Annual Report • Dec 31, 2011
Annual Report
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2011 Report
Generating and supporting long term growth Go to section 1 on page 10
Delivering business responsibly Go to page 45 for more detail
Meet the Board Go to page 58
Our financial statements From page 86
| Generating & supporting growth | 10 |
|---|---|
| Our business model | 11 |
| Markets | 12 |
| Organic growth | 17 |
| Acquisitions | 24 |
| Capability and scale | 27 |
| Controlling & measuring growth | 31 |
| Leadership and control | 33 |
| Financial review | 35 |
| Divisional review | 38 |
| Delivering business responsibly | 45 |
| Stakeholder value | 46 |
| Governance | |
| Board members | 58 |
| Corporate governance | 60 |
| Remuneration | 75 |
| Accounts | |
| Financial statements | 86 |
| Notes to financial statements | 91 |
Other information 141
You can view all stakeholder case studies online at:
Growing our customer management capability See page 26
Taking teachers' pensions administration to the next level
See page 23
Working in partnership with Swindon Borough Council
See pages 48 and 49
Expanding our
See page 20
relationshipwith Zurich
Entering the emergency services market
Through careful listening and detailed exploration, we build a deep understanding of what our clients and their customers need.
By combining this insight with our clients' knowledge and our expertise, we create unique solutions that drive down costs and provide better customer experiences.
And we don't just design the solutions; we also deliver them for our clients, committing to a defined cost and high quality standards. We're able to do this by drawing on our rich and varied capabilities and our extensive service infrastructure.
So, however unique or complex the challenge, we can bring together the right people with the right skills to make it happen.
This positions us as the UK's leading provider of business process outsourcing, delivering value to all ourstakeholders.
The Directors present the Annual Report for the year ended 31 December 2011 which includes the business review, governance and audited Group accounts for the year. Pages 01 to 85 of this Annual Report comprise a Report of the Directors that has been drawn up and presented in accordance with English company law and the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law. Where we refer in this report to other reports or material, such as a website address, this has been done to direct the reader to other sources of Capita information which may be of interest to the reader. Such additional materials do not form part of this report.
Delivering value
Our business goal is to continue building a sustainable business that meets the needs of all our stakeholders.
We achieve this goal through our business strategy of growing the business in a controlled and profitable manner across our target markets.
We maintain existing relationships and win new clients by actively developing our capability and scale, both internally and through complementary acquisitions, continuously enriching our service offering and generating further growth.
Capita leads the fast growing business process outsourcing (BPO) market in the UK. We have developed a broad based services business with multiple relationships covering a wide range of different sectors and we continually explore new market areas, such as health and the emergency services, where we believe there is potential to add value. We currently target 10 markets across the public and private sectors.
See page 12
£2.0bn 2010: £0.8bn
The key driver of our organic growth is securing long term BPO contracts with new and existing clients principally in the UK and Ireland. We reduce our clients' running costs and add value to their operations while generating defined revenues to Capita over the life of the contract. Over two-thirds of our revenue is derived from outsourcing relationships with additional revenues generated from specialist services delivered by our extensive network of niche businesses.
See page 17
£341m 2010: £301m
Acquisitions play a vital role in supporting our growth. We acquire small to medium sized companies which add further expertise or scale to our operations or which help us enter new markets. Our acquisition approach is underpinned by strict criteria and this, together with our extensive experience of integrating new companies into the Capita model, ensures that we add real value to the Group.
See page 24
Capita has grown steadily over the past 28 years and we now have over 46,500 people at more than 350 business sites onshore, nearshore and offshore, including 68 specialist business centres. We actively develop our capability and scale so that we are continually enhancing our offering to clients and ensuring that we remain at the forefront of responsible, high quality service delivery.
See page 27
| – effective people management |
|---|
| – efficient processes |
| – appropriate shared/bespoke ICT platforms |
| – extensive delivery network |
We take a disciplined approach to managing performance. Our robust management structure and business reporting process promote accountability and knowledge sharing across the Group. With strong financial and risk management, underpinned by a clear set of key performance indicators, we generate steady, controlled growth and healthy, long term returnsfor investors.
£385.2m
21.4p
2 Excluding 25p special dividend.
48.49p
5 year compound growth 16%
1 Excludes items which the Group treat as non-underlying, see notes X and X on pages XX and XX 1 Excludes items which the Group treat as non-underlying, see notes X and X on pages XX and XX 1 Excludes non-underlying items being: intangible amortisation and acquisition expenses and release of contingent consideration of £71.9m (2010: £47.8m), the non-cash impact of mark to market movement on financial instruments of £7.1m (2010: £6.6m), and £3.3m (2010: £nil) for increased counterparty credit risk. After these non-underlying items: reported operating profit is £355.5m (2010: £347.3m), reported profit before tax is £302.9m (2010: £309.8m) and reported earnings per share is 39.16p (2010: 38.44p).
We deliver business 3 responsibly by...
We have a straightforward and pragmatic operational structure which supports optimum service delivery for all our clients. It provides ready access to the Group's wider expertise and scale and enables us to create innovation and harness the best of ICT and business processes.
See page 38
We are committed to growing the business in a transparent and socially responsible way. Our consistent strategy of delivering quality services for clients, combined with our disciplined approach to controlling and measuring growth, supports the creation of a business that is sustainable for all our stakeholders over the long term.
'
The public benefit from the flexible, quality services we deliver for our clients
We look to add value to the communities where we work
We build mutually supportive supplier relationships
'
' 2011 was a challenging year in which we achieved reasonable revenue growth and maintained our underlying operating margin. However, it was also a successful year for Capita in respect of major sales wins. '
Paul Pindar Chief Executive
2011 was a challenging year in which we achieved reasonable revenue growth and maintained our margin. However, it was also a successful year for Capita in respect of major sales wins, with a record total value of £2.0bn new and extended contracts secured during the year (2010: £0.8bn). This included £0.9bn from new contract wins and £1.1bn from contract renewals.
We also completed a series of acquisitions in 2011 which play a key role in extending our capabilities, enhancing our propositions to clients and making a valuable contribution to our long term growth.
In the full year 2011, revenue increased by 7% to £2,930m (2010: £2,744m). Underlying operating profit1 rose by 8% to £427.4m (2010: £395.1m) and underlying profit before taxation1 increased by 6% to £385.2m (2010: £364.2m). Underlying earnings per share1 grew by 8% to 48.49p (2010: 44.98p). We have increased our total dividend for the full year 2011 by 7% to 21.4p per share (2010: 20.0p).
After non-underlying items, reported operating profit was £355.5m (2010: £347.3m) and basic earnings per share were 39.16p (2010: 38.44p). These figures were impacted by higher amortisation of goodwill arising from increased levels of acquisitions.
Our performance in 2011 was impacted by the more challenging economic environment, including a range of austerity measures implemented across Government. This adversely affected a number of our trading activities, including our property consultancy and parts of our IT and resourcing businesses, and also resulted in lower discretionary revenue being generated from existing clients.
As anticipated, we have reported an overall organic revenue decline of 7% for the full year 2011 due to the combination of these challenging trading conditions and due to an unusually high level of revenue attrition. Throughout 2011, we focused on taking actions to ensure optimum efficiency across all our businesses going forward. Despite this background, we have
achieved overall revenue growth of 7%.
In addition to the financial measures already mentioned, we focus on a number of other key financial measures to ensure we build value for shareholders on a consistent basis over the long term.
Margin – In 2011, the Group's underlying operating margin1 was 14.59% (2010: 14.40%). In 2011, operating profit1 was impacted by a number of notable items including: unusually high restructuring costs (including redundancies) and the settlement of certain historic captive insurance claims. This adverse impact was offset by a past pension service credit of £23.9m which includes the change to indexation benefits from RPI to CPI.
Cash flow – In 2011, £364m (2010: £442m) was generated by operations representing an operating profit to cash conversion rate (defined as cash generated from operations before settlements2 divided by underlying operating profit1 for the year) of 85% (2010: 112%).
As previously highlighted, operating cash flow before settlements2 has been impacted by the conclusion of the National Strategies programme and additional working capital requirements for new and expanded contracts, in particular our Building Schools for the Future projects, Service Birmingham and certain life and pensions contracts.
Due to the recent more challenging economic conditions, the beneficial payment terms that we have historically secured from certain clients are more difficult to obtain and this inevitably impacts our working capital profile as these payment terms revert to industry norms. However, we expect that our operating cash to operating profit conversion rate will improve in 2012 and again in 2013.
Free cash flow defined as operating cash flow before settlements2 , less capital expenditure, interest and taxation for the year was £157m (2010: £241m). This decrease was due to the movement in working capital noted above.
Dividends – The Board is recommending a final dividend of 14.2p per ordinary share (2010: 13.4p), making a total of 21.4p (2010: 20.0p) for the year. This represents an increase of 7%. The final dividend will be payable on 28 May 2012 to shareholders on the register at the close of business on 20 April 2012. Including the proposed final dividend, Capita's total dividend will have grown at a compound annual rate of 19% over the five years to 31December 2011. Dividend cover is 2.27 times for 2011.
Debt profile – During 2011, we issued £340m of private placement notes with maturities between 7 and 10 years. Following these issuances, we have £1,176m of private placement debt of which £123m matures between now and August 2015, with the remainder gradually maturing until 2021. In February 2012, we raised a further £285m of bank debt under a two year term loan facility to further increase liquidity headroom.
During the year, our net debt to EBITDA ratio increased to 2.5 (2010: 1.6) as a result of taking advantage of a higher level of acquisition opportunities in 2011 and higher working capital requirements. Interest cover for the year ended 31 December 2011 was 10.2 times.
See pages 35 to 37
| Our principal financial key performance indicators (KPIs) | ||
|---|---|---|
| Key performance indicator | Aim | Context | Progress in 2011 | See more |
|---|---|---|---|---|
| Earnings per share (EPS)1 |
Achieve long term, steady growth in EPS |
Long term growth in EPS is a fundamental driver to increasing shareholder value. Board Directors' incentive schemes have EPS targets to align their interests with those of our shareholders |
48.49p 2010: 44.98p |
Page 35 |
| Operating margin1 | Maintain and strengthen margin |
We constantly monitor operating margins and manage operating costs to keep the business efficient and cost effective |
14.59% 2010: 14.40% |
Page 35 |
| Free cash flow2 | Maintain a high level of operating and free cashflow |
We focus on securing timely payment terms and cash conversion underpinned by providing valued services and maintaining an efficient finance operation |
£157m 2010: £241m |
Page 35 |
| Capital expenditure | Contain capital expenditure (capex) at or below 4% of revenue |
This helps us to focus investment on the opportunities that generate greatest shareholder value and avoid tying up too much capital in long term projects |
3.5% 2010: 3.6% |
Page 36 |
| Return on capital employed (ROCE) |
Achieve healthy ROCE which exceeds our cost of capital |
Reflects the margin between the cost of our capital and the returns we generate by investing it |
17.2% 2010: 20.6% |
Page 36 |
| Gearing – interest cover |
Maintain a conservative and efficient capital structure, with an appropriate level of gearing |
It is important for our clients that we are a low risk, stable partner, particularly where we are delivering large scale operations on their behalf |
10.2x 2010: 12.4x |
Page 37 |
| Economic profit1 | Achieve steadily increasing Group economic profit. |
Group economic profit allows us to assess whether the return generated on the average capital base is sufficient to meet the base return requirements of our investors (debt and equity). |
£184m 2010: £187m |
Page 37 |
1 Excludes non-underlying items being: intangible amortisation and acquisition expenses and release of contingent consideration of £71.9m (2010: £47.8m), the non-cash impact of mark to market movement on financial instruments of £7.1m (2010: £6.6m), and £3.3m (2010: £nil) for increased counterparty credit risk. After these non-underlying items: reported operating profit is £355.5m (2010: £347.3m), reported profit before tax is £302.9m (2010: £309.8m) and reported earnings per share is 39.16p (2010: 38.44p).
2 Settlements consist of a £17.9m settlement for Arch cru and an additional pension contribution of £10.0m on the transfer back of the Cumbria County Council pension scheme.
Performance & KPIs
| Key performance indicator | Aim | Context | Progress in 2011 | See more |
|---|---|---|---|---|
| Shareholder value | Steadily grow ordinary dividends (annual growth of total dividends) |
Demonstrates the financial health of the business and commitment to creating shareholder value |
7% 2010: 19% |
Page 47 |
| Client resources | Continue to develop our infrastructure of business centres to meet the needs of our business |
Reflects the scale and breadth of our offering for clients |
68 business centres 2010: 64 business centres |
Page 29 |
| Create successful supplier relationships |
Annually audit all strategic suppliers against Capita's standards of business |
A proactive approach to procurement helps us secure best value goods and services, which can improve our performance and that of our clients |
100% 2010: 100% |
Page 54 |
| Employee resources – leadership |
Maintain high retention rate for managers (annual salaries exceeding £50k p.a.) |
We need to have the right leadership and skills to deliver the Group's long term growth strategy |
95% 2010: 84% |
Page 50 |
| Employee resources – skills & flexibility |
Maintain overall employee retention at or above industry average (2011: 87.5%, 2010: 86.5%)1 |
Our people are vital to our success in delivering high quality, efficient services to our clients |
89% 2010: 83% |
Page 50 |
| Controlling our environmental impacts |
Continue to measure and assess our carbon footprint2 |
Although we are a low impact organisation, our aim is to manage and reduce our environmental impacts and use our resources efficiently |
91,318 2010: 81,112 (tonnes CO2 eq) |
Page 55 |
| Supporting our communities |
Continue to measure and grow our community investment annually, using London Benchmarking Group methodology. |
Our business places us at the heart ofthe communities that we operate in and positive relationships are therefore vital to the long term health of the business. |
£2.0m 2010: £1.65m |
Page 56 |
We generate profitable growth by winning business from new and existing customers and through acquiring businesses that broaden our propositions, capability and market reach.
Major contract wins – In 2011, we secured 26 new and extended major contracts with a total value of £2.0bn (2010: 18 contracts totalling £0.8bn) representing a win rate of just below one in two.
In the first two months of 2012, we were selected as recommended supplier or signed new and extended major contracts estimated in aggregate to be worth approximately £620m, comprising recommended supplier to partner with the MOD 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 and three customer management contracts.
Bid pipeline – Despite an extremely active few months in terms of client decisions, our bid pipeline of major contract opportunities as at February 2012 was £4.6bn (July 2011: £4.7bn) comprising 35 bid situations across our target markets. Behind this is an active prospect list of opportunities.
Contract rebids – Over the next seven years to 31 December 2019, we only have two 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, and the Phoenix contract in 2019.
Acquisitions – Acquisitions play a key role in Capita's business model and we have secured some excellent opportunities in 2011 which add value to our proposition and make a valuable contribution to our growth. In 2011, we completed 21 acquisitions
for a total consideration of £341m. Our focus is now on achieving the successful integration of these businesses and realising synergies. We expect our acquisition activity to slow going forward in 2012 as organic growth regains momentum.
See page 24
Leading independent industry analysts, IDC, estimate that the total market for BPO in the UK in 2011 was £8.1bn (2010: £7.8bn) with Capita remaining the clear market leader, maintaining 23% market share (2010: 23%)3 . The overall market potential for BPO in the UK is estimated at £117bn3 a year demonstrating the substantial capacity for long term growth. 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%).
See pages 12 to 16
The strength of our offering is a result of our proactive development of the Group's capability and infrastructure, ensuring that we have the right resources in place to deliver tailored service solutions for our clients. We harness the extensive skills and resources that we have internally across the Group and work with partners, SMEs and third sector organisations to meet each client's specific needs.
In 2011, we established a new European business centre in Krakow, Poland, which extends our flexible service delivery network.
Against a backdrop of challenging market conditions during 2011, the effort made by our 46,500 employees has been outstanding. In the year, we further strengthened our management teams to prepare us for our next stage of growth and to ensure we have the strongest operational team in place to maintain our track record of quality service delivery to our clients.
The Board would like to take this opportunity to thank all our people for their continued hard work and dedication which underpins Capita's performance.
Capita Non-Executive Director Paddy Doyle has decided to retire from Capita and will be stepping down from the Board at the end of March 2012. Paddy joined Capita in 1992, was appointed to the Board as an Executive Director in 1994 and became a Non-Executive Director in 2010.
The Board has valued Paddy's insight and guidance and the significant contribution he has brought to Capita throughout his career. The Board and his Capita colleagues wish him the very best.
' We already have good visibility of stronger revenue growth in 2012 due to renewed organic growth from our major contract sales performance in 2011 and to date in 2012 and the contribution from 2011 acquisitions.
This visibility and the current buoyant sales environment, evidenced by the rapid replenishment of our bid pipeline, underpin our confidence in good growth prospects and performance for 2012 and beyond. Paul Pindar Chief Executive '
In the following pages we provide a detailed view of our business and how we performed against our aims and KPIs in 2011.
3
From an initial entry into local government outsourcing in 1984, we have created unparalleled scale and infrastructure which supports our added value propositions to clients in key growth markets across both the public and private sectors. As a result of our commitment to service excellence, we have created a long term sustainable business which delivers value to all our stakeholders.
To maintain existing relationships and win new clients across our target markets by actively developing our capability and scale, both internally and through complementary acquisitions, continuously enriching our service offering.
| • Our business model | page 11 |
|---|---|
| • Targeting growth markets | page 12 |
| • Creating growth organically and through acquisition |
page 17 page 24 |
| • Building capability and scale | page 27 |
| Generating and supporting growth: performance metrics: | |||
|---|---|---|---|
| 2011 | 2010 | ||
| BPO market share | 23% | 23% | |
| Major contracts over £10m | 26 contracts worth £2.0bn |
18 contracts worth £0.8bn |
|
| Major contract win rate | 1 in 2 to 1 in 3 | 1 in 2 to 1 in 3 | |
| Average contract length | 9 years | 9 years | |
| Acquisition spend | 21 companies worth £341m |
12 companies worth £301m |
Aim See pages 12 to 26
Generating & supporting growth
Capita primarily focuses on business process outsourcing opportunities and professional support services in the UK and Europe. Our turnover is currently derived 52:48 from the private and public sectors where there are significant opportunities for growth across our 10 target markets.
We lead and shape the BPO market in the UK by continually developing our outsourcing offering and by maintaining an excellent track record of service delivery with a strong set of satisfied clients. We respond to clients' specified requirements but always seek to share our expertise by recommending alternative service models that deliver even greater added value to their operations and enhance effectiveness and competitiveness.
Our clients are highly selective and seek an outsourcing partner that has the financial strength and stability to deliver large scale, complex activities over a long term partnership. Our experience, skill base and extensive operational and technical infrastructure position us strongly. We have a detailed knowledge of the markets in which we operate; and our management team is highly accessible and swift to respond to our clients' needs.
| Public sector | 28% | ||
|---|---|---|---|
| Private sector | 1 72% |
||
| 2 | |||
| Total potential UK BPO market p.a2 | |||
| 10 Potential |
£117bn | ||
| £8.1bn 1 Turnover by market currently outsourced 1 2010: £7.8bn 10 9 |
2 2 |
9 Public sector 48% 8 1. Central government 2. Local government 3. Education 4. Health 5. Emergency services 6. Transport |
3 % of Group revenue 4 2011 2010 9 9 5 7 6 18 20 11 15 5 4 3 – 2 2 |
| £117bn 8 potential market 5 7 6 Competitor rankings UK BPO market |
3 4 |
||
| Market share 20111 20102 |
|||
| 1. Capita 22.9% |
22.6% | ||
| 2. Accenture | 4.4% 4.4% |
||
| 3. Xerox | 3.7% 3.6% |
||
| 4. HP Enterprise Services | 2.9% 3.0% |
1IDC: 2011. 2IDC: 2010.
| Total UK BPO market p.a1 | Turnover by market | |||
|---|---|---|---|---|
| Today Turnover by market |
£8.1bn | Public sector 48% | ||
| Public sector 28% |
% of Group revenue | |||
| 1 | 2011 2010 | |||
| Private sector | 72% | 1. Central government | 9 | 9 |
| 2 | 2. Local government | 18 20 | ||
| Total potential UK BPO market p.a2 | 3. Education | 11 | 15 | |
| 4. Health | 5 | 4 | ||
| 10 Potential |
£117bn | 5. Emergency services | 3 | – |
| Private sector 52% | |||
|---|---|---|---|
| % of Group revenue | |||
| 2011 2010 | |||
| 7. Life and pensions | 19 | 18 | |
| 8. Insurance | 6 | 7 | |
| 9. Financial services | 5 | 5 | |
| Turnover by market 10. Other corporates |
22 20 |
Independent industry analyst, IDC, estimates that the total market for BPO in the UK was £8.1bn1 in 2011 against market potential of £117bn2 a year. The capacity for long term growth is therefore substantial as organisations become increasingly aware of the benefits that outsourcing can deliver, particularly in the current economic climate. We remain the clear leader in the overall UK BPO market with 23%1 market share (2010: 23%). Our nearest competitor is reported to have 4% market share1 .
There are significant drivers for outsourcing across all our chosen markets.
In 2011, we have established an office in Continental Europe, in Krakow, Poland, for both existing and new clients across life and pensions and the wider financial services market. We are actively pursuing opportunities in these areas and we are already seeing a good level of interest. We estimate that there are circa 500m life and pensions policies in force in Continental Europe with an addressable spend of £18bn per annum. Costs of administration are some two times higher than in the UK, demonstrating significant potential for us to replicate our business model and expertise in this market.
In the current economic climate, where organisations are facing difficult decisions about how best to allocate resources to protect their frontline activities and long term sustainability, outsourcing is seen as an essential part of a cost efficient operating model.
By moving from in-house service provision to a specialist third party provider, government and commercial entities can benefit from economies of scale and flexible delivery options that fit their service requirements, enabling them to focus on their core activities.
With our wealth of experience of transforming processes, people management and effective ICT, together with our flexible delivery network, we are well positioned in this marketplace.
organisations are facing continued pressure to maintain their competitive position by driving down operational costs and introducing new products to market faster, whilst maintaining high levels of customer service.
Organisations can clearly benefit from the higher productivity, enhanced operational capabilities and flexible capacity that an experienced outsourcing partner can provide. We saw sales activity pick up in 2011 following the delay in decisions experienced in 2009 and 2010 and we expect to see continued activity in 2012.
Several of our recent acquisitions bring with them high level relationships across a wide range of industries including retail, utilities and telecoms and we are actively looking to grow these relationships.
Public sector – The ongoing pressure to reduce budgets whilst maintaining frontline services is creating a steady pipeline of opportunities in the public sector, particularly across local government and increasingly in central government. The 2011 Open Public Services White Paper confirms the Government's commitment to reform and open service provision to a wide range of suppliers. They are also exploring a spectrum of engagement models, such as joint ventures, mutuals and other employee ownership and cooperative models.
We have a strong track record of developing bespoke service delivery models that meet the needs of our clients and the current and future expectations of the public.
' With our wealth of experience, capabilities and scale, we are well positioned to win business and deliver value to clients across our 10 growing markets.
Maggi Bell Business Development Director
'
Generating & supporting growth
' Capita provides a solution that matches the process of our frontline officers. With the growing and successful partnership, Nottinghamshire Police has a mobile data platform that realises substantial benefits for our frontline officers and enables cashable savings.
Richard Hitch IT Project Manager, Nottinghamshire Police
We are now able to offer the emergency services an end to end back office solution with real opportunities to drive down costs, improve services to citizens and accelerate their transformational journey. '
Craig Rodgerson CEO Capita Secure Information Solutions
UK emergency services are under pressure to turn government policy into real results for citizens, delivering effective and efficient services in the face of reduced funding.
Capita entered the market to support emergency services in December 2010 with the acquisition of SunGard Public Sector, a supplier of ICT, radio network services and communication systems. Since then we've consolidated our position with the acquisitions of Tribal – advisory services, Beat Systems – secure mobile data solutions, and Cedar HR – a leading provider of HR management software to UK police forces.
We now handle ICT, HR, payroll, pensions, duty management and estate management for organisations across the emergency services sector. We supply ICT products and services to 52 of the 53 UK police forces, and the only police specific ERP and duty management solution in the UK. Capita also supplies the leading secure mobile data system in use in the police service, the Home Office and other criminal justice organisations. We manage over 40% of the radio terminals used by the police and 100% of those used by UK ambulance trusts. We deliver integrated criminal justice solutions to more than 50% of UK police forces, and we are a leading supplier of fully integrated, collaborative digital interview recording and asset management solutions.
We manage over 40% of the radio terminals used by the police and 100% of those used by the UK ambulance trusts
£2.7bn is currently spent on back office police services in the UK, and with 20% budget cuts targeted by 2015, the pipeline of outsourcing opportunities looks set to increase
Capita delivers integrated criminal justice solutions to more than 50% of UK police forces
Generating & supporting growth
Transport 2% of Group revenue (2010: 2%)
We create growth by securing long term relationships with new and existing clients and through acquisitions which enhance our proposition, capability and market reach.
Our evolution across a number of markets has enabled us to develop a broad based services business which generates revenues from multiple clients across a wide range of differentsectors.
2011 was a record year for Capita in respect of new major contracts and renewals, with £2.0bn of contract wins secured during the year. This reflects the operational track record ofthe Group and the demand for outsourcing across our target markets and will support stronger revenue growth in 2012.
Our performance in 2011 was impacted by the more challenging economic environment, including a range of austerity measures implemented across Government. This adversely affected a number of our trading activities, including our property consultancy and parts of our IT and resourcing businesses, and also resulted in lower discretionary revenue being generated from existing clients.
The combination of long term major contracts, which makes up around 65% of revenue, and recurrent business ensures highly visible future revenues for the Group:
• High quality recurring revenues delivered from multiple, integrated administration and customer services contracts, currently average nine years in length
• Annual roll-over, high repeat rate or secured under medium to long term contracts of two to five years
• Additional services for existing clients and/or change control requests
Transactional activities <10% of revenue
• Short term projects/contracts forspecific work streams.
| % by value | |
|---|---|
| 1. Life and pensions | 35% |
| 2. Other corporates | 33% |
| 3. Central government | 19% |
| 4. Local government | 7% |
| 5. Financial services | 3% |
| 6. Health | 2% |
| 7. Emergency services | 1% |
| What we do | What we deliver |
|---|---|
| • Construct and deliver robust business | Improved |
| transformation programmes | customer service |
| • Re-engineer and improve processes | Reduced |
| • Introduce new ways of working | operating costs |
| • Increase service efficiency, | Enhanced |
| quality and effectiveness | revenues |
| • Harness the most appropriate technology | Improved quality |
| • Apply innovative solutions Commercial certainty |
Staff progression |
Generating & supporting growth
Administration of the Teachers' Pension Scheme (TPS), the second largest public sector pension scheme in England and Wales.
A new contract to provide a national Vehicle Excise Duty service that includes provision, at the DVLA's option, for a Continuous Insurance Enforcement service.
Appointed to support direct communications with employers for automatic enrolment of staff into workplace pension schemes, due to be phased in from October 2012.
Selected to deliver an extended life and pensions administration contract providing customer servicing, policy administration, claims activity and related IT support.
Extension of current contract and a new contract to support development of Zurich's European and international administration hubs.
resilience.
Other corporates TV Licensing
Local government
London Borough of Lambeth Value: £50m over 10 years Collaborative partnership to deliver a range of services including revenue collection, management of call centre operations, ICT support and benefits
Value: £560m over 8 years New contract to continue administering TV Licensing on behalf of the BBC.
Secured contracts with clients across our 10 markets including EDF Energy, The Children's Mutual and the London Boroughs of Lewisham and Bromley.
We constantly identify areas of opportunity across all our chosen markets and actively engage with potential clients to demonstrate the benefits and added value that outsourcing can offer, both to their organisations and their customers.
The procurement process, especially in the public sector, can be costly to pursue and we maintain stringent criteria to focus on opportunities where we see a real prospect of securing value to the client and Capita. If at any stage we feel that conditions have shifted significantly or that any of these criteria are no longer met, we will, after detailed consultation, withdraw from the process. We will not take on excessive risk or output based contracts which are reliant on external factors that are out of our control.
Given the long term nature of contracts, it is essential for us to pursue only those relationships that can both meet the clients' expectations and generate reasonable returns for Capita. This high level of selectivity, along with our bespoke client solutions, underpins our long term win rate of approximately one in three and most recently just below one in two.
' Over the past 18 months, we've increased our major sales team headcount to ensure we have the right resources in place to manage the higher level of opportunities coming through.
Maggi Bell Business Development Director
| Opportunity identified | Contract secured | Contract extension | Contract renewal/rebid |
|---|---|---|---|
| Typically 3-18 months | Average 9 year | Average 2-5 years | Average 9 year |
| • Creation of bid team | contract duration | (stipulated at original | contract duration |
| • Exploration of clients' long | • Transfer & transformation | contract award) | (full rebid required with |
| term objectives and their | • Delivering service improvement and cost savings • Continuous improvement |
• Further adaptation of service to meet new |
public sector contracts) |
| customers' needs | • In our 28 years of | ||
| • Solution developed in | requirements | operation we have only | |
| dialogue with the client, drawing on Group wide skills |
failed to renew three of our | ||
| material contracts1 | |||
In the private sector, the procurement process is determined by each individual client, often working with advisers. We seek out opportunities through business intelligence and existing relationships; increasingly, we are also approached directly by organisations.
UK public sector contracts are subject to a defined procurement process which can take up to two years to complete. EU policy requires 'fair and open competition' and opportunities are formally advertised and notified. In addition, under EU competition law, public sector outsourcing contracts that are already in place must be offered for tender when the initial contract and extension term is complete. However, Government and local authorities are exploring ways to speed up the procurement process as they strive to realise the benefits of outsourcing at a faster pace and we have seen progress on this in 2011.
We manage procurements either centrally or at business level, depending on the size and complexity of the opportunity.
Our major sales team pursues complex, long term contracts, usually valued in excess of £50m. It can draw on the resources of the whole Group to tailor solutions to each client's requirements. Each central bid team is comprised of a sales director, who is responsible for the client relationship, and a support team including: solution architects, financial modellers and bid support specialists. They are also able to draw from our wealth of businesses to ensure that they have the relevant specialist market and technical knowledge to support the process.
1 Material contracts: defined as generating more than 1% of previous year's revenue.
Generating & supporting growth
' Back in 2005, we were looking for a partner that could bring operational and scalable efficiencies organisation that was a good cultural fit.
The key to the success of the partnership is good relationships at all levels, not just amongst managers. We're very open and honest way. These strong relationships have been 2005 and bring with them a wealth of
'
In December 2005, Capita entered into a partnership with Zurich Financial Services Group to deliver customer service, policy administration, new business and claims activities for their 2.1m UK open-book life and pensions policies.
Volupta nonecto tatem. Et accat In May 2005, 11.6% of all calls were abandoned and overall competency was at just 87%. Within one month we'd reduced call abandonment to 2.3% and raised overall competency to 99%, a level we've maintained ever since, and Zurich has continued to win coveted five star service ratings from distributors year-on-year. In 2007, our UK operations for Zurich in Swindon and Cheltenham were officially recognised with Investors in People accreditation. Areas of particular commendation included our values, our performance management system and our culture of valuing individuals.
maionse ligenis et officaepe cu rum conseniani ut ad quatas numquas cusam que as aut rat sam que as aut rat quibus r rum aut voloreptae dolorum nit evendi conseniani ut ad The partnership has continued to go from strength-to-strength, so much so that in July 2011, not only did Zurich extend the UK contract, they also appointed us to support the growth of their European and international business by providing customer service and administration for cross-border products in Europe, the Middle East and Asia, and their domestic business in Ireland.
In July 2011, Zurich extended the UK contract, and also appointed Capita to support the growth of their European and international business
dolestibus apis expellaborum aut voloreptae dolorum nit evendi conseniani ut ad quatas numquas mo Within one month we reduced call abandonment to 2.3% and raised overall competency to 99%
Over the past 18 months, we have increased our major sales team headcount to ensure that we have the right resources and skills in place to manage the higher level of opportunities coming through. In 2011, we also appointed a European business development director, who feeds into the central UK sales team, and senior country managers for Scotland and Ireland to further develop our presence in these countries.
Contracts below a £50m threshold, usually focused on a single or a smaller bundle of services, are managed by the relevant business unit. Where the contract is worth between £10m to £50m, the major sales team may provide extra support.
The key to winning new business is to really engage with our clients and listen to and understand their challenges and the expectations of their customers. Our sales teams are dedicated to creating solutions which meet the needs of organisations today and into the future and we have the capability and infrastructure to deliverthe solutions to high service quality levels.
Our bid pipeline at the end of February 2012 was £4.6bn, comprising 35 bids across our target markets with the highest value being in central government, followed by defence, local government and life and pensions.
We report on the status of our pipeline twice a year, in February and July, providing a snapshot in time. The bid pipeline represents bids which are at an advanced stage to provide a fair indication of the health of the market and is subject to the following criteria:
• contains contracts of £10m or above
Setting our bid success rate against our bid pipeline provides a useful indicator of likely future sales growth. Our long term win rate is one in three, however, in 2011 we achieved a win rate of just below one in two. Behind our bid pipeline is an active prospect list of opportunities where the bidding process is underway but we have yet to reach a shortlist or final bidding stage. Our prospect list is also at a record level. This prospect list is in turn supported by a list of suspects – relationships which we are nurturing to generate future bid opportunities.
1 Bid pipeline as at February 2012: Shortlisted to 4 bidders.
Generating & supporting growth
Our major contracts are long term commitments. It is therefore essential to get our pricing and contract terms correct from the start, to deliver value to both the Group and our clients and to ensure that we maintain a mutually beneficial, long term relationship which is based on trust. We undertake extensive due diligence to build detailed service, risk and pricing models. We often share these openly with our prospective clients to ensure that all our assumptions for delivering successfully on the project are robust and that the benefits generated to both parties are fully understood.
Our contract price is generally made up of a base cost that covers the transformation and normal running costs of the service. Where demand on the service infrastructure and resources fluctuates, the pricing will include a variable volume-related element. All contracts include a related basket of indices that reflect the cost elements of the service (such as wage inflation indices, CPI and RPI). Our scale, multi country service delivery model and low central overhead costs help to provide additional competitive advantage and enable us to generate reasonable margins for the Group.
Our track record in accurately pricing contracts enables us to offer clients sensible and realistic proposals while robustly managing and mitigating risk. Once agreed, the terms of our contracts are fixed. This means we have a good view of stable, long term revenues.
As well as securing new business from new clients, we work to renew or expand existing client relationships. By achieving operational excellence, we often secure additional business from clients and we achieve high retention rates as contracts come up for renewal. Over the last 28 years, we have only failed to renew three of our material contracts (defined as generating more than 1% of the previous year's revenue).
We maintain open and honest discussions with our clients, which allow us to develop a detailed understanding of their business and challenges. This ensures that we can secure opportunities to expand the relationship where this is mutually beneficial. We agree detailed service standards and key performance indicators to measure progress and improvements.
In line with the nature and the size of the contract, we create appropriate governance and client engagement structures to ensure that we are delivering to expectations.
On our largest contracts, strategic partnership boards help both parties understand each other's requirements better and ensure that the partnership develops to support any changing needs. As a result, clients find that outsourcing gives them more control over support operations, not less.
Initial research showed that there was a significant opportunity for channel shift, with a key focus on equipping members with intuitive tools and resources to enable them to self-serve. We are developing a new website that will provide the main platform for encouraging improved understanding, self-service and
To advise both members and employers, we launched the Employer Relationship Management Service, a team of regionally focused pension experts who provide training and support both face-to-face and online. Additionally, in response to the current focus on public sector pensions, we have developed a pensions calculator which allows members to estimate what pension benefits they may receive under any new scheme arrangements.
Capita has offered a solution which will see the effective delivery of services to both members and employers, with continuous improvement and innovation throughout the life of the contract to reflect the challenges associated with the pension environment. The Department will work with Capita to build on their achievements to date in delivering the requirements of the new contract. '
Department for Education
Acquisitions that enhance our capabilities and take us into new and complementary areas have always played a key part in Capita's growth. Alongside our organic growth, we acquire small to medium sized companies with capabilities that enhance our propositions to clients and can support further organic growth. We have also consistently used acquisitions to take us into new market segments.
Capita took its first significant step into the private sector in 2000 with the acquisition of share registration business, IRG Plc. We then expanded this business through organic growth and further acquisitions creating the platform for our growth into the private sector and particularly the wider financial services market. Our private sector annual revenues now contribute 52% of the Group's total revenue and we have leading market positions established across a number of areas, including life and pensions, insurance and financial services. In the public sector, acquisitions have also played a key role in helping us to enter and grow in areas such as education, health and, most recently, the emergency services.
We have had a particularly active year in 2011 with £341m invested in 21 acquisitions. Through acquisitions we have enhanced our pensions, corporate mortgage and trust administration operations and extended our capabilities in customer management, IT, health and the emergency services market.
In the emergency services market we have acquired a number of niche businesses which bring specialist market knowledge, products and services and relationships with 52 of the 53 police authorities across the UK. These acquisitions, together with existing Group capabilities and infrastructure, now position us well to bid for major outsourcing contracts in the police and wider emergency services market.
Market conditions in the year enabled us to acquire the non-core activities of a number of private sector organisations at attractive prices. For example, our successful acquisition of both Ventura and Vertex Private Sector expands our private sector client base significantly and will enable us to offer wider service propositions to this client base beyond the existing customer management offering.
See case study on page 26
| % by value | |
|---|---|
| 1. Customer management & technology |
35% |
| 2. Financial services | 14% |
| 3. Health | 12% |
| 4. Document management | 9% |
| 5. Pensions administration | 8% |
| 6. IT & software services | 8% |
| 7. Emergency services | 7% |
| 8. Consultancy | 5% |
| 9. Translation services | 2% |
Our focus is now on achieving the successful integration of all our 2011 acquisitions realising synergies. We expect our acquisition activity to slow to our previous historic levels going forward in 2012 as organic growth across the Group picks up.
We continuously look to acquire small to medium sized businesses that will help us to:
• grow organically
Potential acquisitions are identified and brought to the Group by external consultants, people in our businesses, or through a direct approach and all deals are assessed, priced and agreed by the Group Board. Stringent due diligence, before and after acquisition, is undertaken at both Group and business level enabling us to achieve clear targets for growth, integration benefits and profit.
To stimulate growth and ensure that we can negotiate sensible purchase prices and terms we generally seek target acquisitions that:
We have substantial experience of successfully integrating acquired businesses and contracts into the Group and achieving synergies with our existing operations. Our values and key processes are communicated and implemented right from the start of the integration process. A dedicated project team manages the transition – bringing financial procedures, information and communications technology (ICT), HR, legal, compliance and marketing quickly into line with our standards. Acquiring only small to medium sized businesses enables us to integrate them into our existing business infrastructure efficiently and allows us to generate value faster.
| Enhancing our capabilities | Acquisition | Price £m2 |
|---|---|---|
| Customer management | Ventura | 65.0 |
| & technology | Vertex Private Sector | 40.0 |
| Call Centre Technology | 15.0 | |
| Translation services | Applied Language Solutions | 7.5 (+60) |
| Salmat Speech Solutions (UK operations) |
0.1 | |
| Emergency services | Beat Systems | 8.0 (+4) |
| Cedar HR Software | 15.0 | |
| IT & software services | Talis Information | 18.5 (+3) |
| Technophobia | 6.3 | |
| Document management | Right Document Solutions | 30.0 (+10) |
| Health | Insurance Medical Group (IMG) | 9.7 |
| Team24 (recruitment) | 24.0 (+2) | |
| Tribal health division | ||
| Consultancy | Tribal government division | 16.5 |
| Red Procurement and Business Systems | 1.0 (+1) | |
| Xayce (financial services) | 2.4 | |
| MSS Health & Safety (property) | 3.9 | |
| ESA (property) | 2.0 (+1) | |
| Financial services | Barclays Capital Mortgage Servicing | 7.0 |
| AIB International Financial Services + AIB Jersey Trust |
29.0 +12.5 | |
| Pensions administration | NorthgateArinso | 27.5 |
1 Before contingent consideration.
Value in brackets represents maximum contingent performance based consideration.
Generating & supporting growth
Growing our customer management capability
We are trusted to handle over 60m customer contacts each year for more than 35 clients
Over 9,400 employees transferred into Capita across the two acquisitions, making it the largest employee transfer in Capita's history.
In 2011, Capita acquired contact centre and customer management experts Ventura and Vertex Private Sector. Since then we have merged the two organisations with our existing capabilities to create a new customer management business. Now the UK's leading provider of customer management services, we are trusted to handle over 60m customer contacts each year for more than 35 clients, including O2, Google, The National Trust, BT, British Gas and the Department for Work and Pensions.
Many of our clients adopt a multi-channel approach for both sales and customer engagement, so it is essential that we have the depth of functions necessary to meet all of these requirements. These acquisitions enhance our customer management and front office outsourcing capabilities, increasing our reach and significantly strengthening our proposition to the private sector. By outsourcing their customer management, we can help clients to increase sales, improve customer satisfaction, reduce costs without compromising quality, consolidate existing contact centres or rapidly set up new ones, improve efficiency at existing sites, and increase flexibility.
The transfer went very smoothly and we really felt welcomed by our new Capita colleagues. I have 10 clients across multiple sectors and we are looking forward to maximising the opportunities that being part of Capita brings.
The back office support that we now enjoy means that we can offer clients a completely joined up service, and the customer service expertise that we bring to the table means that the newly formed customer management operation is capable of handling new contracts of almost any size and complexity.
Karen Moorby Head of Operations '
The strength of our offering is a result of our proactive development of the Group's capability and infrastructure ensuring that we have the right resources in place to deliver quality services for our clients.
We achieve this by continuously investing in and developing our services and products, our infrastructure and our people and by acquiring small to medium sized companies which add value to our propositions. We harness the extensive skills and resources that we have internally across the Group and work with partners, SMEs and third sector organisations to meet each client's need.
We continuously assess the needs of each part of the Group to ensure that we have the necessary people, infrastructure and resources in place to maintain consistent service delivery and to plan for future business development. Each month we review comprehensive operational management information which helps us to allocate resources in a way that meets the needs of our clients and delivers our key financial targets.
Our people are critical to our success. We need to have the right skills in place so that we can continue to deliver high quality services for our clients and plan for long term growth. Attracting, developing and retaining a highly skilled workforce helps to drive our business performance. By nurturing our employees' talents, while recognising their differences, we can meet, and often exceed, the needs of our clients and their customers. We encourage our people to develop their skills and we ensure that they have access to the right expertise and training to do their jobs effectively, underpinning the Group's long term success.
We track employee retention as one of our key performance indicators and continue to maintain levels in line with the industry. Our retention rate for managers across the Group was 95% (2010: 84%). Our overall employee retention rate was 89% (2010: 83%).
Succession planning is a key element of our strategy, ensuring that we have the appropriate resources in place to maintain stable leadership. In order to retain the best people we give them the opportunity to grow and develop and actively reassign managers to new business areas. This also serves to promote the Capita ethos and allows us to share innovation and skills between contracts and businesses, helping us to stay at the forefront of the BPO market.
See page 50
Successfully managing large-scale employee transfers is one of our strengths. This is an extremely complex and sensitive process and our experienced HR integration team consult with the client and potential transferees throughout the whole project, providing support and information to ensure that we meet our objectives. Staff typically transfer under TUPE (Transfer of Undertakings, Protection of Employment regulations) and, approaching 70% of our workforce have transferred in this way.
We work closely with clients to transform their business performance primarily through effective people management, process re-engineering and appropriate ICT platforms. We apply the experience that we have gained through numerous large scale transformations in order to drive through efficiencies and optimise revenue for the organisation.
Generating & supporting growth
By creating mutually beneficial relationships with our suppliers, we can use our purchasing power to secure best value goods and services, which can directly improve our business performance and that of our clients. To support this, during the year we acquired a procurement business, Red Procurement and Business Systems, which provides expert procurement consultancy services to the public and private sectors. The team are responsible for optimising Capita's procurement process and we are also using this expertise to help our clients procure in a smarter way, bringing additional value to our BPO proposition.
£1m
in May 2011
Red Procurement and Business Systems was acquired for £1m
See page 54
Our range of capabilities and flexible infrastructure means that we can support organisations in a way that works best for them, whether it's a single service in a specific market area or a full strategic partnership combining multiple objectives and services.
This allows us to deliver the appropriate outcome for each client, meeting their individual objectives, budget and timeframe.
Our substantial scale and broad capability enable us to put forward compelling, cost effective propositions for clients and are integral to us winning major service transformation projects. The successful integration and delivery of progressively larger contracts, with common processes and substantial numbers of transferring employees, fuels the growth of our operations and resources.
Wherever possible, we migrate and integrate systems, share resources and rationalise premises to optimise our infrastructure while maintaining and enhancing services. As we increase scale, we are able to deliver more services and contracts through shared ICT platforms and operating structures, allowing us to deliver significant cost savings for clients. We also use our scale to procure services cost effectively and share these cost benefits with our clients.
Within our IT Services & Consulting division we provide a full a range of IT services from off the shelf solutions to full service, on-premise solutions. We support businesses and contracts internally and sell to external clients. We have the capability to work with and enhance a client's existing technical platforms or we can create entirely new, bespoke systems depending on the desired outcomes.
Integral to our offering is our highly efficient internal operating and financial structure which ensures that we contain our central overhead, helping us to remain competitive on price whilst providing real added value for clients.
Did you know... Capita was formed in 1984 with two employees and has grown to a workforce of 46,500 today
Our business centres, where we are able to run a broad range of shared services, form a central part of our service delivery infrastructure. We are further developing our nearshore and offshore capability to meet the increasing demand for flexible delivery models from clients, particularly in the private sector. We have 68 centres onshore in the UK, the Channel Islands and Europe and offshore in India and Dubai. Our comprehensive security and quality assurance systems ensure consistent service quality across the entire infrastructure.
