages and a number of structural factors such as fiscal pressure, digitisation, regulation and changing demographics. With good growth in our existing markets, an increasing footprint in health and new platforms in science and Northern Europe, we are well placed to deliver a combination of sustainable growth, high levels of cash flow and strong return on capital over the medium term.