Capita interim management statement

12 November 2014

Capita plc, the UK's leading customer and business process management (BPM) company, is today issuing its interim management statement covering trading and financial progress to date in 2014.

Update on performance 

Following a strong period of sales wins in 2013 and this year and with good performance across the majority of our businesses, we remain on track to achieve at least 8% organic growth, net of attrition, for the full year 2014 (2013: 8%). Our sales performance to date, together with the acquisitions completed over the year and our steady operating performance, gives us confidence in meeting consensus market expectations for 2014.

Financial performance: Our key financial metrics remain healthy. In particular, cashflow remains good with strong control across the Group underpinning our confidence that the conversion rate of operating profit to operating cash will meet our target of being at or around 100% for 2014. We continue to generate strong margins and as stated previously, we believe that our underlying Group operating margin can be maintained in the range of 12.5% to 13.5% for the foreseeable future. We anticipate that the underlying Group operating margin for the full year 2014 will be comfortably within this range and ahead of the half year margin of 12.6%.

Major sales: Capita has secured £1.63bn (Nov 2013: £2.9bn which included our largest ever contract with O2 of £1.2bn) of major new contract opportunities to date this year with clients including The Co-operative Bank, Defence Infrastructure Organisation, Transport for London, John Lewis, Scottish Wide Area Network and BAE Systems.

Bid pipeline: Our bid pipeline currently stands at £4.1bn (July 2014: £5.7bn) comprising 26 bids (87% new business and 13% renewals). The pipeline has seen some significant movement since the half year. Some £2.8bn has come out of the bid pipeline in this period following our appointment as preferred bidder by The Co-operative Bank, not securing any of the Transforming Rehabilitation contracts and our decision to withdraw from a central government contract. In addition a financial services client, where we were sole bidder, halted their bid process at a late stage. Reflecting the continued buoyancy of the market, we have already swiftly begun to replenish the bid pipeline with £1.2bn worth of new bids where we have been shortlisted, entering the bid pipeline since the half year.

Our win rate this year therefore currently stands at 1 in 2, the rate we have held or exceeded for the past 3 years. Sales activity across our 11 target markets remains strong with a number of opportunities expected to reach shortlist stage shortly, particularly in the private sector, which will replenish our bid pipeline further in the next few months.

The pipeline is a snapshot of major bid opportunities worth £25m or above, capped at £1bn and where we have been shortlisted by the client to the last 4 bidders or fewer. We announce the pipeline three times each year, in February, July and November.

Acquisitions: During the year to date, we have also acquired 13 complementary businesses for a total consideration of £285m, enhancing and expanding our sales proposition to clients and supporting the delivery of future organic growth.

Delivering profitable organic growth 

We continue to generate profitable growth by winning business with new and existing clients. To date in 2014, we have secured 13 new and extended major contracts with an aggregate value of £1.63bn. News since the half year includes:

  • The Co-operative Bank - Announced yesterday, selected as preferred bidder to transform The Co-operative Bank's mortgage servicing operation in the UK. Subject to final terms and approvals the deal would be worth up to £325m over 10 years and is anticipated to start in the first quarter of 2015. Under the terms of the deal, one of the largest of its kind in a decade if agreed, comprising more than 250,000 mortgage customers and £23bn of lending, Capita would take over and transform The Co-operative Bank's mortgage servicing operations in Leek in Staffordshire and Plymouth. We     would install new systems - designed to drive efficiency while simplifying business processes in a regulated environment - to improve the experience for The Co-operative Bank's customers and support business growth. This represents good progress in establishing a strong presence in the retail mortgage servicing and builds upon our recent acquisition of Crown Mortgage Services.
  • Transport for London (TfL) - secured a 5 year, £145m contract with TfL to operate and enforce the congestion charging, low emission zone and traffic enforcement notice processing schemes. Capita will take full responsibility for the schemes in November 2015, following a period of implementation which commenced earlier in 2014. Capita has taken over the existing London Road User Charging agreement for both Congestion Charging and the Low Emission Zone ahead of go-live of the new contracts in November 2015. This additional work is worth in excess of £30m to Capita.

Major contract implementations are progressing well and to timetable. Scottish Wide Area Network (SWAN) has now delivered 1,000 sites onto the network, constructed a new core network, built an operations centre and also achieved PSN (Public Service Network) status. The DIO contract is in full operation, with our leadership team fully embedded into the MOD following the successful mobilisation period.

Contract rebids: We have one material contract up for rebid in 2015 (arising from a recent acquisition) and then no further material rebids for the next 5 years (defined as having forecast annual revenue in excess of 1% of 2013 revenue).

Securing value enhancing acquisitions

Our acquisition strategy supports the expansion of our market reach and capability enabling us to generate further future organic growth. We acquire small to medium sized businesses which build capability in existing areas and enhance our sales propositions and which also accelerate entry into new sectors. To date in 2014, we have acquired 13 companies for a total cash
consideration of £285m.

This year we have entered a number of new markets and territories such as: the domestic mortgage servicing market through the acquisition of Crown Mortgage Services, new market segments such as food and agriculture through our recent acquisition of SouthWestern in Ireland and our acquisition of tricontes in Germany enables us to further support existing clients with European parents and subsidiaries and grow our customer management presence in Germany. We have also enhanced our IT and software capabilities.

Since the half year we have made 3 acquisitions including:

  • Expanding our customer management market reach - We have further expanded our customer management capability and reach with the acquisition of SouthWestern, the leading domestic provider of outsourced managed services in Ireland. SouthWestern delivers customer relationship management, financial shared services, data processing and inspectorate services to private and public sector organisations, from offices in Ireland, the UK and Poland.
  • Extending our financial services capabilities into new segments - We have expanded our services to corporates with the acquisition of Throgmorton, one of the leading specialist accountancy and back office service providers to the financial services industry. Its clients include more than 300 investment funds, private equity firms and corporate finance boutiques both in the UK and the US.
  • Expanding our capability in the legal market - We have expanded our software offerings with the acquisition of Eclipse Hardware Ltd (known as Eclipse Legal Systems) which provides case management software and services to over 20,000 legal professionals in law firms, Alternative Business Structures, claims departments and commercial organisations.

Outlook 

The UK market for customer and business process management remains highly active and Capita is well positioned to secure major outsourcing and transformational partnership opportunities across an increased number of private and public sector markets. Our unrivalled and growing breadth of capability provides us with a greater reach across these diversified markets and increases our ability to be highly selective regarding the opportunities we pursue. Our bid pipeline is being replenished swiftly and with strong sales activity, particularly across the private sector and local government, there is a good flow of further opportunities which will continue to fuel the bid pipeline and organic growth in 2015 and the following years.

Our sales performance to date, together with the acquisitions completed over the year and our steady operating performance, gives us confidence in meeting consensus market expectations for 2014. As a consequence of our sales successes and business performance in 2014 and our current bid and acquisition pipelines, we have the ingredients in place to deliver further revenue and profit growth in 2015 and beyond.

- See more at: http://www.capita.co.uk/news-and-opinion/news/2014/interim-management-statement-november.aspx#sthash.G3ERCZgJ.dpuf

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