Onshore: We now have 55 multi service centres in the UK serving clients across all our markets. We increased our capability in 2011 through the acquisitions of Ventura and Vertex Private Sector, which we are in the process of integrating into one unified customer management business offering.
See case study on page 26
Nearshore: In 2011, we established a new European business centre in Krakow, Poland. The centre is now operational and will be servicing a number of Capita's existing clients and new clients in English and the core European languages. This development adds another option to our flexible network and means that clients have even more choice of how and where they want their service to be delivered. The centre in Krakow is located close to the city centre and the university and can therefore access a skilled, multi-lingual workforce. We have a 550 seat capacity and expect to expand as client demand grows.
Offshore: Our offshore operations in India, which we established in 2004, are an integral part of our flexible delivery model. They deliver a range of services, from simple transaction processing through to more complex knowledge based back office functions and English language based services. Following the acquisitions of Ventura and Vertex Private Sector in 2011, we now have a total of six sites in India, located in Mumbai, Pune and Bangalore.
Capita India operates like any other Capita business with the same values, technical infrastructure and operating model. The sites share a combined management team to ensure they all benefit from their collective skills.
We proactively recruit from the highly skilled graduate workforce that is available in these locations. Their skills, knowledge and excellent work ethic help us meet our objectives of delivering a first class service to our clients.
As part of our new contract with Zurich Financial Services Group, we now have a business centre in Dubai which currently primarily supports life and pensions administration.
| Our business centre network | ||
|---|---|---|
| Onshore: UK 55 |
Nearshore: Continental 6 Europe, Ireland, Channel Islands Isle of Man |
Offshore: India 7 Dubai |
| What we do | What we do | What we do |
| Core client marketplace | Additional tax jurisdictions to support clients' products |
Quality, cost effective offshore service delivery |
| What we provide | What we provide | What we provide |
| Back office administration | Customer services | Data validation and entry |
| Customer services | Life and pensions | Claims and policy |
| Life and pensions | administration | administration |
| IT and software | Financial services | Fund management |
| Resourcing and training | Corporate registrars | administration |
| Share registration | Loan administration | Accounting and finance |
| Property consultancy | Fund administration | processing |
| Electronic document | Payroll processing and HR | |
| processing | services | |
| Claims and policy | Property consultancy | |
| administration | IT services | |
| HR administration | Consultancy and knowledge services |
By offering clients onshore, nearshore, offshore or blended delivery options, over a time frame that suits their organisational objectives, we can offer maximum service flexibility, quality and cost savings. For some clients, a long term defined contract and cost profile is important to support their long term strategy. Other clients, who face faster decision making cycles and business seasonality, require a greater degree of flexibility, for example, organisations in the retail and utilities sectors. We can adapt to meet their specific requirements and through this, we generate a healthy mix of revenue streams across a wide spectrum of markets and industries. The majority of our revenue is generated from medium to long term contracts which average 3 – 15 years.
We have an extensive track record of creating collaborative partnerships and working together with small businesses, local organisations and charities to deliver the right outcomes for our clients and the communities they serve. We are, therefore, well positioned to help create and participate in new models of delivering public services. We leverage our expertise, capability and infrastructure to support government at both a central and local level, and the private sector.
Our growth is underpinned by strong leadership and disciplined business practices which are essential to creating a stable organisation with the ability to deliver sustained growth and healthy investor returns. Our robust management structure and financial reporting process promote accountability and knowledge sharing across the Group. Thisis underpinned by a straightforward and pragmatic operating structure which supports optimum service delivery for all our clients and provides ready access to the Group's wider expertise and scale.
To continue to manage the Group in a financially disciplined manner, maximising the scale and expertise that enables us to deliver innovative solutions for our clients and, as a result, create long term value for all our stakeholder groups.
| • Maintaining strong leadership and controls | page 32 |
|---|---|
| • Focusing on clear financial key performance indicators | page 35 |
| • Managing consistently across our divisions | page 38 |
| Our principal financial KPIs | ||
|---|---|---|
| 2011 | 2010 | |
| Earnings per share1 Achieve long term steady growth in EPS |
48.49p | 44.98p |
| Operating margin1 Maintain and strengthen margin |
14.59% | 14.40% |
| Free cash flow2 Maintain a high level of operating and free cash flow |
£157m | £241m |
| Return on capital employed (ROCE) Achieve a healthy ROCE which exceeds our cost of capital |
17.2% (7.5%)3 |
20.6% (7.7%)3 |
| Economic profit1 Achieve steadily increasing economic profit |
£184m | £187m |
| Gearing – interest cover Maintain a conservative and efficient capital structure, with an appropriate level of gearing |
10.2x | 12.4x |
| Capital expenditure Keep at or below 4% of revenue |
3.5% | 3.6% |
1 Excludes non-underlying items being: intangible amortisation and acquisition expenses and release of contingent consideration of £71.9m (2010: £47.8m), the non-cash impact of mark to market movement on After these non-underlying items: reported operating profit is £355.5m (2010: £347.3m), reported profit before tax is £302.9m (2010: £309.8m) and reported earnings per share is 39.16p (2010: 38.44p).
2 Settlements consist of a £17.9m settlement for Arch cru and an additional pension contribution of £10.0m on
Weighted average cost of capital (WACC).
Controlling & measuring growth
Our management structure, business reporting and risk management processes ensure that management are informed and responsive to performance and trends in the business and the wider marketplace and can make informed strategic and tactical decisions.
Our Group Board is responsible for establishing, maintaining and reviewing the Group's strategy, risk appetite, financial performance and systems of internal control.
The Joint Chief Operating Officers and the Divisional Directors are responsible to the Group Board for business development and operational performance. They communicate and monitor the application of Group-wide business objectives, policies, procedures and standards. They work with, and delegate responsibility to, their management teams.
Each of our business units prepares a comprehensive annual business plan. This includes monthly revenue and cost forecasts for the year ahead, taking into account new service and product developments and changes in the competitive landscape. The business units' financial plans feed into the Group financial model.
The MOB review process encapsulates the performance of each business unit in each division and tracks performance against business plans. The process enables the management of each division to present details of performance across all their business units to the Group's Executive Board Directors. This monthly review process consists of three tiers of meetings:
Managed risk-taking is an important ingredient in our growth and success. We are, therefore, focused on comprehensively assessing risks and understanding which risks can be controlled and mitigated and which are outside of our control. Where we believe there is a sensible balance of reward against any potential risk, then we will proceed with specific business developments including new contracts and acquisitions.
Systems and procedures are in place across the Group to identify, assess and mitigate major business risks that could impact the delivery of our growth strategy. Monitoring our exposure to risk is an integral part ofthe MOB process.
The MOB process is supplemented across many of our businesses, including all the regulated financial services businesses, by formally constituted risk committees. A 'Black Hat' process is additionally in place to discuss and seek Group Board approval regarding acquisitions and major bids.
At Group level, risk management is independently facilitated and challenged by the Group Risk and Business Assurance function. In respect of financial services regulated businesses, there is also a Group Compliance function. Both of these control functions report to the Group Finance Director and independently to the Audit Committee. In addition, for regulated financial services, there is a Financial Services Governance Forum which assists with the Board's oversight of risk in this sector.
Controlling & measuring growth
Principal risk categories, potential impacts and examples of mitigations
| Key risk categories Potential impacts |
Mitigating activities include | |||
|---|---|---|---|---|
| Financial | – Adverse effect on financial performance and brand reputation. | – Financial performance of each business unit is monitored monthly – Capital expenditure is subject to rigorous monitoring and budgetary controls. |
||
| Delegates and counterparty failure |
– Reputation risk and financial loss e.g. disruption to supply chain; service interruption. |
– Rigorous risk-based due diligence processes for the selection of key delegates and wider counterparties monitoring. |
||
| Operational risks | – Failure to meet contractual Service Level Agreements – Financial penalties – Potential loss of contracts – Brand reputation impacted. |
– Risk committees and Group Board escalation of risks/issues – MOB process escalation – Operating performance indicators in place – Business resilience arrangements in place – Risk-based independent assurance – Centralised proactive and reactive PR team provides full issues management communications support. |
||
| Acquisitions and organic growth |
– Planned synergies not achieved – Adverse impact on financial growth and performance – Financial penalties. |
– Rigorous risk-based due diligence – Black Hat process: – Fit with strategy and pricing is subject to review and approval by the Group Board – Appropriate contractual terms to ensure fair risk/reward profile – Robust integration and transition process. |
||
| Regulatory and economic landscape |
– Weaker economic conditions are a key driver for outsourcing, however, extreme economic uncertainty can result in a delay in buying decisions and lower discretionary spend across some market segments – Changes to regulation in different jurisdictions could potentially impact businesses located there. |
– Focus on 10 diverse public and private sector markets – Focus on widening scope of existing contracts to help clients save money – Supply of services that support essential client functions rather than discretionary activities – Initiatives to increase the efficiency of Group operations – Increased compliance and risk monitoring of potential changes across all jurisdictions we are active in. |
||
| Attract and retain staff | – Lack of appropriate resources may lead to inability to develop and execute business plans – Poor staff morale – Competitive disadvantage. |
– Training and development – Continual development through objective setting and appraisals – Competitive incentive and bonus plans – Succession planning – Comprehensive vetting process in line with roles. |
||
| Loss of sensitive or confidential data or failure to protect consumers' funds |
– Contractual and regulatory penalties – Adverse media comment and reputation impact on brand. |
– Appropriate policies and procedures – Robust information security framework, including policies and processes – Escalation to risk committees and subsidiary boards – Training and monitoring programme across businesses – Swift adoption of Group policies and protocols by newly acquired businesses – Sharing of best practice and issues through cross-Group forums – Regular monitoring through risk-based audits and follow-up of actions – Centralised proactive and reactive PR team. |
||
| Fraud, bribery and corruption |
– Potential for civil and criminal penalties for business and/or Senior Officers – Potential prohibition from bidding for public sector contracts in EU – Media comment and reputation impact. |
– Appropriate policies and procedures in place including a 'speak up' policy – Anti corruption culture and a zero tolerance approach with a robust disciplinary process – Risk assessments of vulnerabilities – Monitoring and audit – Centralised proactive and reactive PR team. |
||
| Financial services regulation |
– Non-compliance with the requirements of the FSA and other financial services regulators, including procedures to protect clients' assets – Regulatory, financial and contractual penalties – Adverse impact on reputation. |
– Appropriate policies and procedures – Monitoring by Risk, Business Assurance and Regulatory Compliance teams – Escalation of risks to risk committees and subsidiary boards – Risk-based assurance and actions for improvement – Independent reporting to Group Audit Committee and Group Financial Services Governance Forum. |
||
| Health and safety | – Non-compliance with health and safety regulations – Adverse impact on wellbeing of our employees. |
– Rigorously applied health and safety policy and processes – Health and safety training – Comprehensive Group wide health and safety audits undertaken twice a year. |
||
| Environmental | – As a low impact company our key environmental impacts are energy use, business travel, resource use and waste management which we manage proactively. |
– Raising awareness of environmental issues and Group sustainability initiatives – Continue to measure and manage our carbon footprint and achieve energy reductions – Environmental management system in place – Environmental site audits carried out twice a year – Reduction of paper use and increase in recycling. |
Capita is a financially focused business. We monitor performance against our clear financial aims and KPIs, with strong financial controls and effective governance.
Alongside profitability, we focus particularly on KPIs in seven areas and these remain our priorities for 2012.
Long term growth in EPS is a fundamental driver to increasing shareholder value. Basic EPS is calculated by dividing net profit for the year attributable to ordinary equity holders by the weighted number of ordinary shares outstanding during the year. Board Directors' long term incentive schemes have EPS targets to align their interests with those of our shareholders.
Progress: In 2011, underlying earnings per share1 grew by 8% to 48.49p (2010: 44.98p). See note 11 on page 103.
Progress: We constantly monitor operating margin and manage operating costs to ensure that the business is running efficiently and cost effectively. In 2011, the Group's underlying operating margin1 was 14.59% (2010: 14.40%). In 2011, operating profit was impacted by a number of notable items including: unusually high restructuring costs (including redundancies) and the settlement of certain historic captive insurance claims. This adverse impact was offset by a past pension service credit of £23.9m which includes the change to indexation benefits from RPI to CPI. See note 32 on page 122.
Our ability to maintain margins at this level is a result of our scale, in particular our extensive shared service infrastructure, flexible delivery models and effective procurement and the added value of the services we deliver to clients.
Progress: In 2011, £364m (2010: £442m) was generated by operations representing an operating profit to cash conversion rate (defined as cash generated from operations before settlements divided by underlying operating profit1 for the year) of 85% (2010: 112%).
As previously highlighted, operating cash flow before settlements3 has been impacted by the conclusion of the National Strategies programme and additional working capital requirements for new and expanded contracts, in particular our Building Schools for the Future projects, Service Birmingham and certain life and pensions contracts.
Due to the recent more challenging economic conditions, the beneficial payment terms that we have historically secured from certain clients are more difficult to obtain and this inevitably impacts our working capital profile as these payment terms revert to industry norms. However, we expect that our operating cash to operating profit conversion rate will improve in 2012 and again in 2013.
2 Exceptional additional pension contribution £10m (2008), £40m (2009).
3 Before one off settlements of £17.9m for Arch cru and £10.0m pension contribution for transfer back of the Cumbria County Council pension scheme.
1 Excludes non-underlying items being: intangible amortisation and acquisition expenses and release of contingent consideration of £71.9m (2010: £47.8m), the non-cash impact of mark to market movement on financial instruments of £7.1m (2010: £6.6m), and £3.3m (2010: £nil) for increased counterparty credit risk. After these non-underlying items: reported operating profit is £355.5m (2010: £347.3m), reported profit before tax is £302.9m (2010: £309.8m) and reported earnings per share is 39.16p (2010: 38.44p).
Controlling & measuring growth
Free cash flow: defined as operating cash flow before settlements1 , less capital expenditure, interest and taxation for the year was £157m (2010: £241m). This decrease was due to the movement in working capital noted in the previous section.
1 Before one off settlements of £17.9m for Arch cru and £10.0m pension contribution for transfer back of the Cumbria County Council pension scheme.
2 Exceptional additional pension contribution £10m (2008), £40m (2009).
This helps us to focus investment on the opportunities that generate greatest shareholder value and avoid tying up too much capital in long term projects.
Progress: In 2011, we met this objective, with net capex at 3.5% of annual revenue (2010: 3.6%). We believe capex at or below 4% is sustainable for the foreseeable future. There are currently no indications of significant capex requirements in our business forecasts or bid pipeline, however, we would not rule out the possibility of exceeding 4% if we saw an exceptional opportunity to use our financial strength as a competitive advantage.
2006 2007 2008 2009 2010 2011
This reflects the margin between the cost of our capital and the returns we generate by investing it and ensures that we add shareholder value over the long term.
In the chart opposite the post-tax WACC indicates the return that could be expected from the capital invested in the business. It is calculated by weighting the cost of our debt and equity financing in line with the amounts of debt and equity that we use to finance our activities. We have calculated our post-tax WACC assuming a risk-free rate of 2.31%, an equity risk premium of 9.6% and a Beta of 0.65.
Progress: During 2011, our post-tax return on average capital employed was 17.2% (2010: 20.6%). This compares to our estimated post-tax WACC which is 7.5%. We expect returns to improve as recent acquisitions deliver their full profitability and organic growth returns.
3 Excludes items which the Group treats as non-underlying, see notes 4 and 9 on pages 96 and 101.
It is important for our clients that we are a low risk, stable partner, particularly where we are delivering large scale operations on their behalf. During 2011, we issued £340m of private placement notes with maturities between seven and 10 years. Following these issuances, we have £1,176m of private placement debt of which £123m matures between now and August 2015 with the remainder gradually maturing until 2021. In February 2012, we raised a further £285m of bank debt under a two year term loan facility to further increase liquidity headroom.
Our aim continues to be to keep the ratio of net debt to EBITDA at or below 2.5 over the long term and we would be unlikely to incur borrowings which would reduce interest cover below seven times.
Progress: During the year, our net debt to EBITDA ratio increased to 2.5 (2010: 1.6) as a result of taking advantage of a higher level of acquisition opportunities in 2011 and higher working capital requirements. Interest cover for the year ended 31 December 2011 was 10.2 times.
| 2011 | 2010 |
|---|---|
| 1,176 | 834 |
| (71) | 60 |
| 2 | 2 |
| 176 | – |
| 3 | 2 |
| 1,286 | 898 |
| 10.2x | 12.4x |
| 2.52 | 1.62 |
1 Underlying net debt after impact of currency and interest swaps.
Adjusted for December acquisitions.
| £m | |
|---|---|
| 2012 | 25 |
| 2013 | 87 |
| 2014 | 11 |
| 2015 | 98 |
| 2016 | 141 |
| 2017 | 124 |
| 2018 | 153 |
| 2019 | 101 |
| 2020 | 219 |
| 2021 | 217 |
| Total | 1,176 |
An effective way of measuring this is to assess whether our after tax returns are sufficient to cover the returns required from all our capital providers (weighted average cost of capital – WACC). Economic profit allows us to assess whether the return generated on the average capital base is sufficient to meet the base return requirements of our investors (debt and equity). Positive economic profit, therefore, means that we have created value above this base level.
Progress: In 2011, we achieved positive economic profit of £184m (2010: £187m).
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |
|---|---|---|---|---|---|---|
| Underlying operating profit1 (£m) |
225 | 271 | 321 | 358 | 395 | 427 |
| Average capital (£m) | 880 | 998 | 1,155 | 1,271 | 1,451 | 1,901 |
| Tax (%) | 27.7 | 27.7 | 27.0 | 26.8 | 24.5 | 23.5 |
| Post-tax WACC (est %) | 8.4 | 8.6 | 8.2 | 7.9 | 7.7 | 7.5 |
| Capital charge (£m) | (74) | (86) | (95) | (100) | (112) | (143) |
| Tax (£m) | (62) | (75) | (87) | (96) | (96) | (100) |
| Economic profit (£m) | 89 | 110 | 139 | 162 | 187 | 184 |
1 Excludes non-underlying items being: intangible amortisation and acquisition expenses and release of contingent consideration of £71.9m (2010 £47.8m), the non-cash impact of mark to market movement on financial instruments of £7.1m (2010 £6.6m), and £3.3m (2010 £nil) for increased counterparty credit risk.
Controlling & measuring growth
We have a straightforward and pragmatic structure that supports optimum service delivery for our large BPO contracts, as well as our individual businesses and their respective client bases. It provides ready access to the Group's wider expertise, economies of scale and centralised procurement and enables us to create and deploy innovation, and harness the best of ICT and business processes.
We continuously assess the needs of each area and move businesses, contracts and managers across the divisions to ensure that we have the necessary leadership, resources and infrastructure for current and future development.
With an objective of achieving continuous growth and strong performance, each business undertakes appropriate strategies to achieve or maintain market leading positions.
To reflect the Company's continued expansion, in January 2011 we strengthened our operating structure in order to maximise management focus and create smaller more flexible divisional units to fuel growth.
This has also provided us with the opportunity to recognise and promote some of the exceptional talent we have within Capita.
Each of Capita's nine divisions is led by a Divisional Director. These Divisional Directors, the two senior divisional finance directors and the heads of strategic sales and acquisitions meet on several occasions during the year to share knowledge, experience and to discuss opportunities and challenges which can be supported by cross divisional support.
Company-wide support services, such as corporate marketing and communications, finance, legal and commercial, property management, procurement, health and safety and environment and HR continue to report directly to Board Executive Directors to ensure robust control, consistent standards and shared benefits across the Group.
| Integrated Services |
Life & Pensions Services |
Investor & Banking Services |
General Insurance |
Professional Services |
IT Services & Consulting |
Health | Workplace Services |
Property Services |
|
|---|---|---|---|---|---|---|---|---|---|
| page 39 | page 40 | page 40 | page 41 | page 41 | page 43 | page 43 | page 44 | page 44 | |
| BBC contracts | Life & pensions | Shareholder | Commercial | Software services | IT services | Health | Resourcing & | Capita Symonds | |
| CRB | services | services | insurance | Local government | Consulting | Health & | development | • Design & | |
| Central | Corporate pensions Capita India |
Trust services Financial administration services Asset services |
Insurance | services | Secure | wellbeing | Education | infrastructure | |
| government | distribution | Local government | information | resourcing | |||||
| services | Specialist partnerships insurance Communications Marsh |
solutions | HR solutions | • Real estate | |||||
| Census | Capita Poland | Assurance | Business travel | ||||||
| Customer | Total document | & testing | & conferences | ||||||
| management | Treasury services | services | |||||||
| Debt management |
services
Managing
our divisions
objectives and strategy.
consistently across
Capita's operating divisions and the businesses within them are aligned with the Group's overall
The annual financial plans and targets of each business unit feed into the overall Group financial model. Each month we review comprehensive operational management information through the MOB process enabling us to manage our Group resources in a way that meets the needs of our clients and delivers our key performance.
Research and development initiatives underpin the creation of products and services to meet the current and future needs of clients. Businesses adopt the most appropriate marketing and sales activities to address the characteristics of their individual marketplaces and, where appropriate, procure services and products internally. Each business also maintains strict disciplines on cost control and seeks to streamline processes where appropriate.
All our Divisional Directors are tasked with growing market positions and identifying new areas for the Group to pursue opportunities. Each division targets opportunities in their specific marketplace but they are also committed to delivering the Group's overall strategy through:
| 2011 | 2010 | |
|---|---|---|
| Revenue | 327.7 | 260.6 |
| Underlying operating profit1 |
61.2 | 48.2 |
| Underlying operating |
||
| margin1 | 18.7% | 18.5% |
| Capex | 6.7 | 2.5 |
2011 was an extremely active and successful year for this Division, with a number of key contract wins from both existing and new clients as well as the completion of two strategic acquisitions, Ventura and Vertex Private Sector, which add significant scale to Capita's customer management capability.
Strengthened our customer contact offering through the acquisitions of Ventura and Vertex Private Sector, adding scale, flexibility and a strong set of clients across the utilities and retail sectors.
Maximise relationships across the division to support continued sales growth
Controlling & measuring growth
| 2011 | 2010 | |
|---|---|---|
| Revenue | 545.1 | 529.2 |
| Underlying operating profit1 |
55.9 | 58.7 |
| Underlying operating margin1 |
10.3% | 11.1% |
| Capex | 39.6 | 64.4 |
2011 was a strong year for the Division in terms of contract wins, with over £800m of new life and pensions contracts and extensions secured during the year. High levels of service were delivered to our clients and we continued to invest in and roll out our proprietary IT systems. We took measures in the second half of the year to improve the efficiency of our divisional operating model.
• Established a new 550 seat capacity multi-lingual business centre in Krakow, Poland to support our existing clients' business in Europe and other European financial services businesses.
| 2011 | 2010 | |
|---|---|---|
| Revenue | 212.9 | 181.2 |
| Underlying operating profit1 |
54.9 | 42.2 |
| Underlying operating margin1 |
25.8% | 23.3% |
| Capex | 12.4 | 10.2 |
The Division performed strongly in 2011. Our share registration business was particularly successful in securing new business. We further enhanced our service offering through a number of acquisitions.
Treasury services launched pilot scheme where local authorities 'top up' the deposits of first time buyers and a panel of high street lenders offer mortgages under the scheme
Acquisition of Allied Irish Bank's international financial services and trust services businesses in Ireland, Hungary, Switzerland, Luxembourg and Jersey strengthening our existing service to both clients and increasing our footprint in Europe via entry to new jurisdictions
Acquisition of securitised commercial loan business of Barclays Capital Mortgage Servicing, complementing our existing loan servicing business and providing added breadth of expertise.
Identify and convert acquisition opportunities and material outsourcing contracts
| 2011 | 2010 | |
|---|---|---|
| Revenue | 183.5 | 184.9 |
| Underlying operating profit1 |
28.3 | 23.3 |
| Underlying operating margin1 |
15.4% | 12.6% |
| Capex | 8.0 | 1.5 |
The consolidation of some of our businesses in this area in 2010, provided an efficient base for our operations in 2011 and positions us well for future growth.
• Launched in March 2011, a vehicle telematics based car insurance scheme targeted at the young driver insurance market
| 2011 | 2010 | |
|---|---|---|
| Revenue | 389.0 | 460.5 |
| Underlying operating profit1 |
95.7 | 90.4 |
| Underlying operating |
||
| margin1 | 24.6% | 19.6% |
| Capex | 9.2 | 3.9 |
2011 was a solid year for the Division with respect to contract wins, particularly in the local government and education market. Revenues during the year were impacted by the planned ending of the National Strategies contract. We continue to see a buoyant bid pipeline of long term BPO opportunities as well as short term capacity support.
Capita Children's Services secured relationships with a number of schools and local authorities including Peterborough City Council and Staffordshire County Council.
Continue to develop service and business process transformation opportunities for existing and new local government partnerships to help them meet the ongoing pressure to deliver efficient services
Controlling & measuring growth
Council tax payers in four Essex local authority areas look set to reap the benefits of a pioneering enterprise whichwill see their local authorities slash £7m from council spending. Braintree District, Castle Point Borough, Colchester District and Rochford District Councils joined forces this summer with the aim of buying their IT services jointly through Capita's secure information solutions business in order to gain best value for money for residents.
Cllr Graham Butland Leader of
Capita Registrars has entered into an exclusive UK partnership with ICSA Software to promote Blueprint BoardPad 2, one of the leading electronic board solutions currently available. The 'app' design gives directors all board papers at their fingertips with full annotation functionality and completely secure access. For company secretaries and meeting organisers, BoardPad 2 provides a web-based administration platform designed to cater for every requirement for managing and preparing board and committee meetings.
travel offering is now one of the UK's top travel businesses winning 'Best TravelManagement Company of the Year' and 'Best Hotel Booking Agent' in January 20121 .
2011 was a record sales year for the business with a number of significant wins including a travel management contractwith one of the world's largest banks, Santander.
' ' Capita Business Travel's offering is innovative, costefficient and user-friendly. The online tool is seamless and Santander is provided with a one-stop shop which benefits from separate specialist offers, without compromise.
Mark Payne Travel Manager, Santander
1 2012 Business Travel Awards.
| 2011 | 2010 | |
|---|---|---|
| Revenue | 600.3 | 453.2 |
| Underlying operating profit1 |
55.5 | 56.9 |
| Underlying operating margin1 |
9.2% | 12.6% |
| Capex | 18.3 | 10.2 |
The Division performed well during 2011 as clients looked to access ICT expertise and resources to help manage their operations more efficiently. However, the need to reduce costs also resulted in some downward pressure relating to the supply of IT hardware during the year. We further enhanced the capability across the Division through a number of acquisitions.
• Selected by West Sussex County Council to manage core data and applications in a contract estimated to be worth £26m over six years
Reached an agreement with the National Policing Improvement Agency (NPIA) to be one of just three companies selected for the Digital Interviewing Framework Arrangement
Significantly enhanced our proposition to the police market through the acquisitions of Beat Systems and Cedar HR Software
| 2011 133.0 |
2010 86.9 |
|---|---|
| 25.9 | 15.8 |
| 19.5% | 18.2% |
| 4.0 | 2.3 |
The Division, which includes our outsourced back office services for key Department of Health contracts and our occupational health services business, traded steadily in 2011. It was a year of significant transition and uncertainty for the NHS due to the planned Government reforms and, as a result, many public sector opportunities and decisions were put on hold. A number of the new structures and policies have now been announced and we therefore expect to see greater opportunities in this area in 2012.
Acquisition of Insurance Medical Group (IMG), provider of medico-legal reporting, diagnostics, and pro-active physiotherapy and treatment services.
Target opportunities to partner with NHS in providing commissioning support to clinical commissioning groups following introduction of NHS reforms and support clients through proposed changes
Controlling & measuring growth
| 2011 | 2010 | |
|---|---|---|
| Revenue | 282.8 | 278.5 |
| Underlying operating profit1 |
37.2 | 34.0 |
| Underlying operating margin1 |
13.1% | 12.2% |
| Capex | 3.3 | 2.4 |
Despite the economic climate, the Division's resourcing businesses held up well in 2011 due to their focus on targeting new client bases and operational efficiency. This also ensures that they are well placed to benefit from any future upturn. Our business travel and integrated HR operations performed well during the year.
• HR managed services secured a number of key contract extensions including EDF Energy, BAA and Gatwick Airport as well as expanded framework agreements with a number of key Government departments
• Raise and strengthen our profile and offering across all divisional service lines
| 2011 | 2010 | |
|---|---|---|
| Revenue | 255.9 | 309.0 |
| Underlying operating profit1 |
12.8 | 25.6 |
| Underlying operating margin1 |
5.0% | 8.3% |
| Capex | 2.5 | 1.1 |
Our property and infrastructure services consultancy continued to face challenging market conditions in 2011 resulting in lower revenue and reduced margin. We continue to focus on operating as efficiently as possible and we are now well placed to pursue the opportunities coming through in our core central, local government, health and education markets.
• Secured further renewals on the London Crossrail project and successfully completed the Royal Oak portal, the first of five tunnel portals on the Crossrail route (three of which have been designed by Capita Symonds)
1 See page 97 for a full segmental breakdown.
We are committed to growing our business in a transparent and socially responsible way. By focusing on delivering positive social impacts and managing our key social and environmental risks we can add value to the communities in which we work. This also benefits us and our clients by reducing risk as well as associated costs, improving relationships and maintaining our reputation with our wider stakeholders.
To develop Capita as a long term sustainable business that delivers value to all our stakeholders.
| • Delivering shareholder value | page 47 |
|---|---|
| • Responding to our clients' needs | page 48 |
| • Managing, motivating and supporting our people | page 50 |
| • Building successful supplier relationships | page 54 |
| • Running a resource efficient business | page 55 |
| • Engaging and supporting our local communities | page 56 |
| Our principal non-financial KPIs | |||
|---|---|---|---|
| 2011 | 2010 | ||
| Shareholders: creating valuable returns Steadily grow ordinary dividends (Annual growth of total dividends) |
7% | 19% | |
| Client resources: building scale and capacity Continue to develop our infrastructure of business centres to meet the needs of our business |
68 business centres |
64 business centres |
|
| Employee resources: retaining people Maintain high retention rates for senior managers (annual salaries exceeding £50k p.a.) |
95% | 84% | |
| Maintain overall employee retention at or above industry average (2011: 87.5%, 2010: 86.5%)1 |
89% | 83% | |
| Suppliers: creating successful relationships Annually audit all strategic suppliers against Capita's standards of business |
100% | 100% | |
| Environment: controlling our impacts Continue to measure and assess our carbon footprint (tonnes CO2eq)2 |
91,318 | 81,112 | |
| Communities: supporting local initiatives Continue to measure and grow our community investment annually, using London Benchmarking Group methodology |
£2.00m | £1.65m |
See pages 46 to 56
Delivering business responsibly
We have identified six main impact areas that reflect our stakeholders' interests. Focusing on these impacts helps us to add value and means that we can consistently meet the needs of all our stakeholders: shareholders, clients, employees, suppliers and the wider community.
The Group Board continues to take responsibility for our sustainability programme. Gordon Hurst, Group Finance Director, has overall responsibility for sustainability initiatives across the Group. Each Executive Director has specific responsibility for one or more priority impact areas.
On a day-to-day basis Group functional heads are accountable for activities in their areas. They also provide guidance and support at a business unit level to a network of employees. They communicate our progress and performance back to the Group Board through our business reporting processes.
In addition to this we have a Sustainability Steering Group who meet quarterly. Their role is to review and challenge our approach and ensure that we identify and manage sustainability risks and opportunities for our individual businesses and those that could affect the whole Group.
' We are committed to managing our key social, environmental and economic impacts to create a sustainable business.
Gordon Hurst Group Finance Director
We maintain a strong structure and controls, focus on clear financial KPIs and apply consistent, thorough risk management.
After investing in the business, we use surplus cash to deliver further shareholder value in three main ways: through acquisitions, dividends and share buybacks.
In 2011, we spent £341m on 21 acquisitions. Our focus is now on achieving the successful integration ofthese businesses and realising synergies. We expect our acquisition activity to reduce going forward in 2012 and to revert to historic levels. We will continue to be selective and disciplined when assessing opportunities. Over the four years to 31 December 2011, we estimate our acquisitions have delivered a post-tax return of approximately 14%.
See pages 24 to 26
The Group dividend strategy is to return surplus cash to shareholders through a combination of progressive dividends and, when appropriate, capital returns.
A key element in the creation of shareholder value is a progressive dividend policy. Over the five years to 31 December 2011 we grew our dividend at a compound annual rate of 19%. Dividend cover, was 2.27 times for 2011.
Opportunistic share buybacks help usto maintain an efficient capital structure and minimise our long term cost of capital. We did not complete any share buybacks in 2011, however, we will continue to evaluate any attractive opportunities as they arise. Shareholders renewed the Group's authority to purchase up to 10% of issued share capital at our Annual General Meeting in May 2011.
Including the proposed 2011 final dividend, £899m has been returned to shareholders in respect of the last five years – £516m in ordinary dividends, £155m in special dividends and £228m through share buybacks.
See pages 35 to 37
| Dividend per share | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|---|---|
| Interim dividend (p) | 7.20 | 6.60 | 5.60 | 4.80 | 4.00 | 2.70 |
| Final dividend (p) | 14.20 | 13.40 | 11.20 | 9.60 | 8.00 | 6.30 |
| Total ordinary dividend (p) | 21.40 | 20.00 | 16.80 | 14.40 | 12.00 | 9.00 |
| Special dividend (p) | – | – | – | – | 25.00 | – |
| Total dividend (p) | 21.40 | 20.00 | 16.80 | 14.40 | 37.00 | 9.00 |
| Dividend cover (excluding special dividend) |
2.27x | 2.25x | 2.31x | 2.31x | 2.34x | 2.57x |
| Totals | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
| Interim dividend (£m) | 44 | 40 | 34 | 29 | 25 | 17 |
| Final dividend (£m) | 86 | 81 | 69 | 59 | 49 | 39 |
| Total ordinary dividend (£m) | 130 | 121 | 103 | 88 | 74 | 56 |
| Special dividend (£m) | – | – | – | – | 155 | – |
| Total dividend paid (£m) | 130 | 121 | 103 | 88 | 229 | 56 |
| Share buybacks | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
| % of share capital authorised to repurchase |
10 | 10 | 10 | 10 | 10 | 10 |
| % of share capital repurchased | – | 2.5 | – | 1.7 | 1.1 | 7.9 |
| Issued share capital at year end (m) | 608 | 606 | 617 | 611 | 609 | 617 |
| No. of shares repurchased (m) | – | 15.4 | – | 10.4 | 6.6 | 52.9 |
| Average price (p) | – | 751 | – | 659 | 665 | 465 |
| Total cost (£m) | – | 116 | – | 68 | 44 | 245 |
| Shareholder returns | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
| Total return to shareholders (£m) | 130 | 237 | 103 | 156 | 273 | 301 |
Delivering business responsibly
Strong client relationships are vital to Capita's ongoing success. We strive to meet, and where possible exceed, the expectations of our clients, adding real value to their operations.
By listening and responding to the views of our clients, and that of their customers, we can keep delivering ever better service, ensuring client satisfaction.
See pages 27 to 30
Andy Parker Joint Chief Operating Officer '
We engage with our clients on a regular basis to receive their feedback, ensuring that effective communication is maintained at all levels of the relationship from the head of the organisation, through to day-to-day operational contacts. Due to the size and breadth of services that we offer, it is difficult to adopt a uniform approach to measuring clientsatisfaction. We use a number of different feedback mechanisms depending on the size and type of contract.
Many of our contracts involve handling sensitive and confidential information. We have an established, robust framework in place, which includes detailed policies and procedures to ensure that we adhere to all legal requirements regarding data protection and information security.
All Capita employees complete information security, data protection and fraud awareness training on an annual basis. The training is regularly reviewed and updated. Those employees working in particularly sensitive areas receive additional specialised training. Each of our divisions has clear incident procedures for identifying, investigating, reporting and rectifying any security issues that may occur.
As part of our 15 year strategic partnership with Swindon Borough Council, we were tasked with transforming the customer service function. We worked closely together with the Council to create Swindon Direct. This one stop shop service model presents a single view of the Council to the customer, guaranteeing a consistent experience across all channels. Customer satisfaction is now running at over 95%, and in June 2011, Swindon Direct was crowned Best Outsourced Partnership at the South West Contact Centre awards for the second year running.
Significant improvements have been made to financial administration, HR and payroll, facilities management and ICT services.
'
The housing and council tax revenues and benefits service is performing at its best level in five years.
We've worked hard to promote social and economic responsibility within the Borough. Over the past two years 15 young people have completed apprenticeships in IT, customer services and business administration, with the majority going on to full time employment within the partnership. We've also worked with local schools and organisations and provided funding for the Swindon Alzheimer's Society and Down's
Working with Capita has really helped to raise our aspirations and look to the art of the possible rather than the necessary.
They've introduced new ways of working that have made a huge difference to how the organisation works, most visibly in the
We've learned a lot together and the partnership is now at a mature stage where we challenge each other to get
Gavin Jones Chief Executive, Swindon Borough Council
Delivering business responsibly
We have over 46,500 employees working across 350 sites. To manage and support them effectively we have a number of Group-wide policies which focus on particular areas including equality and diversity, health and safety and our code of ethical conduct.
We ensure that we apply the same principles to all employees wherever they are based - onshore, offshore and nearshore. All of our policies comply with or exceed the legal and regulatory requirements of the countries in which we operate. View all our policies online at:
capita.co.uk/sustainability
Approaching 70% of our employees have transferred into Capita either from previous employers, who outsource activities to Capita, or through acquisitions. We benefit from the constant flow of new skills when employees transfer into Capita, but it also gives us the challenge of ensuring that these employees are effectively integrated into our business and our culture. We have a clear set of values which are embedded across our business to help achieve this.
We believe that when employees feel engaged and valued this can lead to increased productivity and higher retention rates. We regularly interact with our employees using formal and informal channels to ensure that they understand the ambitions of the business and their role in its success. It is important for us to know what our employees think about how we are doing. We conduct an annual employee survey which gives employees the opportunity to tell us where we are doing well and identify opportunities for improvement. In 2011, the response rate for our employee survey increased from 35% to 45%. The feedback was generally positive with 74% of employees saying Capita was a good place to work. They felt that managers were supportive, open and honest and encouraged innovation within their teams.
We want our employees to be motivated and to perform to the best of their ability. Recognising and rewarding their individual performance plays a big part in this. We reward employees both financially through competitive remuneration packages, local performance schemes, and through the Capita People Awards Scheme, which celebrates individuals who have demonstrated commitment to our values.
During 2011, the economic background affected growth within some areas of the Group, and so whilst we rewarded success we were mindful of effectively managing costs. The actions we took will ensure that the business is running efficiently and is best placed to continue delivering for our clients and supporting our employees in the future. '
Our people are critical to our success and growth. We have created a strong culture where our employees feel motivated to perform to the best of their ability.
Vic Gysin Joint Chief Operating Officer '
We promote a culture that supports the health and safety of our employees and have a dedicated health and safety team who identify and manage potential risks to our people.
As a mainly office based business, our most frequent accidents are slips, trips and falls. Where there are job specific risks, such as for employees who are lone workers or working on a construction site, we provide additional training. All our employees receive health and safety training as part of their induction.
We monitor our health and safety performance across the business and in 2011, our RIDDOR accident rate was 1.16 per 1,000 employees (2010: 1.43) showing a 49% reduction in the reportable accidents rate from the 2004 baseline.
Due to the nature of our business there are times where, in order to make efficiencies for our clients, we need to make changes to the organisational structure of a particular contract or business. This may lead to a reduction in head count in this particular business area. However, as business across other parts of the Group grows, we are often able to find other suitable opportunities in the Group for affected employees, or offer retraining. Where suitable opportunities are not available we communicate openly with our employees and consult with trade unions where appropriate. We also use our HR advisers to help with external redeployment opportunities.
Did you know... 70% of our employees have transferred into Capita with contracts or acquisitions
| from 3.37% in 2010. | opportunities are not available we | 2011 | 2010 | |
|---|---|---|---|---|
| communicate openly with our | Employee retention | |||
| employees and consult with trade unions where appropriate. We also |
Manager retention rate (salaries exceeding £50k p.a.) |
95% | 84% | |
| use our HR advisers to help with | Overall employee retention rate | 89% | 83% | |
| external redeployment opportunities. | Health and safety (accident frequency rate per 1,000 employees RIDDOR) |
1.16 | 1.43 | |
| Employee diversity | ||||
| Male/female split | 53% male/ 47% female |
53% male/ 47% female |
||
| Male/female split for management (salaries £50k – £89k p.a.) |
78% male/ 22% female |
74% male/ 26% female |
||
| Male/female split for senior management (salaries exceeding £90k p.a.) |
85% male/ 15% female |
88% male/ 12% female |
||
| Percentage/actual number of employees from ethnic minority groups |
23%1 / 5,561 |
25%/ 4,736 |
||
| Percentage of employees working part-time out of total workforce |
15% | 14% | ||
| Employees by location | ||||
| Onshore | 87.6% | 87.4% | ||
| Offshore | 10.1% | 10.4% | ||
| Nearshore | 2.3% | 2.2% | ||
Based on 52% of our employees disclosing their ethnic origin (2010: 64%).
Delivering business responsibly
Our people are critical to our success and growth. We have created a strong culture, aiming to offer them a workplace that is supportive, rewarding, safe and inspiring.
from 46,500 people across 350 business sites
Over £13m invested in employee training in 2011, through our Academy training programmes
Successfully managing large-scale employee transfers is one of our strengths. Over 12,000 employees transferred into Capita in 2011. We have a dedicated HR integration team who guide potential transferees throughout the whole process. The team communicates with potential transferees on a regular basis, addressing their concerns and explaining the benefits of being part of the wider Group.
Offering our employees the encourage them to progress through grows the range of new opportunities
A skilled workforce is key to our ability to deliver quality services and drive our business forward. We concentrate on building and retaining a strong and stable leadership team. We provide courses for our senior managers through the Capita Manager Academy to equip them with the right skills so that they can respond to our clients' needs and support and manage our people effectively.
We support all our employees in their career development and offer a number of different types of training:
Our Capita Academy training programme delivers skills and personal development courses for all our employees and in 2011, we invested £13m, providing over 9,500 days of training. In addition to this we also provide workplace training, coaching and group instruction. We support those employees who wish to gain, or expand, their National Vocational Qualifications (NVQs) through our vocational learning programme. Over 3,000 people have enrolled on our programme since 2006 with 1,072 employees achieving a nationally recognised qualification during 2011. We also sponsor employees to undertake professional qualifications.
We work hard to create an inclusive culture and are committed to promoting diversity across our business and ensuring that individuals or groups are not discriminated against. By recognising and embracing the differences between our employees we benefit from their unique talents, which allows us to be more creative and innovative in the way we work and deliver for our clients.
All our employees complete our online diversity awareness training every three years and we use a network of diversity champions to help communicate our strategy across the business.
We want to give everyone the opportunity to work for us and so offer flexible working arrangements, supporting part-time working, reduced hours and job sharing where possible. This allows our employees to balance their work and family commitments. In 2011, 15% of our employees worked part-time.
We track the diversity of our workforce using our online HR administration system and encourage our employees to disclose their ethnic origin. During 2011, 52% (2010: 64%) of our employees stated their ethnic origin and of these 5,561 employees (2010: 4,736 employees) were from ethnic minority groups.
Overall employee retention rate
89%
Delivering business responsibly
We recognise that good procurement practices have a direct influence on our business performance. Our aim is to use our purchasing power to procure goods that deliver value for money, whilst ensuring that the goods and services are provided by suppliers who meet the highest ethical standards and comply with our Responsible Sourcing Policy.
Our supplier relationships are managed by a central procurement team at Group level and by procurement specialists within the business at a local level. We also manage some of our clients' supplier relationships on their behalf.
We categorise our suppliers based on whether they provide services to the whole Group or individual businesses. Our central procurement team manage relationships with our strategic suppliers who provide services to the whole Group.
In 2011 we reviewed our supply chain strategy. This included revising our Responsible Sourcing Policy through which we developed new responsible sourcing guidelines.
View all our policies online at:
capita.co.uk/sustainability
All our suppliers must register on our supplier assessment portal. We ask them to complete a detailed questionnaire, including questions covering anti-bribery and corruption, working conditions, and the health and safety of their employees. This allows us to identify and manage any potential risks in our supply chain and select suppliers who meet our standards.
Our suppliers are an important source of new ideas, innovation and support and, therefore, building mutually beneficial relationships with them is valuable. We aim to use a diverse range of suppliers and recognise that working with smaller, local suppliers, social enterprises and third sector organisations makes good business sense. We use the portal for online tendering, giving everyone that is registered, including smaller suppliers, the opportunity to work with us. In 2011, 32% of our supplier base was comprised of small to medium sized businesses (SMEs).
Did you know... In 2011, 32% of our supplier base were SMEs
| 2011 | 2010 | |
|---|---|---|
| Annually audit all strategic suppliers | 100% strategic suppliers audited |
100% strategic suppliers audited |
| Engaging with our suppliers | All new suppliers registered on online portal to ensure they meet our standards |
All new suppliers registered on online portal to ensure they meet our standards |
Capita is a mainly office-based organisation and so our environmental impacts are not extensive. We nonetheless recognise the value of taking a proactive approach to environmental management, not only to ensure that we comply with relevant statutory and regulatory requirements but also to ensure business continuity.
