Results for the 6 months to 30 June 2010 Agenda Introduction: - - PDF document

Results for the 6 months to 30 June 2010

Agenda

Introduction: Paul Pindar Chief Executive Financial results: Gordon Hurst Group Finance Director Generating growth: Paul Pindar Operational update and Simon Pilling market opportunities Chief Operating Officer Prospects: Paul Pindar

Highlights

Strong profit growth Continued margin improvement Excellent cash flow despite economic environment Major contract sales at £523m 7 acquisitions completed for £107m Active market – both sales and acquisitions “A consistent strategy, consistently applied”

Financial results

Gordon Hurst Group Finance Director

Financial results - turnover

Comparative growth 4%

2,687 2,441 2,073 1,739 1,436 1,361 1,311 1,182 985 845 687

500 1,000 1,500 2,000 2,500 3,000

2010 2009 2008 2007 2006 2005

£m

1/2 Year Full Year

Financial results - turnover by market

9 23 13 4 2 7 19 4 19 Local government 23% (22%) Education 13% (12%) Health 4% (3%) Transport 2% (3%) Insurance 7% (8%) Life and pensions 19% (18%) Financial services 4% (4%) Other corporates 19% (20%)

Public sector 51% (2009: 50%) Private sector 49% (2009: 50%)

Central government 9% (10%)

2010 half year (2009 year end)

Financial results - half year organic growth

2001 (36) 2003 2004 1193 Underlying organic growth £m 2008 1311 £m 2007 Growth Turnover 2010 acquisitions 2009 acquisitions 4% (7%) (2%) 4% 1361 (27) (89) 1245

• £m 6 months to

30 June 2009 £m 6 months to 30 June 2010

£m 2008 Growth (21) Disposals 2%

• 1290

Growth excl. acquisitions & disposals (7%) (3%) 1245

• (97)

Revenue attrition

Financial results - underlying profit before tax

Comparative growth 15%

325.1 277.2 238.4 200.1 163.1 141.7 120.2 103.8 88.3 71.3 143.9

50 100 150 200 250 300 350 2010 2009 2008 2007 2006 2005 £m 1/2 Year Full Year

Financial results - underlying operating profit

Comparative growth 12%

357.7 320.9 271.3 225.1 183.1 178.4 159.6 140.6 118.9 99.1 77.8

100 200 300 400 2010 2009 2008 2007 2006 2005 £m 1/2 Year Full Year

Financial results – underlying half year

• perating margin

13.1 12.2 11.9 12.1 11.7 11.3

9 10 11 12 13 14

2005 2006 2007 2008 2009 2010

%

Financial results – principal margin drivers

bpts Offshore profitability 13 IT server rationalisation 22 Procurement and property rationalisations 18 Insurance disposal 15 Turnarounds (print and document management) 22

Financial results - underlying earnings per share

Comparative growth 16%

16.92 14.46 12.13 9.96 7.72 15.37 33.26 28.10 23.10 18.60 19.60

10 20 30 40 50 2010 2009 2008 2007 2006 2005 Pence 1/2 Year Full Year

Financial results - dividends

Comparative growth 18%

9.0 7.0 2.7 12.0* 14.4 16.8 4.0 4.8 5.6 2.1 6.6

5 10 15 20 2010 2009 2008 2007 2006 2005 Pence 1/2 Year Full Year

* excluding 25p special dividend

Financial results - cash flow statement

Cash flow from operating activities Net interest paid Taxation paid Capital expenditure Free cash flow £m 6 months to 30 June 2009 198* (19) (21) (36) 122 Share option proceeds 13 Acquisitions and disposals Equity dividends paid Share buybacks (98) (59)

• £m 6 months to

30 June 2010 216 140 (38) (23) (15) (89) (69) (104) 16 Decrease in cash in the period Other financing 4 (158) (17) (70) Bond issue/(repayment) 53 (100) Exceptional pension payment (40)

• * excluding an additional exceptional pension contribution

437 392 279 232 216 198 174 145 122 95 334

100 200 300 400 500 2010 2009 2008 2007 2006 2005 £m 1/2 Year Full Year

Financial results - cash flow from operating activities

Comparative growth 9%

exceptional additional pension contribution £10m (2008), £40m (2009)

Financial results - free cash flow

280 219 184 154 127 140 122 102 83 58 38

50 100 150 200 250 300 2010 2009 2008 2007 2006 2005 £m 1/2 Year Full Year

Comparative growth 15%

exceptional additional pension contribution £10m (2008), £40m (2009)

