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Capita plc - Interim Managament Statement


Capita plc ('Capita'), the UK's leading business process outsourcing ('BPO') and professional services company, is today issuing its interim management statement, covering the 3 month period ending 31 March 2012 and progress to date.

Update on performance and financial position

Capita has made an encouraging start to 2012 with Q1 turnover 17% ahead of Q1 2011, mainly due to the additional revenue from acquisitions undertaken during 2011 as well as good progress across the Group's businesses. We have also had a successful period in bidding for new contracts, winning a total of &pound900m major sales opportunities in the first 16 weeks of the year (full year 2011: &pound2.0bn). Our bid pipeline remains strong, particularly across the central and local government markets, and we also have an extensive list of opportunities sitting just behind the pipeline. We have acquired 6 complementary businesses in the period which will add further capabilities, enhancing our propositions to clients in existing and new markets. Additionally, since our preliminary results announcement in February, we are seeing a greater number of acquisition opportunities which could add further value.

Performance across our key financial metrics is as anticipated in our preliminary results statement issued on 23 February 2012. We remain well placed to achieve renewed organic growth in line with expectations in 2012 and anticipate further strong progress in 2013. Alongside this renewed organic growth, we continue to pursue the attractive opportunities in our increased pipeline of acquisitions, whilst maintaining an efficient balance sheet.

Generating profitable growth organically and through acquisitions

In 2012 to date, we have won 12 major sales opportunities with an aggregate value of &pound900m (at the 2011 Q1 IMS we announced that we had signed 7 new contracts with an aggregate value of &pound313m and at the full year 2011: &pound2.0bn) of which 91% relates to new contract wins and 9% to renewals. This includes contracts to deliver the Recruiting Partnering Project (RPP) to the Army and the enabling ICT for the Royal Navy and the Royal Air Force, the Civil Service Training agreement, 5 customer management contracts, including one for a major UK retailer and our selection as outsourcing partner to deliver managed control centre services for a new client in the emergency services sector.

We announce the size of our bid pipeline twice a year at our half and full year results. The pipeline is a snapshot of bids, worth &pound10m or above, where we have been shortlisted to the last 4 or fewer. Our bid pipeline stood at &pound4.6bn in February 2012 (February 2011: &pound4.7bn) with opportunities across all our target markets. The bid pipeline is being steadily replenished following our recent sales wins.

Contract rebids: Over the next 7 years to 2019, we only have 3 material contracts (defined as having annual revenue in excess of 1% of 2011 turnover) due for rebid - the Criminal Records Bureau (CRB) contract in 2013 where the bid process is now underway, the Civil Service Training contract in 2014 and the Phoenix contract in 2019.

Acquisitions: Acquisitions continue to play an integral role in Capita's growth, further strengthening our BPO offering in both our existing and newer target markets, as demonstrated by recent major contract wins in the retail, defence and emergency services sectors. To date in 2012, we have acquired 6 businesses for a total cash consideration of &pound91m, including:

Bluefin Corporate Consulting - a provider of employee benefits consultancy to medium and large corporations. In addition, Bluefin has developed award-winning benefits management technology, which is used by more than 150 clients with over 80,000 employees. This acquisition complements and extends the capability of Capita Hartshead, our corporate pensions and actuarial consultancy business.

Aviva UK Health - provides a complete range of occupational health services to more than 500 organisations adding further expertise and capacity to Capita's wellbeing and health business and provides entry into a number of key client sectors including transport and logistics. These additional capabilities add further depth to our existing health and wellbeing services and position us strongly in the medical assessments and disability support marketplace, an area where there are currently significant opportunities. Capita has successfully secured a place on all 5 lots of a Framework Agreement for the provision of Health and Disability Assessment services to support the Department for Work and Pensions and other contracting authorities including the Department of Social Development in Northern Ireland.

These acquisitions have strengthened and added further scale in our target markets, opened up additional market segments and added new complementary capabilities to the Group. We have a strong pipeline of additional small to medium sized acquisitions which we believe will generate further value. Therefore, we believe that we could spend at least as much again on complementary acquisitions during the remainder of 2012 as we have already spent to date this year.

Acquisitions made in the last four years have delivered, we estimate, a post tax return on capital of approximately 14% and we believe that the acquisitions in our current pipeline are capable of delivering similar returns.

Our market opportunities

Leading independent industry analysts, IDC, estimate that the total market for BPO in the UK in 2011 was &pound8.1bn (2010: &pound7.8bn) with Capita remaining the clear market leader, maintaining 23% market share (2010: 23%). The overall market potential for BPO in the UK is estimated at &pound117bn a year demonstrating the substantial capacity for long term growth1. In 2011, we gained business across both the public and private sectors and the sector split of our revenues currently stands at 52% private/48% public (2010: 50%/50%). We are seeing greater opportunities particularly across central government, a steady flow across local government and a healthy spread across our other public and private sector markets. Of note is the increasing number of opportunities across the customer management and emergency services markets where Capita has recently established strong propositions and market positions as a direct result of acquisitions it made in 2010 and 2011.


Major contracts won and acquisitions completed in 2011 and to date this year provide us with good visibility of stronger revenue growth in 2012. This visibility and the current buoyant sales environment underpin our confidence in good growth prospects and performance for 2012 and beyond. Additionally, our strong acquisition pipeline provides us with excellent opportunities to further enhance our capabilities and generate additional value.


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