Did you know... In January 2012, Capita was awarded the Carbon Saver Gold Standard for achieving an absolute reduction in carbon emissions over a three year period up to April 2011
We are committed to playing our part in tackling climate change and have measured our carbon footprint since 2005. We report our performance transparently, and have completed the Carbon Disclosure Project (CDP) for the last five years.
In 2011, our total carbon footprint was 91,318 tonnes CO2eq, an increase of 13% in line with the growth of the Group. Our carbon footprint for our India operations remained almost the same, however, the large number of acquisitions made in 2011 meant that our UK office footprint increased by nearly 20%. Many of these new offices were not as carbon efficient as our existing offices. We will be working closely with facilities managers at these sites to reduce emissions over the next year.
Although our carbon emissions are relatively low we aim to make further reductions. We have concentrated on addressing our direct carbon footprint by reducing our two main impacts: the energy use in our offices and our business travel.
We have had a formal energy reduction programme in place since 2006 and we continued to roll the programme out across our sites during 2011. Since the programme began we have made savings which equate to more than £1m. Where a site is subject to the UK Government's Carbon Reduction Commitment Energy Efficiency Regulations (CRC), we ensure that they have smart meters installed to help manage and meet our CRC obligations.
Our second biggest impact is business travel. Our overall aim is to reduce our total business travel across the Group and we have continued to focus our efforts here through the promotion of video and tele conferencing. In 2011, we increased the number of calls made by 126% and increased the number of Telepresence video conference suites, which are now available at 17 of our sites. The use of conferencing technology provides cost savings for the business by saving time and reducing the necessity to travel between sites, yet still allowing our employees to work collaboratively.
We encourage our employees to use alternatives to car travel, by promoting the use of public transport, using shuttle buses at our larger sites and by encouraging participation in our Cycle to Work scheme.
Although we do not have a formal Group-wide waste management system, we work hard to reduce our waste and increase recycling across the Group. One challenge we face is that we often share our sites with other tenants. Where this is the case, we work collaboratively with our landlords and our facilities management provider to help monitor and improve our waste management.
As a highly IT literate company, electronic document management is used extensively across the Group and we encourage our employees to only print where necessary. We try to increase the amount of recycling by engaging with our employees and encouraging behavioural change.
We have a number of Group-wide recycling schemes for paper, consumables, such as printer cartridges, mobile phones and redundant IT equipment. In 2011, we recycled 2,263 tonnes of paper and 25,740 pieces of IT equipment.
We also want to extend our influence to help our clients to reduce their environmental impact as well. For our clients, we focus on streamlining processes, and replacing paper-based services with online services, wherever possible.
Additionally, we work with our suppliers to encourage them to provide us with more environmentally responsible products. We also look at the logistics of how they deliver goods to our offices to help reduce their carbon emissions.
| 2011 | 2010 | |
|---|---|---|
| Total carbon footprint (tonnes CO2eq)1 |
91,318 | 81,112 |
| Energy savings made at our 18 largest sites since 2006 |
41% | 39% |
| Conference calls made | 404,813 | 179,000 |
| Undertake environmental site audits twice a year | 100% audits completed |
100% audits completed |
| Engaging employees | Our annual 'Going Green' campaign specifically promoted ways to reduce business travel |
Promoted environmental initiatives across the Group through 'Going Green' campaign |
Based on latest greenhouse gas emissions from Defra.
Delivering business responsibly
We actively engage with our local communities, aiming to improve the social and economic development of the areas where our employees live and work. We build relationships at a local level to help address the specific needs of each community and make as valuable a difference as possible.
Our clients and their customers benefit as a result of us improving the services that we deliver on their behalf. However, we also want to add real value to our local communities beyond these services to make a further relevant and sustainable contribution. Where we are delivering services at reduced costs on behalf of the public sector, the savings that we make can be reinvested by our clients back into frontline services forthe public.
Through our strategic BPO contracts we can help to regenerate communities and support local economic growth by providing jobs, using local suppliers, supporting social enterprises and providing apprenticeship places. Where a contract has expanded and we are delivering new or additional services for our clients this can lead to job creation. For example, in 2011 we created jobs in two areas of low employment: 330 new jobs in Northern Ireland, to support our financial services operations and a further creation of 140 new jobs in Forres, Scotland, as part of the expansion of our contact centre operations.
Our community investment programme focuses on tackling exclusion of all kinds, whether this is from a lack of access to educational opportunities, through social exclusion or ill health. In 2011, we established the Capita Community Development Foundation to build on our existing initiatives and deliver innovative, scalable community programmes for both our clients and ourselves to address local needs.
We engage and encourage all our employees to get involved in our programmes, either through volunteering or by supporting our charity activities.
We measure the impact of our community investment using the London Benchmarking Group methodology and in 2011, we estimate that our total investment was £2m based on data captured from 55% of the Group.
We often work collaboratively with our clients, local businesses and third sector organisations on our community programmes, building relationships and ensuring that we maximise our impact. For example, a key element of our partnership with Lambeth Council is to help improve opportunities for Lambeth residents, focusing on particular issues such as worklessness within the Borough, as well as providing support for local social enterprises.
We offer our employees the opportunity to support local projects by donating their time, skills and expertise through our volunteering scheme. This gives them the opportunity to take part in one-off projects or invest in longer term initiatives, such as helping young people to improve their literacy and numeracy skills. In 2011, we introduced an official employee volunteering policy, giving each employee one paid day off a year to volunteer.
Alongside our community investment programme we have an active charity programme. We work with our corporate charity partner, the Alzheimer's Society, which was chosen by employees. We set ourselves a challenging target to raise £1 million by the end of our two year partnership in 2012 and we had raised £475,000 by the end of 2011. Through our partnership we promote the work of the charity to increase awareness and learning about dementia across our employees.
We also support our employees who fundraise for numerous local causes through our matched funding scheme, donating a further £25,000 in 2011. We have a central payroll giving scheme which is an efficient way for our people to donate to their chosen charities. In 2011, over 1,800 employees donated over £252,000 to charities through this scheme.
View all our policies online at: capita.co.uk/sustainability
| 2011 | 2010 | |
|---|---|---|
| Total community investment (using London Benchmarking Group methodology) |
£2.0m | £1.65m |
| Total corporate donations including support for our charity partner and matched funding scheme, other community initiatives and disaster appeals |
£0.5m | £0.7m |
| Employee fundraising for our corporate charity partner | £475k | £600k |
8
6 0
This section of our report introduces our Board members and contains our corporate governance and remuneration reports.
A summary of the biographical details and responsibilities of the Group Board of Directors.
Board members.
Martin Bolland, Non-Executive Chairman introduces a report on how the Company applies the principles of the UK Corporate Governance Code 2010, a formal report on compliance with the Code provisions and other statutory and regulatory information.
| Audit Committee report | 6 5 |
|---|---|
| Paul Bowtell, Chair of the Audit Committee, reports on the Audit Committee's role and work during the year. |
|
| Remuneration report | 7 5 |
| Martina King, Chair of the Remuneration Committee, |
reports on remuneration policy and practice for Executive
Board members
The Board currently comprises of ten Directors, made up of the Chairman, Chief Executive and four other Executive and four Non-Executive Directors. We continue to believe we have a talented and substantial team in place to support our continued growth. However, as the Group continually grows and diversifies,we will continue to regularly review the Board composition to ensure it meetsthe needs of the business.
Joined the Board in March 2008 and became Chairman on 1 January 2010. A Chartered Accountant, Martin previously held a number of senior operational positions within the Lonrho Group and was also a founder and partner of Alchemy Partners for 11 years. Martin continues to be a member of both Alchemy's Investment Committee and Monitoring Board. He is also currently Chairman of QHotels Group Limited and RecyCoal Holdings Limited.
Nomination Committee (Chairman)
Joined the Board in May 2010 and became Senior Independent Director upon appointment. Nigel is Group Chief Financial Officer of Legal & General Group Plc, appointed in September 2009. Having held many senior management positions across varied sectors, including his roles as Chief Financial Officer and Deputy Chief Executive of United Business Media plc. Nigel's extensive financial and commercial experience further strengthens the Board. Nigel retired as the Senior Independent Director of Halfords Group plc on 31 March 2011.
Nomination Committee Remuneration Committee Audit Committee
Joined Capita in 1992 and was appointed to the Board in 1994. As Group Operations Director he was responsible for the ongoing operational management of the Group's business units. From August 2006 to the end of July 2008 he was Joint Chief Operating Officer before moving to a part-time Executive position. He became a Non-Executive Director from 1 March 2010. Paddy has been instrumental to Capita's success. In January 2012 Paddy decided to retire and will step down from the Board at the end of March 2012.
Nomination Committee
Joined the Board in January 2005 and is currently the Managing Director of Aurasma, a division of Autonomy. Martina previously held a number of senior positions in marketing and online media, including Managing Director roles at Yahoo! and Capital Radio. Her broad knowledge and extensive experience of management, new technology and sales and marketing brings a different range of expertise to the Board and is of value in our continued growth. Martina is also a Non-Executive Director of Cineworld PLC and Debenhams Plc.
Remuneration Committee (Chair) Audit Committee Nomination Committee
Joined the Board in June 2010 and is currently the Chief Financial Officer of Gala Coral Group. Paul was previously on the Board of Tui Travel PLC as Chief Financial Officer and was also on the Board of First Choice Holidays PLC. He is a Chartered Accountant and has extensive experience across the UK retail sector. He brings significant financial and commercial knowledge to the Board. He is also a Non-Executive Director and Chairman of the Audit Committee at SThree PLC.
Audit Committee (Chairman) Remuneration Committee Nomination Committee
Joined Capita in 1987 from 3i, after advising Capita on its management buy-out. He became Chief Executive in 1999. A Chartered Accountant, Paul is responsible for managing and developing Capita's business to achieve the Company's strategic objectives, and has overall responsibility for our charitable approach. Paul is also Chair of the Great Ormond Street Hospital's Corporate Partnerships Board.
Joined Capita in 1988 and was first appointed to the Board as Commercial Director in February 1995 and then as Group Finance Director in 1996. A Chartered Accountant, he is also Company Secretary. He has Board responsibility for our overall corporate responsibility policy and specific responsibility for our environment, health and safety approach and supplier relationships. He chairs the Business Services Association's Finance and Taxation Committee.
Joined Capita in January 1999 and was appointed to the Board in August 2008. Maggi has held various positions across Capita, including running our recruitment businesses and leading the Business Services and Corporate Services Divisions, and has been head of the Group Sales & Marketing Division since January 2005. She is responsible for driving forward business development across the Group, including managing our Major Sales Team, and has Board responsibility for community engagement.
Joined Capita in 2001 and was appointed to the Board in January 2011. Andy oversees the majority of Capita's non-financial services operations. Prior to joining the Board he was the Divisional Director for Capita's ICT, Health and Business Services Division. Before this he held a number of senior finance director positions across the Group including 3 years as a Senior Divisional Finance Director. Andy is a Chartered Accountant and has extensive commercial and financial experience. Andy has joint Board responsibility for clients and employees with Vic Gysin.
Joined Capita in 2002 and was appointed to the Board in January 2011. Vic oversees Capita's financial services operations and the Integrated Services Division. Prior to joining the Board he was Divisional Director for Capita's Insurance and Investor Services Division. Before this he headed up the Integrated Services Division, containing many of Capita's major central government contracts. Since joining Capita he has overseen the successful implementation and delivery of a number of our key contracts. Vic is an experienced business director with strong leadership and management skills. Vic has joint Board responsibility for clients and employees with Andy Parker.
I am pleased to present to you this report on the work of the Capita Group Board during 2011. This section of the Report and Accounts (pages 57 to 85) together with the Business Review on pages 1 to 56 form the Directors' Report.
I continue to be impressed by the Board's commitment to the highest standard of corporate governance, and most importantly how this works within the structure of the whole organisation without being overly cumbersome.
It is vital that a Board balances its time between strategy and oversight, as this responsibility is given to them by the shareholders, but consideration of all its stakeholders is also important. I believe that this balance is managed well within Capita at Board, divisional and business unit level.
When determining the Executive Directors' remuneration for 2011 a stretching target was agreed with them at the beginning of 2011.
Although Capita has had a strong sales year securing new major contracts and has performed well in challenging trading conditions, achieving revenue growth of 7%, underlying operating profit growth of 8%, and an underlying EPS growth of 8%, the agreed stretching target was not met for the first time in over a decade. In line with our policy of remuneration based upon meeting performance targets, no bonuses have been awarded to the Executive and Divisional Directors for the period under review.
As explained in our 2010 reporting, in January 2011 we appointed Vic Gysin and Andy Parker as Joint Chief Operating Officers and Simon Pilling stepped down from the Board. I believe that we have a talented and strong team in place on the Group Board and across our divisional management team to support our continued growth as a Group.
During 2011 the Board discussed a range of items as well as the business as usual of strategy, risk and oversight of the Group. The Group has undertaken a record number of acquisitions and had its best year on record for securing new and renewed major contracts.
The Board and committee meetings are structured and agendas drawn up accordingly to cover the wide range of matters that are brought to their attention and the meetings are aligned with the financial calendar of the Company: this ensures that appropriate focus can be given to the items brought to their attention.
In order that the Board can ensure that the strategic direction and growth of the Group can continue successfully and with the appropriate risk oversight, meetings are held between the Director, Group Risk and Business Assurance and the Chairman of the Audit Committee and the Group Compliance Director and the Chairman of the Audit Committee throughout the year as well as the normal scheduled meetings. Risks are identified in a number of ways and are prioritised and delegated in accordance with the risk ratings provided. An additional meeting of the Audit Committee was held this year to review the risk profile across the Group and to ensure that it reflected the Group's overall appetite for risk.
During the year the Board's discussions have been wide-ranging, including: strategy, acquisitions, finance, corporate reporting, operational performance and risk and business assurance. An increased amount of time was spent on our acquisitions due to the number we have completed this year. The work of the Board is shown in the diagram below.
| 1. Strategy | 20% |
|---|---|
| 2. Risk | 15% |
| 3. Finance | 15% |
| 4. Operations | 10% |
| 5. Acquisitions | 15% |
| 6. Bids | 15% |
| 7. Corporate reporting | 5% |
| 8. Other | 5% |
A specific session to review the Group's strategy in detail is held each year. Strategy is also a standing item at each Board meeting. The diverse nature of the business means that we must continue to be adaptable to the opportunities and challenges that face us, our clients and our stakeholders. Risk is considered side by side with strategy and is included in our operational reporting.
All Executive Directors prepare and present a report at each Board meeting. These include the key issues (including risk and opportunity), operational and financial performance and bid and acquisition activity. These reports are then complemented with verbal updates at the meeting. This allows the Directors to focus on specific issues and also for the other Directors to debate and challenge as required. See management and governance structure on page 32.
The Board considers the Group's statutory reports and the broader aspects of corporate reporting at each scheduled meeting. Regular updates are received on the financial results from Gordon Hurst and Paul Pindar, which also include the financial outlook for the Group.
Maggi Bell, Business Development Director, presents a report at each Board meeting which covers the current major bid strategy, constituents of the bid pipeline (bids over £10m in value where we are shortlisted to four or fewer) and prospects which are sitting just outside of the bid pipeline. As many of these potential contracts are of significant size and duration, these opportunities can make a significant impact on the shape and resource requirements of the Group as it grows.
Paul Pindar reports on the acquisition strategy and current acquisition activity in addition to his Chief Executive report. Again these acquisitions have an impact on the shape and resource requirements of the Group, particularly in 2011 when a large number of acquisitions were completed.
The Board considers the potential impacts of new acquisitions and contracts on resourcing at a senior management level and identifies candidates from within the Group or externally for key positions in the transition periods and ongoing delivery of these operations.
In 2010 we undertook a full Board evaluation. In 2011 we undertook a shortened evaluation managed by the Deputy Company Secretary. The evaluation was questionnaire based as I had recently held one to one meetings with all Board members. The unedited Board evaluation report was presented at the October 2011 Board meeting. The evaluation covered risk, board strategy and training. Further detail on this is shown on page 63.
Both the Director, Group Risk and Business Assurance and Group Compliance Director report to the Group Finance Director and independently to the Audit Committee and report on the internal assurance programme and risk management activities across the Group. They have access to all members of the Board and hold regular meetings with the Executive Directors and meet with the Audit Committee Chairman and myself at least quarterly. See pages 32 to 34.
The Directors of the Company currently in office are listed on pages 58 and 59. As explained in our announcement in January 2012, Paddy Doyle has decided to retire from the Board at the end of March 2012. All the current Directors (except Paddy Doyle) will be offering themselves for re-election at the forthcoming Annual General Meeting in May 2012. Paddy has made an immense contribution to Capita over the last 20 years and has been instrumental in our success. I wish him a long and prosperous retirement and know that he will remain a good friend to many of us here in Capita.
No Director has a service contract exceeding one year.
The following pages in this section consist of our Corporate Governance and Remuneration Reports. I hope that you will find these and the entire Annual Report and Accounts informative and the Board will be happy to receive any feedback you may have.
Non-Executive Chairman
Capita plc and its subsidiaries (the Group) continue to be committed to maintaining high standards of corporate governance. The UK Corporate Governance Code 2010 (the Code) applies to accounting periods beginning on or after 29 June 2010 and replaces the Combined Code on Corporate Governance 2008. A copy of the Code is available from the Financial Reporting Council's website www.frc.org.uk. Throughout the accounting period to which this report relates, the Company applied all of the principles set out in Sections A to E of the Code except as detailed below;
| Code provision | Area of non-compliance | Position at 31 December 2011 |
|---|---|---|
| B.1.2 Composition of the Board |
During the period the Board had an imbalance of Executive Directors to Independent Non-Executive Directors. |
The balance was 5 Executive Directors and 3 Independent Non-Executive Directors, a Non-Executive Chairman and a Non-Executive Director. |
As noted above, the balance of independent Non-Executives to Executives is not equal. However, in accordance with the Code (June 2010), (B.1 Supporting Principles) the Board needs to be appropriate in size and experience to manage the complexities it faces. We believe that the number of our Board Directors and their range of skills is appropriate for the scale and scope of the business and to ensure effective board processes. The Board has the broad range of experience that is essential to ensure effective execution of strategy and management of risk, whilst also ensuring that the balance of skills is appropriate for the committees. Our Executives recognise all of their responsibilities and do not solely represent the activities they have within the Group which adds to open and constructive debate, as well as demonstrating the overall strength of the Board.
This area of non-compliance is expected to remain throughout 2012.
For each appointment the Board undertook a formal appointment process, led by the Nomination Committee and, where appropriate, the assistance of independent external search consultants.
On 10 January 2011, Vic Gysin and Andy Parker were appointed to the Board as Joint Chief Operating Officers and Simon Pilling stood down.
| Executive Directors | Non-Executive Directors | |
|---|---|---|
| January 2011 | Paul Pindar Gordon Hurst Maggi Bell Vic Gysin Andy Parker |
Martin Bolland Nigel Wilson Paul Bowtell Martina King* Paddy Doyle |
*Independent in accordance with the Code.
As announced in January 2012 Paddy Doyle's date of retirement is 31 March 2012.
Consistent with previous years, the Board continues to support the need to segregate the responsibility for operating the Board and managing the underlying business. Martin Bolland's role as Non-Executive Chairman and Paul Pindar's role as Chief Executive are separate.
Martin Bolland as Chairman and Nigel Wilson as Senior Independent Director also held meetings solely comprising the Non-Executive Directors during 2011. Both Martin and Nigel are also available to meet with shareholders when requested.
The Companies Act 2006 requires Directors to act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of shareholders as a whole. In doing so, the Directors must have regard (amongst other matters) to:
In addition to their statutory duties, the Directors must ensure that the Board focuses effectively on all its accountabilities.
The Board determines the strategic objectives and policies of the Group to best support the delivery of long term value, providing overall strategic direction within an appropriate framework of rewards, incentives and controls. The Board is collectively responsible for the success of the Company: the Executive Directors are directly responsible for running the business operations and the Non-Executive Directors are responsible for bringing independent judgement and scrutiny to decisions taken by the Board. The Non-Executive Directors must satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust. Following presentations by executive management and a disciplined process of review and challenge by the Board, clear decisions on the policy or strategy are adopted, and the executive management are fully empowered to implement those decisions.
Non-Executive Directors are required to be independent in character and judgement. All relationships that may materially interfere with this judgement are disclosed as required under the conflicts of interest policy. The Board has determined that all the Non-Executive Directors, except Paddy Doyle, who served during the year were independent and before and upon appointment as Chairman, Martin Bolland met the criteria of independence as outlined in the Code. The Board all support the value and continuity Paddy brings and will continue to bring to the Board until his retirement at the end of March 2012.
The Board is satisfied that there are no compromises to the independence of the Non-Executives and that no conflict of interest exists for any Director. This matter is a standing agenda item.
Following appointment to the Board all new Directors receive an induction tailored to their individual requirements. They are encouraged to meet and be briefed on the roles of key people across the Group and have open access to all business areas and employees to build up an appropriate level of knowledge of the business that extends beyond formal papers and presentations to the Board. All Directors have received an appropriate induction for their roles within Capita. These have included familiarisation with:
Following the appointment of Vic Gysin and Andy Parker to the Board in January 2011, training was given in respect of their roles and responsibilities as Executive Directors.
Ongoing training and briefings are also given to all Directors, including external courses as required.
During October 2011, the Board evaluation process was carried out by means of a questionnaire requiring written responses from the Directors. To ensure independence and objectivity, the questionnaire was conceived, administered and reviewed on a confidential basis by the Deputy Company Secretary. The resultant report, analysing responses and drawing anonymous conclusions, was sent to each Director for consideration at the October Board meeting. The Chairman also met with each Board member individually to discuss the performance of the Board and also discussed and agreed the format of the Board evaluation with the Senior Independent Director.
The report recognised the robustness of the governance process within the Board, and the strength of the dynamics that exists between strategic challenge and strategic focus amongst Executive and Non-Executive Directors.
The results of the evaluation were very positive and the final report was presented without amendment to the Board.
Consideration of the Board balance is kept under regular review by the Chairman and Chief Executive.
The use of an external evaluator for the Board evaluation is reviewed annually.
All Board members have access to independent advice on any matters relating to their responsibilities as Directors and as members of the various committees of the Board at the Group's expense.
The Company Secretary, Gordon Hurst, who is also the Group Finance Director, is available to all Directors and he is responsible for ensuring that all Board procedures are complied with. As with the Board composition and ongoing requirements, this is regularly reviewed.
The duties of the Company Secretary continue to grow with the increase in size and diversity of the Group's activities and legislative changes.
To assist in this area, the Deputy Company Secretary coordinates and manages the provision of share registration, company secretarial services and share plans to the Group on behalf of Gordon Hurst. The Deputy Company Secretary has direct access and responsibility to the Chairmen of the standing committees and open access to all the Directors. The Deputy Company Secretary has been appointed as Secretary to the Audit, Remuneration and Nomination Committees to ensure that there are no conflicts of interest.
The Board continues to keep the Company Secretary role under review, but feels that the combination of the roles continues to work well for the business as a whole.
The terms of reference of the Nomination, Remuneration and Audit Committees were reviewed during the year. The terms of reference are summarised in the table below and displayed in full in the investor centre at www.capita.co.uk/ investors along with the matters reserved for the Board.
| Terms of reference | Nomination Committee |
Audit Committee | Remuneration Committee |
|---|---|---|---|
| Brief description of responsibilities |
Reviews composition of Board. Recommends appointment of new Directors. Considers succession plans for Chairman and Executive positions. Monitors corporate governance issues. The Group Diversity statement is reviewed and recommended by this committee. |
Reviews accounting policies and the contents of financial reports. Monitors the internal control environment. Considers the adequacy and scope of the external and internal audit programme. Oversees the relationship with our external auditors. Monitors risk profile and obtains assurance that principal risks have been properly identified and appropriately managed. |
Sets the policy for Executive Directors' and senior executives' remuneration. Approves individual remuneration awards. Agrees changes to senior executive incentive plans. Approves the policy on remuneration for FSA regulated firms and also reviews and approves the Remuneration Policy Statement in respect of the FSA Remuneration Code. |
Membership of the Company's standing committees at the end of the year is shown below:
| Martin Bolland |
Martina King |
Nigel Wilson |
Paul Bowtell |
Paddy Doyle |
|
|---|---|---|---|---|---|
| Nomination | (C)x | x | x | x | x |
| Audit | x | x | (C)x | ||
| Remuneration | (C)x | x | x |
(C) Chairman
Paddy Doyle is not independent and therefore is only appointed to the Nomination Committee, but he is available to the Audit and Remuneration Committees as required.
The Nomination Committee in 2011 comprised Martin Bolland (Committee Chairman), Nigel Wilson, Martina King, Paddy Doyle and Paul Bowtell. The Deputy Company Secretary acts as Secretary to the Committee and is available to assist the members of the Committee as required, ensuring that timely and accurate information is distributed accordingly. The Committee is also authorised under its terms of reference to obtain the advice of independent search consultants. The terms of reference for the Nomination Committee can be found on the Group's website at www.capita.co.uk/investors.
The Committee reports and makes recommendations to the Board in relation to its activities and deliberations. The Committee's key responsibilities are:
During the year Vic Gysin and Andy Parker were appointed to the Group Board as Executive Directors . Prior to recommending the appointments for approval, the Committee conducted a rigorous review of the size and structure of the Board and the balance and range of its Directors' knowledge and experience.
During the year the Nomination Committee has also considered the succession planning for the Board more generally.
Given that all Directors (except Paddy Doyle) will be retiring at the Annual General Meeting the performance of all Directors, their interests and any potential conflicts of interest declared to the Company were reviewed.
The Committee considered many issues, such as length of service and conflicts of interest, and how these may have an impact on the independence of the Non-Executives.
The time committed by the Non-Executives was also considered and this remained appropriate to ensure that each discharged their duties and responsibilities effectively.
I am pleased to present the report on the activities of the Audit Committee for the year to 31 December 2011. Set out below is a summary of the work carried out by the Committee.
Throughout 2011 the members of the Audit Committee were Paul Bowtell (Chairman), Martina King and Nigel Wilson, all of whom are independent Non-Executive Directors. Paul Bowtell is a Chartered Accountant and has recent and relevant financial experience for the purposes of the Code and the FRC's Guidance on Audit Committees. The Board has reviewed the performance of the Committee and is satisfied that the combined knowledge and experience of its members is such that the Committee discharges its responsibilities in an effective, informed and challenging manner.
Audit Committee meetings are by invitation and generally attended by: the Non-Executive Chairman; Chief Executive; Executive Directors; Director, Group Compliance; Director, Group Risk and Business Assurance and by representatives of the external Auditors.
The Chairman of the Committee is directly available to and holds regular meetings with the Group Compliance Director, Deputy Company Secretary, who acts as Secretary to the Committee, the Director, Group Risk and Business Assurance and external Auditors.
The Audit Committee assists the Board in fulfilling its oversight responsibilities in respect of the Company and the Group. The Committee's key responsibilities are:
The Audit Committee terms of reference set out in full the role, responsibilities and authority of the Committee and can be found on the Company's website at www.capita.co.uk/investors.
The Committee met five times during the year. Meetings are planned around the financial calendar for the Company and the meeting held in May is specifically to focus on the risk, internal control and compliance agendas.
During the year the Committee undertook the following activities:
66 Business review Governance Accounts Capita plc
Corporate governance
In line with its responsibilities, the Committee reviewed the annual business assurance programme and ensured that the Group Risk and Business Assurance function was adequately sponsored and resourced. The Group Risk and Business Assurance business plan was presented to the Committee in January 2012 and approved.
Ongoing: Reviewed a wide range of financial reporting and related matters during the year, including the half year and annual accounts prior to their submission to the Board. The Committee focused in particular on critical accounting policies and practices adopted by the Group and any significant areas of judgement that materially impact on reported results. At each meeting an update was also received from Group Compliance and Group Risk and Business Assurance. The Committee is also responsible for the policies on whistle blowing (speak up) and the provision of the non-audit services by the external Auditors. Both policies are published on the Company's intranet.
The Committee provides a forum for reporting by the Group's Auditors, and it advises the Board on the appointment, independence and objectivity of the Auditors and on the remuneration for both statutory audit and non-audit work. It also discussed the nature, scope and timing of the statutory audit with the Auditors. The Audit Committee annually performs an independent assessment of the suitability and performance of the Auditors in making its recommendation to the Board for their re-appointment.
The Committee discussed the performance of KPMG during the period and was satisfied that the level of communication and reporting was in line with requirements. The evaluation of KPMG also included the planning of the audit and a post audit evaluation. Particular importance was placed on this review as this was the first full year that KPMG had been appointed.
A resolution to re-appoint KPMG Audit Plc as the Auditors of the Company will be put forward at the forthcoming Annual General Meeting.
The lead audit partner is rotated on a five-yearly basis as a minimum.
The Directors who held office at the date of the approval of this Director's report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditors are unaware; and each Director has taken all steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.
The Committee takes seriously its responsibility to put in place safeguards to Auditor objectivity and independence. It has therefore established a policy on the provision of services by the Group's Auditors. The policy describes the circumstances in which the Auditors may be permitted to undertake non-audit work for the Group. The Committee oversees compliance with the policy and considers and approves requests to use the Auditors for non-audit work. Any assignment where the expected fee is above the relevant threshold requires specific approval from the Committee or a member of the Committee. The Deputy Company Secretary deals with day-to-day administration of the policy, facilitating requests for approval by the Committee. The policy is reviewed by the Committee annually. Details of audit and non-audit fees are given in note 7 on page 100.
The Company is committed to ensuring appropriate independence in its relationship with the Auditors and the key safeguards are:
Ensuring conflicts of interest are avoided is a fundamental criterion in the selection of any third party auditor for assignments with which the Group is involved. Such conflicts may arise across public or private sector clients and key supplier relationships, for example, and are a key determinant in the award process for external audit assignments.
Chairman Audit Committee
Details of the Remuneration Committee and its activities are given in the Directors' remuneration report on pages 75 to 85.
During 2011 the Board met nine times, excluding ad hoc meetings, solely to deal with procedural matters. The Nomination Committee and the Remuneration Committee met two and five times during the year, respectively. The Audit Committee met five times during the year. Attendance is recorded in the table below:
| Board meetings | Nomination Committee meetings |
Remuneration Committee meetings |
Audit Committee meetings |
|
|---|---|---|---|---|
| Scheduled meetings | 9 | 2 | 5 | 5 |
| Martin Bolland | 9 | 2 | – | – |
| Paul Pindar | 9 | – | – | – |
| Gordon Hurst | 9 | – | – | – |
| Andy Parker | 9 | – | – | – |
| Vic Gysin | 9 | – | – | – |
| Maggi Bell | 8 | – | – | – |
| Nigel Wilson | 8 | 2 | 5 | 5 |
| Paul Bowtell | 9 | 2 | 5 | 5 |
| Martina King | 8 | 2 | 5 | 5 |
| Paddy Doyle | 8 | 2 | – | – |
Due to the nature of the acquisition and bid strategy, consideration of meeting times has to include flexibility to hold meetings outside of this timetable and meetings of this nature tend to be held by telephone.
Any Director's absence from Board meetings or meetings of the Audit, Remuneration or Nomination Committees was previously agreed with the Chairman of the Board, the Chief Executive or the Chairman of the relevant committee.
The Board encourages and seeks to build a mutual understanding of objectives between the Group and its shareholders. As part of this process the Executive Directors make regular presentations and meet with institutional shareholders to discuss the Group's business model and growth strategy, address any issues of concern, obtain feedback and consider corporate governance issues. All shareholders are encouraged to attend the Annual General Meeting and information for shareholders is available on the Company's website – www.capita.co.uk/investorcentre. All the Non-Executive Directors are available to meet with shareholders to understand their views more fully. The Chairman is personally available to the significant shareholders in the Group.
The Corporate Communications team has effective day-to-day responsibility for managing shareholder communications and always acts in close consultation with the Board. A Disclosure Committee consisting of the Corporate Communications Director, Chief Executive and Group Finance Director ensures all appropriate communications are made to the London Stock Exchange and shareholders. Shareholders can also access up-to-date information through theGroup's website at www.capita.co.uk/investorcentre. A telephone helpline, 0871 664 0300, provides a contact point directly to the Group's registrars.
All members of the Board, including the Non-Executive Directors, receive a report on any significant discussions with shareholders and feedback that follows the annual and half-yearly presentations to investment analysts and shareholders. All analyst reports concerning Capita are circulated to the Directors.
Directors, including the Chairmen of the various committees, are present at the Annual General Meeting to answer any questions. The Board particularly encourages communication with and the participation of private investors at the Annual General Meeting.
The Board is responsible for the Group's system of internal control and for regularly reviewing its effectiveness. Procedures have been designed for, inter alia, the safeguarding of assets against unauthorised use or disposition, maintaining proper accounting records and the reliability of financial information used within the business or for publication. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material errors, losses or fraud. There is an ongoing process of identifying, evaluating and managing the key risks faced by the Group, which has been in place throughout the year under review and up to the date of approval of the 2011 Annual Report and Accounts. This process is regularly reviewed by the Board. The Group's key internal control procedures include the following:
– the Board has responsibility to set, communicate and monitor the application of policies, procedures and standards in areas including operations, finance, legal, commercial and regulatory compliance, human resources and health and safety, information security and property management and corporate social responsibility and the environment and these policies are cascaded to the businesses via the MOB review process and additional internal communication channels
the MOB process is supplemented across many of the Group's businesses, including all the regulated financial services businesses, by a number of formally constituted risk committees. These committees provide an appropriate means to routinely monitor the risk profile for these businesses, including regulatory risks, and for proposed mitigating actions to be challenged and tracked. During the course of 2011 a new Group Financial Services (FS) Governance Forum was established to provide enhanced Group oversight of all financial services business streams. The forum is chaired by Vic Gysin, will have an independent member and when fully established will meet quarterly
the Group Risk and Business Assurance function reports to the Group Finance Director and independently to the Audit Committee. In addition to independently facilitating the Group's risk management framework, it delivers a risk-based internal audit programme, to provide assurance on the effectiveness of the internal control structures operating across the business. The annual audit programme is focused on areas of greatest risk to the Group, as determined by the Group risk framework, and an independent view of those risks is taken by the Group Risk and Business Assurance function. Work continues to further segregate the internal audit function that reviews FSA regulated financial services businesses with a reporting line into the FS Governance Forum, as described previously
Through the above mechanisms, the Board and the Audit Committee have performed a Group-wide review of the effectiveness of the internal control system, including financial and operational controls and risk management in accordance with the Code for the period from 1 January 2011 to the date of approval of this Annual Report and Accounts. The Board and the Audit Committee is satisfied with the process of monitoring the effectiveness of internal controls and complies with the Internal Control Guidance for Directors in the Code issued by the Institute of Chartered Accountants in England and Wales and in the revised Turnbull Guidance (2005).
Risk management and governance is also referred to on pages 32 to 34.
The Company is required to set out in this report a fair review of the business of the Group during the financial year ended 31 December 2011 and of the position of the Group at the end of the financial year and a description of the principal risks and uncertainties facing the Group (known as a 'Business Review'). The purpose of the Business Review is to enable shareholders to assess how the Directors have performed their duty under Section 172 of the Companies Act 2006 (duty to promote the success of the Company). The information that fulfils the requirements of the Business Review can be found in pages 1 to 56. Details of the Group's business goal, strategy and model are on pages 2 to 5 and 11.
The Board agreed with Paddy Doyle's wish to retire and step down from the Board at the end of March 2012.
Directors are appointed and may be removed in accordance with the Articles of Association of the Company and the provisions of the Companies Act 2006.
All Directors are subject to election at the first Annual General Meeting after their appointment and to re-election at intervals of no more than three years in accordance with the Code and the Company's Articles of Association. However, all Directors (except Paddy Doyle) will retire and will offer themselves for re-election at the Annual General Meeting in May, in accordance with the Code provision B.7.1.
No person, other than a Director retiring at the meeting, shall be appointed or re-appointed a Director of the Company at any General Meeting unless he/she is recommended by the Directors.
No person, other than a Director retiring at a General Meeting as set out above, shall be appointed or re-appointed unless between seven and 35 days' notice, executed by a member qualified to vote on the appointment or re-appointment, has been given to the Company of the intention to propose that person for appointment or re-appointment, together with notice executed by that person of his/her willingness to be appointed or re-appointed.
Regarding the continuing debate on the topic of diversity on boards and in particular whether prescribed quotas regarding women on boards are preferable or not, approaching 20% of our senior management team and 20% of our Board in 2011 were women. Capita sees significant business benefit in having access to the diversity of thinking that comes from people with a wide range of backgrounds at all levels in the Company. Only by encouraging this diversity and
by fostering talent throughout the business can the Company expect to achieve further diversity in senior management and on boards. Capita established a network of diversity champions across the Group in 2008 and the Company's training and mentoring initiatives actively support the fostering of talent at all levels in the business across the Company's diverse workforce. The Board and senior management teams across Capita are fully committed to continuing to foster talent and support those people from all backgrounds who wish to progress. However, the Company will also continue to appoint and promote people on merit and in line with the skills and attributes identified for each post, including those identified by the Nominations Committee for the Board.
Details of how the Group manages its social and environmental responsibilities can be found on pages 45 to 56 and at www.capita.co.uk/sustainability.
Capita is the leading UK provider of business process outsourcing solutions and professional support services to organisations across the public and private sectors. The Group's 10 chosen markets are: in the public sector – central government, local government, education, health, emergency services and transport, and in the private sector – life and pensions, insurance, financial services and other corporates.
On behalf of its clients, Capita aims to improve service quality, reduce costs of service delivery and enables clients to transform the way that they deliver services to their customers. The services that Capita provides are essential to the smooth running and success of its clients' operations. Capita designs, successfully implements and manages tailored service solutions, ranging across administration, information technology, financial, human resources, property and customer service functions. Capita maintains leading positions in the majority of its markets due to its scale and ability to draw on this wide base of professional services, detailed market knowledge and extensive business process transformation and change management skills.
A review of the development of the Group and its business activities during the year is contained in the Business Review on pages 1 to 56. Our divisional operations and financial performance are detailed on pages 35 to 44.
In January 2011, the Board decided to reorganise the Group's divisions to reflect the growth of the Group and provide greater transparency. From January 2011, the Group's principal activities are managed through nine operating divisions. Additionally a Divisional Executive Management Team was created with representation from the heads of the nine divisions, and the head of Group acquisitions, head of strategic sales development and two Senior Divisional Finance Directors.
The Group underlying profit before taxation amounted to £385.2m (2010: 364.2m). The Directors recommend a final dividend of 21.4p share (2010: 13.4p per share) to be paid on 28 May 2012 to ordinary shareholders on the Register on 20 April 2012. This gives a total dividend for the year of 21.4p per share (2010: 20.0p per share).
The employee benefit trust has waived its right to receive a dividend on the shares being held within the Trust.
Under the Companies Act 2006, Directors are under an obligation to avoid situations in which their interests can or do conflict, or may possibly conflict, with those of the company. In response to the conflicts of interest provisions, a comprehensive project was undertaken in 2008 to identify and disclose any conflicts of interest that have arisen or may arise across Capita. Procedures were implemented for evaluating and managing conflicts that have been identified in a way that ensures that decisions are not compromised by a conflicted Director. In addition, the Company's Articles of Association give the Board the power to authorise matters that give rise to actual or potential conflicts. The Board reports annually on the Company's procedures for ensuring that the Board's powers of authorisation of conflicts are operated effectively and that the procedures have been followed. A policy for ongoing identification and disclosure of conflicts is in place and is kept under regular review.
The Board has authorised the conflict of Gordon Hurst being a trustee of both the Capita Pension and Life Assurance Scheme and the Capita Group Money Purchase Scheme, and gave specific guidance on this conflict going forward. Gordon Hurst did not participate in the discussion or vote on the guidance given. No other conflicts of interest declared were material to the Board. All conflicts of interest are reviewed on an annual basis by the Board and are revisited as part of the year-end process by the Directors. None of the Directors of the Company had a material interest in any contract with the Company or its subsidiary undertakings, other than their contracts of employment.
On 17 February 2012 the Company had received notifications that the following were interested in accordance with DTR5:
| Shareholder | Number of shares |
% of Voting Rights as at 17 February 2012 |
Number of shares direct |
Number of shares indirect |
|---|---|---|---|---|
| BlackRock Inc | 32,380,092* | 5.28 | 32,380,092* | – |
| Capital Research and Management Company |
56,167,933 | 9.16 | – | – |
| Invesco Limited | 122,463,959 | 19.96 | – | 122,463,959 |
| Legal & General Group Plc |
23,086,079 | 3.76 | 19,663,063 | 3,423,016 |
*This figure includes a Contract For Difference (CFD) for 1,108,828 shares.
At 17 February 2012, 627,638,789 ordinary shares of 21 /15p each have been issued and are fully paid up and are quoted on the London Stock Exchange. 14,199,984 shares are held in treasury and the total voting rights equates to 613,438,805. During the year ended 31 December 2011, options were exercised pursuant to the Company's share option schemes, resulting in the allotment of 152,415 new ordinary shares. 8,679 shares have been allotted under these schemes since the end of the financial year to the date of this report. 0.82% of the issued share capital is held within an employee benefit trust for the use of satisfying employee share options.
The share price at 31 December 2011 was 628.5p. The highest share price in the period was 786.5p and the lowest was 611.5p.
The Company renewed its authority to repurchase up to 10% of its own issued share capital at the Annual General Meeting in May 2011. During the year the Company did not purchase any shares (2010: 15,403,930).
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review on pages 1 to 56. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described on pages 35 to 37. In addition note 26 to the financial statements on page 113 includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Group has considerable financial resources together with long term contracts with a wide range of public and private sector clients and suppliers. As a consequence, the Directors believe that the Group is well placed to manage its business risk successfully.
After making enquiries, and in accordance with the FRC's Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
It is the Group's policy to give full consideration to suitable applications for employment of disabled persons and to ensure that any reasonable adjustments are made to either workplace or job content to accommodate a person's disabilities. Disabled employees are eligible to participate in all career development opportunities available to employees and will be supported to do so. Opportunities also exist for employees of the Group who become disabled to continue in their employment with any reasonable adjustments being made or to be retrained for other positions in the Group.
Capita is committed to involving all employees in the performance and development of the Group. Its approach to employee development offers continual challenges in the job, learning opportunities and personal development. The Group supports employees through a comprehensive range of key business and management skills and personal development programmes through the Capita Academy and Capita Manager Academy. At the same time our businesses provide business specific training for all employees relevant to their role. In addition the Group supports the achievement of professional qualifications including a range of National Vocational Qualifications.
The Group encourages all of its employees to participate fully in the business through open dialogue. Employees receive news of the Group through: frequent email notices; internal notice board statements; the Group employee intranet, Capita Connections, and regular email updates on business performance from both Divisional and Group Directors. Capita Connections enables employees to manage their work more efficiently and to share information within and between business units and employees are encouraged to contribute news, views and feedback. The Group maintains a strong communications network and employees are encouraged, through its open door policy, to discuss with management matters of interest to the employee and subjects affecting day-to-day operations of the Group.
Capita has an established employee share plan designed to promote employee share ownership and to give employees the opportunity to participate in the future success of the Group. In keeping with its belief that employees are the Group's most valuable asset, the Group operates employee awards schemes both at Group and Divisional level. These celebrate the core values that embody the organisation and reward employees for service excellence, teamwork, leadership, cost saving and efficiency and charitable support and community engagement.
The Company aims to pay suppliers in accordance with the suppliers' contract terms. In 2011 the Company had an average of 41 days purchases (2010: 41 days purchases) outstanding in trade creditors.
During the year charitable donations amounted to £0.5m (2010: £0.7m). No political contributions were made. Further details of the Group's charitable donations and work within the community can be found on page 56 and at www.capita.co.uk/sustainability
The Group's financial instruments primarily comprise bonds, bank loans, finance leases and overdrafts. The principal purpose of these is to raise funds for the Group's operations. In addition various other financial instruments such as trade creditors and trade debtors arise directly from its operations. From time to time, the Group also enters into derivative transactions, primarily interest rate swaps, currency swaps and forward exchange contracts, the purpose of which is to manage interest risk and currency risk, arising from the Group's operations and its sources of finance.
The main financial risks, to which the Group has exposure, are interest rate risk, liquidity risk, credit risk and foreign currency risk.
The Group borrows in selected currencies at fixed and floating rates of interest and makes use of interest rate swaps and currency swaps to generate the desired interest profile and to manage its exposure to interest rate fluctuations.
In respect of liquidity risk, the Group aims to maintain a balance between continuity of funding and flexibility through the use of multiple sources of funding including bonds, bank loans, loan notes, finance leases and overdrafts, over a broad spread of maturities.
In respect of credit risk, the Group trades only with recognised, creditworthy third parties. It is the Group's policy that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debt is not significant.
With respect to credit risk arising from the other financial assets of the Group, such as cash, financial investments and derivative instruments, the Group's exposure to credit risk arises from default of the counterparty. The Group manages its operations to avoid any excessive concentration of counterparty risk and the Group takes all reasonable steps to seek assurance from the counterparties to ensure that they can fulfil their obligations.
The Group is not generally exposed to significant foreign currency risk, except in respect of its overseas operations in India, which generates exposure to movements in the Indian Rupee exchange rate. The Group seeks to mitigate the effect of this exposure by entering forward currency instruments, in the form of non-deliverable forward contracts, to fix the sterling cost of highly probable forecast transactions denominated in Indian Rupees. Further details of the Group's financial instruments can be found in note 26 to the consolidated financial statements on pages 113 to 118.