Financial results - half year capex as % of turnover

%

4.1% 3.9% 3.2% 2.8% 2.7% 2.8%

1 2 3 4 5 6 7 2005 2006 2007 2008 2009 2010

Financial results - % net return on capital (debt plus equity) – 12 months to 30 June 2010

20.2 20.2 20.0 18.6 16.7 17.9 7.8 7.9 8.2 8.1 7.8 8.0 4.0 8.0 12.0 16.0 20.0 24.0 2005 2006 2007 2008 2009 2010 % return

Actual WACC

PBIT (normalised) Avg capital (£m) Tax (%) 2005 2006 2007 2008 2009 167 204 245 293 340 719 823 954 1067 1234 28.1 27.7 27.7 27.0 26.8 2010 377 1380 26.0

Financial results - underlying free cash flow return on capital* (debt plus equity) – 12 months to 30 June 2010

23.5 22.5* 22.4* 18.8 17.9 16.3

4.0 8.0 12.0 16.0 20.0 24.0

2005 2006 2007 2008 2009 2010 % return

FCF (pre interest) Avg capital (£m) 2005 2006 2007 2008 2009 117 147 239 278 719 823 1067 1234 2010 179 954 325 1380

*excluding additional pension contribution £10m (2008), £40m (2009)

Financial results - balance sheet gearing

Net debt Bond debt (Cash in hand)/Bank facilities drawn Total net debt Interest cover 30 June 2007 (£m) Net debt to EBITDA Loan notes/leases

834 (112) 4 726 12.5x 1.5 579 71 3 653 8.2x 1.7 £m 2008 £m 2007

£m 30 June 2009 £m 30 June 2010

Underlying net debt after impact of currency and interest swaps † †

Financial results – debt profile

US private placement £253m raised from US private placement in 7 and 10 year notes at rates between 4.15% and 4.80% Proceeds used to repay more expensive £200m bank term loan Current debt profile: – £834m of private placement debt with maturities from 2012 to 2020 and with 50:50 fixed floating mix – Unused revolving credit facility of £245m maturing in December 2011 – Cash balance of £112m as at 30 June 2010

Financial results - returns to shareholders in respect of 2010

11.7m shares (1.9% of share capital) cancelled at average of 765p

• Cost £89m (including stamp duty)

Shares in issue at 30 June 2010 – 609m Including proposed half year dividend, £130m returned to shareholders in respect of 6 months to 30 June 2010 £1.03bn returned to shareholders over last 5 years

Generating growth through contract wins and acquisitions

Paul Pindar Chief Executive

Generating growth – new agreements in first 6 months of 2010

10 years 50 Harrow Council 5 years 60 Virgin Money Duration Value (£m) Client 67 6 years Sheffield City Council

Total value of 17 agreements to date in 2010: £523m

(Half year 2009: 10 contracts, £814m) Aggregate value: £346m 14 deals Contracts £10m - £50m L&P

Generating growth – new agreements in first 6 months of 2010

Life and pensions Central government Insurance Education Local government

5 10 15 20 25 30 35 40 45

% Market

Generating growth - existing major contracts due for rebid

Year Contract Value per annum (£m) 2010 None 2011 None 2012 TV Licensing* CRB* 50 40 2013 None 2014 None

Criteria: more than 1% of 2009 turnover *Revenues based on original contract value National Strategies contract due to end 31 March 2011 and will not be re-tendered

Generating growth - bid activity

Bid pipeline* of £4.4bn comprising 23 bids (Feb 2010: £3.7bn; 26 bids) Average contract length in bid pipeline – 8 years Prospect and suspect lists buoyant Capita’s financial stability is a key competitive advantage

* Shortlisted to last 4 or better + individual bids capped at £500m

Central government Other Transport Health Defence Local government L&P 5 10 15 20 25 30 35 40

% Market

Central government - update

9% Central government Public sector Private sector

Approx 9% of Group revenues from Central government market This excludes small elements of health and education

Central government – early perceptions

Impressive pace and urgency to tackle fiscal position Their approach: What activities can the public sector simply stop? Where can they exercise self help quickly? Where and how can partners get them there sooner? Targets: Central government target of 25% savings by year 3 Capita believes it can achieve significant savings in year 1 and 25%+ savings by year 2

Central government - update

Government committed to significantly shortening procurement process – can currently take up to 2 years Receptive to proposals where private sector can help Whitehall to

