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Capita publishes interim management statement

Summary update on performance

Major sales: Capita has achieved strong sales performance this year to date,

securing &pound2.9bn of major new contract wins with clients including the

Department of Energy and Climate Change, the Ministry of Justice and the

Cabinet Office and, in the private sector, with Carphone Warehouse and

Telef&oacutenica UK (O2).

Sales activity is buoyant and we are seeing high activity across the retail,

utilities and telecoms sectors and in central government, particularly across

defence and the justice areas. Our bid pipeline currently stands at &pound4.2bn

(July 2013: &pound4.2bn) with a number of bids at a relatively mature stage of the

procurement process and a good weight of opportunities at earlier stages in and

just outside of the bid pipeline.

Following a record level of sales wins over the previous 18 months, we are

experiencing strong organic growth in 2013 and we remain on track to achieve

our target of 8% organic growth for the full year (2012: 3%). In turn, our

sales success has resulted in a high volume of new contract implementations,

including the 2 largest contracts in Capita's history with Staffordshire County

Council and O2, which transferred to Capita in April 2013 and July 2013


Financial performance: Our key financial metrics remain very healthy. In


Cashflow: The Group has strong control over operating cashflow and we are

confident that the conversion rate of operating profit to operating cash will

exceed 100% for 2013.

Margins: 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 2013 will be comfortably within this range and ahead of the half year

margin of 12.5%.

Acquisitions: During the year to date, we have acquired 13 complementary

businesses for a total consideration of &pound271m, enhancing and expanding our

sales proposition to clients and supporting the delivery of future organic



Delivering organic growth

To date in 2013, we have secured 15 new major contracts with an aggregate value

of &pound2.9bn (November 2012 IMS: &pound1.7bn), comprised of 95% new business and 5%

renewals. Since our half year results in July 2013, we have announced the

following new contracts:

  * National Asset Management Agency (NAMA) - appointed as primary and special

   loan servicer on the NAMA loans acquired under the NAMA Act 2009,

   previously managed on behalf of NAMA by the special liquidators, Irish Bank

   Resolution Corporation (IBRC). The contract is worth around &pound69m over 4



  * Department of Energy and Climate Change (DECC) - selected as successful

   applicant for the smart meter communication licence which became effective

   from September 2013. The arrangement is expected to generate revenues to

   Capita of some &pound175m over 12 years with an option to be extended for a

   further 6 years.


  * Ministry of Justice (MoJ) - selected as preferred bidder for the electronic

   monitoring and field support services contract and also the role of overall

   services and systems integrator. We expect the contract to generate

   revenues to Capita of some &pound400m over the initial six year contract term,

   based on the anticipated increase in the use of tags beyond the current

   numbers of monitored individuals. Further significant growth is expected

   through the expansion of services to other government departments and



  * Other major new contracts - we have secured contracts worth a total of &pound

   253m, including with the Department for Work and Pensions (DWP), Croydon

   Council, Scottish Power Energy Retail and the Department of Communications,

   Energy and Natural Resources in Ireland.


Bid pipeline: The pipeline is a snapshot of major bid opportunities, worth &pound25m

or above and capped at &pound1bn, where we have been shortlisted by the client to

the last 4 bidders or fewer. The bid pipeline currently stands at &pound4.2bn (July

2013: &pound4.2bn) comprised of 30 bids of which 93% relates to new contracts and 7%

to renewals. The pipeline contains opportunities from across all our target


Contract rebids: Over the next 5 years, there are no material contracts due for

rebid (defined as having forecast annual revenue in excess of 1% of 2012

revenue). The next major contract due for renewal will be the Phoenix contract

in 2019.

Securing value enhancing acquisitions

Acquisitions play a key role in enabling us to enhance our sales propositions

and take us into new market segments, providing a platform for further organic

growth. To date in 2013, we have acquired 13 businesses, investing a total of &pound


Since our H1 results announcement in July 2013, acquisitions include ParkingEye

for &pound57.5m (Justice and Secure Services division), Write Research for &pound4m

(Workplace Services division), Contact Associates for &pound4.5m (Health & Wellbeing

division) and Cymbio for &pound7m (Health & Wellbeing division). All of these

acquisitions expand our capabilities in our market places and also have the

potential to play valuable roles in our major contract bids.

Our acquisition pipeline contains a number of interesting opportunities and we

anticipate maintaining total acquisition spend of &pound200m to &pound250m per annum

going forward. With an increased level of organic growth, we therefore expect

our acquisition activity to play a proportionately smaller part in our overall

revenue growth in future years.

Disposals and closures within the Insurance & Benefit Services division

We informed shareholders at our half year results that there are small parts of

our Insurance & Benefits Services division, some insurance distribution

businesses and our SIP (self invested pensions) administration business, which

operate in increasingly competitive and highly regulated markets and are loss

making. Following a detailed review, we have concluded that the route to

recovery for these operations would take a long time and accordingly we have

taken steps to address this. Today, we announce that we have agreed to sell,

subject to FCA approval, these insurance distribution assets to Markerstudy for

an undisclosed sum and we have taken a decision to close our SIP (Self Invested

Pensions) administration business based in Salisbury which is sub-scale and

therefore unviable.

These operations comprise approximately &pound47m of Group revenue and are

anticipated to make a combined operating loss of &pound15m in 2013. As other areas

of the Group have performed strongly, profit before tax, net of these losses,

is expected to remain in line with current market expectations.

Our current estimate is that the combined cash costs, net of tax, from the sale

and closure will be c&pound35m. This will be disclosed separately in our Preliminary

Accounts for the year ended 31 December 2013. We anticipate that these actions

will result in an impairment of goodwill when we conduct our annual impairment

test at the end of the year.

Although these acquisitions generated healthy profits and cash over several

years, we recognise that the recent performance of these acquisitions which

cost in aggregate &pound70m is disappointing. However, this should be viewed in the

context of our &pound1.6bn acquisition programme over the last 10 years, which has

generated significant shareholder value.


As a consequence of the sales successes to date in 2013 and the acquisitions

completed in 2012 / 2013, we are on track to deliver strong growth in 2013.

Furthermore, 2014 has the foundations in place today to be a highly successful

year. The UK market for customer management and BPM remains very encouraging

and this underpins our confidence in the Group's long term growth prospects


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