Under the Companies Act 2006, companies are under an obligation to disclose any indemnities which are in force in favour of their directors. The current Articles of Association of the Company contain an indemnity in favour of the Directors of the Company which indemnifies them in respect of certain liabilities and costs that they might incur in the execution of their duties as Directors. Copies of the relevant extract from the Articles of Association are available for inspection at the registered office of the Company during normal business hours on any weekday and will be available at the venue of the 2012 Annual General Meeting from 15 minutes before the meeting until it ends.
The business of the Company shall be managed by the Directors who are subject to the provisions of the Companies Act 2006, the Articles of Association of the Company and to any Directions given by special resolution, including the Company's power to repurchase its own shares.
The Company's Articles of Association may only be amended by a special resolution of the Company's shareholders.
All of the Company's share schemes contain provisions in relation to a change of control. Outstanding options and awards would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at that time.
Capita has a number of borrowing facilities provided by various banks and other financial institutions. Capita's bank debt contains a change of control provision under which the banks may require immediate repayment in full on change of control. The bonds issued by Capita contain a change of control provision which requires the Group to offer to prepay the bonds in full if a change of control event occurs and Capita does not obtain an investment grade credit rating.
There are no other significant contracts in place that would take effect, alter or terminate on the change of control of the Company.
statements
The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Details of the principal risk categories can be found on page 34.
Under the Company's Articles of Association, holders of ordinary shares are entitled to participate in the receipt of dividends pro rata to their holding. The Board may propose and pay an interim dividend and recommend a final dividend, in respect of any accounting period out of the profits available for distribution under English law. A final dividend may be declared by the shareholders in the General Meeting by ordinary resolution, but no dividend may be declared in excess of the amount recommended by the Board.
At any General Meeting a resolution put to vote at the meeting shall be decided on a poll. On a poll every member who is present in person or by proxy shall have one vote for every share of which they are the holder.
No person holds securities in the Company carrying special rights with regard to control of the Company. The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities or on voting rights.
The Company's Articles of Association allow Directors to, in their absolute discretion, refuse to register the transfer of a share in certificated form unless the instrument of transfer is lodged, duly stamped, at the registered office of the Company, or at such other place as the Directors may appoint and (except in the case of a transfer by a recognised person where a certificate has not been issued in respect of the share) is accompanied by the certificate for the share to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. They may also refuse to register any such transfer where it is in favour of more than four transferees or in respect of more than one class of shares.
The Directors may refuse to register a transfer of a share in uncertificated form in any case where the Company is entitled to refuse (or is exempted from the requirement) under the Uncertificated Securities Regulations to register the transfer.
The 2012 Annual General Meeting (AGM) of the Company will be held at Deutsche Bank, Winchester House, 1 Great Winchester Street, London, EC2N 2DB, on 15 May 2012. At the AGM a number of resolutions will be proposed. The resolutions are set out in the Notice of Meeting, which was sent to shareholders with the 2011 Annual Report and Accounts and includes notes explaining the business to be transacted. In May 2011 shareholders granted authority for the Company to purchase up to 62,298,429 ordinary shares which will expire atthe conclusion of the 2012 AGM. No shares were purchased during 2011. A resolution to renew this authority will be put to shareholders at the 2012 Annual General Meeting.
These Annual Accounts have been approved by the Directors of Capita plc. The Directors confirm that the Annual Accounts have been prepared in accordance with applicable law and regulations and that they include a fair review of the development and performance of the business and the position of the parent company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
We, the Directors of the Company, confirm that to the best of our knowledge:
It is my pleasure to report on the activities of the Remuneration Committee for the period to 31 December 2011. This report will be presented for approval by shareholders at the 2012 Annual General Meeting.
This report sets out the remuneration policy and remuneration details of the Executive and Non-Executive Directors of the Company. The report has been prepared in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and also meets the requirements of the Listing Rules of the UK Listing Authority.
The long term strategy of Capita is to attract and retain the best employees to fulfil the overall business plan of the Group and ensuring that this aligns with our shareholders, external stakeholders, and our risk policies and systems. Our remuneration strategy and policy for Executive Directors is to set base salary at lower quartile level and reward upper quartile performance with upper quartile rewards.
During 2011, following shareholder approval at the Annual General Meeting, we introduced a one off Co-Investment Plan (CIP) for Paul Pindar. It was part of the benchmarking exercise undertaken in 2010 and was devised with our advisers
and consulted fully with our major shareholders, to retain, motivate and help bridge the competitive pay gap with Paul's annualised total compensation increasing to around the median of market practice in four years time. Further details on this plan are detailed on page 79.
The Committee met during the year to consider the performance of the various elements of the remuneration such as the Long Term Incentive Plan and the Deferred Annual Bonus to understand how these plans were performing against the targets set.
The Committee also met in August to specifically discuss the Remuneration Policy that was adopted by the subsidiaries who were identified as firms captured by the FSA's Remuneration Code.
The following Non-Executive Directors were members of the Committee during 2011:
Martina King (Chair), Nigel Wilson, Paul Bowtell
The Committee met five times during 2011 and the attendance of the Committee is shown in the attendance table on page 67.
The table below shows how the areas of salary and other benefits are broken down between fixed and variable pay.
| Strategy | Policy | Package | Risk |
|---|---|---|---|
| Alignment to shareholders' interests | Set base pay at lower quartile level | Base salary Cash bonus |
Low Low – medium |
| Competitive in the current market and our business sector |
Reward upper quartile performance | Deferred Annual Bonus plan Long Term Incentive Plan |
Low – medium Medium to high |
| Encourages and supportive of a high performance culture |
Balance between short and long term rewards with a balance on longer term rewards |
Share Matching Plans | Medium |
| Attract, retain and motivate | Competitive package of benefits | Pension provision Car allowance Healthcare All employee plans |
Low – medium |
Below is a summary of the remuneration for the Executive Directors awarded during 2011.
| Executive Director | Salary £ |
Bonus £ |
LTIP Shares £ |
Pension £ |
Other benefits* £ |
|---|---|---|---|---|---|
| Paul Pindar | 380,000 | nil | 165,000 | 19,000 | 1,490 |
| Gordon Hurst | 280,000 | nil | 120,000 | 14,000 | 17,390 |
| Andy Parker | 230,000 | nil | 80,000 | 11,500 | 16,466 |
| Vic Gysin | 230,000 | nil | 80,000 | 11,500 | 16,405 |
| Maggi Bell | 230,000 | nil | 120,000 | – | 15,404 |
*The benefits are car allowance and private medical insurance.
The Executive Directors asked to keep their 2012 remuneration unchanged from 2011 levels and therefore the salaries at Executive and Divisional Director level have been frozen for 2012. This decision was supported by the Committee. The Committee noted that all employees are paid in accordance with the market conditions and business requirements for their role. To compare directly our wide range of employees with the Executive Directors is very difficult and therefore a general review and consideration has been undertaken to ensure that salaries across the Group are considered. The base salaries of the Executive Directors are currently below lower quartile when benchmarked against the FTSE 40 - 60 and also the FTSE 100.
In line with the responsibilities set out in the committee's terms of reference the following key issues were discussed during the year:
The service contracts for Executive Directors are for an indefinite period and provide for a one year notice period. They do not include provisions for predetermined compensation on termination that exceed one year's salary and benefits. There are no arrangements in place between the Company and its Directors that provide for compensation for loss of office following a takeover bid. All Directors are appointed for an indefinite period but are subject to annual re-election at the Annual General Meeting.
Details of the contracts are set out below:
| Executive Directors | Date of contract | Notice period |
|---|---|---|
| Paul Pindar | 17 December 2007 | 12 months |
| Gordon Hurst | 17 December 2007 | 12 months |
| Maggi Bell | 1 August 2008 | 12 months |
| Andy Parker | 10 January 2011 | 12 months |
| Vic Gysin | 10 January 2011 | 12 months |
| Non-Executive Directors | Date of joining the Board |
|---|---|
| Martin Bolland | 1 March 2008 |
| Martina King | 1 January 2005 |
| Paddy Doyle1 | 1 March 2010 |
| Paul Bowtell | 28 June 2010 |
| Nigel Wilson | 12 May 2010 |
1 Joined the Board in 1994 and will be retiring at the end of March 2012.
For Executive Directors this is summarised as follows:
| Policy | Delivery | Year in review | |
|---|---|---|---|
| Base pay | Lower quartile pay | Monthly in cash Reviewed annually in December and effective January |
Reviewed against: Salaries in similar companies and comparably sized companies Economic climate, market conditions and Group performance The role and responsibility of the individual Director |
| Bonus plan | Upper quartile for performance | Paid in cash following the results. For 2012 a maximum of 200% of annual salary can be achieved subject to stretching performance targets. |
No award made |
| Deferred Annual Bonus plan | Upper quartile for performance | Compulsory deferral of 50% of the cash bonus is put into the plan and this is matched with up to 2 shares for each one deferred. From 2012 awards onwards up to 100% of all bonus awarded can be deferred. |
No award made |
| Long Term Incentive Plan | Upper quartile for performance | Award of nil cost options Vest in 3 years following a performance condition of EPS and share price performance |
Reviewed against: The role and responsibility of the individual Director Review of performance targets for future awards |
| Benefits | In line with all employees within the Group | Pension – up to 5% Car allowance Healthcare All employee plans |
For the period to 31 December 2011, no bonuses have been awarded to the Executive or Divisional Directors. The target set during the business planning process for 2011, in agreement with the Executive Directors, was extremely stretching and was not met as explained on page 60.
A salary increase of £5,000 per annum was awarded to each Executive Director in 2011. No salary increases were awarded to the Executive Directors for 2012.
The fees for the Non-Executive Directors are determined by the Board (apart from the Chairman which is set by the Remuneration Committee) and are set at a level that ensures that the Company can attract and retain individuals with required skills, experience and knowledge so that the Board can effectively carry out its responsibilities.
The fees also recognise the responsibility of the role and the time commitments required - these are not performance-related or pensionable. The fees are paid monthly in cash and there are no other benefits. There were no increases in fees in 2011.
In line with the Executive Directors, no increase in fees are proposed for 2012 for the Non-Executive Directors.
The annual bonus scheme is reviewed annually and designed to drive performance and profitability across the organisation. The cash bonus potential for 2011 for Executive Directors was 85% of salary. For the period to 31 December 2011 nothing was paid as the stretching performance conditions were not met. The performance target was set, during the business planning process for 2011, at a level of profit before tax with a stretch target to achieve the full potential. This was set using market expectations and forecasts submitted within the business planning process.
| Plan name | Plan background and objective | Plan operation | Performance period and criteria |
|---|---|---|---|
| Deferred Annual Bonus plan (DAB) |
The DAB was approved and adopted at the Annual General Meeting on 28 April | The value of the Deferred Shares is determined by the entitlement under the | 2009 and before |
| 2005 and new rules were adopted at the Annual General Meeting in May 2010. The DAB is comprised of Deferred Shares, which form part of the annual bonus scheme, and Matching Shares. |
annual bonus scheme, half of the bonus entitlement is paid in cash and the remainder is deferred as determined by the Committee. The remainder is deferred on a gross basis into Deferred Shares or as a net restricted share award. |
EPS growth of RPI + 6% per annum – 33% of the award vests |
|
| The Committee believes that this plan focuses participants on delivering strong year on year performance, which in turn drives long term shareholder value |
The Deferred Shares are held for a period of three years from the date of award. They are only forfeited in the case of dismissal for gross misconduct. |
EPS growth of RPI +16% per annum – 100% of the award vests |
|
| creation. Executive and Divisional Directors are eligible to participate in the DAB. | A conditional award of Matching Shares is made at the same time as the award of | Straight-line vesting occurs between | |
| The DAB is split into two elements: | Deferred Shares. Participants are eligible to receive up to 1.5 Matching Shares for every Deferred Share. Matching Shares vest after a three year holding period to |
these points. 2010 |
|
| – Deferred Award – this is the compulsory deferral of the bonus awarded. This part is not subject to performance conditions. |
the extent to which performance criteria have been met. During the year an aggregate of 183,523 Matching Shares were awarded to Executive Directors as |
EPS growth of RPI + 4% per annum – 33% of the award vests |
|
| – Matching Award – which is subject to performance conditions. This is awarded at a ratio of 1.5 shares for each gross share awarded under the Deferred Award. Although this is a fixed amount the calculation is based on a percentage of salary. In 2011 (for the year ending December 2010) this was 70% of base salary which is the maximum that could be awarded at that time. |
detailed on pages 82 and 83 and subject to the following performance conditions. The Committee has decided that the performance condition that will apply to |
EPS growth of RPI +14% per annum – 100% of the award vests |
|
| the Matching Shares is earnings per share (EPS) growth against the UK Retail Price Index (RPI). The Committee continues to believe that long term EPS growth is the most appropriate performance condition for the Company, as it is a key |
Straight-line vesting occurs between these points. |
||
| In February 2011, 122,350 Deferred Shares were awarded to Executive Directors | indicator of shareholder value creation. The review of the EPS target for 2010 | 2011 onwards | |
| at a price of 718p being the market price determined at grant. No award will be made in 2012 as no bonus was awarded in respect of the 2011 |
and 2011 was to ensure that the target continued to be no less challenging than the original conditions. The Committee continues to believe that these targets |
EPS growth of RPI + 4% per annum – 33% of the award vests |
|
| financial period. | are very challenging given Capita's earnings growth over the last five years. | EPS growth of RPI +12% per annum | |
| From awards in 2012 the Matching Award is increased to a ratio of two shares for | There are no non-financial targets for this plan, however the annual appraisal | – 100% of award vests | |
| each deferred share awarded. | process considers non-financial measures and awards consider the prior year performance as a whole. |
Straight-line vesting occurs between these points. |
Share plans
| Plan name | Plan background and objective | Plan operation | Performance period and criteria |
|---|---|---|---|
| Long Term Incentive Plan (2008 LTIP) |
At the Annual General Meeting in 2008 the Long Term Incentive Plan (LTIP) was approved by shareholders. In calculating the LTIP awards granted to Executive Directors, the Committee considered that a fixed number of shares was preferable than fixing awards as a percentage of salary. Under the plan rules the Committee can award up to three times salary or a maximum of 165,000 shares. Paul Pindar has been awarded the maximum of 165,000 shares in all years. On 25 February 2011, 565,000 shares were awarded to the Executive Directors as detailed in the table on pages 82 and 83. |
The vesting of awards will depend on the share price growth and EPS targets measured over a three year period. An award will not vest if Capita's average share price at the date of vesting is below the average share price at the date of grant. The proportion of awards that vest will be determined by the following criteria asshown. The Committee may vary the performance conditions if it considers that the original conditions are not appropriate and a fair measure of performance. Where the performance conditions are not met, the award will lapse. There will be no re-testing of performance. The Committee has considered the targets set for both Executive Directors and other participants of the scheme and feels that they are very challenging especially in the current market. Although there are no non-financial targets for this plan the annual appraisal process considers non-financial measures and awards considers the prior performance as a whole. |
2009 and before EPS growth of RPI + 4% per annum – 20% of the award vests EPS growth of RPI +16% per annum – 100% of the award vests Straight-line vesting occurs between these points. 2010 EPS growth of RPI + 4% per annum – 20% of the award vests EPS growth of RPI +14% per annum – 100% of the award vests Straight-line vesting occurs between these points. 2011 onwards EPS growth of RPI + 4% per annum – 20% of the award vests EPS growth of RPI +12% per annum – 100% of the award vests Straight-line vesting occurs between |
| Co-Investment Plan (CIP) | The Co-Investment Plan (CIP) was approved and adopted at the Annual General Meeting on 10 May 2011. The CIP is comprised of Pledged Shares and Matching Shares. The Committee believes that this plan will provide a one off plan for Paul Pindar and is an opportunity to retain, motivate and help bridge the competitive pay gap and increase the annualised compensation to around median of market practice within the four years from grant. The CIP is split into two elements. Paul Pindar pledged the value of £1m of shares, made up of new and existing shares. These Pledged Shares do not have any performance conditions as they are part of Paul Pindar's personal shareholding. The second part is awarded as a Matching Award with performance conditions over a four year period. In May 2011 412,087 Matching Shares were awarded to Paul Pindar and the market price at award was 741p. |
The value of the Pledged Shares was determined by the share price, and one third of the Pledged Shares were required to be purchased as new shares. The remainder could be pledged from the existing shareholding. The Pledged Shares do not have any performance conditions. The Matching Award was made following the pledging of the shares and the approval of the plan by shareholders. The Matching Shares have a performance target of Total Shareholder Return compared to the FTSE 100 Index over a fixed four year period. In addition, the Committee may consider various factors when assessing the underlying performance but the minimum requirement for any vesting is that the earnings per share of the Company must have grown over the performance period. Clawback – In circumstances where the Committee considers in good faith that the vesting of the Matching Award was determined on the basis of materially misstated or other financial data, it shall take such steps as it considers appropriate to recover the difference in value between the incorrect Matching Award and the Matching Award that would have vested had the correct data been used. |
these points. Capita's TSR over the performance period to be at upper quartile to the constituents of the FTSE 100 Index. One third will vest for achieving median TSR and straight line vesting between median and upper quartile. There will be no vesting of the Matching Award below median TSR |
| Long Term Indexed Share Appreciation Scheme (LTISAS) |
The LTISAS was only open to the Executive Directors and Divisional Directors. Under the scheme, participants were provided with two equal tranches of 600,000 options. The last award under the LTISAS was made in November 2004 and vested in full on 31 December 2006 and no further awards have or will be made under this plan. Paul Pindar remains the only Executive Director with outstanding options within this scheme. |
The criteria were the same for each of these grants and therefore both tranches had performance periods that ended on 31 December 2006. The exercise price of the option was adjusted in line with the movement in the FTSE All Share Index from the date of grant to 25 November 2007. The adjusted exercise prices were 348p for the 2002 award and 474p for the 2004 award. This feature ensured that participants only gained if the share price out-performed the index. |
As growth in the Company's EPS over the three year period to 31 December 2006 exceeded RPI growth by 17.6%, 100% of the options vested (representing 1,200,000 shares per participant) and became exercisable on 25 November 2007. |
| Plan name | Plan background and objective | Plan operation | Performance period and criteria |
|---|---|---|---|
| Executive Share Option Scheme (ESOS) |
The 1997 Executive Share Option Scheme (including both HMRC approved and unapproved elements) is a discretionary scheme for senior managers in which the Executive Directors no longer participate. |
Options granted under this scheme become exercisable if the growth in the Company's EPS exceeds growth in RPI by 8% over a three year period from the date of grant. |
If the growth in the Company's EPS exceeds growth in RPI by 8% over a three year period from the date of grant. |
| Save as you Earn (SAYE) | The SAYE is open to all employees of the Company, under certain eligibility criteria, including Executive Directors. The SAYE was renewed for a further 10 years at the AGM in May 2010. |
Under the plan employees can save up to £250 per month for a period of three years and purchase shares at the price set at the beginning of the savings period. |
There are no performance criteria to be satisfied under this scheme. |
| Capita Share Ownership Plan (CSOP) |
The CSOP is open to all employees of the Company, under certain eligibility criteria. |
Under the plan employees may invest up to £125 per month in the Company's shares and the Company matches these at a ratio of one matching share for every 10 participant shares. |
There are no performance criteria to be satisfied under this scheme Share plans. |
When satisfying awards made under its share plans and long term incentive plans, the Company uses newly issued, treasury or purchased shares as appropriate.
All awards are made under plans that incorporate dilution limits as set out in the Guidelines for Share Incentive Schemes published by the Association of British Insurers. The estimated dilution from existing awards including executive and all-employee share awards is approximately 7.02% of the Company's share capital as at 31 December 2011.
The remuneration of the Directors is made up as follows:
| Salary and fees £ |
Benefits £ |
Performance related bonus £ |
Total 2011 £ |
Total 2010 £ |
Dividends equivalent for DAB £ |
Gain on exercise of options 2011 ** £ |
Gain on exercise of options 2010 £ |
Pension 2011 £ |
Pension 2010 £ |
|---|---|---|---|---|---|---|---|---|---|
| 200,000 | – | – | 200,000 | 200,000 | – | – | – | – | – |
| 380,000 | 1,490 | – | 381,490 | 901,360 | 17,349 | 1,432,818 | 479,565 | 19,000 | 18,750 |
| 280,000 | 17,390 | – | 297,390 | 677,260 | 12,706 | 972,002 | 345,572 | 14,000 | 13,750 |
| 230,000 | 16,466 | – | 246,466 | – | – | 266,784 | - | 11,500 | - |
| 230,000 | 16,405 | – | 246,405 | – | – | 266,784 | - | 11,500 | - |
| 230,000 | 15,404 | – | 245,404 | 555,384 | 9,530 | 404,528 | 267,948 | – | – |
| 70,000 | – | – | 70,000 | 44,722 | – | – | – | – | – |
| 60,000 | – | – | 60,000 | 30,682 | – | – | – | – | – |
| 60,000 | – | – | 60,000 | 51,250 | – | – | – | – | – |
| 60,000 | – | – | 60,000 | 93,887 | – | 1,065,602 | 380,843 | – | 1,000 |
| 285,000 | 17,960 | – | 302,960 | 699,381 | – | – | 293,121 | – | 29,150 |
*Simon Pilling received £21,000 for compensation for loss of office in January 2011
** The gain on exercise of options was primarily awarded from the first award under the Long Term Incentive Plan launched in 2008.
| Directors' interests | ||
|---|---|---|
| 31 December 2011 or date of resignation ordinary shares of 21 /15 each |
31 December 2010 or date of appointment if later ordinary shares of 21 /15 each |
|
| Martin Bolland | 40,000 | 25,000 |
| Paul Pindar* | 1,701,903 | 1,669,252 |
| Gordon Hurst* | 54,900 | 64,025 |
| Andy Parker | – | – |
| Vic Gysin* | 16,220 | 16,220 |
| Maggi Bell* | 81,094 | 67,856 |
| Nigel Wilson | – | – |
| Paul Bowtell | – | – |
| Martina King | 717 | 717 |
| Paddy Doyle | 27,289 | 27,176 |
| Simon Pilling* | 32,383 | 32,383 |
| *Some held beneficially in trust | ||
| Executive Directors | Beneficially held restricted stock |
|
| Paul Pindar | 45,290 | |
| Gordon Hurst | 33,213 | |
| Andy Parker | – | |
| Vic Gysin | 16,220 | |
| Maggi Bell | 25,918 |
| 2011 £000s |
2010 £000s |
|
|---|---|---|
| Base salaries | 1,635 | 1,180 |
| Benefits | 85 | 51 |
| Annual bonus1 | - | 1,652 |
| Dividend Equivalent for DAB | 39 | 64 |
| Pension contributions to the Group's defined contribution scheme |
37 | 47 |
| Pension contributions to external defined contribution pension schemes |
19 | 16 |
| Fees | 450 | 395 |
| Compensation for loss of office | 21 | - |
| Total | 2,286 | 3,405 |
1No bonuses have been paid in respect of 2011.
In addition, by way of salary sacrifice, the base salary of Andy Parker was reduced by £13,800 and paid into separate defined contribution schemes.
The benefits of Gordon Hurst, Andy Parker, Vic Gysin, Maggi Bell and Simon Pilling are in respect of private medical insurance and the provision of a company car allowance. The benefits of Paul Pindar, the highest paid Director, are in respect of a company car and private medical insurance.
No Executive Director is holding any external directorships for which they are paid.
On 10 January 2011 it was announced that Simon Pilling was leaving Capita. Simon has been paid one year's salary of £302,960 (which includes his benefits and annual leave) in accordance with his contract and his full bonus for the period to 31 December 2010. He was also paid £21,000 as compensation for loss of office.
In respect of the DAB, Simon has kept the Deferred Award and the Matching Award has lapsed in respect of the award made in 2009 and 2010. For the award made in 2008, the Remuneration Committee has agreed that Simon completed the full performance period and therefore kept the Matching Award for this period, subject to the performance conditions being met.
For the LTIP 2008, it was agreed that Simon would keep in full his award in 2008 and a pro rata amount for the 2009 and 2010 award. This is in line with a pro rata of service and notice period. These awards will vest following the full three year vesting period and are subject to the performance conditions being met.
The Company utilises a number of different share plans to incentivise and align the interests of employees, including the Executive Directors, with that of shareholders. Details regarding the various share plan schemes can be found on pages 78 and 80. The table below sets out the Executive Directors' interests in these plans.
| Number of shares under award/ option at 1 January 2011 or date of appointment |
Awarded in year |
Number of Matching Shares awarded in year (DAB & CSOP Only) |
Market price on award date (£) |
Weighted average exercise price/ exercise price (£) |
Number exercised |
Market price on exercise date (£) |
Number lapsed in 2011 |
Number of shares under award/ option at 31 December 2011 or date of resignation |
Vested number of shares under option |
Value of release/ exercise (£) |
End of share plan performance period (or first exercise/ scheduled release date) |
Last exercise/ scheduled release date |
|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Paul Pindar | |||||||||||||
| LTISAS 2004 | 600,000 | – | – | 3.51 | 4.74 | – | – | – | 600,000 | – | – | 25/11/2007 | 25/11/2014 |
| LTIP 2008 | 165,000 | – | – | 6.83 | – | 146,137 | 7.1828 | 18,863 | – | 146,137 | 1,049,673 | 07/05/2011 | 07/06/2011 |
| LTIP 2009 | 165,000 | – | – | 6.84 | – | – | – | – | 165,000 | – | – | 20/03/2012 | 20/04/2012 |
| LTIP 2010 | 165,000 | – | – | 7.215 | – | – | – | – | 165,000 | – | – | 04/03/2013 | 04/06/2013 |
| LTIP 2011 | – | 165,000 | – | 7.355 | – | – | – | – | 165,000 | – | – | 25/02/2014 | 25/05/2014 |
| DAB 2008 | 79,170 | – | – | 6.56 | – | 72,673 | 7.6316 | 6,497 | – | 72,673 | 554,611 | 03/03/2011 | 03/06/2011 |
| DAB 2009 | 83,438 | – | – | 6.575 | – | – | – | – | 83,438 | – | – | 26/02/2012 | 26/05/2012 |
| DAB 2010 | 76,999 | – | – | 7.16 | – | – | – | – | 76,999 | – | – | 26/02/2013 | 26/05/2013 |
| DAB 2011 | – | 36,559 | 54,838 | 7.18 | – | – | – | – | 91,397 | – | – | 24/02/2014 | 24/05/2014 |
| Co-Invest Plan | – | 412,087 | – | 7.41 | – | – | – | – | 412,087 | – | – | 10/05/2015 | 10/05/2021 |
| Gordon Hurst | |||||||||||||
| LTIP 2008 | 120,000 | – | – | 6.83 | – | 106,281 | 7.1828 | 13,719 | – | 106,281 | 763,395 | 07/05/2011 | 07/06/2011 |
| LTIP 2009 | 120,000 | – | – | 6.84 | – | – | – | – | 120,000 | – | – | 20/03/2012 | 20/04/2012 |
| LTIP 2010 | 120,000 | – | – | 7.215 | – | – | – | – | 120,000 | – | – | 04/03/2013 | 04/06/2013 |
| LTIP 2011 | – | 120,000 | – | 7.355 | – | – | – | – | 120,000 | – | – | 25/02/2014 | 25/05/2014 |
| DAB 2008 | 57,982 | – | – | 6.56 | – | 53,224 | 7.6136 | 4,758 | – | 53,224 | 405,226 | 03/03/2011 | 03/06/2011 |
| DAB 2009 | 61,188 | – | – | 6.575 | – | – | – | – | 61,188 | – | – | 26/02/2012 | 26/05/2012 |
| DAB 2010 | 56,465 | – | – | 7.16 | – | – | – | – | 56,465 | – | – | 26/02/2013 | 26/05/2013 |
| DAB 2011 | – | 26,810 | 40,215 | 7.18 | – | – | – | – | 67,025 | – | – | 24/02/2014 | 24/05/2014 |
| CSOP | 263 | 222 | 21 | – | – | – | – | – | 506 | – | – | – | – |
| Number of shares under award/ option at 1 January 2011 or date of appointment |
Awarded in year |
Number of Matching Shares awarded in year (DAB & CSOP Only) |
Market price on award date (£) |
Weighted average exercise price/ exercise price (£) |
Number exercised |
Market price on exercise date (£) |
Number lapsed in 2011 |
Number of shares under award/ option at 31 December 2011 or date of resignation |
Vested number of shares under option |
Value of release/ exercise (£) |
End of share plan performance period (or first exercise/ scheduled release date) |
Last exercise/ scheduled release date |
|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Andy Parker1 | |||||||||||||
| LTIP 2008 | 40,000 | – | – | 6.83 | – | 37,142 | 7.1828 | 2,858 | – | 37,142 | 266,784 | 07/05/2011 | 07/06/2011 |
| LTIP 2009 | 40,000 | – | – | 6.84 | – | – | – | – | 40,000 | – | – | 20/03/2012 | 20/04/2012 |
| LTIP 2010 | 40,000 | – | – | 7.215 | – | – | – | – | 40,000 | – | – | 04/03/2013 | 04/06/2013 |
| LTIP 2011 | – | 80,000 | – | 7.355 | – | – | – | – | 80.000 | – | – | 25/02/2014 | 25/05/2014 |
| DAB 2010 | 11,665 | – | – | 7.16 | – | – | – | – | 11,665 | – | – | 26/02/2013 | 26/05/2013 |
| DAB 2011 | – | 18,523 | 27,784 | 7.18 | – | – | – | – | 46,307 | – | – | 24/02/2014 | 24/05/2014 |
| ESOS 2009 | 4,392 | – | – | 6.84 | 6.83 | – | – | – | 4,392 | – | – | 20/03/2012 | 20/06/2012 |
| Vic Gysin1 | |||||||||||||
| LTIP 2008 | 40,000 | – | – | 6.83 | – | 37,142 | 7.1828 | 2,858 | – | 37,142 | 266,784 | 07/05/2011 | 07/06/2011 |
| LTIP 2009 | 40,000 | – | – | 6.84 | – | – | – | – | 40,000 | – | – | 20/03/2012 | 20/04/2012 |
| LTIP 2010 | 40,000 | – | – | 7.215 | – | – | – | – | 40,000 | – | – | 04/03/2013 | 04/06/2013 |
| LTIP 2011 | – | 80,000 | – | 7.355 | – | – | – | – | 80,000 | – | – | 25/02/2014 | 25/05/2014 |
| DAB 2009 | 20,500 | – | – | 6.575 | – | – | – | – | 20,500 | – | – | 26/02/2012 | 26/05/2012 |
| DAB 2010 | 36,959 | – | – | 7.16 | – | – | – | – | 36,959 | – | – | 26/02/2013 | 26/05/2013 |
| DAB 2011 | – | 18,523 | 27,784 | 7.18 | – | – | – | – | 46,307 | – | – | 24/02/2014 | 24/05/2014 |
| ESOS 2007 | 50,000 | – | – | 6.83 | 6.615 | – | – | – | 50,000 | – | – | 26/02/2010 | 26/02/2017 |
| ESOS 2009 | 4,392 | – | – | 6.84 | 6.83 | – | – | – | 4,392 | – | – | 26/03/2012 | 20/06/2012 |
| Maggi Bell | |||||||||||||
| LTIP 2008 | 30,000 | – | – | 6.83 | – | 27,574 | 7.1828 | 2,426 | – | 27,574 | 198,059 | 07/05/2011 | 07/06/2011 |
| LTIP 2009 | 80,000 | – | – | 6.84 | – | – | – | – | 80,000 | – | – | 20/03/2012 | 20/04/2012 |
| LTIP 2010 | 120,000 | – | – | 7.215 | – | – | – | – | 120,000 | – | – | 04/03/2013 | 04/06/2013 |
| LTIP 2011 | – | 120,000 | – | 7.355 | – | – | – | – | 120,000 | – | – | 25/02/2014 | 25/05/2014 |
| DAB 2008 | 43,486 | – | – | 6.56 | – | 39,917 | 7.39409 | 3,569 | – | 39,917 | 295,150 | 03/03/2011 | 03/06/2011 |
| DAB 2009 | 45,613 | – | – | 6.575 | – | – | – | – | 45,613 | – | – | 26/02/2012 | 26/05/2012 |
| DAB 2010 | 46,199 | – | – | 7.16 | – | – | – | – | 46,199 | – | – | 26/02/2013 | 26/05/2013 |
| DAB 2011 | – | 21,935 | 32,902 | 7.18 | – | – | – | – | 54,837 | – | – | 24/02/2014 | 24/05/2014 |
| ESOS 2008 | 4,467 | – | – | 6.83 | 6.715 | 4,467 | 7.1828 | – | – | 4,467 | 32,086 | 07/05/2011 | 07/08/2011 |
84 Business review Governance Accounts Capita plc
Remuneration
| Number of shares under award/ option at 1 January 2011 or date of appointment |
Awarded in year |
Number of Matching Shares awarded in year (DAB & CSOP Only) |
Market price on award date (£) |
Weighted average exercise price/ exercise price (£) |
Number exercised |
Market price on exercise date (£) |
Number lapsed in 2011 |
Number of shares under award/ option at 31 December 2011 or date of resignation |
Vested number of shares under option |
Value of release/ exercise (£) |
End of share plan performance period (or first exercise/ scheduled release date) |
Last exercise/ scheduled release date |
|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Paddy Doyle | |||||||||||||
| LTIP 2008 | 120,000 | – | – | 6.83 | – | 106,281 | 7.1828 | 13,719 | – | 106,281 | 763,395 | 07/05/2011 | 07/06/2011 |
| LTIP 2009 | 48,000 | – | – | 6.84 | – | – | – | – | 48,000 | – | – | 20/03/2012 | 20/04/2012 |
| DAB 2008 | 44,817 | – | – | 6.56 | – | 39,693 | 7.6136 | 5,124 | – | 39,693 | 302,207 | 03/03/2011 | 03/06/2011 |
| DAB 2009 | 47,908 | – | – | 6.575 | – | – | – | – | 47,908 | – | – | 26/02/2012 | 26/05/2012 |
| CSOP | 3,008 | 88 | – | – | – | – | – | – | 3,096 | – | – | – | – |
| SAYE2 | 1,289 | – | – | 7.33 | 7.33 | – | – | 1,289 | – | – | – | 01/11/2012 | 01/05/2013 |
| Simon Pilling3 | |||||||||||||
| LTIP 2008 | 120,000 | – | – | 6.83 | – | – | – | – | 120,000 | – | – | 07/05/2011 | 07/06/2011 |
| LTIP 2008 | 120,000 | – | – | 6.83 | – | – | – | – | 120,000 | – | – | 07/05/2011 | 07/06/2011 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| LTIP 2009 | 120,000 | – | – | 6.84 | – | – | – | – | 120,000 | – | – | 20/03/2012 | 20/04/2012 |
| LTIP 2010 | 120,000 | – | – | 7.215 | – | – | – | – | – | – | – | 04/03/2013 | 04/06/2013 |
| DAB 2008 | 55,752 | – | – | 6.56 | – | – | – | – | 55,752 | – | – | 03/03/2011 | 03/06/2011 |
| DAB 2009 | 58,963 | – | – | 6.575 | – | – | – | – | 58,963 | – | – | 26/02/2012 | 26/05/2012 |
| DAB 2010 | 70,000 | – | – | 7.16 | – | – | – | – | 70,000 | – | – | 26/02/2013 | 26/05/2013 |
As at date of appointment on 10 January 2011.
2 On 3 February 2011, Paddy Doyle closed the Sharesave account detailed above and allowed this option to lapse.
Simon Pilling resigned with effect from 10th January 2011.
Pension contributions are made into the Group's defined contribution scheme. The Company makes contributions at a rate of 5% of basic salary. Andy Parker made additional contributions, by way of salary sacrifice in the year, to a separate defined contribution scheme.
Between the end of the financial year and 17 February 2012, Gordon Hurst acquired 43 shares under the Capita Share Ownership Plan, increasing his beneficial interest in ordinary shares of the Company to 54,943.
The remuneration report has been approved by the Board and has been signed on behalf of the Board by:
Chair, Remuneration Committee Non-Executive Chairman 22 February 2012 22 February 2012
The following chart compares the value of an investment of £100 in the Company's shares with an investment of the same amount in the FTSE All Share Index and the FTSE 350 Support Services Index over the five years starting 1 January 2007 assuming that all dividend income is reinvested. The Committee is of the opinion that this comparison provides a clear picture of the performance of the Group relative to both a wide range of companies in the United Kingdom and also a specific group of companies within the same sector.
A £100 investment in Capita shares on 1 January 2007 would be worth £115.73 at 31 December 2011 compared to £106.15 for an investment in the FTSE All Share Index and £112.36 for an investment in the FTSE 350 Support Services Index.
During 2011 the Committee sought advice from PricewaterhouseCoopers (PwC), the remuneration advisers, as required. Paul Pindar was invited to provide further information to the Committee on the performance and proposed remuneration for the Executive Directors and other senior management.
PwC also provides services in respect of overseas tax compliance, share plans and other ad hoc tax projects.
KPMG also provides services in respect of ad hoc tax projects.
The Remuneration Committee has formal terms of reference and these are agreed by the Board. These include:
The Committee also considers the remuneration packages within the organisation when reviewing the Executive Directors' remuneration. The terms of reference for the Committee are reviewed annually and updated as required. The terms of reference were recommended and approved by the Board. These are available at www.capita.co.uk/investors or copies can be requested from the Company Secretary.
Company Secretary 22 February 2012
Our accounts section contains our financial statements, notes and Auditor's report.
| Consolidated income statement | 87 |
|---|---|
| Consolidated statement of comprehensive income | 87 |
| Consolidated balance sheet | 88 |
| Consolidated statement of changes in equity | 89 |
| Consolidated cash flow statement | 90 |
| Notes to the consolidated financial statements | 91 |
| Statement of Directors' responsibilities | 127 |
| Independent Auditor's report to the members of Capita plc | 128 |
| Five year summary | 129 |
| Company balance sheet | 130 |
| Notes to the accounts | 131 |
| Principal Group investments | 140 |
| Useful information for shareholders | 141 |
Financial statements
for the year ended 31 December 2011
| 2011 | 2010 | |||||||
|---|---|---|---|---|---|---|---|---|
| Underlying | Non-underlying | Total | Underlying | Non-underlying | Total | |||
| Notes | £m | £m | £m | £m | £m | £m | ||
| Continuing operations: | ||||||||
| Revenue | 3 | 2,930.2 | – | 2,930.2 | 2,744.0 | – | 2,744.0 | |
| Cost of sales | 2,094.7 | – | 2,094.7 | 1,950.4 | – | 1,950.4 | ||
| Gross profit | 835.5 | – | 835.5 | 793.6 | – | 793.6 | ||
| Administrative expenses | 4 | 408.1 | 71.9 | 480.0 | 398.5 | 47.8 | 446.3 | |
| Operating profit | 7 | 427.4 | (71.9) | 355.5 | 395.1 | (47.8) | 347.3 | |
| Net finance costs | 9 | (42.0) | (10.4) | (52.4) | (31.8) | (6.6) | (38.4) | |
| Investment (expense)/income | 5 | (0.2) | – | (0.2) | 0.9 | – | 0.9 | |
| Profit before tax | 385.2 | (82.3) | 302.9 | 364.2 | (54.4) | 309.8 | ||
| Income tax expense | 10 | (90.5) | 25.6 | (64.9) | (89.2) | 14.4 | (74.8) | |
| Profit for the year | 294.7 | (56.7) | 238.0 | 275.0 | (40.0) | 235.0 | ||
| Attributable to: | ||||||||
| Equity holders of the parent | 294.7 | (56.7) | 238.0 | 275.0 | (40.0) | 235.0 | ||
| Earnings per share | 11 | |||||||
| – basic | 48.49p | (9.33)p | 39.16p | 44.98p | (6.54)p | 38.44p | ||
| – diluted | 48.38p | (9.31)p | 39.07p | 44.48p | (6.47)p | 38.01p |
for the year ended 31 December 2011
| 2011 | 2011 | 2010 | 2010 | ||
|---|---|---|---|---|---|
| Notes | £m | £m | £m | £m | |
| Profit for the year | 238.0 | 235.0 | |||
| Other comprehensive income/(expense): | |||||
| Actuarial losses on defined benefit pension schemes | 32 | (104.4) | (14.1) | ||
| Income tax effect | 10 | 24.1 | 2.7 | ||
| (80.3) | (11.4) | ||||
| Exchange differences on translation of foreign operations | 2.1 | 1.1 | |||
| (Losses)/gains on cash flow hedges arising during the year | 26 | (16.5) | 2.8 | ||
| Reclassification adjustments for gains included in the income statement | 26 | (5.0) | (2.0) | ||
| Income tax effect | 10 | 5.6 | (0.2) | ||
| (15.9) | 0.6 | ||||
| Other comprehensive expense for the year net of tax | (94.1) | (9.7) | |||
| Total comprehensive income for the year net of tax | 143.9 | 225.3 | |||
| Attributable to: | |||||
| Equity holders of the parent | 143.9 | 225.3 |
Financial statements
as at 31 December 2011
| Notes | 2011 £m |
2010 £m |
|
|---|---|---|---|
| Non-current assets | |||
| Property, plant and equipment | 13 | 330.2 | 291.4 |
| Intangible assets | 14 | 1,828.9 | 1,416.0 |
| Financial assets | 16 | 293.8 | 237.4 |
| Trade and other receivables | 18 | 65.8 | 66.8 |
| 2,518.7 | 2,011.6 | ||
| Current assets | |||
| Financial assets | 16 | 3.0 | 6.0 |
| Funds receivables1 | 23 | 98.0 | 100.0 |
| Trade and other receivables | 18 | 846.3 | 704.2 |
| Cash | 19 | 71.5 | 38.5 |
| 1,018.8 | 848.7 | ||
| Total assets | 3,537.5 | 2,860.3 | |
| Current liabilities | |||
| Trade and other payables | 20 | 936.5 | 836.5 |
| Financial liabilities | 22 | 36.5 | 115.8 |
| Funds payables1 | 23 | 107.1 | 117.0 |
| Provisions | 25 | 17.0 | 26.3 |
| Income tax payable | 47.0 | 42.9 | |
| 1,144.1 | 1,138.5 | ||
| Non-current liabilities | |||
| Trade and other payables | 20 | 20.0 | 54.0 |
| Financial liabilities | 22 | 1,695.9 | 1,084.6 |
| Deferred taxation | 10 | 21.0 | 31.8 |
| Provisions | 25 | 46.7 | 31.3 |
| Employee benefits | 32 | 85.7 | 24.6 |
| 1,869.3 | 1,226.3 | ||
| Total liabilities | 3,013.4 | 2,364.8 | |
| Net assets | 524.1 | 495.5 | |
| Capital and reserves | |||
| Issued share capital | 27 | 13.0 | 13.0 |
| Share premium | 459.4 | 454.9 | |
| Employee benefit trust & treasury shares |
27 | (0.4) | (0.5) |
| Capital redemption reserve | 1.8 | 1.8 | |
| Foreign currency translation reserve |
7.5 | 5.4 | |
| Net unrealised gains reserve | (7.5) | 8.4 | |
| Retained earnings | 50.3 | 12.5 | |
| Equity shareholders' funds | 524.1 | 495.5 |
1 These balances are related to investors' purchase or redemption of units in Investment Funds of which Capita Financial Managers Limited, our unit trust administration business, is an Authorised Corporate Director. The comparatives have been restated – see note 23.
Included in aggregate financial liabilities is an amount of £1,432.2m (2010: £1,016.4m) which represents the fair value of the Group's bonds which should be considered in conjunction with the aggregate value of currency and interest rate swaps of £256.8m included in financial assets and £0.9m included in financial liabilities (2010: £194.3m included in financial assets and £11.4m included in financial liabilities). Consequently, this gives an effective liability of £1,176.3m (2010: £833.5m).
The accounts were approved by the Board of Directors on 22 February 2012 and signed on its behalf by:
Chief Executive Group Finance Director
Company registered number: 2081330
for the year ended 31 December 2011
| Foreign | ||||||||
|---|---|---|---|---|---|---|---|---|
| Share | Share | Employee benefit trust |
Capital redemption |
Retained | currency translation |
Net unrealised |
Total | |
| capital | premium | shares | reserve | earnings | reserve | gains reserve | equity | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2010 | 12.9 | 435.2 | (0.2) | 1.8 | 4.4 | 4.3 | 7.8 | 466.2 |
| Profit for the year | – | – | – | – | 235.0 | – | – | 235.0 |
| Other comprehensive expense | – | – | – | – | (11.4) | 1.1 | 0.6 | (9.7) |
| Total comprehensive income for the year | – | – | – | – | 223.6 | 1.1 | 0.6 | 225.3 |
| Share based payment | – | – | – | – | 10.2 | – | – | 10.2 |
| Purchase of own shares | – | – | (0.3) | – | (115.9) | – | – | (116.2) |
| Income tax deduction on exercise of stock options | – | – | – | – | 4.0 | – | – | 4.0 |
| Deferred income tax relating to share based payments | – | – | – | – | (4.7) | – | – | (4.7) |
| Shares issued | 0.1 | 19.7 | – | – | – | – | – | 19.8 |
| Equity dividends paid | – | – | – | – | (109.1) | – | – | (109.1) |
| At 1 January 2011 | 13.0 | 454.9 | (0.5) | 1.8 | 12.5 | 5.4 | 8.4 | 495.5 |
| Profit for the year | – | – | – | – | 238.0 | – | – | 238.0 |
| Other comprehensive expense | – | – | – | – | (80.3) | 2.1 | (15.9) | (94.1) |
| Total comprehensive income for the year | – | – | – | – | 157.7 | 2.1 | (15.9) | 143.9 |
| Share based payment | – | – | – | – | 8.3 | – | – | 8.3 |
| Income tax deduction on exercise of stock options | – | – | – | – | (3.8) | – | – | (3.8) |
| Deferred income tax relating to share based payments | – | – | – | – | 0.7 | – | – | 0.7 |
| Shares issued | – | 4.5 | 0.1 | – | (0.1) | – | – | 4.5 |
| Equity dividends paid | – | – | – | – | (125.0) | – | – | (125.0) |
| At 31 December 2011 | 13.0 | 459.4 | (0.4) | 1.8 | 50.3 | 7.5 | (7.5) | 524.1 |
Share capital – The balance classified as share capital is the nominal proceeds on issue of the Company's equity share capital, comprising 21 /15p ordinary shares.