• perate more efficiently

2 prong focus: – Actions that provide immediate efficiencies – Initiatives to remodel and deliver services differently to achieve medium to longer term effect

Generating growth - acquisitions

Acquisitions remain an important element of our business model:

– generate excellent returns on capital – build platforms for future organic growth

We continue to acquire small to medium sized companies that: – strengthen existing market positions

– build economies of scale – generate sustainable, quality revenues – bring complementary skills and services – create new market opportunities and access a new customer base

Active first half of year with 7 acquisitions completed Expect an active second half

Generating growth – 2010 year to date acquisitions

Total spent on 7 acquisitions in 2010: £107m

(Half year 2009: 9 acquisitions, £93m) 5.0 Debt management Ross & Roberts 60.0 1.9 8.0 15.0 10.0 6.8 Value (£m)

+ 1.3 + 1.5 + 10.0 + 5.0

Trust administration PAL Services Insurance Sureterm Direct IT services Ramesys Medical Reporting & Screening Premier Medical Group Property services NB Real Estate Business area Acquisition Property services Inventures

Generating growth – 2010 year to date acquisitions

Health Property services IT services Insurance Other 5 10 15 20 25 30 35

% Business area

Generating growth – Premier Medical Group

Leading provider of medical reporting and screening services across the UK to range of clients, primarily insurance companies and lawyers Expands on our position as one of UK’s largest occupational health providers Significant opportunity to achieve synergies with our occupational health business Scope for cross selling to our insurance and life and pensions customers Operating profit of £8m forecast on turnover of £51.2m for year ended 31 December 2010 285 employees in offices in Ludlow, Lincoln, Pangbourne and London Rationale: To expand our footprint in the health market and add important new capability to our range of health services

Simon Pilling Chief Operating Officer

Operational update and market

• pportunities

Operational update – Property consultancy

Capita Symonds: now one of UK’s largest multifaceted consultancies

• ffering wide scope of services – positioned well in current fiscal

environment Infrastructure: expanded capability in roadside technology - information, planning and traffic flow control Efficient use of property and workspaces: services focused on helping public and private sector organisations to effectively manage property estates:

– NB Real Estate enables us to offer full service proposition across the real estate lifecycle through consolidation and disposal – Inventures, a leading property consultancy in the healthcare market, focuses

• n efficient use of clients’ property portfolio and accommodation

Operational update – IT Services

IT Services: track record of IT transformations particularly in local government and education

• Growing demand for technology to play a role in delivering and

improving education

• Drawing together ICT, software services, property consultancy offering

to support Government’s emerging new direction for education

• Revenues for BSF projects are secure

Education Client Capita’s role Local government

• Need to improve IT infrastructure across services and deliver IT to

support improved customer interactions New and extended agreements

• Harrow Council, Nottinghamshire County Council, East Midlands

Broadband Consortium (embc)

Operational update – Resourcing

Resourcing: focus on managing workforces and recruiting flexibly and efficiently

Contract framework for interim resources has delivered cost savings

• f £20m since July 2008. Additional 6 central government
• rganisations now joined framework

DWP CIPHER Efficient resource planning in a partnership now in its 7th year NATS Providing non permanent workers through our BAA framework Gatwick Airport Limited Client Capita’s role Nuclear Estate New 3 year contract to supply entire Nuclear Estate with non permanent workers Severn Trent Water Assisting with business transformation and relocation programme

Operational update - Capita India

Headcount stands at 4140, an increase of 8% since beginning of the year Capita India has expanded its facility in Pune by adding another 380 seats Migration to BT managed WAN – increasing resilience, capacity and connectivity Widening of capability in India beyond administration services and IT testing to create an IT capability of scale IT services capability launched in India with an initial focus on Application service ISO 27001 accreditation now awarded across all sites

Market activity - UK BPO market

Total UK Market 2009 (£m)* Public Sector 1,844 Central government 606 Local government 831 Transport 65 Education 58 Health 77 Other 207 Private Sector 4,140 Insurance 515 Life and pensions 640 Finance 1,050 Other private 1,935

* Ovum 2008 and 2009

Market activity - market position

Company 2009 Market Share* 2008 Market Share* Capita 27.0% 25.5% Xchanging 7.0% 6.4% Accenture 5.0% 6.8% HP Enterprise Services** 5.0% 5.5% BT Global Services 4.0% 4.1%