Share premium – The amount paid to the Company by shareholders, in cash or other consideration, over and above the nominal value of shares issued to them.
Employee benefit trust shares – Shares that have been bought back by the Company, which are available for retirement or resale; shares held in the employee benefit trust have no voting rights and do not have entitlement to a dividend.
Capital redemption reserve – The Company can redeem shares by repaying the market value to the shareholder, whereupon the shares are cancelled. Redemption must be from distributable profits. The Capital redemption reserve represents the nominal value of the shares redeemed.
Foreign currency translation reserve – Gains or losses resulting from the process of expressing amounts denominated or measured in one currency in terms of another currency by use of the exchange rate between the two currencies. This process is required to consolidate the financial statements of foreign affiliates into the total Group financial statements and to recognise the conversion of foreign currency or the settlement of a receivable or payable denominated in foreign currency at a rate different from that at which the item is recorded.
Net unrealised gains reserve – This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. Also recorded here are fair value changes on available-for-sale investments.
Retained earnings – Net profits kept to accumulate in the Group after dividends are paid and retained in the business as working capital.
Financial statements
for the year ended 31 December 2011
| Cash flows from operating activities Operating profit on continuing activities before interest and taxation 355.5 347.3 Depreciation 13 70.2 70.3 Amortisation of other intangible assets (treated as depreciation) 14 0.2 0.2 Amortisation of intangible assets recognised on acquisition 14 67.7 41.3 Share based payment expense 28 8.3 10.2 Pensions 32 (33.3) Loss on sale of property, plant and equipment 0.7 0.8 Movement in provisions (9.2) 7.5 Net movement in payables and receivables (96.1) Cash generated from operations before settlements 364.0 442. 4 Settlement of Arch cru (17.9) – Settlement of Cumbria County Council pension deficit (10.0) – Cash generated from operations 336.1 442. 4 Income tax paid (62.6) (70.8) Net interest paid (42.0) (31.8) Net cash inflow from operating activities 231.5 339.8 Cash flows from investing activities Purchase of property, plant and equipment 13 (102.3) (98.5) Purchase of intangible assets 1 4 (8.0) – Proceeds from sale of property, plant and equipment 0.1 0.1 Acquisition of subsidiary undertakings and businesses 1 7 (352.2) (208.5) Debt repaid on the acquisition of subsidiaries 1 7 (22.3) (95.7) Overdraft acquired with subsidiary undertakings 1 7 (9.6) (7.2) Purchase of financial assets 16 (0.2) (1.1) Investment loan 16 – 0.5 Return on investment in joint venture 5/1 6 0.3 0.5 Net cash outflow from investing activities (494.2) (409.9) Cash flows from financing activities Issue of ordinary share capital 27 4.5 19.8 Share buybacks 27 – (115.7) Share transaction costs 27 – (0.5) Dividends paid 12 (125.0) (109.1) Capital element of finance lease rental payments 29 (1.0) (0.6) Instalment debtor movement 14.2 6.6 Asset based securitised financing 29 (11.7) (5.4) Repayment of loan notes and long term debt 29 – (217.4) Proceeds on issue of debt 29 339.8 252.9 Revolving credit facility 22 178.0 – Financing arrangement costs 22 (3.2) (2.3) Net cash inflow/(outflow) from financing activities 395.6 (171.7) Increas e/(decrease) in cash and cash equivalents 132.9 (241.8) Cash and cash equivalents at the beginning of the period (60.3) 181.5 Impact of movement in exchange rates (1.1) – Cash and cash equivalents at 31 December 71.5 (60.3) Cash and cash equivalents comprise: Overdrafts – (98.8) Cash at bank and in hand 19 71.5 38.5 Tota l 71.5 (60.3) |
Notes | 2011 £m |
2010 £m |
|---|---|---|---|
| (21.4) | |||
| (13.8) | |||
for the year ended 31 December 2011
The consolidated financial statements of Capita plc (formerly The Capita Group Plc) for the year ended 31 December 2011 were authorised for issue in accordance with a resolution of the Directors on 22 February 2012. Capita plc is a public limited company incorporated in England and Wales whose shares are publicly traded.
The principal activities of the Group are given in the business review on pages 1 to 56.
The Group separately presents amortisation, acquisition contingent consideration adjustments, acquisition expenses, and the movement in the mark to market valuation of certain financial instruments.
The preparation of financial statements in conformity with generally accepted accounting principles requires the Directors to make judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported income and expense during the reported periods. Although these judgements and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ from these estimates.
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the measurement and impairment of goodwill, the measurement of defined benefit obligations, provisions (see note 25) and revenue. The measurement of intangible assets other than goodwill on a business combination involves estimation of future cash flows and the selection of a suitable discount rate. The Group determines whether goodwill is impaired on an annual basis and thus requires an estimation of the value in use of the cash-generating units to which the intangible assets are allocated. This involves estimation of future cash flows and choosing a suitable discount rate (see note 15). Measurement of defined benefit obligations requires estimation of future changes in salaries and inflation, as well as mortality rates, the expected return on assets and the selection of a suitable discount rate (see note 32). The Group makes use of estimates to determine revenue in respect of percentage complete/long term and construction contracts (see (e) and (f) below).
The consolidated financial statements of Capita plc and all of its subsidiaries (the Group) have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.
The parent company continues to apply UK GAAP in the preparation of its individual financial statements and these are contained on pages 130–139.
The consolidated financial statements have been prepared under IFRS where certain financial instruments and the pension assets have been measured at fair value. The carrying value of recognised assets and liabilities that are hedged are adjusted to record changes in the fair values attributable to the risks that are being hedged. The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest tenth of a million (£m) except when otherwise indicated.
The consolidated financial statements comprise the financial statements of Capita plc and its subsidiaries as at 31 December each year. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies, but in accordance with UK GAAP. Adjustments are made to bring into line any dissimilar accounting policies that may exist between IFRS and UK GAAP.
All intercompany balances and transactions, including unrealised profits arising from intragroup transactions, have been eliminated in full.
Subsidiaries are consolidated from the date on which control is transferred to the Group until control is transferred out of the Group. Where there is a loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting year during which Capita plc has control. Losses applicable to the non-controlling interests in a subsidiary are attributed to the non-controlling interests even if that results in the non-controlling interests having a deficit balance.
The accounting policies adopted are consistent with those of the previous financial year except as follows:
The Group has adopted the following new amendments to IFRS and IFRIC interpretations during the year.
The principal effects of these changes are as follows:
IAS 24 Related Party Transactions (Revised) The revised standard clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships as well as clarifying in which circumstances persons and key management personnel affect the related party relationships of an entity. Secondly, the revised standard introduces a partial exemption from the general related party disclosure requirements for government-related entities. The adoption of this revised standard did not have any impact on the financial position or performance of the Group.
amendment alters the definition of a financial liability to enable parties to classify rights issues (and certain options or warrants) as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity's nonderivative equity instruments, to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. The adoption of this amendment did not have any impact on the financial position or performance of the Group.
Improvements to IFRSs In May 2010 the International Accounting Standards Board issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. The adoption of these amendments, which are effective from 1 January 2011, did not have any impact on the financial position or performance of the Group although in some cases they resulted in enhanced or additional disclosures.
IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) The amendment provides further guidance on assessing the recoverable amount of a net pension asset. The amendment permits a prepayment of a minimum funding requirement by an entity to be recognised as a pension asset. The adoption of this interpretation had no effect on the financial position or performance of the Group.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments This interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are consideration in accordance with paragraph 41 of IAS 39. The equity instruments issued are measured at fair value (unless this cannot be reliably measured, in which case they are measured at the fair value of the liability extinguished) with gain or loss being immediately recognised in profit or loss. The adoption of this interpretation had no effect on the financial position or performance of the Group.
The Group has revenue streams largely in the United Kingdom but also in Europe, India and South East Asia.
Notes to the consolidated financial statements 2 Summary of significant accounting policies (continued)
The Group operates a number of diverse businesses and therefore it has to use a variety of methods for revenue recognition – see (f) below.
In all cases revenue is recognised when the services have been performed and it is probable that the economic benefits resulting from this performance will flow to the Group and the revenue can be reliably measured.
Costs incurred prior to the Group being awarded a contract or achieving preferred bidder status are expensed to the income statement.
The main accounting policies for recognition are:
Revenue is recognised over the period the services are delivered to the client.
Where Capita provide staff to clients at hourly or daily rates, revenue is recognised on the basis of time worked.
A brownfield contract is one where there is a transfer of an existing operation to the Group. All costs incurred prior to service commencement are expensed as incurred and revenue represents fee income in respect of the services provided.
Revenue reflects the sales value of work performed in the year, including fees invoiced and estimates in respect of amounts to be invoiced after the year-end (long term contracts). Where contracts are long term and the profit to be earned on the contract can be determined with reasonable certainty, the amount of revenue recognised is calculated on the basis of the stage of completion. This is determined by measuring the costs incurred to date as a proportion of the full cost of completing the contract and then applying the percentage to the total revenue expected to be earned. The costs incurred within a contract include all direct costs and outlays. If, on the review of the performance of the contract, a loss is anticipated then the full value of this expected loss to the end of the contract is booked immediately in the income statement.
The Group's property consultancy provides professional services to clients as a subcontractor. The services provided are architectural, structural or other services that result in the construction of an asset. In line with the requirements of IAS 11 gross amounts due from customers are stated at the proportion of the anticipated net sales value earned to date less amounts billed on account. To the extent that fees paid on account exceed the value of work performed, they are included in creditors as gross amounts due to customers.
A greenfield contract is one in which an entirely new service is being established for a client. For these contracts no profit is recognised until service delivery has commenced and is being invoiced. On commencement, revenue represents fees invoiced in respect of services provided. Direct incremental costs incurred prior to service commencement and reimbursable during the contract, excluding any overheads, are included in prepayments and amortised over the contract's life.
On some contracts non-refundable payments are received prior to full service commencement on the achievement of agreed contract delivery milestones; these are recognised as revenue when the associated milestone has been achieved.
Within some contracts there are multiple services to be delivered such as transformation of the existing service delivery model, transitions of processes, people or data and the delivery of administration services, which have to be undertaken over the course of the contract.
In these contracts these activities are treated separately where appropriate, with the relevant accounting policy for revenue recognition, as detailed previously, being applied to each individual element. The following table illustrates which policies are currently predominately used in each segment.
| Segment | Ongoing service contracts |
Time & material contracts |
Brownfield contracts |
Percentage complete/long term contracts |
Construction contracts |
Greenfield contracts |
|---|---|---|---|---|---|---|
| Health | | | | | | |
| Property Services | | | | | | |
| General Insurance Investor & Banking Services |
|
|
|
|
|
|
| Integrated Services | | | | | | |
| IT Services & Consulting | | | | | | |
| Life & Pensions Services | | | | | | |
| Professional Services | | | | | | |
| Workplace Services | | | | | | |
The functional and presentation currency of Capita plc and its United Kingdom subsidiaries is the pound sterling (£). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated income statement with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign operation. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the consolidated income statement.
Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
The functional currencies of overseas operations include the euro and the Indian rupee. As at the reporting date, the assets and liabilities of the overseas operations are retranslated into the presentation currency of Capita plc at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rate for the year. The exchange differences arising on the retranslation are taken directly to a separate component of equity. On disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation shall be recognised in the income statement.
The Group has elected not to record cumulative translation differences arising prior to the transition date as permitted by IFRS 1. In utilising this exemption, all cumulative translation differences are deemed to be zero as at 1 January 2004 and all subsequent disposals shall exclude any translation differences arising prior to the date of transition.
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
| Freehold buildings and long leasehold property – over 50 years | |
|---|---|
| Leasehold improvements | – period of the lease |
| Plant and equipment | – 3 to 10 years |
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the income statement in the administrative expenses line item.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which the item is derecognised.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
The Group capitalises borrowing costs for all qualifying assets where construction commenced on or after 1 January 2009. The Group continues to expense borrowing costs relating to construction projects that commenced prior to 1 January 2009.
Business combinations are accounted for by applying the acquisition method as at the acquisition date, which is the date on which control is passed to the Group.
For acquisitions on or after 1 January 2010, the acquisition is measured as the aggregate of the fair value of the consideration transferred plus the recognised amount of any non-controlling interests in the acquiree. For each business combination on a transaction by transaction basis, the Group elects to measure the non-controlling interests either at its fair value or at its proportionate share of the acquiree's identifiable net assets at the date of acquisition.
Costs related to the acquisition, other than those associated with the issue of debt or securities, are expensed as incurred and included within administrative expenses and included within the 'non-underlying' column.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in the income statement.
In a business combination achieved in stages, the Group re-measures its previously held equity interest in the acquiree at its acquisition-date fair value and recognises the resulting gain or loss, if any, in the income statement.
Goodwill is initially measured at cost being the excess of the aggregate of the fair value of the consideration transferred and the recognised amount of any non-controlling interests (plus the fair value of any existing equity interest) over the net recognised amount of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in the income statement.
For acquisitions between the Group's IFRS transition date of 1 January 2004 and 1 January 2010, goodwill represents the excess of the cost of the acquisition over the Group's interest in the recognised amount of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately in the income statement.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business combinations were capitalised as part of the cost of the acquisition.
Contingent consideration was recognised only where the Group had a present obligation and the economic outflow was more likely than not and a reliable estimate was determinable. Any subsequent adjustment to the contingent consideration was recognised as part of goodwill.
On transition to the adoption of IFRS, the Group took advantage of the exemption allowed in IFRS 1 not to restate business combinations which took place prior to the date of transition. Goodwill recognised under UK GAAP prior to the date of transition to IFRS is stated at net book value as at this date (deemed cost). This goodwill had been amortised on a straight-line basis over its useful economic life (ranging from 5 to 20 years).
Following initial recognition goodwill is stated at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill arising on acquisitions prior to 31 December 1997 remains set off directly against reserves and does not get recycled through the income statement.
As at the acquisition date, any goodwill acquired is allocated to each of the cashgenerating units which are expected to benefit from the combination's synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cashgenerating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in these circumstances is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Acquisitions and disposals of non-controlling interests that do not result in a change of control are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. Any difference between the price paid or received and the amount by which non-controlling interests are adjusted is recognised directly in equity and attributed to the owners of the parent.
Prior to the adoption of IAS 27 (Amended), goodwill was recognised on the acquisition of non-controlling interests in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction.
Intangible assets acquired separately are capitalised at cost and those identified in a business acquisition are capitalised at fair value as at the date of acquisition. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. There were no indefinite-lived assets in 2010 or 2011. Amortisation is charged on assets with finite lives, this expense is taken to the income statement through the administrative expenses line item.
Notes
Notes to the consolidated
Intangible assets with finite lives are only tested for impairment, either individually or at the cash-generating unit level, where there is an indicator of impairment.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Intangible assets identified and recognised since transition to IFRS are profiled, on a straight-line basis, as follows:
At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the asset's recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
All investments are initially recorded at their fair value. Subsequently they are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
Investment loans are measured at amortised cost using the effective interest method.
Available-for-sale financial assets are measured at their fair value with unrealised gains or losses being recognised directly in equity. When the investment is disposed of, the cumulative gain or loss previously recorded in equity is recognised in the income statement.
Financial assets at fair value through the income statement (disclosed in investment income) include financial assets designated upon initial recognition as at fair value through the income statement.
Financial assets may be designated upon initial recognition as at fair value through profit or loss if the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy.
Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.
Cash and short term deposits in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of 3 months or less.
For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
All loans and borrowings are initially recognised at their fair value.
After initial recognition loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gains and losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process.
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when recovery is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. The Group provides, on a discounted basis, for the future rent expense and related cost of leasehold property (net of estimated sub-lease income) where the space is vacant or currently not planned to be used for ongoing operations.
The Group reviews its long term contracts to ensure that the expected economic benefits to be received are in excess of the unavoidable costs of meeting the obligations under the contract. The unavoidable costs are the lower of the net costs of termination or the costs of fulfilment of the contractual obligations. The Group recognises the excess of the unavoidable costs over economic benefits due to be received, as an onerous contract provision.
Pre-contract award bidding costs are expensed as incurred.
The Group maintains a number of defined contribution pension schemes and for these schemes the Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense in the income statement for the year when they are due.
In addition, the Group operates a defined benefit pension scheme and participates in a number of other defined benefit pension schemes, all of which require contributions to be made to separate trustee-administered funds. The costs of providing benefits under these schemes are determined separately for each scheme using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of the defined benefit obligation) and is based on actuarial advice. Past service costs are recognised immediately in the income statement, unless the changes are conditional on employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the average vesting period.
When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs the obligation and related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss recognised in the income statement during the period in which the settlement or curtailment occurs.
The interest cost element of the defined benefit pension charge represents a change in the present value of scheme obligations resulting from the passage of time and is determined by applying the discount rate to the opening present value of the benefit obligation taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long term market returns on scheme assets, adjusted for the effect on fair value of plan assets of contributions received and benefits paid during the year.
In respect of 3 of the defined benefit pension schemes in which the Group participates, the Group accounts for its legal and constructive obligation over the period of its participation which is for a fixed period only.
Notes to the consolidated
Actuarial gains and losses are fully recognised in equity through the statement of comprehensive income such that the balance sheet reflects the scheme's surplus or liability at the balance sheet date. Current and past service costs are charged to operating profit with the interest cost, net of expected return on assets in the plans, included within administrative expenses.
The liability on the balance sheet in respect of the defined benefit pension schemes comprises the total for each scheme, or group of schemes, of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information and in the case of quoted securities is the published bid price. The value of a net pension benefit asset is restricted to the sum of any unrecognised past service costs and the present value of any amount the Group expects to recover by way of refunds from the plan or reductions in the future contributions.
The Group uses derivative financial instruments such as interest rate swaps and foreign currency contracts to hedge risks associated with interest and exchange rate fluctuations. Such derivative financial instruments are stated at fair value. The fair values of interest rate swaps and foreign currency contracts are determined by reference to market rates for similar instruments.
For the purpose of hedge accounting, hedges are classified as either: fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is attributable to a particular risk associated with either a recognised asset or liability or a forecast transaction.
In relation to fair value hedges (e.g. fixed to floating interest rate swaps held as fair value hedges against fixed interest rate borrowings) which meet the conditions for hedge accounting, any gain or loss from re-measuring the hedging instrument at fair value is recognised immediately in the income statement. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognised in the income statement.
In relation to cash flow hedges the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the income statement. Amounts taken to equity are transferred to the income statement when the hedged transaction affects the income statement, such as when the hedged financial income or financial expense is recognised or when a forecast transaction occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement and are presented as nonunderlying.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date and is concerned with whether the fulfilment of the arrangement is dependent upon the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Group as a lessee: Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of the estimated life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Group as a lessor: Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Rental income arising from operating leases is recognised in the income statement on a straight-line basis over the lease term.
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences:
Deferred income tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised, except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.
The Group operates a number of executive and employee share schemes.
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an option pricing model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.
Notes to the consolidated
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative. equity-settled award award designated or cost the over vesting is
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over the fair value being treated as an expense in the income statement. modification, on the and the on date this an is cancelled, it any not statement Any settlement from excess over fair being an taken provisions of of and awards granted November not
The Group has taken advantage of the transitional provisions of IFRS 2 in respect of equitysettled awards and has applied IFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested before 1 January 2005.
Capita provides run-off administrative services to Lloyd's Syndicates. On occasion where there is a commercial driver to do so, the Group will take an equity holding in a Corporate Member (a limited liability company – operating in the Lloyd's market).
The Group has treated this arrangement as an investment in a joint venture, whereby the Group and the other venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The Group's investment in the joint venture is accounted for using the equity method of accounting. Under the equity method the investment in the joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the entity. The income statement reflects, where material, the share of the results of operations of the joint venture. Profits and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. The Corporate Member's share of the assets and liabilities of the Syndicate and the quota share arrangement are further disclosed in note 16 to these financial statements. to Syndicates. do take an (a limited – market). treated have establishes the investment the is equity method the venture carried in Group's net of the entity. reflects, material, of of of transactions the the interest of to
International Accounting Standards (IAS/IFRSs)
The IASB and the IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements: and the following an
IFRS 7 Amendment: Disclosures – Transfers of Financial Assets Annual periods after 1 July 2011 IAS 12 Amendment: Deferred Tax – Recovery of Underlying Assets 1 January 2012 IAS 1 Amendment: Presentation of Items of Other Comprehensive Income Annual periods after 1 July 2012 IAS 19 Amendment: Employee Benefits 1 January 2013 IAS 27 Amendment: Separate Financial Statements 1 January 2013 IAS 28 Amendment: Investments in Associates and Joint Ventures 1 January 2013 IFRS 9 Financial Instruments 1 January 2015 IFRS 10 Consolidated Financial Statements 1 January 2013 IFRS 11 Joint Arrangements 1 January 2013 IFRS 12 Disclosure of Interests in Other Entities 1 January 2013 IFRS 13 Fair Value Measurement 1 January 2013 IFRS Interpretations Committee (IFRIC) IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013 date Effective date 7 Disclosures – of Presentation Items of Comprehensive Employee 2013 Separate Investments in and 2013 10 2013 of Entities2013 (IFRIC)20 Costs Phase a Mine2013 'IAS Employee not of will the of application. amended 19 net defined one uses expected on would in of £7.5m the 2011 £m 2010 £m Construction activities0.4 Total administrative expenses are: £m amortisationProfessional acquisitionsduty paid 2.1 consideration notable items: of higher claims past credit includes £27.9m from RPI CPI
| Notes | 2011 £m |
2010 £m |
|---|---|---|
| Rendering of services | 2,802.2 | 2,582.1 |
| Construction contracts 21 |
128.0 | 161.9 |
| Revenue from operating activities |
2,930.2 | 2,744.0 |
| Finance revenue 9 |
0.4 | 2.2 |
| Total revenue | 2,930.6 | 2,746.2 |
| Other than 'IAS 19 Amendment: Employee Benefits', the Directors do not currently anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application. The amended IAS 19 standard changes the method of calculating the net interest related to the defined benefit pension schemes from one which uses the expected return on scheme assets to one based on the discount rate. It is estimated that this change would lead to an increase in the net interest charge of circa £7.5m in the year of adoption. |
||
|---|---|---|
| 3 Revenue | ||
| Revenue disclosed in the income statement is analysed as follows: | ||
| Notes | 2011 £m |
2010 £m |
| Rendering of services | 2,802.2 | 2,582.1 |
| Construction contracts 21 |
128.0 | 161.9 |
| Revenue from operating activities |
2,930.2 | 2,744.0 |
| Finance revenue 9 |
0.4 | 2.2 |
| Total revenue | 2,930.6 | 2,746.2 |
| 4 Administrative expenses Included within administrative expenses are: Notes Non-underlying Intangible amortisation 14 Professional fees re acquisitions Stamp duty paid on acquisitions Contingent consideration release Total |
2011 £m 67.7 13.3 2.1 (11.2) 71.9 |
2010 £m 41.3 5.5 1.0 – 47.8 |
| In 2011, underlying profit was impacted by a number of notable items: higher restructuring costs (including redundancies) of £8.0m, higher insurance captive claims of £14.0m offset by a past service credit of £23.9m which includes £27.9m from the reduction in pension liabilities due to the move from RPI to CPI (see note 32). 5 Investment (expense)/income 5 Investment (expense)/income |
||
| 2011 £m |
2010 £m |
|
| Investment in joint venture | (0.2) (0.2) |
0.9 |
| This represents (expense)/income recognised in relation to the Lloyd's Market Syndicates in represents in which the Group has a joint venture arrangement as disclosed in note 16. During the year the has joint venture as Group received a dividend of £0.3m (2010: £0.5m) from the Syndicate which is reflected in the net assets net assets recognised in the disclosure in note 16. The Group has during the year ceased this disclosure has joint venture arrangement and the remaining value will unwind in 2012. venture remaining unwind in 2012. |
in note is |
the |
Effective date
| 2011 £m |
2010 £m |
|
|---|---|---|
| Investment in joint venture | (0.2) (0.2) |
0.9 |
Notes to the consolidated financial statements 6 Segmental information
The Group's operations are organised and managed separately according to the nature of the services provided, with each segment representing a strategic business unit offering a different package of related services across the Group's markets. A description of the service provision for each segment can be found in the business review on pages 1 to 56. No operating segments have been aggregated to form the reportable operating segments below. The information disclosed below represents the way in which the results of the businesses are reported to the Group Board. The comparative figures have been restated due to a reorganisation of the Group's business segments during the year and a consequent change in the way in which the results of the businesses are reported to the Group Board.
Before eliminating sales between business units on consolidation, the Group accounts for sales between business units as if they were to a third party at market rates. The tables below present revenue, result and certain asset and liability information for the Group's business segments for the years 2011 and 2010. All operations are continuing. Before eliminating sales between business units on consolidation, the Group accounts for sales between business units as if they were to a third party at market rates. The tables below present revenue, result and certain asset and liability information for the Group's business segments for the years 2011 and 2010. All operations are continuing.
| Property | General | Investor & Banking |
Integrated | IT Services & |
Life & Pensions |
Professional | Workplace | |||
|---|---|---|---|---|---|---|---|---|---|---|
| Health | Services | Insurance | Services | Services | Consulting | Services | Services | Services | Total | |
| Underlying segment revenue | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| Total segment revenue | 162.0 162.0 |
275.9 275.9 |
183.5 183.5 |
223.5 223.5 |
333.4 333.4 |
749.0 749.0 |
639.3 639.3 |
503.8 503.8 |
310.9 | 3,381.3 |
| Inter-segment revenue | (29.0) (29.0) |
(20.0) (20.0) |
– – |
(10.6) (10.6) |
(5.7) (5.7) |
(148.7) (148.7) |
(94.2) (94.2) |
(114.8) (114.8) |
(28.1) | (451.1) |
| Third party revenue Third party revenue |
133.0 133.0 |
255.9 255.9 |
183.5 183.5 |
212.9 212.9 |
327.7 327.7 |
600.3 600.3 |
545.1 545.1 |
389.0 389.0 |
282.8 282.8 |
2,930.2 2,930.2 |
| Underlying segment result | ||||||||||
| Result after depreciation Result after depreciation |
26.2 26.2 |
13.4 13.4 |
29.0 29.0 |
55.5 55.5 |
63.2 63.2 |
56.0 56.0 |
56.9 56.9 |
97.3 97.3 |
38.2 38.2 |
435.7 435.7 |
| Share based payment Share based payment |
(0.3) (0.3) |
(0.6) (0.6) |
(0.7) (0.7) |
(0.6) (0.6) |
(2.0) (2.0) |
(0.5) (0.5) |
(1.0) (1.0) |
(1.6) (1.6) |
(1.0) (1.0) |
(8.3) (8.3) |
| 25.9 25.9 |
12.8 12.8 |
28.3 28.3 |
54.9 54.9 |
61.2 61.2 |
55.5 55.5 |
55.9 55.9 |
95.7 95.7 |
37.2 | 427.4 | |
| Non-underlying | ||||||||||
| Intangible amortisation | (8.5) (8.5) |
(3.7) (3.7) |
(7.4) (7.4) |
(6.5) (6.5) |
(2.9) (2.9) |
(18.6) (18.6) |
(5.9) (5.9) |
(8.4) (8.4) |
(5.8) | (67.7) (67.7) |
| Acquisition costs | (1.7) (1.7) |
(0.3) (0.3) |
(0.8) (0.8) |
(2.0) (2.0) |
(3.2) (3.2) |
(3.8) | – | (2.8) (2.8) |
(0.8) | (15.4) |
| Contingent consideration movement | – | 13.2 13.2 |
2.5 2.5 |
(4.5) | – | – | – | – | – | 11.2 |
| 15.7 15.7 |
22.0 22.0 |
22.6 22.6 |
41.9 41.9 |
55.1 55.1 |
33.1 33.1 |
50.0 50.0 |
84.5 84.5 |
30.6 30.6 |
355.5 355.5 |
|
| Net underlying finance costs Net underlying finance costs |
(42.0) (42.0) |
|||||||||
| Financial instruments – mark to market |
(7.1) | |||||||||
| Investment expense Investment expense |
(0.2) (0.2) |
|||||||||
| Currency swaps' counterparty risk –mark to market Currency swaps' counterparty risk – mark to market |
(3.3) (3.3) |
|||||||||
| Profit before tax | 302.9 | |||||||||
| Corporation taxation | (64.9) | |||||||||
| Profit after tax | 238.0 |
| Assets by segment Assets by segment |
Health £m |
Property Services Services £m |
General Insurance Insurance £m |
Investor Investor & Banking Services Services £m |
Integrated Services Services £m |
IT Services & Consulting £m |
Life & Life & Pensions Services £m |
Professional Services £m |
Workplace Services £m |
Total Total £m |
|---|---|---|---|---|---|---|---|---|---|---|
| Assets Assets |
88.0 88.0 |
88.0 88.0 |
130.3 130.3 |
195.7 195.7 |
127.6 127.6 |
236.2 236.2 |
293.1 293.1 |
131.9 131.9 |
86.8 86.8 |
1,377.6 1,377.6 |
| Intangible assets | 122.3 122.3 |
106.6 106.6 |
292.8 292.8 |
245.9 245.9 |
142.2 142.2 |
408.5 408.5 |
148.2 148.2 |
168.6 168.6 |
193.8 | 1,828.9 |
| 210.3 210.3 |
194.6 194.6 |
423.1 423.1 |
441.6 441.6 |
269.8 269.8 |
644.7 644.7 |
441.3 441.3 |
300.5 300.5 |
280.6 | 3,206.5 | |
| Liabilities | (151.8) (151.8) |
(79.3) (79.3) |
(84.1) (84.1) |
(149.4) (149.4) |
(167.3) (167.3) |
(248.0) (248.0) |
(190.2) (190.2) |
(140.3) (140.3) |
(48.6) | (1,259.0) |
| Net allocated assets Net allocated assets |
58.5 58.5 |
115.3 115.3 |
339.0 339.0 |
292.2 292.2 |
102.5 102.5 |
396.7 396.7 |
251.1 251.1 |
160.2 160.2 |
232.0 232.0 |
1,947.5 1,947.5 |
| Unallocated assets | 331.0 | |||||||||
| Unallocated liabilities | (1,754.4) | |||||||||
| Total net assets Total net assets |
524.1 524.1 |
|||||||||
| Capital expenditure Capital expenditure |
||||||||||
| Tangible assets Tangible assets |
4.0 4.0 |
2.5 2.5 |
8.0 8.0 |
12.4 12.4 |
6.7 6.7 |
18.3 18.3 |
39.6 39.6 |
9.2 9.2 |
3.3 3.3 |
104.0 104.0 |
| Depreciation charge | 3.2 3.2 |
2.0 2.0 |
3.2 3.2 |
6.1 6.1 |
6.3 6.3 |
11.8 11.8 |
24.9 24.9 |
9.1 9.1 |
3.8 | 70.4 |
| Intangible assets Intangible assets |
19.3 19.3 |
11.6 11.6 |
– – |
54.5 54.5 |
134.9 134.9 |
125.8 125.8 |
34.5 34.5 |
68.1 68.1 |
32.6 32.6 |
481.3 481.3 |
| Intangible amortisation Intangible amortisation |
8.5 8.5 |
3.7 3.7 |
7.4 7.4 |
6.5 6.5 |
2.9 2.9 |
18.6 18.6 |
5.9 5.9 |
8.4 8.4 |
5.8 5.8 |
67.7 67.7 |
| Revenue | United Kingdom £m |
Non-United Kingdom £m |
Total £m |
|---|---|---|---|
| Total segment revenue | 3,214.9 3,214.9 |
166.4 | 3,381.3 |
| Inter-segment revenue | (391.5) (391.5) |
(59.6) | (451.1) |
| Third party revenue | 2,823.4 2,823.4 |
106.8 | 2,930.2 |
| Other segment information | |||
| Assets | 1,320.4 1,320.4 |
57.2 | 1,377.6 |
| Intangible assets | 1,731.5 1,731.5 |
97.4 | 1,828.9 |
| Unallocated assets | 331.0 | – | 331.0 |
| Total assets | 3,382.9 3,382.9 |
154.6 | 3,537.5 |
| Capital expenditure | |||
| Tangible assets | 96.5 96.5 |
7.5 | 104.0 |
| Intangible assets | 448.4 448.4 |
32.9 | 481.3 |
| Unallocated assets include the cash flow hedge financial asset, cash in bank and currency and interest rate swaps. Unallocated liabilities include loan notes, the revolving credit facility, callable swaps, currency swaps, the cash flow hedge liability, bonds and the pension liability. |
|
|---|---|
| The tables below present revenue by the geographical location of clients, carrying amount of assets and expenditure on tangible and intangible assets by location of those assets. United Non-United Kingdom Kingdom |
Total |
| Revenue £m £m |
£m |
| Total segment revenue 3,214.9 3,214.9 166.4 |
3,381.3 |
| Inter-segment revenue (391.5) (391.5) (59.6) |
(451.1) |
| Third party revenue 2,823.4 2,823.4 106.8 |
2,930.2 |
| Other segment information | |
| Assets 1,320.4 1,320.4 57.2 |
1,377.6 |
| Intangible assets 1,731.5 1,731.5 97.4 |
1,828.9 |
| Unallocated assets 331.0 – |
331.0 |
| Total assets 3,382.9 3,382.9 154.6 |
3,537.5 |
| Capital expenditure | |
| Tangible assets 96.5 96.5 7.5 |
104.0 |
| Intangible assets 448.4 448.4 32.9 |
481.3 |
| Year ended 31 December 2010 | |
| Investor & Life & |
|
| Property General Banking Integrated IT Services Pensions Professional Workplace Health Services Insurance Services Services & Consulting Services Services Services |
Total |
| Underlying segment revenue £m £m £m £m £m £m £m £m £m |
£m |
| Total segment revenue 115.2 328.5 184.9 191.6 266.2 598.2 621.1 572.6 305.7 |
3,184.0 |
| Inter-segment revenue (28.3) (19.5) – (10.4) (5.6) (145.0) (91.9) (112.1) (27.2) |
(440.0) |
| Third party revenue 86.9 309.0 184.9 181.2 260.6 453.2 529.2 460.5 278.5 |
2,744.0 |
| Underlying segment result | |
| Result after depreciation 16.0 26.9 25.1 42.9 50.6 57.5 59.6 91.5 35.2 |
405.3 |
| Share based payment (0.2) (1.3) (1.8) (0.7) (2.4) (0.6) (0.9) (1.1) (1.2) |
(10.2) |
| 15.8 25.6 23.3 42.2 48.2 56.9 58.7 90.4 34.0 |
395.1 |
| Non-underlying | |
| Intangible amortisation (4.7) (3.4) (5.5) (6.4) – (10.0) (4.9) (5.1) (1.3) |
(41.3) |
| Acquisition costs (0.8) (0.5) (0.7) (0.9) – (2.2) (0.7) (0.4) (0.3) |
(6.5) |
| 10.3 21.7 17.1 34.9 48.2 44.7 53.1 84.9 32.4 |
347.3 |
| Net underlying finance costs | (31.8) |
| Financial instruments – – mark to market |
(6.6) |
| Investment income | 0.9 0.9 |
| Profit before tax | 309.8 |
| (74.8) | |
| Corporation taxation |
financial statements 6 Segmental information (continued) Other segment information
| Investor & | Life & | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Property | General | Banking | Integrated | IT Services | Pensions | Professional | Workplace | |||
| Assets by segment | Health | Services | Insurance | Services | Services | & Consulting | Services | Services | Services | Total |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Assets | 57.8 | 92.4 92.4 |
132.9 | 196.4 196.4 |
47.2 | 190.0 | 330.0 | 82.3 | 70.2 | 1,199.2 |
| Intangible assets | 111.6 | 98.6 | 300.2 | 198.4 198.4 |
10.1 | 301.4 301.4 |
119.8 | 108.9 | 167.0 | 1,416.0 |
| 169.4 | 191.0 | 433.1 | 394.8 | 57.3 | 491.4 | 449.8 | 191.2 | 237.2 | 2,615.2 | |
| Liabilities | (69.4) | (43.8) | (52.2) | (144.3) | (102.7) | (263.3) | (225.6) | (212.2) | (57.9) | (1,171.4) |
| Net allocated assets | 100.0 | 147.2 | 380.9 | 250.5 | (45.4) | 228.1 | 224.2 | (21.0) | 179.3 | 1,443.8 |
| Unallocated assets | 245.1 | |||||||||
| Unallocated liabilities | (1,193.4) | |||||||||
| Total net assets | 495.5 | |||||||||
| Capital expenditure | ||||||||||
| Tangible assets | 2.3 | 1.1 | 1.5 | 10.2 | 2.5 | 10.2 | 64.4 | 3.9 | 2.4 | 98.5 |
| Depreciation charge | 1.2 | 2.6 | 5.2 | 5.1 | 3.4 | 16.8 | 24.1 | 7.8 | 4.3 | 70.5 |
| Intangible assets | 90.9 | 33.6 | 47.1 | 3.7 | – | 122.0 | – | 6.0 | 47.2 | 350.5 |
| Intangible amortisation | 4.7 | 3.4 | 5.5 | 6.4 | – | 10.0 | 4.9 | 5.1 | 1.3 | 41.3 |
Unallocated assets include available-for-sale financial assets, the cash flow hedge financial asset, cash in bank and currency and interest rate swaps. Unallocated liabilities include lease obligations, loan notes, overdrafts, callable swaps, currency swaps, bonds and the pension liability. financial
The tables below present revenue by the geographical location of clients, carrying amount of assets and expenditure on tangible and intangible assets by location of those assets.
| United | Non-United | ||
|---|---|---|---|
| Revenue | Kingdom £m |
Kingdom £m |
Total £m |
| Total segment revenue | 3,039.1 | 144.9 | 3,184.0 |
| Inter-segment revenue | (380.8) | (59.2) | (440.0) |
| Third party revenue | 2,658.3 | 85.7 | 2,744.0 |
| Other segment information | |||
| Assets | 1,149.5 | 49.7 | 1,199.2 |
| Intangible assets | 1,347.1 | 68.9 | 1,416.0 |
| Unallocated assets | 245.1 | – | 245.1 |
| Total assets | 2,741.7 | 118.6 | 2,860.3 |
| Capital expenditure | |||
| Tangible assets | 91.5 | 7.0 | 98.5 |
| Intangible assets | 346.8 | 3.7 | 350.5 |
Notes to the consolidated financial statements
Notes
| 7 Operating profit This is stated after charging/(crediting): |
|||
|---|---|---|---|
| 2011 | 2010 | ||
| Notes | £m | £m | |
| Employee benefits expense | 8 | 1,282.1 | 1,149.1 |
| Amortisation of intangible assets (as shown in the non-underlying column) | 14 | 67.7 | 41.3 |
| Depreciation | 13 | 70.2 | 70.3 |
| Loss on sale of property, plant and equipment | 0.7 | 0.8 | |
| Amortisation of other intangible assets (treated as depreciation)1 | 14 | 0.2 | 0.2 |
| Minimum lease payments recognised as an operating lease expense | 80.9 | 75.2 | |
| Foreign exchange differences | 1.6 | (3.7) | |
| 2011 | 2010 | ||
| UK fees paid to the auditors include fees in relation to: | £m | £m | |
| Audit of financial statements | 0.8 | 0.6 | |
| Other UK fees: | |||
| Local statutory audits for subsidiaries | 0.4 | 0.1 | |
| Taxation compliance services | 0.1 | – | |
| Taxation advisory services | 0.1 | – | |
| Services related to corporate finance transactions | 0.7 | – | |
| Other assurance services2 | 0.4 | 0.2 | |
| 2.5 | 0.9 | ||
| 8 Employee benefits expense | |||
| 2011 | 2010 | ||
| Notes | £m | £m | |
| Wages and salaries | 1,138.3 | 1,002.5 | |
| Social security costs | 105.0 | 96.1 | |
| Pension costs | 32 | 30.5 | 40.3 |
| Share based payments | 28 | 8.3 | 10.2 |
| 1,282.1 | 1,149.1 | ||
| 2011 | 2010 | ||
| The average number of employees during the year was made up as follows: up |
Number | Number | |
| Sales | 1,005 | 1,013 | |
| Administration | 4.376 | 3,035 | |
| Operations | 34,986 | 31,367 | |
| 40,367 | 35,415 | ||
| Details of Directors' remuneration are contained within the Directors' remuneration report – section subject to audit, on pages 80 to 85. within |
| Notes | 2011 £m |
2010 £m |
|---|---|---|
| Wages and salaries | 1,138.3 | 1,002.5 |
| Social security costs | 105.0 | 96.1 |
| Pension costs 32 |
30.5 | 40.3 |
| Share based payments 28 |
8.3 | 10.2 |
| 1,282.1 | 1,149.1 | |
| The average number of employees during the year was made up as follows: up |
2011 Number |
2010 Number |
| Sales | 1,005 | 1,013 |
| Administration | 4.376 | 3,035 |
| Operations | 34,986 | 31,367 |
| 40,367 | 35,415 |
1 Included within operating activities before amortisation.
2 There were no other amounts payable to the auditors requiring disclosure under Section 494 of the Companies Act 2006.
| Capita plc | Accounts | 101 |
|---|---|---|
| ------------ | ---------- | ----- |
Notes to the consolidated financial statements
| 2011 | 2010 | |
|---|---|---|
| Notes | £m | £m |
| Bank interest receivable | (0.1) | (1.9) |
| Other interest receivable | (0.3) | (0.3) |
| Interest receivable | (0.4) | (2.2) |
| Loan note interest | – | 0.1 |
| Bonds | 26.3 | 17.3 |
| Callable swaps – realised | 11.5 | 11.7 |
| Bank loans and overdrafts | 4.6 | 4.8 |
| Other interest payable | – | 0.1 |
| Interest payable | 42.4 | 34.0 |
| Underlying net finance costs | 42.0 | 31.8 |
| Callable swaps – mark to market 26 |
7.2 | 6.6 |
| Foreign exchange forward contracts (non-hedged) – mark to market |
(0.1) | – |
| mark to market1 Currency swaps' counterparty risk – 26 |
3.3 | – |
| Non-underlying net finance costs | 10.4 | 6.6 |
| Total net finance costs | 52.4 | 38.4 38.4 |
The major components of income tax expense for the years ended 31 December 2011 and 2010 are:
| Consolidated income statement | 2011 £m |
2010 £m |
|---|---|---|
| Current income tax | ||
| Current income tax charge | 80.0 | 87.0 |
| Adjustment in respect of prior years | (8.3) | (6.0) |
| Deferred income tax | ||
| Origination and reversal of temporary differences | (7.0) | (5.2) |
| Adjustment in respect of prior years | 0.2 | (1.0) |
| 64.9 | 74.8 | |
| 2011 | 2010 | |
| Consolidated statement of comprehensive income | £m | £m |
| Deferred income tax on cash flow hedges | (5.6) | 0.2 |
| Deferred income tax movement in relation to actuarial losses on defined benefit plans | (24.1) | (2.7) |
| (29.7) | (2.5) |
| Income tax related to items (credited)/charged directly to equity: |
2011 | 2010 |
|---|---|---|
| Consolidated statement of changes in equity | £m | £m |
| Current income tax deduction on exercise of stock options | (3.8) | (4.0) (4.0) |
| Deferred income tax movement in relation to share based payment | 0.7 | 4.7 |
| (3.1) | 0.7 0.7 |
1 The mark to market movement on currency swaps represents the extent to which the fair value of these instruments has been affected by the perceived change in the creditworthiness of the counterparties to those instruments. The Group is comfortable that the risk attached to those counterparties is not significant and believes that the currency swaps continue to act as an effective hedge against the movements in the fair value of the Group's issued US\$ denominated bonds (see note 26 – Hedges).
Notes to the consolidated financial statements 10 Income tax (continued)
| 2011 £m |
2010 £m |
|
|---|---|---|
| Accounting profit before tax | 302.9 | 309.8 |
| Notional charge at UK corporation tax rate of 26.5% (2010: 28%) |
80.3 | 86.7 |
| Adjustments in respect of current income tax of prior years | (8.3) | (6.0) |
| Adjustments in respect of deferred tax of prior years | 0.2 | (1.0) |
| Non-deductible expenses | 2.2 | 2.3 |
| Attributable to reduction in corporation tax rate | (6.5) | (1.8) |
| Attributable to lower tax rates in overseas jurisdictions | (6.7) | (5.4) |
| Adjustments to tax relief on share based payment | 3.7 | – |
| At the effective tax rate of 21.4% (2010: 24.1 %) |
64.9 | 74.8 |
| Total tax expense reported in the income statement | 64.9 | 74.8 |
| Accounting profit before tax Notional charge at UK corporation tax rate of 26.5% (2010: 28%) Adjustments in respect of current income tax of prior years Adjustments in respect of deferred tax of prior years Non-deductible expenses Attributable to reduction in corporation tax rate Attributable to lower tax rates in overseas jurisdictions Adjustments to tax relief on share based payment At the effective tax rate of 21.4% (2010: 24.1 %) Total tax expense reported in the income statement The tax charge for the year ended 31 December 2011 was £64.9m (2010: charge of £74.8m) and is after a prior year net credit of £8.1m resulting from the successful resolution of issues with was relevant tax authorities. The tax charge is equivalent to an effective tax rate of 21.4% (2010: 24.1%). The effective tax rate on underlying profit is 23.5% (2010: 24.5%). In addition, a net tax credit equivalent effective |
£m 302.9 80.3 (8.3) 0.2 2.2 (6.5) (6.7) |
£m 309.8 86.7 (6.0) (1.0) 2.3 |
||
|---|---|---|---|---|
| (1.8) | ||||
| (5.4) | ||||
| 3.7 | – | |||
| 64.9 | 74.8 | |||
| 64.9 | 74.8 | |||
| Deferred income tax at 31 December relates to the following: | Consolidated balance sheet 2011 |
2010 | Consolidated income statement 2011 |
2010 |
| £m | £m | £m | £m | |
| Deferred tax liabilities | ||||
| Accelerated capital allowances | (14.2) | (10.4) | 5.6 | 0.7 |
| Cash flow hedges | – | (3.1) | – | – |
| Fair value adjustments on acquisition |
(63.9) | (55.3) | (21.7) | (11.9) |
| Deferred tax assets | (78.1) | (68.8) | ||
| Share based payments | 2.7 | 4.9 | 1.5 | (2.9) |
| Pension schemes' liability | 21.4 | 6.7 | 9.3 | 5.0 |
| Provisions | 17.7 | 14.6 | – | 3.0 |
| Losses available for offset against future taxable income | 0.1 | – | 0.2 | 1.5 |
| Mark to market movement on currency swaps | 1.5 | 0.7 | (0.8) | – |
| Cash flow swaps | 11.3 11.3 |
10.1 | (0.9) | (1.6) |
| Cash flow hedges | 2.4 | – | – | – |
| 57.1 | 37.0 | |||
| Net deferred tax liability | (21.0) | (31.8) | ||
| Deferred income tax credit | (6.8) | (6.2) |
The UK corporation tax rate will decrease from 26% to 25% from 1 April 2012. The deferred tax balance has been adjusted in the current year to reflect this change. Proposed changes to tax laws and rates that will have an effect on the deferred tax assets and liabilities of the Group have also been announced but not substantively enacted at the balance sheet date. The impact of these changes on the Group is not considered to be material.
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
| 2011 £m |
2010 £m |
|
|---|---|---|
| Net profit attributable to ordinary equity holders of the parent from operations | 238.0 | 235.0 |
| 2011 Number million |
2010 Number million |
|
| Weighted average number of ordinary shares (excluding trust and treasury shares) for basic earnings per share |
607.7 | 611.3 |
| Dilutive potential ordinary shares: ordinary |
||
| Employee share options | 1.4 | 7.0 |
Weighted average number of ordinary shares (excluding trust and treasury shares) adjusted for the effect of dilution 609.1 618.3
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. The following additional earnings per share figures are calculated based on underlying earnings attributable to ordinary equity holders of the parent of £294.7m (2010: £275.0m) and,
after non-underlying costs, earnings of £238.0m (2010: £235.0m). They are included as they provide a better understanding of the underlying trading performance of the Group.
| 2011 | 2010 | |
|---|---|---|
| p | p | |
| Basic earnings per share – underlying |
48.49 | 44.98 |
| – after non-underlying |
39.16 | 38.44 |
| Diluted earnings per share – underlying |
48.38 | 44.48 |
| – after non-underlying |
39.07 | 38.01 |
| 12 Dividends paid and proposed | ||
| 2011 | 2010 | |
| £m | £m | |
| Declared and paid during the year | ||
| Ordinary shares (equity): | ||
| Final for 2010 paid: 13.4p per share (2009: 11.2p per share) |
81.2 | 69.1 |
| Interim for 2011 paid: 7.2p per share (2010: 6.6p per share) |
43.8 | 40.0 |
| 125.0 | 109.1 | |
| Proposed for approval at AGM (not recognised as a liability at 31 December) | ||
| Ordinary shares (equity): |
Final for 2011: 14.2p per share (2010: 13.4p per share) 86.4 81.2
Notes to the consolidated financial statements 13 Property, plant and equipment
| Leasehold improvements, land and buildings £m |
Plant and machinery £m |
Total £m |
|
|---|---|---|---|
| Cost Cost |
|||
| At 1 January 2010 | 69.3 | 330.1 | 399.4 399.4 |
| Subsidiaries acquired | 1.9 | 5.4 | 7.3 |
| Additions | 6.1 | 92.4 | 98.5 |
| Disposals | (7.9) | (32.2) | (40.1) |
| At 31 December 2010 | 69.4 | 395.7 | 465.1 |
| Subsidiaries acquired | 0.6 0.6 |
6.6 | 7.2 |
| Additions | 10.5 10.5 |
93.5 | 104.0 104.0 |
| Disposals | (8.0) (8.0) |
(47.4) | (55.4) |
| Exchange movement | (1.0) (1.0) |
(3.0) | (4.0) |
| At 31 December 2011 | 71.5 71.5 |
445.4 | 516.9 |
| Depreciation and impairment | |||
| At 1 January 2010 | 29.6 | 113.2 | 142.8 |
| Provided during the year | 10.3 | 60.0 | 70.3 |
| Disposals | (7.5) | (31.9) | (39.4) |
| At 31 December 2010 | 32.4 | 141.3 | 173.7 |
| Provided during the year | 8.5 8.5 |
61.7 | 70.2 |
| Disposals | (7.5) (7.5) |
(47.1) | (54.6) |
| Exchange movement | (0.7) (0.7) |
(1.9) | (2.6) |
| At 31 December 2011 | 32.7 32.7 |
154.0 | 186.7 |
| Net book value value |
|||
| At 1 January 2010 | 39.7 39.7 |
216.9 | 256.6 256.6 |
| At 31 December 2010 | 37.0 | 254.4 | 291.4 |
| At 31 December 2011 | 38.8 38.8 |
291.4 | 330.2 |
The net book value of plant and machinery includes an amount of £2.1m (2010: £0.8m) in respect of assets held under finance leases.
| Brands £m |
Software and licences £m |
Contracts and committed sales £m |
Client lists and relationships £m |
Goodwill £m |
Sub-total £m |
Other intangibles £m |
Total £m |
|
|---|---|---|---|---|---|---|---|---|
| Cost Cost |
||||||||
| At 1 January 2010 | 19.1 | 9.2 9.2 |
33.3 33.3 |
152.0 | 973.3 | 1,186.9 | 13.4 | 1,200.3 |
| Recognition of intangibles – – prior year acquisitions |
– | – – |
– – |
0.2 | (0.2) (0.2) |
– – |
– | – |
| Subsidiaries acquired | 6.0 | 9.8 | 59.9 | 43.5 | 231.3 | 350.5 | – | 350.5 |
| At 31 December 2010 | 25.1 | 19.0 | 93.2 | 195.7 | 1,204.4 | 1,537.4 | 13.4 | 1,550.8 |
| Recognition of intangibles – prior year acquisitions |
– | – | – | – | 2.0 2.0 |
2.0 2.0 |
– | 2.0 |
| Subsidiaries acquired | 3.7 | 3.1 3.1 |
3.1 3.1 |
140.8 140.8 |
320.6 320.6 |
471.3 471.3 |
– | 471.3 |
| Additions | – | – | – | – | – | – | 8.0 | 8.0 |
| Exchange movement | – | – | (1.0) (1.0) |
(0.4) (0.4) |
(0.1) (0.1) |
(1.5) (1.5) |
– | (1.5) |
| At 31 December 2011 | 28.8 | 22.1 22.1 |
95.3 95.3 |
336.1 336.1 |
1,526.9 1,526.9 |
2,009.2 2,009.2 |
21.4 | 2,030.6 |
| Amortisation and impairment | ||||||||
| At 1 January 2010 | 8.6 | 5.3 | 8.5 | 45.7 45.7 |
12.0 | 80.1 | 13.2 | 93.3 |
| Amortisation during the year | 3.5 | 1.5 | 6.6 | 29.7 29.7 |
– – |
41.3 | 0.2 | 41.5 |
| At 31 December 2010 | 12.1 | 6.8 | 15.1 | 75.4 | 12.0 | 121.4 | 13.4 | 134.8 |
| Amortisation during the year | 4.2 | 3.5 3.5 |
14.4 14.4 |
45.6 | – | 67.7 67.7 |
0.2 | 67.9 |
| Exchange movement | – | – | – | – | (1.0) (1.0) |
(1.0) (1.0) |
– | (1.0) |
| At 31 December 2011 | 16.3 | 10.3 10.3 |
29.5 29.5 |
121.0 121.0 |
11.0 11.0 |
188.1 188.1 |
13.6 | 201.7 |
| Net book value book value |
||||||||
| At 1 January 2010 | 10.5 | 3.9 | 24.8 | 106.3 | 961.3 | 1,106.8 | 0.2 | 1,107.0 |
| At 31 December 2010 | 13.0 | 12.2 | 78.1 | 120.3 | 1,192.4 | 1,416.0 | – | 1,416.0 |
| At 31 December 2011 | 12.5 | 11.8 11.8 |
65.8 65.8 |
215.1 215.1 |
1,515.9 1,515.9 |
1,821.1 1,821.1 |
7.8 | 1,828.9 |
During the year a total of £2.0m (2010: £0.2m) of intangible assets was recognised or derecognised in respect of prior year acquisitions for which the provisional intangible valuations performed in the previous year have now been completed. This has resulted in an increase in the value of goodwill. As required by IAS 12, deferred taxation is recognised in respect of these items, the impact of this was to increase goodwill in 2011 by £nil (2010: £nil) and to create a deferred tax liability of the same amount.
| The amount in 'Other intangibles' at December 2010 represents the consideration paid to AON to acquire the contract for the administration of the miners' personal injury liability claims on behalf of the Department of Energy and Climate Change. During the year the Group paid £8.0m to acquire the underlying elements which support the new contract with Zurich. The amortisation the on this intangible is being treated as depreciation. |
claims |
|---|---|
| 15 Impairment of goodwill Goodwill acquired through business combinations has been allocated for impairment testing purposes to the groups of cash generating units (CGUs) listed below. These represent the lowest level within the Group at which goodwill is monitored by management for internal reporting purposes. The significant groups of CGUs identified are Local Government Software and Partnerships, Property Services, Workplace Services, General Insurance, Registrar Services, Life & Pensions Services, IT & Software Services, Health and Private Sector. The remaining groups of CGUs are included in the 'balance of non-significant CGUs' column. in The recoverable amount of all the CGUs is based on a value in use calculation using cash flow projections based on the latest 1 year budget forecast approved by senior management, extrapolated for 4 future years by a growth rate applicable to each unit; an appropriate terminal value based on a perpetuity calculation using nil real growth is then added. A pre-tax discount rate a of 10.2% (2010: 10.5%) is then applied to these projections. projections. |
|
| Compound growth rates (years 2–5) | % |
| Local Government Software and Partnerships | 6% – 8% |
| Property Services | 5% – 7% |
| Workplace Services | 7% – 9% |
| General Insurance | 4% – 6% |
| Registrar Services | 6% – 8% |
| Life & Pensions Services | 4% – 6% |
| IT & Software Services | 7% – 9% |
| Health | 8% – 11% |
| Private Sector Sector |
8% – 11% |
| Balance of non-significant CGUs (weighted average growth rate) | 6% – 9% |
Notes to the consolidated financial statements
| Local Government Software & Partnerships £m |
Property Services £m |
Workplace Services £m |
General Insurance £m |
Registrar Services £m |
Private Sector £m |
Life & Pensions Services £m |
IT & Software Services £m |
Health £m |
Balance of non significant CGUs £m |
Total £m |
|
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 2011 |
|||||||||||
| Goodwill | 98.1 98.1 |
94.9 94.9 |
110.3 | 276.3 276.3 |
158.2 158.2 |
91.2 91.2 |
106.2 106.2 |
277.0 277.0 |
90.6 90.6 |
213.1 | 1,515.9 |
| 2010 | |||||||||||
| Goodwill | 81.5 | 86.4 | 91.3 | 276.3 | 123.5 | – | 90.4 | 224.4 | 75.5 | 143.1 143.1 |
1,192.4 |
The key assumptions used in the impairment testing were as follows:
The profit before interest and taxation is based on the assumption that future margins will remain at the levels currently being achieved. Non cash items such as depreciation have been added back to the profit before interest in order to determine the cash flow for the CGU.
| A pre-tax discount rate, derived from the Group's post-tax weighted average cost of capital has been used in discounting the projected risk adjusted cash flows. The discount rate reflects capital management's estimate of the gross cost of capital employed for the groups of CGUs listed above. This is the benchmark established to assess operating performance and to evaluate future capital investment proposals. The rate applied to all CGUs is the same across all units, this reflects the Group's funding arrangements where all units have equal access to the Group's treasury functions and borrowing lines to fund their operations. None of the Group's CGUs demonstrates levels of risk that are significantly different to that experienced by the Group generally and all have similar funding profiles and therefore the discount rate applied is deemed to be justified. rate |
||
|---|---|---|
| Rates of growth in cash-generating units beyond the budget period (years 2 to 5) Growth rate assumptions used in each CGU 5 year plan are based on a combination of projections by senior operational management and published industry research for the relevant market, including IDC forecasts. The range of growth rates applied to the CGUs is set out above. |
||
| Goodwill impairment Management believes that no reasonably possible change in the key assumptions above would cause any of the identified CGUs to become impaired. |
||
| 16 Financial assets | ||
| Current financial assets | 2011 £m |
2010 £m |
| Investment loan1 | 0.3 | 1.0 |
| Available-for-sale assets3 | 0.9 | – |
| Cash flow hedges2 | 1.8 | 5.0 5.0 |
| 3.0 | 6.0 | |
| 2011 £m |
2010 £m |
|
| Non-current financial assets | ||
| Investment loan1 | 36.0 | 35.2 |
| Available-for-sale assets3 | – | 0.7 0.7 |
| 2011 | 2010 | |
|---|---|---|
| Non-current financial assets | £m | £m |
| Investment loan1 | 36.0 | 35.2 |
| Available-for-sale assets3 | – | 0.7 |
| Cash flow hedges2 | 0.9 | 6.6 |
| Currency swaps in relation to US\$ denominated bonds4 | 243.3 | 189.9 |
| Interest rate swaps in relation to GBP denominated bonds4 | 13.5 | 4.4 4.4 |
| Investment in a joint venture5 | 0.1 | 0.6 |
| 293.8 | 237.4 |
1 The Group has entered into a funding arrangement with Optima Legal Services Limited (OLSL) and during the year has not increased the level of funding advanced (2010: £nil).
| 16 Financial assets (continued | |
|---|---|
| Investment in joint venture | 2011 £m |
2010 £m |
|---|---|---|
| Investments | – | 10.2 |
| Reinsurance assets | – | 6.2 |
| Other debtors | – | 1.8 |
| Cash and cash equivalents | 0.5 | 2.3 |
| Total assets | 0.5 | 20.5 |
| Technical provisions | 13.7 13.7 |
|
| Other creditors | 0.2 | 5.6 5.6 |
| Accruals and deferred income | 0.2 | 0.6 |
| Total liabilities | 0.4 | 19.9 |
| Net position | 0.1 | 0.6 |
The Group, through Capita Commercial Insurance Services Limited (CCIS), a wholly owned subsidiary, has a 50.1% holding in Cobex Corporate Member No 1 Limited (Cobex). In addition to the assets and liabilities of the underlying Syndicate, Cobex has in place a quota share arrangement with its insurance partners such that only 8.86% of any profit or loss declared by the Syndicate, in respect of Cobex, would be attributable to the Group.
The Group has no rights over the assets or liabilities of the Syndicate other than to the extent that it will receive distributed profits or contribute to relieve losses.
The Group no longer has any interest in the underlying syndicates and the remaining position will unwind in the subsequent year.
The Group made a number of acquisitions in 2011 which are shown in aggregate. The fair values of the identifiable assets and liabilities acquired are disclosed in the table below:
| to Group recognised on acquisition £m |
|
|---|---|
| Intangible assets | 150.7 |
| Property, plant and equipment | 7.2 |
| Deferred tax | (25.1) |
| Bank loans and overdrafts | (9.6) |
| Debtors - gross | 103.8 |
| Provision for doubtful debts | (11.4) |
| Creditors | (28.0) |
| Accruals | (67.7) |
| Long term debt term |
(22.3) |
| Provisions | (33.2) |
| Corporation tax | 1.7 |
| Net assets | 66.1 |
| Goodwill arising on acquisition | 320.6 |
| 386.7 | |
| Discharged by: | |
| Cash | 335.1 |
| Contingent consideration accrued accrued |
51.6 |
| 386.7 |
During the year the Group has completed a number of acquisitions which are shown in aggregate above. In all cases 100% of the ordinary share capital was acquired and the consideration satisfied in cash. The companies acquired have been mainly in the areas of Customer Management, Health, Financial Services and IT, and complement or extend the Group's existing skill sets and provide opportunities for growth into these markets. In addition during the year the Group settled contingent consideration payments with regard to previous acquisitions amounting to £1.7m, all of which had been accrued. the the a of shown aggregate share and The companies Group's the settled payments
During the year some of the acquired businesses have been completely integrated into the existing businesses of the Group and therefore their post-acquisition performance cannot be determined. In aggregate for the year, the other acquired subsidiaries contributed £16.6m to the profit before tax of the Group. If the acquisition had occurred on 1 January 2011, Group revenue would have been an estimated £3,106.8m and Group profit before tax would have been an estimated £318.9m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 January 2011. the therefore In to before the Group. occurred profit an In amounts, date of have the on
Fair value
| Goodwill has arisen on the acquisitions because the fair value of the acquired assets was lower than the consideration paid; the goodwill represents the value to the Group that can be driven from these underlying assets over the life of the acquired businesses. |
|
|---|---|
| Contingent consideration The Group has agreed to pay the vendors additional consideration dependent on the achievement of performance targets in the periods post acquisition. These performance periods are of up to 4 years in duration and will be settled in cash and loan notes on their payment date on achieving the relevant target. The estimated range of the additional consideration payment is estimated to be between £40m and £70m. The Group has included £51.6m as contingent consideration related to the additional consideration, which represents its fair value at the acquisition date. Contingent consideration has been calculated based on the Group's expectation of what it will pay in relation to the post-acquisition performance of the acquired entities by weighing the probability of a range of payments to give an estimate of the final obligation. There is further contingent consideration accrued of £2m in respect of acquisitions in previous years and these are expected to be paid in the forthcoming year. The fair value exercise has been completed on a provisional basis for acquisitions made in 2011. The Group will complete this review in 2012 though any adjustment to the carrying value is likely to be insignificant to the individual acquisition. |
|
| Acquisition related costs The Group incurred acquisition related costs of £15.4m related to professional fees paid for due diligence, general professional fees and legal advice. These costs have been included in administrative expenses in the Group's consolidated income statement. |
|
| 2010 acquisitions | |
| The Group made a number of acquisitions in 2010 which are shown in aggregate. The fair values of the identifiable assets and liabilities acquired are disclosed in the table below: | |
| Fair value to Group |
|
| recognised on | |
| acquisition £m |
|
| Intangible assets | 119.4 119.4 |
| Property, plant and equipment | 7.3 |
| Deferred tax | 9.6 |
| Debtors | 128.0 |
| Bank loans and overdrafts | (7.2) |
| Finance Finance leases |
(1.6) |
| Creditors | (118.4) |
| Long term debt term |
(109.6) |
| Provisions | (2.1) |
| Corporation tax | (1.8) |
| Net assets | 23.6 |
| Goodwill arising on acquisition | 195.4 |
| 219.0 | |
| Discharged by: | |
| Cash | 200.8 |
| Contingent consideration accrued accrued |
18.2 |
| 219.0 | |
| A further £31.8m was added to goodwill in relation to deferred tax on the intangible assets valued at acquisition. goodwill During 2010 the Group completed a number of acquisitions which are shown in aggregate above. In all cases 100% of the ordinary share capital was acquired and the consideration satisfied in cash. The companies acquired were mainly in the areas of Health, Property and IT and complemented or extended the Group's existing skill sets and provide opportunities for growth into cash. the Health market. In addition during 2010 the Group settled deferred consideration payments with regard to previous acquisitions amounting to £3.7m, of which £1.8m had been accrued. payments The impact of this was to increase goodwill by £1.9m. During the year some of the acquired businesses had been completely integrated into the existing businesses of the Group and therefore their post-acquisition performance could not be In determined. In aggregate for the year, the other acquired subsidiaries contributed £12.3m to the profit before tax of the Group. If the acquisition had occurred on 1 January 2010, Group revenue would have been an estimated £2,924.0m and Group profit before tax would have been an estimated £324.1m. In determining these amounts, management assumed that the fair value |
January assumed fair |
During the year some of the acquired businesses had been completely integrated into the existing businesses of the Group and therefore their post-acquisition performance could not be determined. In aggregate for the year, the other acquired subsidiaries contributed £12.3m to the profit before tax of the Group. If the acquisition had occurred on 1 January 2010, Group revenue would have been an estimated £2,924.0m and Group profit before tax would have been an estimated £324.1m. In determining these amounts, management assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2010.
Goodwill arose on the acquisitions because the fair value of the acquired assets was lower than the consideration paid; the goodwill represents the value to the Group that can be driven from these underlying assets over the life of the acquired businesses.
Notes to the consolidated
In respect of the acquisitions in 2010, the Group agreed to pay the vendors additional consideration dependent on the achievement of performance targets in the periods post acquisition. These performance periods are of 2 years in duration and will be settled in cash on their payment date on achieving the relevant target. The estimated range of the additional consideration payment is estimated to be between £15m and £20m. The Group has included £18.2m as contingent consideration related to the additional consideration, which represents its fair value at the acquisition date. Contingent consideration has been calculated based on the Group's expectation of what it will pay in relation to the post-acquisition performance of the acquired entities by weighing the probability of a range of payments to give an estimate of the final obligation.
Fair values had been provisional in relation to the acquisitions that were completed in the final quarter of 2010. The Group completed this review in the first quarter of 2011.
The Group incurred acquisition related costs of £6.5m related to professional fees paid for due diligence, general professional fees and legal advice in respect of the acquisitions in 2010. These costs were included in administrative expenses in the Group's consolidated income statement.
| 2011 | 2010 | |
|---|---|---|
| Current | £m | £m |
| Trade receivables | 464.5 | 385.6 385.6 |
| Other receivables | 30.5 | 23.7 23.7 |
| Gross amounts due from customers on construction contracts | 20.0 | 20.3 |
| Accrued income income |
271.8 | 215.0 |
| Prepayments | 59.5 | 59.6 |
| 846.3 | 704.2 |
| Non-current | 2011 £m |
2010 £m |
|---|---|---|
| Other receivables | 33.2 | 25.4 |
| Accrued income | 17.5 | 31.1 |
| Prepayments | 15.1 | 10.3 |
| 65.8 | 66.8 |
Trade receivables are non-interest bearing and are generally on 30 days' terms.
At 31 December 2011, trade receivables at a nominal value of £30.1m (2010: £22.7m) were impaired and fully provided for.
Movements in the provision for impairment of trade receivables were as follows: as follows:
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| At 1 January | 22.7 | 10.5 |
| Provisions acquired | 11.4 | 15.3 |
| Charge for year | 21.3 | 13.7 |
| Amounts written off | (3.6) | (0.3) |
| Unused amounts reversed | (21.7) | (16.5) |
| 30.1 | 22.7 |
As at 31 December, the analysis of trade receivables that were past due but not impaired is as follows:
| Past due but not impaired | |||||||
|---|---|---|---|---|---|---|---|
| Total £m |
Neither past due nor impaired £m |
0–3 months £m |
4–6 months £m |
7–12 months £m |
More than 12 months £m |
||
| 2011 | 464.5 464.5 |
406.5 406.5 |
51.2 51.2 |
6.8 | – | – | |
| 2010 | 385.6 385.6 |
341.0 | 39.7 39.7 |
4.9 | – | – |
The Group monitors the level of trade receivables on a monthly basis, continually assessing the risk of default by any counterparty.
Current
Non-current
Non-current
Notes to the consolidated financial statements 19 Cash
| 2011 £m |
2010 £m |
Current | Notes | 2011 £m |
2010 £m |
|
|---|---|---|---|---|---|---|
| Cash at bank and in hand | 71.5 | 38.5 | Contingent consideration | 6.0 | 1.7 1.7 |
|
| Obligations under finance leases | 24 | 2.0 | 1.3 | |||
| Cash at bank earns interest at floating rates based on daily bank deposit rates. The fair value of | Unsecured loan notes | 2.3 | 2.3 | |||
| Cash flow hedges | 0.5 | – | ||||
| Currency swaps in relation to US\$ denominated bonds |
0.9 | – | ||||
| 2011 | 2010 | Overdraft | – | 98.8 | ||
| £m | £m | Bonds | 24.4 | – | ||
| 170.9 | 158.0 | Callable swaps |
0.4 | – | ||
| 136.0 | 97.9 | Asset-based securitised financing (see below) | – | 11.7 11.7 |
||
| Other taxes and social security | 91.1 | 68.5 | 36.5 | 115.8 | ||
| Gross amounts due to customers on construction contracts | 2.6 | 2.1 | Non-current | |||
| 344.3 | 319.3 | Contingent consideration | 54.6 | 18.2 | ||
| 191.6 | 190.7 190.7 |
Obligations under finance leases | 24 | 1.1 | 1.1 | |
| 936.5 | 836.5 | Bonds | 1,407.8 | 1,016.4 1,016.4 |
||
| Revolving credit facility |
176.1 | – | ||||
| 3.4 | – | Cash flow hedges | 12.0 | – | ||
| 7.5 | 2.9 | Currency swaps in relation to US\$ denominated bonds |
– | 11.4 11.4 |
||
| 9.1 | 51.1 | Callable swaps |
44.3 | 37.5 | ||
| 20.0 | 54.0 | 1,695.9 | 1,084.6 1,084.6 |
|||
| Presented in the table below are disclosures with regard to the Group's property consultancy business where the provision, as a sub-contractor, is architectural, structural or another service construction |
property | Included in current Overdraft and bank loans of £98.8m in the comparative above are short term borrowings under the Group's committed revolving credit facilities due to mature in December 2015. These have been shown as non-current financial liabilities this year as the Group has the right to roll these short term loans over until the maturity date of the facility. The comparative figures have not been restated in this regard. The aggregate bond value stated above of £1,432.2m (net of issue costs) includes a fair |
Trade payables are non-interest bearing and are normally settled on terms agreed with suppliers.
income
cash is the same as the carrying amount above.
20 Trade and other payables
Presented in the table below are disclosures with regard to the Group's property consultancy business where the provision, as a sub-contractor, is architectural, structural or another service that results in the construction of a new asset.
Cash at bank and in hand 71.5 38.5 Cash at bank earns interest at floating rates based on daily bank deposit rates. The fair value of
Trade payables 170.9 158.0 Other payables 136.0 97.9 Other taxes and social security 91.1 68.5 Gross amounts due to customers on construction contracts 2.6 2.1 Accruals 344.3 319.3 Deferred income 191.6 190.7
Other payables 3.4 – Accruals 7.5 2.9 Deferred income 9.1 51.1
income 190.7
| 2011 £m |
2010 £m |
|
|---|---|---|
| Contract revenue recognised in relation to construction contracts in the year |
128.0 | 161.9 |
| Aggregate costs incurred and recognised profits (less losses) | ||
| to date | 209.8 | 259.1 |
| Gross amount due from customers for construction contracts | 20.0 | 20.3 |
| Gross amount due to customers on construction contracts | 2.6 | 2.1 |
The aggregate bond value stated above of £1,432.2m (net of issue costs) includes a fair value adjustment for interest rate and currency risk of the bonds at 31 December 2011. To remove the Group's exposure to interest rate and currency fluctuations it has entered into interest rate swaps and currency swaps which effectively hedge any movement in the underlying bond fair value. The fair value of the currency swaps is disclosed in note 16 – Financial assets and note 22 – Financial liabilities in the current and comparative years.
During the year, the Group issued fixed rate bonds; these were US\$406m (sterling equivalent: £254.8m) and £85m GBP denominated bonds giving an aggregate bond issue of £339.2m in the year after offsetting issue costs of £0.6m. The bonds had a weighted average maturity of 9 years and a weighted average coupon rate of 4.57%. Currency swaps were taken out to convert the US\$ denominated bonds to a variable rate based on six month GBP LIBOR. Interest rate swaps were taken out to convert the GBP denominated bonds to a variable rate based on six month GBP LIBOR. Further details of the bond issues are shown in the table on page 111.
The Group has insurance debtors which are subject to a securitisation agreement. The purpose of this arrangement is to securitise client receivables, derived through the provision of instalment credit facilities to insurance clients of the Group. The Group sells these receivables, with no immediate effect on the income statement, for cash to a third party. The third party takes on the rights and responsibilities of these receivables such that the terms of this agreement dictate that it has no recourse to the Group beyond 14% of the total receivable securitised. The final insurance debtors financed in this way were collected within the year and the securitisation agreement wound up.
Notes to the consolidated financial statements
The obligations under finance leases are secured on the assets being financed. The bonds and loan notes are unsecured. Loan notes issued during the year amounted to £nil (2010: £ nil) and £nil (2010: £0.7m) were repaid. The interest rates attributable to the loan notes are fixed for each new issue. The rates attributable to these remaining loan notes ranged from 0.87% to 5.00%. The outstanding loan notes totalling £2.3m are repayable on demand and have a final weighted average maturity of less than 1 year.
The Group has issued guaranteed unsecured bonds as follows:
| Bond | Interest rate | % Denomination | Value £m |
Maturity |
|---|---|---|---|---|
| Issued 20053 | ||||
| Series A A |
0.525 above 6m GBP LIBOR |
GBP | 50.0 | 28 September 2013 |
| Series B | 0.525 above 6m GBP LIBOR |
GBP | 25.0 | 28 September 2015 |
| Issued 20081 | ||||
| Series C C |
7.19 | GBP | 32.0 | 13 September 2015 |
| Issued 2010 | ||||
| Series C C |
4.78 | GBP | 50.0 | 30 June 2020 |
| Issued 20111 | ||||
| Series A A |
4.85 | GBP | 50.0 | 22 July 2019 |
| Series C C |
4.76 | GBP | 35.0 | 19 July 2021 |
| Total of sterling denominated bonds | 242.0 | |||
| US\$m | ||||
| Issued 20022,3 | ||||
| Series C | 6.47 | US\$ | 36.0 | 20 June 2012 |
| Issued 20062,3 | ||||
| Series A | 5.74 | US\$ | 60.0 | 28 June 2013 |
| Series B | 5.88 | US\$ | 130.0 | 28 June 2016 |
| Series A | 5.66 | US\$ | 11.0 | 13 September 2013 |
| Series B | 5.81 | US\$ | 74.0 | 13 September 2016 |
| Series C | 5.77 | US\$ | 60.0 | 13 September 2016 |
| Issued 20072,3 | ||||
| Series A | 5.57 | US\$ | 21.0 | 11 October 2014 |
| Series B | 5.88 | US\$ | 179.0 | 11 October 2017 |
| Issued 20082 | ||||
| Series A | 6.04 | US\$ | 80.0 | 13 September 2015 |
| Series B | 6.51 | US\$ | 256.0 | 13 September 2018 |
| Issued 20102 | ||||
| Series A | 4.15 | US\$ | 50.0 | 30 June 2017 |
| Series B | 4.80 | US\$ | 250.0 | 30 June 2020 |
| Issued 20112 | ||||
| Series B | 4.65 | US\$ | 80.0 | 22 July 2019 |
| Series A | 3.72 | US\$ | 40.0 | 19 July 2018 |
| Series B | 4.50 | US\$ | 236.0 | 19 July 2021 |
| Series A | 4.75 | US\$ | 50.0 | 26 July 2021 |
| Total of US\$ denominated bonds | 1,613.0 |
All series are unsecured and rank pari passu in all respects.
In February 2012 the Group arranged a new £285m 2 year term loan from our banks at floating rates of interest. Proceeds were used to provide additional liquidity to the Group. The issue costs incurred on the issue of the bonds during the year amounted to £0.6m (2010: £0.7m). Issue costs on the bonds are spread over the life of the bonds to their maturity. The unamortised balance of issue costs at the year-end totalled £2.0m (2010: £1.6m).
1 The Group has entered into an interest rate swap to convert the interest cost to a floating rate based on 6 month GBP LIBOR.
Notes to the consolidated financial statements 23 Funds receivables and payables
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Funds receivables | 98.0 | 100.0 |
| Funds payables | (107.1) | (117.0) |
| 2011 £m |
2010 £m |
|
|---|---|---|
| Not later than 1 year | 2.0 | 1.3 |
| Later than 1 year but not more than 5 years | 1.1 | 1.1 |
| 3.1 | 2.4 2.4 |
| Future minimum rentals payable under non-cancellable operating leases are as follows: leases |
||
|---|---|---|
| 2011 £m |
2010 £m |
|
| Not later than 1 year | 76.5 | 66.6 |
| Later than 1 year but not later than 5 years | 182.2 | 139.6 139.6 |
| Later than 5 years | 120.2 | 59.2 |
| 378.9 | 265.4 |
| 2011 | 2010 | ||||
|---|---|---|---|---|---|
| £m | £m | ||||
| Funds receivables Funds payables |
98.0 (107.1) |
100.0 (117.0) |
|||
| These balances relate to investors' purchase or redemption of units in Investment Funds of which Capita Financial Managers Limited, our unit trust administration business, is an Authorised Corporate Director. The balances are due to and from the investors and Investment Funds. The parties to the trade are permitted to take advantage of a four day settlement period between initiation and settlement of the trade. Historically, the Group has not presented these balances gross, as they believed that the impact on the Group accounts was immaterial. However, as these balances have become more significant, management has taken the decision to present them separately in the consolidated balance sheet. |
|||||
| 24 Obligations under leases and hire purchase contracts The Group uses finance leases and hire purchase contracts to acquire plant and machinery. These leases have terms of renewal and purchase options but no escalation clauses. Renewals are at the option of the lessee. |
|||||
| The value of future minimum lease payments and their present value, which are the same, is analysed as follows: | |||||
| 2011 £m |
2010 £m |
||||
| Not later than 1 year | 2.0 | 1.3 | |||
| Later than 1 year but not more than 5 years | 1.1 | 1.1 | |||
| 3.1 | 2.4 2.4 |
||||
| The Group has entered into commercial leases on certain properties, motor vehicles and items of plant and machinery. These leases have an average duration of between 3 and 10 years. | |||||
| Future minimum rentals payable under non-cancellable operating leases are as follows: leases |
2011 | 2010 | |||
| £m | £m | ||||
| Not later than 1 year | 76.5 | 66.6 | |||
| Later than 1 year but not later than 5 years | 182.2 | 139.6 139.6 |
|||
| Later than 5 years | 120.2 378.9 |
59.2 265.4 |
|||
| 25 Provisions | Insurance captive provision £m |
Property provision £m |
Arch cru £m |
Other £m |
Total £m |
| At 1 January 2011 | 27.0 | 9.3 | 18.5 | 2.8 | 57.6 |
| Utilisation | (23.9) (23.9) |
(1.5) (1.5) |
(17.9) (17.9) |
(1.8) | (45.1) |
| Additional provisions in the year | 17.2 17.2 |
(0.6) | – | 1.4 | 18.0 |
| Provisions acquired | – | 33.2 | – | – | 33.2 |
| At 31 December 2011 The provisions made above have been shown as current or non-current on the balance sheet to indicate the Group's expected timing of the matters reaching conclusion. The insurance provision is made in relation to the Group's Professional Indemnity, Motor and Employee Liability exposures. The Group uses a captive insurer to reduce the cost of providing this cover for its operations; claims that are in excess of the Captive's liability are reinsured with a number of large insurance underwriters. The Group makes provision when a claim has been made where it is more probable than not that an insured loss will occur. These provisions are reassessed regularly to ensure that the level of provisioning is consistent with the claims that have been than reported. In the year the Group has settled a number of insurance liabilities which it had provided for in previous years. Additionally it has made provision for new claims and increased or decreased existing provisions where more information on the progress of the claim has become available. Within the provisions acquired in the year is included a discounted provision for the difference between the market value of the property leases acquired with Ventura and Vertex Private Sector and the lease obligations committed to at the date the leases were signed by the previous owners. This is in accordance with IFRS 3 (revised) which requires the use of fair value measurement. The remaining property provision is made on a discounted basis for the future rent expense and related cost of leasehold property (net of estimated sub-lease income) where the space is vacant or currently not |
20.3 20.3 |
40.4 40.4 income) |
0.6 0.6 the |
2.4 claim |
63.7 or |
Within the provisions acquired in the year is included a discounted provision for the difference between the market value of the property leases acquired with Ventura and Vertex Private Sector and the lease obligations committed to at the date the leases were signed by the previous owners. This is in accordance with IFRS 3 (revised) which requires the use of fair value measurement. The remaining property provision is made on a discounted basis for the future rent expense and related cost of leasehold property (net of estimated sub-lease income) where the space is vacant or currently not planned to be used for ongoing operations. The expectation is that this expenditure will be incurred over the remaining periods of the leases which range from 1 to 15 years.
Arch cru funds – On 21 June 2011, Capita Financial Managers Limited ('CFM') agreed with the FSA to contribute to and administer a package for investors holding shares in sub funds of Arch cru investments. Under the terms of the agreement, CFM along with the depositaries to the funds voluntarily contributed to the establishment of a £54m payment scheme. CFM's contributions to this payment scheme were already provided for within the 2009 accounts. The Directors anticipate that no further provisions are required.
Other relates to provisions in respect of potential claims arising due to the nature of some of the operations that the Group provides. These are likely to unwind over a period of 1 to 3 years.
Notes to the consolidated financial statements 26 Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments are comprised of cash, bank loans, bond issues, loan notes, finance leases and derivatives. The main purpose of these financial instruments is to raise finance for the Group's operations and to manage the Group's financial risks. The Group also has various other financial instruments such as trade receivables and trade payables which arise directly from its operations.
The Group also enters into derivative transactions. These are interest rate swaps, currency swaps, callable interest rate swaps and forward currency contracts. Their purpose is to manage the interest rate and currency risks arising from the Group's operations and its sources of finance. It is, and has been throughout the period under review, the Group's policy that no speculative trading in financial instruments shall be undertaken.
The main risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.
The following table analyses by classification and category the Group's financial instruments (excluding short term debtors, creditors, fund payables/receivables and cash in hand) that are carried in the financial statements. The values below represent the carrying amounts. The fair values are the same as the carrying values other than a £50m fixed rate bond, included below in the bond value of £1,432.2m, with a carrying value of £50m and a fair value £51.4m.
| At 31 December 2011 | Available-for sale £m |
At fair value through the income statement £m |
Loans and receivables £m |
Derivatives used for hedging £m |
Other financial liabilities £m |
Total £m |
|---|---|---|---|---|---|---|
| Financial assets | ||||||
| Unlisted equity securities | 0.9 | – | – | – | – | 0.9 |
| Investment loan | – | – | 36.3 | – | – | 36.3 |
| Cash flow hedges | – | – | – | 2.7 | – | 2.7 |
| Interest rate swaps in relation to GBP denominated bonds | – | – | – | 13.5 | – | 13.5 |
| Currency swaps in relation to US\$ denominated bonds | – | – | – | 243.3 | – | 243.3 |
| 0.9 | – | 36.3 36.3 |
259.5 | – | 296.7 | |
| Financial liabilities | ||||||
| Unsecured loan notes | – | – | – | – | 2.3 | 2.3 |
| Bonds | – | – | – | – | 1,432.2 | 1,432.2 |
| Revolving credit facility | – | – | – | – | 176.1 | 176.1 |
| Cash flow hedges | – | – | – | 12.5 | – | 12.5 |
| Currency swaps in relation to US\$ denominated bonds | – | – | – | 0.9 | – | 0.9 |
| Contingent consideration | – | – | – | – | 60.6 | 60.6 |
| Obligations under finance leases | – | – | – | – | 3.1 | 3.1 |
| Callable swaps | – | 44.7 | – | – | – | 44.7 |
| – | 44.7 | – | 13.4 13.4 |
1,674.3 | 1,732.4 |
Notes to the consolidated financial statements 26 Financial instruments (continued)
| Available-for sale |
At fair value through the income statement |
Loans and receivables |
Derivatives used for hedging |
Other financial liabilities |
Total | |
|---|---|---|---|---|---|---|
| At 31 December 2010 | £m | £m | £m | £m | £m | £m |
| Financial assets | ||||||
| Unlisted equity securities | 0.7 | – | – | – | – | 0.7 |
| Investment loan | – | – | 36.2 | – | – | 36.2 |
| Cash flow hedges | – | – | – | 11.6 | – | 11.6 |
| Interest rate swaps in relation to GBP denominated bonds | – | – | – | 4.4 | – | 4.4 |
| Currency swaps in relation to US\$ denominated bonds | – | – | – | 189.9 | – | 189.9 |
| 0.7 | – | 36.2 | 205.9 | – | 242.8 | |
| Financial liabilities | ||||||
| Overdrafts and bank loans | – | – | – | – | 98.8 | 98.8 |
| Unsecured loan notes | – | – | – | – | 2.3 | 2.3 |
| Bonds | – | – | – | – | 1,016.4 | 1,016.4 |
| Currency swaps in relation to US\$ denominated bonds | – | – | – | 11.4 | – | 11.4 |
| Asset-based securitised financing | – | – | – | – | 11.7 | 11.7 |
| Contingent consideration | – | – | – | – | 19.9 | 19.9 |
| Obligations under finance leases | – | – | – | – | 2.4 | 2.4 |
| Callable swaps | – | 37.5 | – | – | – | 37.5 |
| – | 37.5 | – | 11.4 | 1,151.5 | 1,200.4 |
| At 31 December 2011 | 2011 £m |
2010 £m |
|---|---|---|
| Assets measured at fair value | ||
| Cash flow hedges | 2.7 | 11.6 |
| Interest rate swaps in relation to GBP denominated bonds | 13.5 | 4.4 |
| Currency swaps in relation to US\$ denominated bonds | 243.3 | 189.9 |
| Liabilities measured at fair value | ||
|---|---|---|
| Bonds | 1,382.2 | 966.4 |
| Cash flow hedges | 12.5 | – |
| Currency swaps in relation to US\$ denominated bonds | 0.9 | 11.4 |
| Callable swaps | 44.7 | 37.5 |
| Contingent consideration | 60.6 | 19.9 |
During both years the Group only had Level 2 assets or liabilities measured at fair value apart from contingent consideration which is a Level 3 liability. During the year ended 31 December 2011, there were no transfers between Level 1 and Level 2 fair value measurements and no transfers into or out of Level 3 fair value measurements.
Notes to the consolidated financial statements 26 Financial instruments (continued)
The Group's exposure to the risk of changes in market interest rates arises primarily from the Group's long term debt.
The Group's policy is to manage its interest cost using a mix of fixed and variable rate financial instruments to generate the desired interest rate profile and to manage its exposure to interest rate fluctuations.
The Group has primarily issued fixed rate coupon US\$ denominated bonds, which have been swapped to floating rate GBP liabilities at the date of issuance using currency swaps. These currency swaps are designated as fair value hedges against changes in the fair value of the bonds due to changes in prevailing foreign currency exchange and interest rates.
In February 2008, Capita executed a series of callable interest rate swaps to convert from paying floating rate GBP interest to fixed rate GBP interest on certain of its swapped bonds. The counterparty holds the option to cancel these swaps on each semi-annual coupon payment date. These callable interest rate swaps are not designated in any hedge relationship so their change in fair value is recognised in net finance costs in the income statement – see note 9 – Net finance costs.
Following the fall in interest rates at the end of 2008 and the low base interest rates maintained thereafter, these callable swaps show a negative mark to market value of £44.7m at 31 December 2011 (2010: negative mark to market value of £37.5m). This movement results in a non-cash accounting loss in the year of £7.2m (2010: loss of £6.6m).
In addition to the fixed rate bonds of £429.6m in issue as at 31 December 2011 (underlying value – not adjusted for the impact of the swaps), the Group had a further £742.8m of swapped bonds, and a £425.0m revolving credit facility, both paying floating rate interest. This gives the Group as a whole a balanced interest rate risk profile through the use of both fixed and floating rate financial instruments.