* Ovum 2008 and 2009 ** Formerly EDS

UK BPO market leader with 27% market share Increased market share during economic downturn Identify and enter new markets through mixture of contract wins and acquisitions

Market opportunities – drivers for outsourcing

Our markets Drivers for outsourcing Benefits of working with Capita

Public:

• Central government
• Local government
• Education
• Health
• Transport

Private:

• Life and pensions
• Insurance
• Financial services
• Other corporates
• Increased pressure to

drive down costs without compromising service

• Increased demand for services

and value for money

• To make public infrastructure

suitable for future needs

• Demand to create more flexible
• perating models
• Requirement to remain

competitive and enhance service quality

• Strong track record of

delivering higher productivity and enhanced operational and advisory capabilities

• Access to skills and technology

that can guarantee savings upfront

• Scale benefits and use of

shared infrastructure

• Blended onshore/offshore

delivery

Market opportunities – Local government

23% Local government Public sector Private sector

Approx 23% of Group revenues from Local government market Increased engagement with outsourcers to explore ways to help them achieve cost efficiencies

Market opportunities - Local government

Local Authorities under further fiscal pressure Seeking help to achieve demanding cost savings Possibilities to expand private sector remit, particularly procurement, HR/Resourcing and property estate consolidation and management Indications that local authorities wish to progress through the procurement process faster than previously Our footprint in local government and health positions us well to help local authorities respond to the proposed NHS White Paper: “Liberating the NHS” and how health services are delivered at a local level

Market opportunities - life and pensions

Total market Estimated UK policies in force (excluding group schemes and CTF): circa 104m Outsourced market Number of policies outsourced to date estimated to be 35m – 40m (circa 35% of market) Capita Current contracts – 23m policies Circa 22% of the total UK market

Market opportunities - life and pensions

Focus on retention to increase embedded value in clients’ funds:

• Client X: In the last year we have retained over 13,000 customers and £350m in

funds invested

Delivering improved levels of customer satisfaction to increase customer re-purchases

• Client Y: Regularly achieving a customer satisfaction level of 93% and a

“purchase again” score of over 90%.

Working with clients to extend their distribution networks

• Client Z: Helped secure a distribution deal with a large UK retail bank that will

significantly grow our client’s business

Adding value to our clients’ new product development

• Worked with a number of our clients in the last 12 months to ensure their

products are developed more cost effectively and brought to market faster

NHS CHOICES Contract: £60m over 3 years To develop, deliver and host NHS Choices, the NHS’ digital presence NHS MEMBERSHIP SERVICES NHS HOUNSLOW Contract: £3.3m over 3 years To deliver managed ICT service to 71 locations including hospitals and doctors surgeries DEPARTMENT OF HEALTH Contract: £5.25m over 3 years To manage The Information Standard, a certification scheme for health and social care info NHS Business Services Authority Contract: £100m over 7 years Processing and payments of 40m dental claims and a managed IT service to support the authority PREMIER MEDICAL GROUP (PMG)

2010 Projected turnover: c. £120m End 2008 Turnover: £35m

CHKS Acquired for £11.6m Provider of healthcare intelligence and quality improvement services. Over 90 NHS Trusts as clients

End 2009 Turnover: £66m

Acquired for £2m Provider of membership services and engagement programmes for

• ver 50 NHS Trusts

Market opportunities – capabilities in health

Acquired for £60m Leading provider of medical reporting and screening services across the UK

2004 Turnover: £15m

AON HEALTH SOLUTIONS Capita enters health market through acquisition of Aon Health Solutions, a leading workplace health risk management company Selected by AON as preferred Health Solutions partner for initial contract over 2 years

Market opportunities - health

We continue to engage with DoH to explore running functions currently run by “Arms Length Bodies”:

– payment functions – claims functions – regulatory support – customer contact

Seeking to replicate the LA strategic partnership model for NHS Acute Trusts and other NHS providers Opportunities to help health providers and local authorities to respond to the NHS White Paper: “Liberating the NHS” proposals:

– structural changes – cutting bureaucracy and administration costs – increasing productivity and quality

Prospects

Paul Pindar Chief Executive

Ingredients for continued growth

Significant opportunities for growth

Strong trading across the Group Current high levels of sales activity across both the private and public sectors Record bid pipeline of £4.4bn We expect initiatives to increase efficiency across the private and public sectors to result in significant outsourcing opportunities Healthy pipeline of potential acquisitions

Results for the 6 months to 30 June 2010