The interest rate profile of the financial assets and liabilities of the Group as at 31 December is as follows:
| At 31 December 2011 | Within 1 year £m |
Between 1–2 years £m |
Between 2–3 years £m |
Between 3–4 years £m |
Between 4–5 years £m |
More than 5 years £m |
Total £m |
|---|---|---|---|---|---|---|---|
| Fixed rate rate |
|||||||
| Loan notes | 2.3 | – | – | – | – | – | 2.3 |
| Bonds | 23.5 | 98.7 98.7 |
14.9 14.9 |
24.7 24.7 |
201.6 201.6 |
190.0 | 553.4 |
| Obligations under finance leases | 2.0 | 1.1 | – | – | – | – | 3.1 |
| Foreign currency swaps in relation to US\$ denominated bonds | 0.9 | (10.9) (10.9) |
(4.6) | – | (60.8) (60.8) |
(47.4) | (122.8) |
| Callable swaps | 0.4 | 4.9 4.9 |
1.0 1.0 |
3.0 3.0 |
20.2 20.2 |
15.2 | 44.7 |
| Floating rate | |||||||
| Cash in hand | (71.5) | – | – | – | – | – | (71.5) |
| Revolving credit facility | – | 176.1 | – | – | – | – | 176.1 |
| Investment loan | (0.2) (0.2) |
(0.3) (0.3) |
(0.5) (0.5) |
(3.5) (3.5) |
(4.0) (4.0) |
(27.8) | (36.3) |
| Assets available-for-sale | – | – | – | – | – | (0.9) | (0.9) |
| Bonds | – | – | – | 95.1 | – | 783.7 | 878.8 |
| Cash flow hedges | (1.3) (1.3) |
1.1 1.1 |
2.3 2.3 |
1.4 1.4 |
1.2 1.2 |
5.1 | 9.8 |
| Interest rate swap in relation to GBP denominated bonds | – | – | – | (4.9) | – | (8.6) | (13.5) |
| Foreign currency swaps in relation to US\$ denominated bonds | – | – | – | (18.2) | – | (101.4) | (119.6) |
Notes to the consolidated financial statements 26 Financial instruments (continued)
| At 31 December 2010 | Within 1 year £m |
Between 1–2 years £m |
Between 2–3 years £m |
Between 3–4 years £m |
Between 4–5 years £m |
More than 5 years £m |
Total £m |
|---|---|---|---|---|---|---|---|
| Fixed rate rate |
|||||||
| Loan notes | 2.3 2.3 |
– | – | – | – | – | 2.3 |
| Bonds | – | 24.8 | 100.5 | 15.1 | 25.0 | 379.5 | 544.9 |
| Obligations under finance leases | 1.3 | 1.1 | – | – | – | – | 2.4 2.4 |
| Foreign currency swaps in relation to US\$ denominated bonds | – | (0.1) | (12.4) | (4.7) | – – |
(98.2) | (115.4) |
| Callable swaps | – | 1.2 | 6.8 | 1.0 | 2.6 | 25.9 | 37.5 |
| Floating rate | |||||||
| Cash in hand | (38.5) | – | – | – | – | – | (38.5) |
| Overdrafts and bank loans | 98.8 | – | – | – | – | – | 98.8 |
| Investment loan | (1.0) | (2.0) | (2.5) | (3.0) | (3.5) | (24.2) | (36.2) |
| Assets available-for-sale | – | – | – | – | – | (0.7) | (0.7) |
| Bonds | – | – | – | – | 93.9 | 377.6 | 471.5 |
| Asset-based securitised financing | 11.7 | – | – | – | – | – | 11.7 |
| Cash flow hedges | 5.0 | 2.8 | 2.6 | 1.6 | 0.8 | (1.2) | 11.6 |
| Interest rate swap in relation to GBP denominated bonds | – | – | – | – | (4.3) | (0.1) | (4.4) |
| Foreign currency swaps in relation to US\$ denominated bonds | – | – | – | – | (17.5) | (45.6) | (63.1) |
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group's profit before tax (through the impact on floating rate borrowings). There is no impact on the Group's equity.
| Increase/ | Effect on profit | |
|---|---|---|
| (decrease) in | before tax | |
| basis points | £m | |
| 2011 | 62/(62) | (5.0)/5.0 |
| 2010 | 45/(45) | (2.0)/2.0 |
The Group has exposure to foreign currency risk where it has cash flows in overseas operations and foreign currency transactions in UK operations which are affected by foreign exchange movements. The Group is not generally exposed to significant foreign currency risk except in respect of its cash flows in overseas operations in India which generate exposure to movements in the INR/GBP exchange rates. The Group seeks to mitigate the effect of this exposure by entering forward currency contracts (in the form of Non-deliverable Forward Contracts (NDFs)) to fix the GBP cost of highly probable forecast transactions denominated in INR.
It is the Group's policy to negotiate the terms of the hedge derivatives to match the terms of the underlying cash flows in order to maximise hedge effectiveness.
At 31 December 2011, the Group had cash flow hedges in place against forecast monthly INR costs in 2012 and each year up to and including 2019. These forecast INR costs have been determined on the basis of the underlying cash flows, associated with the delivery of services under signed contracts which run to 2019.
The following table demonstrates the sensitivity to a reasonably possible change in the INR/GBP exchange rate, with all other variables held constant, of the Group's profit before tax and the Group's equity due to changes in the fair value of the Group's forward exchange contracts.
| Increase/ (decrease) in INR |
Effect on profit before tax |
Effect on equity |
|
|---|---|---|---|
| exchange rate | £m | £m | |
| 2011 | (4.99)% | – | 8.7 |
| 2010 | 0.95% | – | (1.7) |
The Group has in issue fixed rate dollar and sterling bonds which it has hedged through a combination of interest rate and currency swaps.
The Group had interest rate swaps in place with a notional amount of £117.0m (2010: £32.0m) whereby it receives a weighted average fixed rate of interest of 5.46% (2010: fixed rate of interest 7.19%) and pays variable rates based on six month GBP LIBOR. The swap is being used to hedge the exposure to changes in the fair value of £117.0m (2010: £32.0m) of the Group's bonds.
The Group had in place currency swaps whereby it receives a fixed rate of interest and pays a variable rate based on six month GBP LIBOR. The currency swaps are being used to hedge the exposure to changes in the fair value of £930.5m (2010: £675.6m) of the Group's bonds, which have coupon rates ranging from 3.72% to 6.51%.
The currency swaps are being used to hedge the exposure to changes in the fair value of its US dollar issued bonds. The bonds, currency and interest rate swaps have the same critical terms including the amount and the date of maturity (see note 22).
Notes to the consolidated financial statements 26 Financial instruments (continued)
The total gain in the year on the fair value hedges of £76.4m (2010: £43.6m), excluding credit risk, was equal to the loss on the hedged items resulting in no net gain or loss in the income statement.
The Group may, at its option, upon notice of not less than 30 days and not more than 60 days, repay at any time all or part of the notes at no more than the present value of future payments.
As noted above, the Group holds a series of forward exchange currency contracts in the form of NDFs designated as hedges of highly probable forecast transactions in INR of the Group's Indian operations.
| 2011 | 2010 | |||
|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | |
| Forward exchange contracts | £m | £m | £m | £m |
| Fair value value |
2.7 2.7 |
12.5 | 11.6 | – |
The terms of the forward currency contracts have been negotiated to match the terms of the commitments.
The cash flow hedges are in respect of highly probable forecast monthly costs, based on long term contracts that the Group has in place, denominated in INR up to 2019. These were assessed to be highly effective as at 31 December 2011 and a net unrealised loss of £9.8m (2010: gain of £11.6m) less deferred tax of £2.5m (2010: £3.1m) was recognised in equity. The net loss recognised on cash flow hedges during the year was £16.5m (2010: net gain £2.8m) whilst net gains of £5.0m (2010: £2.0m) were reclassified to the income statement and included in administrative expenses. The tax effect of the net movement in cash flow hedges during the year was a credit of £5.6m (2010: debit of £0.2m).
The Group trades only with recognised, creditworthy third parties. It is the Group's policy that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.
With respect to credit risk arising from the other financial assets of the Group, such as cash and cash equivalents, available-for-sale financial investments, investment loan, investment in a joint venture and certain derivative instruments, the Group's exposure to credit risk arises from default of the counterparty. The Group manages its operations to avoid any excessive concentration of counterparty risk and the Group takes all reasonable steps to seek assurance from the counterparties to ensure that they can fulfil their obligations.
The Group has a maximum exposure equal to the carrying amount of the above receivables and instruments.
The Group has netting arrangements in respect of its transactional banking facilities resulting in the legal right of set-off for its overdraft and cash balances.
The mark to market movement on derivatives includes the extent to which the fair value of these instruments has been affected by the perceived change in the creditworthiness of the counterparties to those instruments. The Group is comfortable that the risk attached to those counterparties is not significant and believes that the currency swaps continue to act as an effective hedge against the movements in the fair value of the Group's issued US\$ denominated bonds.
The Group's policy is to hold cash and undrawn committed facilities at a level sufficient to ensure that the Group has available funds to meet its medium term capital and funding obligations, including organic growth and acquisition activities, and to meet any unforeseen obligations and opportunities. The Group holds cash and undrawn committed facilities to enable the Group to manage its liquidity risk. credit an that objective funding
The Group monitors its risk to a shortage of funds using a daily cash management process. This process considers the maturity of both the Group's financial investments and financial assets (e.g. accounts receivable, other financial assets) and projected cash flows from operations.
The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of multiple sources of funding including bonds, bank loans, loan notes, overdrafts and finance leases over a broad spread of maturities to 2021.
| The table below summarises the maturity profile of the Group's financial liabilities at 31 December 2011 based on contractual undiscounted payments. | |||||||
|---|---|---|---|---|---|---|---|
| Within 1 year |
Between 1–2 years |
Between 2–3 years |
Between 3–4 years |
Between 4–5 years |
More than 5 years |
Total | |
| At 31 December 2011 | £m | £m | £m | £m | £m | £m | £m |
| Revolving credit facility | – | 176.1 | – | – | – | – | 176.1 |
| Interest on above revolving credit facility | 3.1 | 3.1 | – | – | – | – | 6.2 |
| Loan notes | 2.3 | – | – | – | – | – | 2.3 |
| Bonds | 23.2 | 95.8 95.8 |
13.5 13.5 |
108.6 108.6 |
170.2 170.2 |
870.6 | 1,281.9 |
| Interest on above bonds | 65.7 | 63.9 63.9 |
61.4 61.4 |
60.6 60.6 |
52.3 52.3 |
131.0 | 434.9 |
| Obligations under finance leases | 2.0 | 1.1 | – | – | – | – | 3.1 |
| Currency swaps | 0.9 | – | – | – | – | – | 0.9 |
| Callable swaps | 0.4 | 4.9 4.9 |
1.0 1.0 |
3.0 3.0 |
20.2 20.2 |
15.2 | 44.7 |
| Cash flow hedges | 0.5 | 1.9 1.9 |
2.6 2.6 |
1.7 1.7 |
1.4 1.4 |
4.4 | 12.5 |
| 98.1 | 346.8 346.8 |
78.5 78.5 |
173.9 173.9 |
244.1 244.1 |
1,021.2 | 1,962.6 | |
| Within 1 year |
Between 1–2 years |
Between 2–3 years |
Between 3–4 years |
Between 4–5 years |
More than 5 years |
Total | |
| At 31 December 2010 | £m | £m | £m | £m | £m | £m | £m |
| Overdraft and bank loans | 98.8 | – | – | – | – | – | 98.8 |
| Loan notes | 2.3 | – | – | – | – | – | 2.3 |
| Bonds | – | 23.1 | 95.5 | 13.5 | 108.2 | 689.9 | 930.2 |
| Interest on above bonds | 50.1 | 49.4 | 47.5 | 45.2 | 44.5 | 100.3 | 337.0 |
| Asset-based securitised financing | 11.7 | – | – | – | – | – | 11.7 |
| Obligations under finance leases | 1.3 | 1.1 | – | – | – | – | 2.4 |
| Currency swaps | – | – | – | – | – | 11.4 | 11.4 |
| Callable swaps | – | 1.2 | 6.8 | 1.0 | 2.6 | 25.9 | 37.5 |
| 164.2 | 74.8 | 149.8 | 59.7 59.7 |
155.3 | 827.5 | 1,431.3 | |
| The Group has available to it a Revolving Credit Facility of £425m maturing in December 2015, of which £178m had been drawn down as at 31 December 2011 (2010: £110m drawn down). These funds are available for the Group's immediate use. |
|||||||
| Capital management The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios to support its business and maximise shareholder value. |
|||||||
| The Group has covenanted to maintain a specified consolidated leverage ratio and a consolidated net interest expense coverage ratio, the terms of which have been adhered to during the year. | |||||||
| The Group manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the | |||||||
| dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2011 and | |||||||
| 31 December 2010. 31 December 2010. |
|||||||
| The table below presents quantitative data for the components the Group manages as capital: | |||||||
| 2011 | 2010 | ||||||
| £m | £m | ||||||
| Shareholders' funds | 524.1 | 495.5 | |||||
| Overdraft and bank loans | – | 98.8 | |||||
| Cash in hand | (71.5) | (38.5) | |||||
| Unsecured loan notes notes |
2.3 | 2.3 | |||||
| Obligations under finance leases | 3.1 | 2.4 | |||||
| Bonds | 1,432.2 | 1,016.4 | |||||
| Revolving credit facility | 176.1 | – | |||||
| Currency and interest rate swaps | (255.9) | (182.9) | |||||
| At 31 December December |
1,810.4 | 1,394.0 | |||||
| At 31 December 2010 | Within 1 year £m |
Between 1–2 years £m |
Between 2–3 years £m |
Between 3–4 years £m |
Between 4–5 years £m |
More than 5 years £m |
Total £m |
|---|---|---|---|---|---|---|---|
| Overdraft and bank loans | 98.8 | – | – | – | – | – | 98.8 |
| Loan notes | 2.3 | – | – | – | – | – | 2.3 |
| Bonds | – | 23.1 | 95.5 | 13.5 | 108.2 | 689.9 | 930.2 |
| Interest on above bonds | 50.1 | 49.4 | 47.5 | 45.2 | 44.5 | 100.3 | 337.0 |
| Asset-based securitised financing | 11.7 | – | – | – | – | – | 11.7 |
| Obligations under finance leases | 1.3 | 1.1 | – | – | – | – | 2.4 |
| Currency swaps | – | – | – | – | – | 11.4 | 11.4 |
| Callable swaps | – | 1.2 | 6.8 | 1.0 | 2.6 | 25.9 | 37.5 |
| 164.2 | 74.8 | 149.8 | 59.7 59.7 |
155.3 | 827.5 | 1,431.3 |
| 2011 | 2010 | |
|---|---|---|
| £m | £m | |
| Shareholders' funds | 524.1 | 495.5 |
| Overdraft and bank loans | – | 98.8 |
| Cash in hand | (71.5) | (38.5) |
| Unsecured loan notes | 2.3 | 2.3 |
| Obligations under finance leases | 3.1 | 2.4 |
| Bonds | 1,432.2 | 1,016.4 |
| Revolving credit facility | 176.1 | – |
| Currency and interest rate swaps | (255.9) | (182.9) |
| At 31 December | 1,810.4 | 1,394.0 |
Notes to the consolidated financial statements 27 Issued share capital
| Allotted, called up and fully paid | 2011 Million |
2010 Million |
2011 £m |
2010 £m |
|---|---|---|---|---|
| Ordinary shares of 21 /15p each |
||||
| At 1 January | 627.5 | 624.6 | 13.0 | 12.9 |
| Issued on exercise of share options | 0.1 | 2.9 | – | 0.1 |
| At 31 December | 627.6 | 627.5 | 13.0 | 13.0 |
During the year 0.1m (2010: 2.9m) ordinary 21 /15p shares with an aggregate nominal value of £nil (2010: £0.1m) were issued under share option schemes for a total consideration of £1.0m (2010: £15.6m).
| Treasury shares | 2011 Million |
2010 Million |
2011 £m |
2010 £m |
|---|---|---|---|---|
| Ordinary shares of 21 /15p |
||||
| At 1 January | 14.7 | – | 0.3 | – |
| Shares repurchased | – | 15.4 | – | 0.3 |
| Shares transferred to employee | ||||
| benefit trust | – | (0.7) | – | – |
| Shares allotted in the year | (0.5) | – | – | – |
| At 31 December | 14.2 | 14.7 | 0.3 | 0.3 |
In 2011, the Group made no purchases of shares into Treasury and allotted 0.5m shares with an aggregate nominal value of £nil. The total consideration received in respect of these shares was £1.2m.
| Employee benefit trust shares | 2011 Million |
2010 Million |
2011 £m |
2010 £m |
|---|---|---|---|---|
| Ordinary shares of 21 /15p |
||||
| At 1 January | 7.2 | 7.9 | 0.2 | 0.2 |
| Shares transferred from treasury | – | 0.7 | – | – |
| Shares allotted in the year | (2.1) | (1.4) | (0.1) | – |
| At 31 December | 5.1 | 7.2 | 0.1 | 0.2 |
The Group will use shares held in the employee benefit trust (EBT) in order to satisfy future requirements for shares under the Group's share option and long term incentive plans. During the year the EBT allotted 2.1m ordinary 21 /15p shares with an aggregate nominal value of £0.1m to satisfy exercises under the Group's share option and long term incentive plans. The total consideration received in respect of these shares was £2.3m. under
The Group has an unexpired authority to repurchase up to 10% of its issued share capital.
The Group operates several share based payment plans. The expense recognised for share based payments in respect of employee services received during the year to 31 December 2011 was £8.3m (2010: £10.2m), all of which arises from equity-settled share based payment transactions. Details of the schemes are as follows:
This scheme is applicable to Executive Directors and Divisional Executive Directors. Under this scheme awards are made annually consisting of Deferred Shares, which are linked to the payout under the Annual Bonus Scheme (details of which are contained in the Directors' remuneration report on pages 75 to 85) and Matching Shares.
The value of Deferred Shares is determined by the payout under the Annual Bonus Scheme: half of the annual bonus is paid in cash and the remainder is compulsorily deferred on a gross basis into Deferred Shares. The Deferred Shares are held for a period of 3 years from the date of award during which they are not forfeitable, except in the case of dismissal for gross misconduct.
A conditional award of Matching Shares is made at the same time as the award of Deferred Shares. Participants will be eligible to receive up to 2 Matching Shares for every Deferred Share. Prior to 2010 Matching Shares will vest after the 3 year holding period to the extent to which performance conditions have been met. 33.3% of the Matching Shares will vest if growth in the Company's earnings per share (EPS) is equal to growth in the UK Retail Price Index (RPI) plus 6% per annum, rising on a straight-line basis to 100% vesting if growth in the Company's EPS is equal to or greater than growth in the RPI plus 16% per annum. The performance condition attached to the awards may be amended by the Remuneration Committee, a sub-committee of the Group Board, from time to time, subject to the new condition being no less demanding than the original condition.
The vesting conditions for matching awards made in 2010 were such that 33.3% of the Matching Shares will vest if growth in the Company's earnings per share (EPS) is equal to growth in the UK Retail Price Index (RPI) plus 4% per annum, rising on a straight-line basis to 100% vesting if growth in the Company's EPS is equal to or greater than growth in the RPI plus 14% per annum.
The vesting conditions for matching awards made in 2011 will be such that 33.3% of the Matching Shares will vest if growth in the Company's earnings per share (EPS) is equal to growth in the UK Retail Price Index (RPI) plus 4% per annum, rising on a straight-line basis to 100% vesting if growth in the Company's EPS is equal to or greater than growth in the RPI plus 12% per annum.
There will be no issues under the Deferred Annual Bonus Plan in 2012.
The 2008 LTIP was approved and adopted at the AGM on 6 May 2008. The vesting of awards will depend on share price growth and EPS growth targets measured over a 3 year period. An award will not vest if Capita's average share price at the date of vesting is below the average share price at the date of grant. This scheme is open to all senior employees and shares will vest according to performance criteria. The number of shares which will vest is dependent upon the Company's EPS growth exceeding RPI growth by 4% and on banding within the scheme.
The LTISAS was only open to the Executive Directors and the Divisional Executive Directors. Under the scheme, participants were provided with 2 equal tranches of 600,000 options. The criteria were the same for each of these grants and therefore both tranches had performance periods that ended on 31 December 2006. The exercise price of the option was restated in line with the FTSE All Share Index from the date of grant to 25 November 2007. The restated exercise prices were £3.48 for the 2002 award and £4.74 for the 2004 award. This feature ensured that participants only gained if the share price outperformed the index. Options became exercisable, over the performance period, subject to the growth in the Company's EPS exceeding certain targets.
As growth in the Company's EPS over the 3 year period to 31 December 2006 exceeded RPI growth by 17.6%, 100% of the options vested (representing 1,200,000 shares per participant) and became exercisable on 25 November 2007.
The last award under the LTISAS was made in November 2004 and vested in full on 31 December 2006 and no further awards will be made under this plan.
Notes
Notes to the consolidated
This scheme is open to senior employees other than Executive Directors and Divisional Executive Directors. The exercise price of the options is equal to the market price of the shares on the date of grant. Options granted under this scheme become exercisable if the growth in the Company's EPS exceeds the growth in RPI by 8% over the 3 year vesting period from the date of grant. The contractual life of each option granted is 7 years. There are no cash settlement alternatives.
This is an employee Save As You Earn scheme open to all Capita employees. Under this scheme, employees are granted share options at the market price at the date of grant. The options become exercisable for a 6 month period following completion of a 3 year savings period. There are no performance conditions attached to these options.
The Co-Investment Plan was approved at the AGM on 10 May 2011 and provides for a grant of three times the number of Company shares pledged by Chief Executive Paul Pindar (the sole participant) before the end of 2011, up to a maximum limit of £1.0m in total market value of shares pledged. The number of matching shares vesting is determined on the basis of Total Shareholder Return (TSR) as compared to the increase in the TSR of the FTSE 100 over the four year performance period from the date of grant. No shares will vest if over the performance period the Companies TSR is lower than the median; 33.33% will vest if it is equal to median and 100% will vest if ranked in the upper quartile when compared against the FTSE 100 TSR. Between median TSR and top quartile the number of shares vesting will be on a straight-line basis in proportion to the position achieved by the Company. No plan shares will vest if the EPS of Capita plc has not grown over the performance period.
During the year the total number of shares pledged was 137,362 with a market value of £1.0m. The maximum matching shares under the plan amounted to 412,087 with a market value of £2.6m at 31 December 2011.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year (excluding Deferred Annual Bonus Plan, LTISAS and 2008 LTIP, which are shown separately).
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
|---|---|---|---|---|
| Outstanding as at 1 January | 7.5 7.5 |
£6.60 | 9.8 | £6.18 |
| Granted during the year | 1.6 1.6 |
£7.20 | 1.7 1.7 |
£7.05 |
| Exercised | (0.7) (0.7) |
£6.29 | (3.1) | £5.23 |
| Forfeited | (1.0) (1.0) |
£7.05 | (0.8) | £7.06 £7.06 |
| Expired during the year | (0.4) | £6.95 | (0.1) | £3.89 |
| 1 Outstanding as at 31 December |
7.0 | £6.68 | 7.5 | £6.60 |
| Exercisable at 31 December | 2.7 | £5.99 | 3.1 | £5.00 |
The options have been exercised on a regular basis throughout the year and the weighted average share price during the year was £7.42 (2010: £7.31).
1 Included within this balance are options over nil (2010: 0.1m) shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before 7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
|---|---|---|---|---|
| Outstanding as at 1 January | 5.9 | – | 3.6 | – |
| Awarded during the year | 2.7 | – | 2.4 | – |
| Forfeited | (0.4) | – | (0.1) | – |
| Outstanding as at 31 December | 8.2 | – | 5.9 | – |
| Exercisable at 31 December | – | – | – | – |
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
|---|---|---|---|---|
| Outstanding as at 1 January | 0.6 | £4.74 | 1.1 | £4.74 |
| Exercised | – | – | (0.5) | £4.74 |
| Outstanding as at 31 December | 0.6 | £4.74 | 0.6 | £4.74 |
| Exercisable at 31 December | 0.6 | £4.74 | 0.6 | £4.74 |
| LTISAS | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
||||||
| Outstanding as at 1 January | 0.6 0.6 |
£4.74 | 1.1 | £4.74 | |||||
| Exercised | – | – | (0.5) | £4.74 | |||||
| Outstanding as at 31 December | 0.6 0.6 |
£4.74 | 0.6 | £4.74 | |||||
| Exercisable at 31 December | 0.6 0.6 |
£4.74 | 0.6 | £4.74 | |||||
| The weighted average price of options exercised in 2011 was £6.30. Under the LTISAS scheme two tranches of 600,000 share options were issued to each participant in the scheme. Both were deemed to have been granted in November 2002. The first tranche, totalling 5,400,000 share options, was awarded and issued in November 2002 when the share price was £2.16. The second tranche, also totalling 5,400,000 share options, was awarded in November 2002 and issued in November 2004 when the share price was £3.51. Both tranches of share options became exercisable on 25 November 2007, with a weighted average exercise price of £4.11. The total cash value of the Deferred Shares awarded during the year under the Deferred Annual Bonus plan, discussed above, was £1.0m (2010: £0.9m). The Matching Shares allocation in respect of the 2010 awards under this plan charged in 2011 was £1.6m (2010: £0.5m). The weighted average fair value of options granted during the year was £3.24 (2010: £2.35). The range of exercise prices for all options outstanding at the end of the year was £6.76 to £7.33 (2010: £2.50 to £7.33). The fair value of equity-settled share options granted is estimated as at the date of grant using a multiple simulation option pricing valuation model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the years ended 31 December 2011 and 31 December 2010. model |
options | granted the estimated |
to | ||||||
| 2011 | 2010 | ||||||||
| Dividend yield (%) | 2.74 | 2.39 | |||||||
| Expected share price volatility (%) | 26.00 | 26.00 | |||||||
| Floor price for LTIP (applicable to LTIP 08) | £7.25 | £7.20 | |||||||
| Risk free interest rate (%) | 1.90 | 1.95 | |||||||
| Expected life of option (years) | 3.17 | 3.12 | |||||||
| Weighted average share price | of options granted during the year | £3.24 | £2.60 | ||||||
| 2011 | 2011 WAEP |
2010 Million |
2010 WAEP |
||||||
| The expected life of the options is based on historical data and is not necessarily indicative of | |||||||||
| 7.5 | exercise patterns that may occur. The expected volatility reflects the assumption that the | ||||||||
| 1.6 | 1.7 | historical volatility is indicative of future trends, which may also not necessarily be the actual indicative |
|||||||
| (0.7) | outcome. In addition, within the 2008 LTIP is an average share price floor under which the share award will not vest. This floor is based on the Company's average share price at the date of |
||||||||
| (1.0) | £7.06 | vesting. No other features of options grant were incorporated into the measurement of fair | |||||||
| (0.4) | value. | ||||||||
| 7.0 | |||||||||
| 2.7 |
Notes to the consolidated financial statements
Reconciliation of net cash flow to movement in net funds/(debt)
| Net debt at | Acquisitions | Net debt at | |||
|---|---|---|---|---|---|
| 1 January 2011 |
in 2011 (exc. cash) |
Cash flow movements |
Non-cash flow movements |
31 December 2011 |
|
| £m | £m | £m | £m | £m | |
| Cash and cash equivalents | 38.5 | – | 34.1 34.1 |
(1.1) | 71.5 |
| Overdraft and bank loans | (98.8) | – | 98.8 | – | – |
| Cash | (60.3) | – | 132.9 132.9 |
(1.1) | 71.5 |
| Loan notes | (2.3) | – | – | – | (2.3) |
| Bonds1 | (1,016.4) | – | (339.2) (339.2) |
(76.6) | (1,432.2) |
| Revolving credit facility | – | – | (175.4) (175.4) |
(0.7) | (176.1) |
| Currency swaps in relation to US\$ denominated bonds1 | 178.5 | – | – | 63.9 | 242.4 |
| Interest rate swaps in relation to GBP denominated bonds1 | 4.4 | – | – | 9.1 | 13.5 |
| Long term debt | – | (22.3) (22.3) |
22.3 | – | – |
| Finance leases | (2.4) | – | 1.0 1.0 |
(1.7) | (3.1) |
| Underlying net debt | (898.5) (898.5) |
(22.3) (22.3) |
(358.4) (358.4) |
(7.1) | (1,286.3) |
| Asset based securitised finance2 | (11.7) | – | 11.7 | – | – |
| Callable swaps | (37.5) | – | – | (7.2) | (44.7) |
| (947.7) (947.7) |
(22.3) (22.3) |
(346.7) (346.7) |
(14.3) | (1,331.0) |
The aggregate bond fair value above of £1,432.2m (2010: £1,016.4m) (disclosed in note 22 – Financial liabilities) includes the GBP value of the US\$ denominated bonds at 31 December 2011. To remove the Group's exposure to currency fluctuations it has entered into currency swaps which effectively hedge the movement in the underlying bond fair value. The interest rate swap is being used to hedge the exposure to changes in the fair value of GBP denominated bonds.
The combined fair value of the interest and currency swaps, of £255.9m (2010: £182.9m), is disclosed in note 16 – Financial assets, and in note 22 – Financial liabilities.
| Net debt at | Acquisitions | Net debt at | |||
|---|---|---|---|---|---|
| 1 January | in 2010 | Cash flow | Non-cash flow | 31 December | |
| 2010 £m |
(exc. cash) £m |
movements £m |
movements £m |
2010 £m |
|
| Cash and cash equivalents | 181.5 | – – |
(143.0) | – | 38.5 |
| Overdraft and bank loans | – | – | (98.8) | – | (98.8) |
| Cash | 181.5 | – – |
(241.8) | – | (60.3) |
| Loan notes | (2.6) | – – |
0.7 0.7 |
(0.4) | (2.3) |
| Bonds1 | (720.5) | – – |
(252.9) | (43.0) | (1,016.4) |
| Term debt | (198.0) | – – |
200.0 | (2.0) | – |
| Currency swaps in relation to US\$ denominated bonds1 | 136.0 | – | – – |
42.5 | 178.5 |
| Interest rate swaps in relation to GBP denominated bonds1 | 3.3 | – | – – |
1.1 | 4.4 4.4 |
| Long term debt | (2.8) | (109.6) | 112.4 | – | – |
| Finance leases | (1.4) | (1.6) | 0.6 | – | (2.4) |
| Underlying net debt | (604.5) | (111.2) | (181.0) | (1.8) | (898.5) |
| Asset based securitised finance2 | (17.1) | – | 5.4 | – | (11.7) |
| Callable swaps | (30.9) | – | – | (6.6) | (37.5) |
| (652.5) | (111.2) | (175.6) | (8.4) | (947.7) |
1 The sum of these items held at fair value equates to the underlying value of the Group's bond debt of £1,176.3m (2010: £833.5m).
2 The asset based securitised finance movement represents the net movement on the underlying balances with clients.
Notes to the consolidated financial statements 30 Capital commitments
| At 31 December 2011, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment amounted to £0.1m (2010: £0.8m). 31 Contingent liabilities The Group has provided, through the normal course of its business, performance bonds and bank guarantees of £47.6m (2010: £69.4m). 32 Pensions The Group operates both defined benefit and defined contribution pension schemes. These pension schemes are funded and contributions are made to separate trustee-administered funds. The assets of the pension schemes are held separately from the Group. The pension charge for the defined contribution pension schemes for the year is £39.9m (2010: £32.6m). In 2011 there was one main defined benefit pension scheme where the Group is the sole employing sponsor: The Capita Pension and Life Assurance Scheme (Capita scheme). Grouped together under 'Other schemes' are smaller arrangements: allocated sections of 2 multi-employer schemes in which the Group is a participating employer; an allocated section in an industry wide scheme; and several schemes to which the Group makes contributions under Admitted Body status to our clients' defined benefit pension schemes in respect of certain TUPE employees. In addition, there was a further scheme that was merged into the Capita scheme during the year. For the Admitted Body schemes, which are all part of the Local Government Pension Scheme, the Group will only participate in the schemes for a finite period up to the end of the contracts. The Group is required to pay regular contributions as decided by the respective Scheme Actuary and as detailed in each scheme's Schedule of Contributions. In addition, the Group will be required to pay some or all of any deficit (as determined by the respective Scheme Actuary) that is remaining at the end of the contract. In respect of this the Group is carrying a sufficient level of provision in these financial statements. During the year the contract with Cumbria County Council came to an end and the assets and pension obligations relating to the participants were transferred back to the Council. The respective Scheme Actuary determined that an additional payment was due and, as requested, the Group made a provisional payment of £10m to cover the estimated exit debt. The final deficit is not expected to be materially different. The assets and liabilities of the defined benefit pension schemes (excluding additional voluntary contributions) as at 31 December are: |
Capita | Other | |
|---|---|---|---|
| At 31 December 2011 | scheme £m |
schemes £m |
Group total £m |
| Scheme assets at fair value: | |||
| Equities/hedge funds/absolute returns | 346.8 346.8 |
49.4 | 396.2 |
| Bonds | 99.8 99.8 |
22.0 | 121.8 |
| Property Property |
47.9 47.9 |
4.7 | 52.6 |
| Insurance contracts | 2.9 | – | 2.9 |
| Cash/other | 2.5 2.5 |
2.4 | 4.9 |
| Total | 499.9 499.9 |
78.5 | 578.4 |
| Present value of scheme liabilities | (560.3) (560.3) |
(103.8) | (664.1) |
| Net liability | (60.4) (60.4) |
(25.3) | (85.7) |
| Capita | Other | Group | |
| At 31 December 2010 | scheme £m |
schemes £m |
total £m |
| Scheme assets at fair value: | |||
| Equities/hedge funds/absolute returns | 348.0 | 96.3 | 444.3 |
| Bonds | 108.3 | 34.0 | 142.3 |
| Property | 45.0 | 8.2 | 53.2 |
| Insurance contracts | 3.0 | – | 3.0 |
| Cash/other | 2.0 | 3.3 | 5.3 |
| Total | 506.3 | 141.8 | 648.1 |
| (505.8) | (166.9) | (672.7) | |
| Present value of scheme liabilities | 0.5 | (25.1) | (24.6) |
The pension schemes have not invested in any of the Group's own financial instruments nor in properties or other assets used by the Group.
The amounts recognised in the consolidated income statement and in the consolidated statement of comprehensive income for the year are analysed as follows:
| Capita scheme |
Other schemes |
Group total |
|
|---|---|---|---|
| Year ended 31 December 2011 | £m | £m | £m |
| Recognised in the income statement: | |||
| Current service cost | 20.7 20.7 |
1.1 | 21.8 |
| Past service cost | (27.9) (27.9) |
4.0 | (23.9) |
| Recognised in arriving at operating profit | (7.2) (7.2) |
5.1 | (2.1) |
| Expected return on scheme assets | (34.3) (34.3) |
(5.9) | (40.2) |
| Interest cost on scheme liabilities | 27.3 27.3 |
5.6 | 32.9 |
| Net finance cost included in administrative expenses | (7.0) (7.0) |
(0.3) | (7.3) |
| Total defined benefit charge | (14.2) (14.2) |
4.8 | (9.4) |
| Taken to the statement of comprehensive income: | |||
| Actual return on scheme assets | (16.0) (16.0) |
(4.8) | (20.8) |
| Less: expected return on scheme assets | (34.3) (34.3) |
(5.9) | (40.2) |
| (50.3) (50.3) |
(10.7) | (61.0) | |
| Other actuarial losses | (45.3) (45.3) |
1.9 | (43.4) |
| Actuarial losses recognised in the statement of comprehensive income | (95.6) (95.6) |
(8.8) | (104.4) |
In 2010, the Minister of State for Pensions announced the UK Government's intention to change to the use of the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) as the inflation measure for determining the statutory pension increases in respect of benefits accrued. As a result, certain benefits within the schemes of the Group changed their link of increases in RPI to increases in CPI in 2011. This change was communicated to the members during 2011. As such, members' expectations were changed from pension increases related to changes in RPI to pension increases related to changes in CPI. Therefore, for accounting purposes this is treated as a change in the operation of the plan and the associated credit in respect of past service costs has been recognised in the income statement in accordance with the guidance in UITF Abstract 48 'Accounting implications of the replacement of the retail prices index with the consumer prices index for retirement benefits' issued by the Accounting Standards Board.
The impact of changing the minimum increase in pensions within the schemes affected to one based on CPI, was a reduction of the pension liabilities in those schemes of £27.9m and a gain in respect of this change being recognised within past service cost in the income statement within the period as disclosed in the table above. minimum cost
Of the total service cost credit of £2.1m in 2011, £1.6m was included in cost of sales and £0.5m was included in administrative expenses.
| Capita | Other | Group | |
|---|---|---|---|
| Year ended 31 December 2010 | scheme £m |
schemes £m |
total £m |
| Recognised in the income statement: | |||
| Current service cost | 24.4 | 2.4 | 26.8 |
| Curtailment gain | (12.6) | (0.8) | (13.4) |
| Recognised in arriving at operating profit | 11.8 | 1.6 | 13.4 |
| Expected return on scheme assets | (32.0) | (8.7) | (40.7) |
| Interest cost on scheme liabilities | 26.3 | 8.7 | 35.0 |
| Net finance cost included in administrative expenses | (5.7) | – | (5.7) |
| Total defined benefit charge | 6.1 | 1.6 | 7.7 |
| Taken to the statement of comprehensive income: Taken |
|||
| Actual return on scheme assets | 42.9 | 12.2 | 55.1 |
| Less: expected return on scheme assets | (32.0) | (8.7) | (40.7) |
| 10.9 | 3.5 | 14.4 | |
| Other actuarial losses | (22.2) | (6.3) | (28.5) |
| Actuarial losses recognised in the statement of comprehensive income | (11.3) | (2.8) | (14.1) |
In March 2010 the Group announced that it had made changes to certain sections of the defined benefit schemes by introducing a CARE benefit basis for service after 30 June 2010. The curtailment gain in respect of this change has been recognised in the income statement in the period to 31 December 2010.
Of the total service cost charge of £13.4m in 2010, £10.4m was included in cost of sales and £3.0m was included in administrative expenses.
Pension contributions are determined based on the advice of independent qualified actuaries. A formal valuation of the Capita scheme was carried out as at 6 April 2011. The last formal valuation of the FPS scheme (the other scheme where the Group is the sole employing sponsor) was carried out as at 31 March 2008, however this scheme was merged into the Capita scheme on 31 July 2011. For the other schemes, the latest formal valuations were carried out as at either 31 December 2009 or 31 March 2010. These valuations are updated by qualified actuaries at each balance sheet date. Scheme assets are stated at their market valuations at each respective balance sheet date. advice at For
Notes to the consolidated financial statements 32 Pensions (continued)
The assumption for the expected long term rate of return on assets has been derived by considering the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset was then weighted based on the target asset allocation to develop the assumption for the expected long term rate of return on assets for the portfolio.
| Capita scheme | Other schemes | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Main assumptions: | % | % | % | % |
| Rate of price inflation – RPI/CPI |
3.0/2.1 | 3.4 | 3.0/2.1 | 3.4 |
| Rate of salary increase | 4.0 | 4.4 | 4.0 | 4.4 |
| Rate of increase of pensions in payment1 : |
||||
| – RPI inflation capped at 5% pa |
2.9 | 3.2 | 2.9 | 3.2 |
| – RPI inflation capped at 2.5% pa |
2.1 | 2.2 | 2.1 | 2.2 |
| – CPI inflation capped at 5% pa |
2.1 | – | 2.1 | – |
| – CPI inflation capped at 2.5% pa |
1.7 | – | 1.7 | – |
| Discount rate | 4.9 | 5.4 | 4.9 | 5.4 |
| CARE active revaluation (inflation capped at 3.5% pa) | 2.6 | 2.8 | 2.6 | 2.8 |
| Expected rates of return on scheme assets (net of scheme expenses): | ||||
| Equities/hedge funds/absolute returns | 6.2 to 6.7 | 5.5 to 7.6 | 6.2 to 6.7 | 5.5 to 7.6 |
| Bonds | 4.4 | 5.2 | 3.6 to 4.9 |
4.6 to 5.4 |
| Property | 5.2 | 4.9 | 5.2 | 4.9 |
| Insurance contracts | 4.9 | 5.4 | 4.9 | 5.4 |
| Cash/other | 1.0 | 0.9 | 1.0 | 0.5 |
| Expected take up maximum available tax free cash (for 2010 shown as expected take up of extended limits of tax free cash due to A | ||||
| day legislation)4 | 85.0 | 50.0 | 85.0 | 50.02 |
| Property | 5.2 | 4.9 | 5.2 | 4.9 4.9 |
||||
|---|---|---|---|---|---|---|---|---|
| Insurance contracts | 4.9 | 5.4 | 4.9 | 5.4 | ||||
| Cash/other | 1.0 | 0.9 | 1.0 | 0.5 | ||||
| Expected take up maximum available tax free cash (for 2010 shown as expected take up of extended limits of tax free cash due to A day legislation)4 |
85.0 | 50.0 | 85.0 | 50.02 | ||||
| The average future life expectancy from age 65 (in years) for mortality tables used to determine scheme liabilities for the the various different schemes at 31 December 2011 and 31 December 2010 are as follows: |
||||||||
| Member currently aged 65 (current life expectancy) |
Member currently aged 45 | (life expectancy at 65) | ||||||
| Male | Female | Male | Female | |||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Capita scheme scheme |
23.8 | 20.5 | 24.5 | 23.5 | 23.8 | 21.8 | 25.1 | 24.7 24.7 |
| Capita plc | Accounts | 125 |
|---|---|---|
| ------------ | ---------- | ----- |
Notes to the consolidated financial statements 32 Pensions (continued)
Changes in the present value of the defined benefit pension obligations are analysed as follows:
| Capita scheme £m |
Other schemes £m |
Group total £m |
|
|---|---|---|---|
| As at 1 January 2010 | 457.1 | 153.4 | 610.5 |
| Current service cost | 24.4 24.4 |
2.4 | 26.8 |
| Curtailment gain | (12.6) | (0.8) | (13.4) |
| Interest cost | 26.3 | 8.7 | 35.0 |
| Benefits paid | (12.1) | (4.2) | (16.3) |
| Actuarial gains and losses | 22.2 | 6.3 | 28.5 |
| Contributions by employees | 0.3 | 1.1 | 1.4 1.4 |
| Contract bulk transfers/business combinations | 0.2 | – | 0.2 |
| As at 31 December 2010 | 505.8 | 166.9 | 672.7 |
| Current service cost | 20.7 20.7 |
1.1 | 21.8 |
| Past service cost | (27.9) (27.9) |
4.0 | (23.9) |
| Interest cost | 27.3 27.3 |
5.6 | 32.9 |
| Benefits paid | (14.7) (14.7) |
(3.0) | (17.7) |
| Actuarial gains and losses | 45.3 45.3 |
(1.9) | 43.4 |
| Contributions by employees | 0.3 0.3 |
0.5 | 0.8 |
| Contract bulk transfers/business combinations | 3.5 3.5 |
(69.4) | (65.9) |
| As at 31 December 2011 | 560.3 560.3 |
103.8 | 664.1 |
| The defined benefit obligation comprises £664.1m (2010: £672.7m) arising from schemes that are wholly or partly funded. benefit are partly |
|||
|---|---|---|---|
| Changes in the fair value of scheme assets are analysed as follows: | |||
| Capita scheme £m |
Other schemes £m |
Group total £m |
|
| As at 1 January 2010 | 450.3 | 128.3 | 578.6 578.6 |
| Expected return on scheme assets | 32.0 | 8.7 | 40.7 40.7 |
| Contract bulk transfers/business combinations | 0.2 | – | 0.2 |
| Employer contributions | 24.7 24.7 |
4.4 | 29.1 |
| Contributions by employees | 0.3 | 1.1 | 1.4 1.4 |
| Benefits paid | (12.1) | (4.2) | (16.3) |
| Actuarial gains and losses | 10.9 | 3.5 | 14.4 14.4 |
| As at 31 December 2010 | 506.3 | 141.8 | 648.1 |
| Expected return on scheme assets | 34.3 34.3 |
5.9 | 40.2 |
| Employer contributions | 20.5 20.5 |
13.4 | 33.9 |
| Contributions by employees | 0.3 0.3 |
0.5 | 0.8 |
| Benefits paid | (14.7) (14.7) |
(3.0) | (17.7) |
| Actuarial gains and losses | (50.3) (50.3) |
(10.7) | (61.0) |
| Contract bulk transfers/business combinations | 3.5 3.5 |
(69.4) | (65.9) |
| As at 31 December 2011 | 499.9 499.9 |
78.5 | 578.4 |
The total employer contributions to the defined benefit pension schemes in 2012 are estimated to be £19.6m in respect of the Capita scheme and £11.0m in respect of the 'Other' schemes. be of
Notes to the consolidated financial statements 32 Pensions (continued)
| History of experience gains and losses: | |||||
|---|---|---|---|---|---|
| 2011 £m |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
|
| Capita scheme scheme |
|||||
| Fair value of scheme assets | 499.9 | 506.3 | 450.3 | 317.8 | 350.5 |
| Present value of defined benefit obligation | (560.3) | (505.8) | (457.1) | (320.2) | (330.2) |
| Scheme surplus/(deficit) | (60.4) | 0.5 | (6.8) | (2.4) | 20.3 |
| Experience adjustments arising on scheme liabilities | (8.5) | – | – | 3.5 | – |
| Experience adjustments arising on scheme assets | (50.3) (50.3) |
10.9 | 51.5 | (92.7) | (4.3) |
| Other schemes | |||||
| Fair value of scheme assets | 78.5 | 141.8 | 128.3 | 109.6 | 137.6 |
| Present value of defined benefit obligation | (103.8) | (166.9) | (153.4) | (131.7) | (153.5) |
| Scheme deficit | (25.3) (25.3) |
(25.1) | (25.1) | (22.1) | (15.9) |
| Experience adjustments arising on scheme liabilities | (6.8) | (2.2) | – | 28.7 | 0.1 |
| Experience adjustments arising on scheme assets | (10.7) (10.7) |
3.5 | 9.1 | (40.1) | (0.3) |
The cumulative amount of actuarial losses recognised since 1 January 2004 in the consolidated statement of comprehensive income is £209.8m (2010: cumulative actuarial losses of £105.4m). The Directors are unable to determine how much of the pension scheme deficit recognised on transition to IFRS of £77.8m (of which an IFRS transitional adjustment of £67.7m was taken directly to equity) is attributable to actuarial gains and losses since inception of those pension schemes. Consequently, the Directors are unable to determine the amount of actuarial gains and losses that would have been recognised in the consolidated statement of comprehensive income before 1 January 2004.
| 2011 £m |
2010 £m |
|
|---|---|---|
| Short term employment benefits | 5.5 | 6.2 |
| Pension | 0.2 | 0.1 |
| Share based payments | 3.6 | 3.9 |
| 9.3 | 10.2 |
Gains on share options exercised in the year by key management personnel totalled £5.8m (2010: £2.6m).
Nigel Wilson, Senior Independent Director, is Group Chief Financial Officer of Legal & General Group Plc. The Legal & General Group Plc had an interest in 23,086,079 shares in Capita plc as at 16 February 2012 and has a contractual relationship with the Group. Nigel Wilson does not participate in any Legal & General board discussions or decisions in respect of that company's dealings with Capita Plc which are conducted on an arm's length basis.
The Directors confirm that, to the best of their knowledge:
By order of the Board.
22 February 2012
Chief Executive Group Finance Director
We have audited the financial statements of Capita plc for the year ended 31 December 2011 set out on pages 87 to 139. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors' Responsibilities Statement set out on page 73, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
Oliver Tant (Senior Statutory Auditor) For and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square London, E14 5GL
| Capita plc | Accounts | 129 | ||||
|---|---|---|---|---|---|---|
| Other | ||||||
| Five year summary | ||||||
| Group balance sheet | 2011 £m |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
|
| for the year ended 31 December 2011 | Non-current assets | 2,518.7 | 2,011.6 | 1,570.2 | 1,488.8 | 1,032.5 |
| Current assets1 | 1,018.8 | 848.7 | 801.9 | 675.5 | 458.1 | |
| 3,537.5 | 2,860.3 | 2,372.1 | 2,164.3 | 1,490.6 | ||
| Liabilities1 | (2,949.7) | (2,307.2) | (1,857.9) | (1,764.1) | (1,156.2) | |
| Provision for liabilities and charges | (63.7) | (57.6) | (48.0) | (3.3) | (2.6) | |
| 524.1 | 495.5 | 466.2 | 396.9 | 331.8 | ||
| Capital and reserves | 524.1 | 495.5 | 466.2 | 396.9 | 331.8 | |
| Group income statement | ||||||
| Turnover | 2,930.2 | 2,744.0 | 2,686.8 | 2,441.4 | 2,073.3 | |
| Underlying operating profit | 427.4 | 395.1 | 357.7 | 320.9 | 271.3 | |
| Other income/(expense) | (0.2) | 0.9 | 0.2 | (0.2) | 1.2 | |
| Net interest payable | (42.0) | (31.8) | (32.8) | (43.5) | (34.1) | |
| Underlying profit before taxation | 385.2 | 364.2 | 325.1 | 277.2 | 238.4 | |
| Intangible amortisation | (67.7) | (41.3) | (28.1) | (18.6) | (9.7) | |
| Arch cru costs | – | – | (30.0) | – | – | |
| Professional fees and stamp duty on acquisitions | (15.4) | (6.5) | – | – | – | |
| Contingent consideration movement | 11.2 | – | – | – | – | |
| Financial instruments – mark to market |
(7.1) | (6.6) | 1.1 | (32.0) | – | |
| Loss on business disposal | – | – | (7.5) | – | – | |
| Currency swaps' counterparty risk – mark to market |
(3.3) | – | (2.5) | – | – | |
| Taxation | (64.9) | (74.8) | (69.2) | (60.8) | (62.5) | |
| Profit after taxation | 238.0 | 235.0 | 188.9 | 165.8 | 166.2 |
Basic earnings per share – underlying 48.49p 44.98p 38.75p 33.26p 28.10p Basic earnings per share – after non-underlying 39.16p 38.44p 30.76p 27.26p 27.09p Diluted earnings per share – underlying 48.38p 44.48p 38.42p 32.96p 27.63p Diluted earnings per share – after non-underlying 39.07p 38.01p 30.50p 27.01p 26.64p Special dividend – – – – 25.00p Dividend per ordinary share 21.4p 20.0p 16.80p 14.40p 12.00p
1 The 2010 comparatives have been restated for investors' purchase or redemption of units in Investment Funds of which Capita Financial Managers Limited, our unit trust administration business, is an Authorised Corporate Director.
at 31 December 2011
| Notes | 2011 £m |
2010 £m |
|
|---|---|---|---|
| Fixed assets | |||
| Tangible assets | 5 | 19.0 | 19.5 |
| Investments | 7 | 300.5 | 495.7 |
| Financial assets | 6 | 0.9 | 6.6 |
| 320.4 | 521.8 | ||
| Current assets | |||
| Trade investments | 7 | 0.1 | 0.1 |
| Financial assets | 6 | 1.8 | 5.0 |
| Debtors due within 1 year | 8 | 801.2 | 689.1 |
| Debtors due after more than 1 year | 8 | 225.7 | 162.7 |
| Cash | 31.1 | – | |
| 1,059.9 | 856.9 | ||
| Creditors: amounts falling due within 1 year | 9 | 50.7 | 235.6 |
| Net current assets | 1,009.2 | 621.3 | |
| Total assets less current liabilities | 1,329.6 | 1,143.1 | |
| Creditors: amounts falling due after more than 1 year | 9 | 561.2 | 394.5 |
| 768.4 | 748.6 | ||
| Capital and reserves | |||
| Called up share capital | 11 | 13.0 | 13.0 |
| Employee benefit trust and treasury shares |
12 | (0.4) | (0.5) |
| Share premium account | 12 | 459.4 | 454.9 |
| Capital redemption reserve | 12 | 1.8 | 1.8 |
| Merger reserve | 12 | 44.6 | 44.6 |
| Profit and loss account | 12 | 250.0 | 234.8 |
| 768.4 | 748.6 |
The accounts were approved by the Board of Directors on 22 February 2012 and signed on its behalf by:
P R M Pindar G M Hurst Chief Executive Group Finance Director
Company registered number: 2081330
for the year ended 31 December 2011
The accounts are prepared under the historical cost convention and in accordance with applicable accounting standards. The accounts comply with the following new Financial Reporting Standards issued by the UK Accounting Standards Board (ASB).
The amendment alters the definition of a financial liability to enable parties to classify rights issues (and certain options or warrants) as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity's nonderivative equity instruments, to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. The adoption of this amendment has had no impact on the financial statements of the Company.
In May 2010 the International Accounting Standards Board issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. These amendments were adopted by the ASB and issued in June 2010. The adoption of these amendments, which are effective from 1 January 2011, did not have any impact on the financial position or performance of the Company.
In June 2010 the ASB issued this standard on the accounting treatment of heritage assets which is effective for annual periods beginning on or after 1 April 2010. This standard did not have any impact on the financial position or performance of the Company.
This interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are consideration in accordance with paragraph 41 of FRS 26 (IAS 39). The equity instruments issued are measured at fair value (unless this cannot be reliably measured, in which case they are measured at the fair value of the liability extinguished) with gain or loss being immediately recognised in profit or loss. The adoption of this interpretation had no effect on the financial position or performance of the Company.
In December 2010 the UITF issued guidance on the accounting treatment consequent to the UK Government's announcement to replace RPI with CPI for the statutory minimum increase in pensions in defined benefit schemes. This UITF abstract did not have any impact on the financial position or performance of the Company.
A separate profit and loss account dealing with the results of the parent undertaking only has not been presented as provided by Section 408 of the Companies Act 2006.
Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost on a straight-line basis over the expected useful lives of the assets concerned, as follows:
Computer equipment 3 to 10 years Furniture, fixtures and equipment 4 to 5 years Leasehold improvements over the period of the lease
Fixed asset investments are shown at cost, less provisions for impairment.
Investments held as current assets are stated at the lower of cost and net realisable value. The carrying values of fixed asset investments are reviewed for impairment if events or changes in circumstances indicate the carrying values may not be recoverable.
The Company maintains a number of contracted-out defined contribution schemes and contributions are charged to the profit and loss account in the year in which they are due. These schemes are funded and the payment of contributions is made to separately administered trust funds. The assets of these schemes are held separately from the Company. The Company remits monthly pension contributions to Capita Business Services Limited, a subsidiary undertaking of the Company, which pays the Group liability centrally. Any unpaid contributions at the year-end have been accrued in the accounts of that company.
Assets obtained under finance leases are capitalised in the balance sheet and depreciated over the shorter of the lease term and their useful economic lives.
The finance charges under finance leases and hire purchase contracts are allocated to accounting periods over the period of the lease and represent a constant proportion of the balance of capital repayments outstanding. Rentals due under operating leases are charged on a straight-line basis over the lease term.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, taxation, with the following exceptions:
Deferred taxation is measured on an undiscounted basis at the taxation rates that are expected to apply in the periods in which timing differences reverse, based on taxation rates and laws enacted or substantively enacted at the balance sheet date.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract rate. All differences are taken to the profit and loss account with the exception of differences on foreign currency borrowings, to the extent that they are used to finance or provide a hedge against foreign equity investments, which are taken directly to reserves together with the exchange difference on the carrying amount of the related investments.
National Insurance on outstanding share options at the year-end has been grossed up and shown as a provision and a receivable on the balance sheet.
A separate note dealing with the disclosures of FRS 29 has not been presented as provided by paragraph 2D (b) of FRS 29. The consolidated financial statements include the required disclosures of IFRS 7 for the Group.
The Company uses derivative financial instruments such as interest rate swaps and foreign currency contracts to hedge risks associated with interest and exchange rate fluctuations. Such derivative financial instruments are stated at fair value. The fair values of interest rate swaps and foreign currency contracts are determined by reference to market rates for similar instruments.
For the purpose of hedge accounting, hedges are classified as either: fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is attributable to either a particular risk associated with a recognised asset or liability or a forecast transaction.
In relation to fair value hedges (e.g. fixed to floating interest rate swaps held as fair value hedges against fixed interest rate borrowings) which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the profit and loss account. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognised in the profit and loss account.
In relation to cash flow hedges the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the profit and loss account. Amounts taken to equity are transferred to the profit and loss account when the hedged transaction affects the profit and loss account, such as when the hedged financial income or financial expense is recognised or when a forecast transaction occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the profit and loss account. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the profit and loss account.
The Company operates a number of executive and employee share schemes.
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an option pricing model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will ultimately vest or in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in cumulative expense since the previous balance sheet date is recognised in the profit and loss account, with a corresponding entry in equity.
Subsidiary undertakings of the Company reimburse the Company through the intercompany account for charges attributable to their employees participating in the Company's share schemes.
| 2011 £m |
2010 £m |
|
|---|---|---|
| The deferred taxation included in the balance sheet is as follows: | ||
| Accelerated capital allowances | (1.3) | (1.6) |
| Share based payments | 3.3 | 4.4 |
| Cash flow hedges | 2.5 | (3.1) |
| Callable swaps | 11.1 | 10.1 |
| Provisions | 1.1 | 1.3 |
| Included in debtors note 8 | 16.7 | 11.1 |
The profit after taxation dealt with in the accounts of the parent undertaking was £132m (2010: profit of £182.8m).
| 2011 £m |
2010 £m |
|
|---|---|---|
| Declared and paid during the year | ||
| Ordinary shares (equity): | ||
| Final for 2010 paid: 13.4p per share (2009: 11.2p per share) |
81.2 | 69.1 |
| Interim for 2011 paid: 7.2p per share (2010: 6.6p per share) |
43.8 | 40.0 |
| 125.0 | 109.1 | |
| Proposed for approval at AGM (not recognised as a liability at 31 December) |
||
| Ordinary shares (equity): | ||
| Final for 2011: 14.2p per share (2010: 13.4p per share) |
86.4 | 81.2 |
| Capita plc | Accounts | 133 |
|---|---|---|
| Other |
Notes to the accounts
| Computer equipment £m |
Furniture, fixtures and equipment £m |
Short term leasehold improvements £m |
Total £m |
|
|---|---|---|---|---|
| Cost Cost |
||||
| 1 January 2011 | 34.3 | 0.5 | 3.2 | 38.0 |
| Additions | 3.2 3.2 |
0.1 | – | 3.3 |
| Disposals | (1.1) | – – |
– | (1.1) |
| Asset retirement | (4.3) (4.3) |
(0.2) (0.2) |
(0.7) | (5.2) |
| 31 December 2011 | 32.1 32.1 |
0.4 0.4 |
2.5 | 35.0 |
| Depreciation | ||||
| 1 January 2011 | 15.8 | 0.4 | 2.3 | 18.5 |
| Charge for year | 3.5 3.5 |
0.1 0.1 |
0.2 | 3.8 |
| Disposals | (1.0) (1.0) |
(0.1) | – | (1.1) |
| Asset retirement | (4.3) (4.3) |
(0.2) (0.2) |
(0.7) | (5.2) |
| 31 December 2011 | 14.0 14.0 |
0.2 0.2 |
1.8 | 16.0 |
| Net book value at: | ||||
| 1 January 2011 | 18.5 | 0.1 | 0.9 | 19.5 |
| 31 December 2011 | 18.1 18.1 |
0.2 0.2 |
0.7 | 19.0 |
| 6 Financial assets | ||||
| Current | 2011 £m |
2010 £m |
||
| Cash flow hedges | 1.8 | 5.0 | ||
| Non-current | 2011 £m |
2010 £m |
||
| Cash flow hedges | 0.9 | 6.6 | ||
| 7 Investments (a) Fixed asset investments |
||||
| Shares in subsidiary undertakings £m |
||||
| Cost |
| 1 January 2011 | 495.7 |
|---|---|
| Additions | 64.6 |
| Disposals | (259.8) |
| 31 December 2011 | 300.5 |
During the year the Company subscribed to £0.2m £1 redeemable preferences shares at a premium of £1.7m in Capita Group Insurance PCC Limited (formerly Capita Group Insurance Company Limited), a subsidiary undertaking.
During the year the Company acquired the entire share capital of AIB International Financial Services Limited (Renamed Capita International Financial Services (Ireland) Limited) for cash consideration of £17.3m. Also during the year the Company increased its investment in Capita Fiduciary (UK) Holdings Limited by £15.6m.
During the year the Company undertook a group restructuring project where £259.8m of investments were transferred to subsidiary undertakings and £29.8m of investments were transferred to the Company from subsidiary undertakings.
7 Investments (continued)
| Principal investments | Country of registration and operation |
Proportion of nominal value of issued shares held by the Company |
Description of shares held |
|---|---|---|---|
| Capita Holdings Limited | England | 100% | Ordinary £1 shares |
| Capita Business Services Limited* | England | 100% | Ordinary £1 shares |
| Capita Trust Company Limited | England | 100% | Ordinary £1 shares |
| Capita Hartshead Limited* | England | 100% | Ordinary £1 shares |
| BDML Connect Limited* | England | 100% | Ordinary £1 shares |
| Capita Registrars Limited* | England | 100% | Ordinary £1 shares |
| Capita Resourcing Limited* | England | 100% | Ordinary £1 shares |
| Capita Symonds Limited* | England | 100% | Ordinary £1 shares |
| Capita Life & Pensions Limited | England | 100% | Ordinary £1 shares |
| Capita Life & Pensions Regulated Services Limited | England | 100% | Ordinary £1 shares |
| Club 24 Limited* | England | 100% | Ordinary £1 shares |
| Service Birmingham Limited* | England | 100% | Ordinary £1 shares |
| Capita IT Services (BFS) Limited* | England | 100% | Ordinary £1 shares |
| Synetrix Limited* | England | 100% | Ordinary £1 shares |
| Capita IT Services Limited* | England | 100% | Ordinary £1 shares |
| Premier Medical Group Limited* | England | 100% | Ordinary 1p shares |
| Capita Gwent Consultancy Limited* | England | 100% | Ordinary £1 shares |
The activities of Capita plc undertakings are given on page 140.
| £m | ||
|---|---|---|
| At 1 January 2011 and 31 December 2011 | 0.1 | |
| 8 Debtors | ||
| Debtors due within 1 year | 2011 £m |
2010 £m |
| Amounts owed by subsidiary undertakings | 759.5 | 627.4 627.4 |
| Taxation recoverable | 36.4 | 55.9 |
| Other debtors | 2.0 | 2.4 2.4 |
| Prepayments and accrued income | 3.3 | 3.4 3.4 |
| 801.2 | 689.1 | |
| Debtors due beyond 1 year | 2011 £m |
2010 £m |
| Prepayments and accrued income | 1.3 | 3.2 |
| Deferred taxation | 16.7 | 11.1 |
| Currency swap | 194.2 | 144.0 |
| Interest rate swap | 13.5 | 4.4 |
| 225.7 | 162.7 |
| Capita plc | Accounts | 135 |
|---|---|---|
| ------------ | ---------- | ----- |
| 9 Creditors 9 Creditors |
||
|---|---|---|
| Amounts falling due within 1 year Amounts falling due within 1 year |
2011 2011 £m £m |
2010 2010 £m £m |
| Bank overdraft | – | 209.5 |
| Bank overdraft | – | 209.5 |
| Trade creditors | 2.8 | 4.5 |
| Trade creditors | 2.8 | 4.5 |
| Other creditors | 3.2 | 0.2 |
| Other creditors | 3.2 | 0.2 |
| Cash Cash flow hedges hedges |
0.5 0.5 |
– – |
| Currency swap | 0.9 | – |
| Currency swap | 0.9 | – |
| Callable swap | 0.4 | – |
| Callable swap | 0.4 | – |
| Bonds | 24.6 | – |
| Bonds | 24.6 | – |
| Other taxes and social security | 0.2 | – |
| Other taxes and social security | 0.2 | – |
| Accruals and deferred | 18.1 | 21.4 |
| Accruals and deferred income | 18.1 | 21.4 |
| 50.7 50.7 |
235.6 235.6 |
| Amounts falling due after more than 1 year Amounts falling due after more than 1 year |
2011 2011 £m £m |
2010 2010 £m £m |
|---|---|---|
| Bonds | 324.8 | 345.6 |
| Bonds | 324.8 | 345.6 |
| Revolving credit facility | 176.1 | – |
| Revolving credit facility | 176.1 | – |
| Currency swap | – | 11.4 |
| Currency swap | – | 11.4 |
| Callable swaps | 44.3 | 37.5 |
| Callable swaps | 44.3 | 37.5 |
| Provisions | 4.0 | – |
| Provisions | 4.0 | – |
| Cash Cash flow hedges hedges |
12.0 12.0 |
– – |
| 561.2 561.2 |
394.5 394.5 |
|
| The bank overdraft and the bonds are unsecured. The bank overdraft and the bonds are unsecured. |
| £m £m |
|
|---|---|
| At January 2011 At 1 January 2011 |
(11.1) |
| New provisions in the year New provisions in the year |
(5.6) (5.6) |
| At 31 At 31 December 2011 2011 – – included in debtors note 8 included in debtors note 8 |
(16.7) (16.7) |
| 11 Share 11 Share capital |
| 2011 | 2010 | 2011 | 2010 | |
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Million | Million | £m | £m | |
| Million | Million | £m | £m | |
| Allotted, called up and Allotted, called up and fully paid paid |
||||
| Ordinary shares of 21/15p each of 21/15p each Ordinary |
||||
| At January | 627.5 | 624.6 | 13.0 | 12.9 |
| At 1 January | 627.5 | 624.6 | 13.0 | 12.9 |
| Issued on exercise of share options | 0.1 | 2.9 | – | 0.1 |
| Issued on exercise of share options | 0.1 | 2.9 | – | 0.1 |
| At 31 | 627.6 | 627.5 | 13.0 | 13.0 |
| At 31 December | 627.6 | 627.5 | 13.0 | 13.0 |
| During the year 0.1m (2010: 2.9m) ordinary 21/15p shares with an aggregate nominal value of £2,067 (2010: £0.1m) were issued under share option schemes for a total consideration of £1.0m 2.9m) ordinary 21/15p During the year 0.1m with an aggregate nominal value of £2,067 (2010: £0.1m) were issued under share option schemes for a total consideration of £1.0m |
During the year 0.1m (2010: 2.9m) ordinary 21/15p shares with an aggregate nominal value of £2,067 (2010: £0.1m) were issued under share option schemes for a total consideration of £1.0m (2010: £15.6m). (2010: £15.6m).
| 2011 | 2010 | 2011 | 2010 | |
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Million | Million | £m | £m | |
| Million | Million | £m | £m | |
| Ordinary shares of 21/15p of 21/15p Ordinary each each |
||||
| At January | 14.7 | – | 0.3 | – |
| At 1 January | 14.7 | – | 0.3 | – |
| Shares repurchased | – | 15.4 | – | 0.3 |
| Shares repurchased | – | 15.4 | – | 0.3 |
| Shares transferred employee Shares transferred to employee benefit trust trust |
– – |
(0.7) (0.7) |
– – |
– – |
| Shares allotted in the year | (0.5) | – | – | – |
| Shares allotted in the year | (0.5) | – | – | – |
| At 31 | 14.2 | 14.7 | 0.3 | 0.3 |
| At 31 December | 14.2 | 14.7 | 0.3 | 0.3 |
| During the year the Group allotted 0.5m (2010: nil) treasury shares with a nominal value of £10,333 (2010: £nil). During the year the Group allotted 0.5m (2010: nil) treasury shares with a nominal value of £10,333 (2010: £nil). The total consideration received in respect of these shares was £1.2m. total consideration received in respect of these shares was £1.2m. |
During the year the Group allotted 0.5m (2010: nil) treasury shares with a nominal value of £10,333 (2010: £nil). The total consideration received in respect of these shares was £1.2m.
| 2011 Million |
2010 Million |
2011 £m |
2010 £m |
|
|---|---|---|---|---|
| Ordinary shares of 21/15p each |
||||
| At 1 January January |
7.2 | 7.9 | 0.2 | 0.2 |
| Shares transferred from treasury | – | 0.7 | – | – |
| Shares allotted in the year | (2.1) | (1.4) | (0.1) | – |
| At 31 December | 5.1 | 7.2 | 0.1 | 0.2 |
| Company | Share premium £m |
Capital redemption reserve £m |
Merger reserve £m |
Employee benefit trust shares £m |
Profit and loss account £m |
|---|---|---|---|---|---|
| At 1 January 2011 | 454.9 | 1.8 | 44.6 | (0.5) | 234.8 |
| Shares issued | 4.5 | – | – | 0.1 | (0.1) |
| Share based payment | – | – | – | – | 8.3 |
| Equity dividends paid | – | – | – | – | (125.0) |
| Retained profit for the year | – | – | – | – | 132.0 |
| At 31 December 2011 | 459.4 | 1.8 | 44.6 | (0.4) | 250.0 |
| Employee benefit trust shares | |||||
|---|---|---|---|---|---|
| 2011 Million |
2010 Million |
2011 £m |
2010 £m |
||
| Ordinary shares of 21/15p each |
|||||
| At 1 January January |
7.2 | 7.9 | 0.2 | 0.2 | |
| Shares transferred from treasury | – | 0.7 | – | – | |
| Shares allotted in the year | (2.1) | (1.4) | (0.1) | – | |
| At 31 December | 5.1 | 7.2 | 0.1 | 0.2 | |
| The Company will use shares held in the employee benefit trust (EBT) in order to satisfy future requirements for shares under the Group's share option and long term incentive plans. During the year the EBT allotted 2.1m ordinary 21/15p shares with an aggregate nominal value of £0.1m to satisfy exercises under the Group's share option and long term incentive plans. The total consideration received in respect of these shares was £2.3m. The Company has an unexpired authority to repurchase up to 10% of its issued share capital. |
|||||
| 12 Reserves | |||||
| Capital | Employee | ||||
| Share premium |
redemption reserve |
Merger reserve |
benefit trust shares |
Profit and loss account |
|
| Company | £m | £m | £m | £m | £m |
| At 1 January 2011 | 454.9 | 1.8 | 44.6 | (0.5) | 234.8 |
| Shares issued | 4.5 | – | – | 0.1 | (0.1) |
| Share based payment | – | – | – | – | 8.3 |
| Equity dividends paid | – | – | – | – | (125.0) |
| Retained profit for the year | – | – | – | – | 132.0 |
| At 31 December 2011 | 459.4 459.4 |
1.8 1.8 |
44.6 44.6 |
(0.4) | 250.0 |
| 13 Reconciliation of movements in shareholders' funds | |||||
| 2011 £m |
2010 £m |
||||
| Profit for the year | 132.0 | 182.8 | |||
| Dividends | (125.0) | (109.1) | |||
| 7.0 | 73.7 | ||||
| Share based payment | 8.3 | 10.2 | |||
| Shares issued | 4.5 | 19.8 | |||
| Share transaction costs | – | (0.5) | |||
| Shares purchased | – | (115.7) | |||
| Net movement in shareholders' funds | 19.8 | (12.5) | |||
| Opening shareholders' funds | 748.6 | 761.1 | |||
| Closing shareholders' funds | 768.4 | 748.6 | |||
| 14 Commitments and contingent liabilities (a) Annual commitments under operating leases were as follows: |
|||||
| 2011 | 2010 | ||||
| Property £m |
Other £m |
Property £m |
Other £m |
||
| Operating leases which expire: | |||||
| In less than one year | 0.5 0.5 |
0.1 | – | – | |
| In 2 to 5 years inclusive | – | 0.2 | 0.5 | 0.3 | |
| Over 5 years from the balance sheet date | 0.9 | – | 0.8 | – | |
| 1.4 1.4 |
0.3 | 1.3 | 0.3 |
| 2011 | 2010 | |||
|---|---|---|---|---|
| Property £m |
Other £m |
Property £m |
Other £m |
|
| Operating leases which expire: | ||||
| In less than one year | 0.5 | 0.1 | – | – |
| In 2 to 5 years inclusive | – | 0.2 | 0.5 | 0.3 |
| Over 5 years from the balance sheet date | 0.9 | – | 0.8 | – |
| 1.4 | 0.3 | 1.3 | 0.3 |
(b) The Company has overdraft and loan facilities of Group undertakings amounting to £425.0m (2010: £425.0m), of which £178.0m had been drawn down at 31 December 2011 (2010: £110m drawn down).
| Capita plc Accounts |
137 |
|---|---|
| ------------------------ | ----- |
| Notes to the accounts Notes to the accounts |
15 Borrowings 15 Borrowings |
|||||
|---|---|---|---|---|---|---|
| 2011 2011 £m £m |
2010 2010 £m |
|||||
| Bank overdraft payable on demand Bank overdraft payable on demand |
– – |
99.5 99.5 |
||||
| Bonds Bonds |
278.4 278.4 |
277.1 277.1 |
||||
| Rolling credit facility Rolling credit facility |
176.1 176.1 |
– | ||||
| 454.5 454.5 |
376.6 376.6 |
|||||
| Repayments fall due as follows: Repayments fall due as follows: |
||||||
| Within 1 year: Within 1 year: |
||||||
| Bonds Bonds |
24.6 24.6 |
– | ||||
| Bank overdraft payable on demand Bank overdraft payable on demand |
– – |
99.5 99.5 |
||||
| 24.6 24.6 |
99.5 99.5 |
|||||
| After more than 1 year: After more than 1 year: year: |
||||||
| In more than 1 year but not more than 2 years In more than 1 year but not more than 2 years |
88.1 88.1 |
24.7 24.7 |
||||
| In more than 2 years but not more than 5 years In more than 2 years but not more than 5 years |
201.1 201.1 |
112.9 112.9 |
||||
| In more than 5 years In more than 5 years |
140.7 140.7 |
139.5 139.5 |
||||
| 429.9 429.9 |
277.1 277.1 |
|||||
| Total borrowings Total borrowings |
454.5 454.5 |
376.6 376.6 |
||||
| The Company has issued guaranteed unsecured bonds as follows: The Company has issued guaranteed unsecured bonds as follows: |
||||||
| Bond Bond |
Interest rate Interest rate % |
% Denomination Denomination |
Value Value £m £m |
Maturity Maturity |
||
| Issued 2005 Issued 2005 |
||||||
| Series A Series A |
0.525 above 6m LIBOR 0.525 above 6m LIBOR |
GBP GBP |
50.0 50.0 |
28 September 2013 28 September 2013 |
||
| Series B Series B |
0.525 above 6m LIBOR 0.525 above 6m LIBOR |
GBP GBP |
25.0 25.0 |
28 September 2015 28 September 2015 |
||
| Total of sterling denominated bonds Total of sterling denominated bonds |
75.0 75.0 |
|||||
| US\$m US\$m |
||||||
| Issued 2002 Issued 2002 |
||||||
| Series C Series C |
6.47 6.47 |
US\$1 US\$1 |
36.0 36.0 |
20 June 2012 20 June 2012 |
||
| Issued 2006 Issued 2006 |
||||||
| Series A Series A A |
5.74 5.74 5.74 |
US\$1 US\$1 |
60.0 60.0 |
28 June 2013 28 June 2013 |
||
| Series B Series B |
5.88 5.88 |
US\$1 US\$1 |
130.0 130.0 |
28 June 2016 28 June 2016 |
||
| Series A Series A |
5.66 5.66 |
US\$1 US\$1 |
11.0 11.0 |
13 September 2013 13 September 2013 |
||
| Series B Series B |
5.81 5.81 |
US\$1 US\$1 |
74.0 74.0 |
13 September 2016 13 September 2016 |
||
| Series C Series C |
5.77 | US\$1 US\$1 5.77 |
60.0 60.0 |
13 September 2016 13 September 2016 |
||
| Total of US\$ denominated bonds Total of US\$ denominated bonds |
371.0 371.0 |
All series are unsecured. All series are unsecured.
1 The Company has entered into currency swaps for the US\$ issues to achieve a floating rate of interest based on 6 month LIBOR. Further disclosure on the Company's use of hedges is included in note 26. 1 The Company has entered into currency swaps for the US\$ issues to achieve a floating rate of interest based on 6 month LIBOR. Further disclosure on the Company's use of hedges is included in note 26.
Notes to the accounts
In the following, figures for purchases and sales are for transactions invoiced during the year inclusive of Value Added Tax where applicable. All transactions are undertaken at normal market prices.
During the year the Company sold goods/services in the normal course of business to Capita Gwent Consultancy Limited for £0.1m (2010: £nil). In addition the Company purchased goods/services in the normal course of business for £nil (2010: £nil). At the balance sheet date the net amount receivable from Capita Gwent Consultancy Limited was £nil (2010: £nil).
During the year the Company sold goods/services in the normal course of business to Urban Vision Partnership Limited for £0.1m (2010: £nil). In addition the Company purchased goods/services in the normal course of business for £nil (2010: £nil). At the balance sheet date the net amount payable to Urban Vision Partnership Limited was £1.0m (2010: £1.2m).
During the year the Company sold goods/services in the normal course of business to Service Birmingham Limited for £1.8m (2010: £0.6m). In addition the Company purchased goods/services in the normal course of business for £0.2m (2010: £nil). At the balance sheet date the net amount receivable from Service Birmingham Limited was £0.3m (2010: £nil).
Nigel Wilson, Senior Independent Director, is Group Chief Financial Officer of Legal & General Group Plc. The Legal & General Group Plc had an interest in 23,086,079 shares in Capita plc as at 16 February 2012 and has a contractual relationship with the Group. Nigel Wilson does not participate in any Legal & General board discussions or decisions in respect of that company's dealings with Capita plc which are conducted on an arm's length basis.
The Company operates a defined contribution scheme.
The pension charge for the defined contribution scheme for the year was £1.7m (2010: £1.5m).
The Company operates several share based payment plans as follows:
This scheme is applicable to Executive Directors and Divisional Executive Directors. Under this scheme awards are made annually consisting of Deferred Shares, which are linked to the payout under the Annual Bonus Scheme (details of which are contained in the Directors' remuneration report) and Matching Shares. The value of Deferred Shares is determined by the payout under the Annual Bonus Scheme: half of the annual bonus is paid in cash and the remainder is compulsorily deferred on a gross basis into Deferred Shares. The Deferred Shares are held for a period of 3 years from the date of award during which they are not forfeitable, except in the case of dismissal for gross misconduct.
A conditional award of Matching Shares is made at the same time as the award of Deferred Shares. Participants will be eligible to receive up to 2 Matching Shares for every Deferred Share. Matching Shares will vest after the 3 year holding period to the extent to which performance conditions have been met. 33.3% of the Matching Shares will vest if growth in the Company's earnings per share (EPS) is equal to growth in the UK Retail Price Index (RPI) plus 6% per annum, rising on a straight-line basis to 100% vesting if growth in the Company's EPS is equal to or greater than growth in the RPI plus 16% per annum. The performance condition attached to the awards may be amended by the Group Remuneration Committee, a sub-committee of the Group Board, from time to time, subject to the new condition being no less demanding than the original condition.
The vesting conditions for matching awards made in 2010 will be such that 33.3% of the Matching Shares will vest if growth in the Company's earnings per share (EPS) is equal to growth in the UK Retail Price Index (RPI) plus 4% per annum, rising on a straight-line basis to 100% vesting if growth in the Company's EPS is equal to or greater than growth in the RPI plus 14% per annum.
The vesting conditions for matching awards made in 2011 will be such that 33.3% of the Matching Shares will vest if growth in the Company's earnings per share (EPS) is equal to growth in the UK Retail Price Index (RPI) plus 4% per annum, rising on a straight-line basis to 100% vesting if growth in the Company's EPS is equal to or greater than growth in the RPI plus 12% per annum.
There will be no issues under the Deferred Annual Bonus Plan in 2012.
The 2008 LTIP was approved and adopted at the AGM on 6 May 2008. The vesting of awards will depend on share price growth and EPS growth targets measured over a 3 year period. An award will not vest if Capita's average share price at the date of vesting is below the average share price at the date of grant. This scheme is open to all senior employees and shares will vest according to performance criteria. The number of shares which will vest is dependent upon the Company's EPS growth exceeding RPI growth by 4% and on banding within the scheme.
The LTISAS was only open to the Executive Directors and the Divisional Executive Directors. Under the scheme, participants were provided with 2 equal tranches of 600,000 options. The criteria were the same for each of these grants and therefore both tranches had performance periods that ended on 31 December 2006. The exercise price of the option was restated in line with the FTSE All Share Index from the date of grant to 25 November 2007. The restated exercise prices were £3.48 for the 2002 award and £4.74 for the 2004 award. This feature ensured that participants only gained if the share price outperformed the index. Options became exercisable, over the performance period, subject to the growth in the Company's EPS exceeding certain targets.
As growth in the Company's EPS over the 3 year period to 31 December 2006 exceeded RPI growth by 17.6%, 100% of the options vested (representing 1,200,000 shares per participant) and became exercisable on 25 November 2007.
The last award under the LTISAS was made in November 2004 and vested in full on 31 December 2006 and no further awards will be made under this plan.
This scheme is open to senior employees other than Executive Directors and Divisional Executive Directors. The exercise price of the options is equal to the market price of the shares on the date of grant. Options granted under this scheme become exercisable if the growth in the Company's EPS exceeds the growth in RPI by 8% over the 3 year vesting period from the date of grant. The contractual life of each option granted is 7 years. There are no cash settlement alternatives.
This is an employee Save As You Earn scheme open to all Capita employees. Under this scheme, employees are granted share options at the market price at the date of grant. The options become exercisable for a 6 month period following completion of a 3 year savings period. There are no performance conditions attached to these options.
The Co-Investment Plan was approved at the AGM on 10 May 2011 and provides for a grant of three times the number of Company shares pledged by Chief Executive Paul Pindar, the sole participant, before the end of 2011, up to a maximum limit of £1.0m in total market value of shares pledged. The number of matching shares vesting is determined on the basis of Total Shareholder Return (TSR) as compared to the increase in the TSR of the FTSE 100 over the four year performance period from the date of grant. No shares will vest if over the performance period the Companies TSR is lower than the median; 33.33% will vest if it is equal to median and 100% will vest if ranked in the upper quartile when compared against the FTSE 100 TSR. Between median TSR and top quartile the number of shares vesting will be on a straight-line basis in proportion to the position achieved by the Company. No plan shares will vest if the EPS of Capita plc has not grown over the performance period.
During the year the total number of shares pledged was 137,362 with a market value of £1.0m. The maximum matching shares under the plan amounted to 412,087, with a market value of £2.6m at 31 December 2011.
The Group expense recognised for share based payments in respect of employee services received during the year to 31 December 2011 was £8.3m (2010: £10.2m), all of which arises from equity-settled share based payment transactions. The total Company expense, after recharging subsidiary undertakings, charged to the profit and loss account in respect of FRS 20 'Share based payment' was £3.4m (2010: £5.9m).
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year (excluding Deferred Annual Bonus Plan, LTISAS and 2008 LTIP, which are shown separately).
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
|---|---|---|---|---|
| Outstanding as at 1 January | 7.5 7.5 |
£6.60 | 9.8 | £6.18 |
| Granted during the year | 1.6 1.6 |
£7.20 | 1.7 | £7.05 |
| Exercised | (0.7) (0.7) |
£6.29 | (3.1) | £5.23 |
| Forfeited | (1.0) (1.0) |
£7.05 | (0.8) | £7.06 |
| Expired during the year | (0.4) (0.4) |
£6.95 | (0.1) | £3.89 |
| 1 Outstanding as at 31 December |
7.0 7.0 |
£6.68 | 7.5 | £6.60 |
| Exercisable at 31 December | 2.7 2.7 |
£5.99 | 3.1 | £5.00 |
| The options have been exercised on a regular basis throughout the year and the weighted average share price during the year was £7.42 (2010: £7.31). | ||||
| 2008 LTIP | ||||
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
| Outstanding at 1 January | 5.9 | – | 3.6 | – |
| Awarded during the year | 2.7 | – | 2.4 | – |
| Forfeited | (0.4) | – | (0.1) | – |
| Outstanding as at 31 December | 8.2 | – | 5.9 | – |
| Exercisable at 31 December | – | – | – | – |
| LTISAS | ||||
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
| Outstanding as at 1 January | 0.6 0.6 |
£4.74 | 1.1 | £4.74 |
| Exercised | – | – | (0.5) | £4.74 |
| Outstanding as at 31 December | 0.6 0.6 |
£4.74 | 0.6 | £4.74 |
| Exercisable at 31 December | 0.6 0.6 |
£4.74 | 0.6 | £4.74 |
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
|---|---|---|---|---|
| Outstanding at 1 January | 5.9 | – | 3.6 | – |
| Awarded during the year | 2.7 | – | 2.4 | – |
| Forfeited | (0.4) | – | (0.1) | – |
| Outstanding as at 31 December | 8.2 | – | 5.9 | – |
| Exercisable at 31 December | – | – | – | – |
| 2011 Million |
2011 WAEP |
2010 Million |
2010 WAEP |
|
|---|---|---|---|---|
| Outstanding as at 1 January | 0.6 | £4.74 | 1.1 | £4.74 |
| Exercised | – | – | (0.5) | £4.74 |
| Outstanding as at 31 December | 0.6 | £4.74 | 0.6 | £4.74 |
| Exercisable at 31 December | 0.6 | £4.74 | 0.6 | £4.74 |
The total cash value of the Deferred Shares awarded during the year under the Deferred Annual Bonus plan, discussed above, was £1.0m (2010: £0.9m). The Matching Shares allocation in respect of the 2010 awards under this plan charged in 2011 was £1.6m (2010: £0.5m).
The weighted average fair value of options granted during the year was £3.24 (2010: £2.35). The range of exercise prices for all options outstanding at the end of the year was £6.76 to £7.33 (2010: £2.50 to £7.33).
The fair value of equity-settled share options granted is estimated as at the date of grant using a multiple simulation option pricing valuation model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the years ended 31 December 2011 and 31 December 2010.
| 2011 | 2010 | |
|---|---|---|
| Dividend yield (%) | 2.74 | 2.39 |
| Expected share price volatility (%) | 26.0 | 26.0 |
| Floor price for LTIP (applicable to LTIP 08) | 7.25 | 7.20 |
| Risk free interest rate (%) | 1.90 | 1.95 |
| Expected life of option (years) | 3.17 | 3.12 |
| Weighted average share price of options granted during the year |
£3.24 | £2.60 |
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. In addition, within the 2008 LTIP is an average share price floor under which the share award will not vest. This floor is based on the Company's average share price at the date of vesting. No other features of options grant were incorporated into the measurement of fair value. the was
The weighted average price of options exercised in 2011 was: £6.30.
Under the LTISAS scheme 2 tranches of 600,000 share options have been issued to each participant in the scheme. Both were deemed to have been granted in November 2002. The first tranche, totalling 5,400,000 share options, was awarded and issued in November 2002 when the share price was £2.16. The second tranche, also totalling 5,400,000 share options, was awarded in November 2002 and issued in November 2004 when the share price was £3.51. Both tranches of share options became exercisable on 25 November 2007, with a weighted average exercise price of £4.11.
1 Included within this balance are options over nil (2010: 0.1m) shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before 7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
Principal Group
investments
Other
Capita Holdings Limited Holding and investment company.
Capita Business Services Limited Providing an integrated range of business process outsourcing and professional services to clients in the UK and Ireland.
Providing a comprehensive range of project management, telecommunications engineering and construction related consultancy services.
Capita Registrars Limited
Share registration and employee share scheme administration services.
Capita Trust Company Limited Corporate trustees and providers of trust and administration services.
Capita Life & Pensions Limited Administration and customer services for life and pensions operations.
Capita Life & Pensions Regulated Services Limited Administration and customer services for life and pensions regulated operations.
Insurance intermediary and agent for the transaction of insurance business.
Capita Resourcing Limited Employee recruitment services.
Synetrix Limited Providing managed, high bandwidth network services.
Capita IT Services Limited Designing, providing and managing networked computing and communication systems.
Premier Medical Group Limited Medical services administration provider.
Capita Hartshead Limited Providing actuarial, pension consultancy and administrative services.
Club 24 Limited Providing business process outsourcing services.
Service Birmingham Limited Providing ICT and business transformation outsourcing services to the public sector.
Capita IT Services (BFS) Limited Providing ICT services to the public sector and commercial customers, particularly education services.
Capita Gwent Consultancy Limited Providing transport consultancy services.
This Annual Report has been prepared for the members ofthe Company and no one else. The Company, its Directors, employees or agents do not accept or assume responsibility to any other person in connection with this document and any such responsibility or liability is expressly disclaimed. This Annual Report contains certain forward-looking statements with respect to the principal risks and uncertainties facing the Company. By their nature,these statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. The forward-looking statements reflect the knowledge and information available at the date of preparation of this Annual Report, and will not be updated during the year. Nothing in this Annual Report should be construed as a profit forecast.
Help us communicate with you in a greener, more efficient and cost effective way by switching from postal to email communications. Shareholders can receive important information online, including annual and half year reports and notice of meetings. Registering for e-communications also enables shareholders to:
Registering for e-communications is very straightforward. Go to
www.capita.co.uk/investorcentre/ecomms
The AGM will be held at 11.00am on Tuesday 15 May 2012 at Deutsche Bank, 1 Great Winchester Street, London EC2N 2DB. The Notice of Meeting and proxy card for the meeting are enclosed with this report.
Final dividend payment: 28 May 2012
Half year results: 25 July 2012
We aim to communicate effectively with ourshareholders, via our website www.capita.co.uk. Shareholders who have questions relating to the Group's business or wish to receive further hard copies of annual or half year reports should contact Capita's investor relations team on 020 7799 1525 or email:
If you have any queries about your shareholding or dividend payments please contact the Company's registrar, Capita Registrars, by email: [email protected] or at the address below:
The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: (UK) 0871 664 0300 (UK calls cost 10p per minute plus network extras, lines are open 8.30am to 5.30pm, Monday to Friday).
(Overseas) +44 20 8639 3399
A quick and easy share dealing service is now available for existing Capita shareholders to either sell or buy more Capita plc shares online or by telephone.
For further information on this service or to buy and sell Capita shares online go to: www.capitadeal.com or by telephone: 0871 664 0454 (UK calls cost 10p per minute plus network extras, lines are open 8.00am to 4.30pm, Monday to Friday).
If you have only a small number of shares which are uneconomical to sell. you may wish to donate them to charity free of charge through ShareGift (Registered Charity 10528686). Find out more at www.sharegift.org.uk or by telephoning 020 7930 3737.
We offer a DRIP to enable shareholders to purchase additional Capita shares with their whole cash dividend. These further shares would be bought in the market on behalf of shareholders under a special low-cost dealing arrangement. Further details of the DRIP can be found online. Please visit the shareholder services section at
www.capita.co.uk/investorcentre or call Capita Registrars on 0871 664 0381. (UK calls cost 10p per minute plus network extras, lines are open 9.00am to 5.30pm, Monday to Friday).
Capita Registrars has partnered with Travelex to provide you with a service that will convert your sterling dividends into your local currency at a competitive rate. You can choose to receive payment directly into your bank account, or alternatively, we can send you a currency draft. For further information call Capita Registrars on 0871 664 0385 (UK calls cost 10p per minute plus network extras, lines are open 9.00am to 5.30pm, Monday to Friday).
(Overseas) +44 20 8639 3405 e-mail: [email protected]
71 Victoria Street Westminster
London SW1H 0XA Tel: 020 7799 1525 Fax: 020 7799 1526 Registered number: 2081330
Company Secretary Gordon Hurst
Citi Citigroup Centre 33 Canada Square Canary Wharf
London E14 5LB Deutsche Bank A G 1 Great Winchester Street London EC2N 2DB
KPMG 15 Canada Square London E14 5GL
Herbert Smith
Exchange House Primrose Street London EC2A 2HS
Barclays Bank plc
London Corporate Banking PO Box 544 First Floor 154 Lombard Street London EC3V 9EX
27-32 Poultry London EC2P 2BX
National Westminster Bank Plc 1 Princes Street London EC2R 8PB
71 Victoria Street Westminster London SW1H 0XA
T 020 7799 1525 F 020 7799 1526
www.capita.co.uk
A huge thank you to all our employees, clients, business partners and friends who have kindly participated in the production of this report.
Designed and produced by Radley Yeldar Photography by David Hares Printed by Capita Communications
This report is printed on Think4Bright which is made from 50% recovered fibre, diverting waste from landfill and contains material sourced from responsibly managed forests together with recycled fibre. Think4Bright is manufactured under strict environmental management systems, namely the international ISO 14001 standard.
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