Capita plc Half-year results 2019 1 August 2019 1 | Capita HY Results 2019
Agenda 1. Summary Jon Lewis, CEO 2. Financial results Patrick Butcher, CFO 3. Transformation update and divisional review Jon Lewis, CEO 4. Summary & Questions 2 | Capita HY Results 2019
Disclaimer This half year results announcement is prepared for and addressed only to the Company’s shareholders as a whole and to no other person. The Company, its Directors, employees, agents and advisers accept and assume no liability to any person in respect of this trading update save as would arise under English law. Statements contained in this trading update are based on the knowledge and information available to Capita’s Directors at the date it was prepared and therefore facts stated and views expressed may change after that date. This document and any materials distributed in connection with it may include forward-looking statements, beliefs, opinions or statements concerning risks and uncertainties, including statements with respect to Capita’s business, financial condition and results of operations. Those statements and statements which contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect” and words of similar meaning, reflect Capita’s Directors’ beliefs and expectations and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future and which may cause results and developments to differ materially from those expressed or implied by those statements and forecasts. No representation is made that any of those statements or forecasts will come to pass or that any forecast results will be achieved. You are cautioned not to place any reliance on such statements or forecasts. Those forward-looking and other statements speak only as at the date of this trading update. Capita undertakes no obligation to release any update of, or revisions to, any forward-looking statements, opinions (which are subject to change without notice) or any other information or statement contained in this trading update. Furthermore, past performance cannot be relied on as a guide to future performance. No statement in this document is intended as a profit forecast or a profit estimate and no statement in this document should be interpreted to mean that earnings per Capita share for the current or future financial years would necessarily match or exceed the historical published earnings per Capita share. Nothing in this document is intended to constitute an invitation or inducement to engage in investment activity. This document does not constitute or form part of any offer for sale or subscription of, or any solicitation of any offer to purchase or subscribe for, any securities nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract, commitment or investment decision in relation thereto. This document does not constitute a recommendation regarding any securities. 3 | Capita HY Results 2019
Summary 2019 half-year results in line with our expectations • Revenue £1,852m and profit before tax* £126m; order intake £830m and order book £6.7bn 2019 full-year guidance maintained • Profit before tax* expected to be between £265m and £295m • On plan to deliver cumulative cost competitiveness savings of £175m by end 2019 • £525m Defence Fire & Rescue Project and £145m DWP PIP extension wins in Q3 2020 targets reiterated • Achieve double digit operating profit margins* • At least £200m of sustainable free cash flow** Capita’s transformation is on track • Second year of multi-year transformation • Investment in people yielding benefits - reduced employee turnover and higher employee satisfaction • Corporate governance strengthened, with two employee directors appointed to our Board • Further progress made on improving the performance of our contracts • Strengthened client relationships • Increased investment in growth, systems and digital capability • Foundations for growth now in place 4 | Capita HY Results 2019 * Adjusted, refer to Alternative Performance Measures.(APMs) ** Before exceptional and restructuring charges, additional actuarial pension deficit contributions and the adoption of IFRS 16
Transformation recap: our plan is to do fewer things, better • Focus on strong positions with • Strengthen leadership and • Focus on digitally-enabled growth potential governance services and software • Align organisation around growth • Up to £500m investment in asset • More predictable business, lower markets base, technology and people risk • Use common, scalable capabilities • Win more of the right work • At least £200m of sustainable free cash flow in 2020* • Streamline cost base • Deleverage balance sheet 5 | Capita HY Results 2019 * Before exceptional and restructuring charges, additional actuarial pension deficit contributions and the adoption of IFRS 16
Transformation programme: the plan for 2019 2017 By December 2019 By 2020 Leverage 1 - 2x* BALANCE SHEET Leverage 2.3x and Lower interest costs, increasing more flexible Purpose, operating Poor governance & 1. GOVERNANCE, OPERATING MODEL AND PEOPLE model, governance, discipline, no people and people working strategy together 2. MANAGING CONTRACTS > £50m losses from 3 Each contract to reach challenged contracts breakeven by end 2020 Duplicated costs, no 3. COST COMPETITIVENESS >£175m cost out, scale benefits, SG&A more to come above industry average 4. INVESTING IN CAPABILITIES Under-investment in Up to £500m invested systems, and capabilities 5. REIGNITING GROWTH Declining organic Organic growth revenue 6 | Capita HY Results 2019 Progress as of March 2019 Progress expected as of December 2019 *Pre adoption of IFRS 16
Financial results Patrick Butcher 7 | Capita HY Results 2019
Financial overview £m £m % Key financial metrics HY19 HY18 Change All figures included within this presentation are on an adjusted Revenue 1,851.6 1,976.8 (6.3) basis unless otherwise stated. To enable comparability year on year, all slides are presented pre-IFRS 16. Analysis of post-IFRS Operating profit 142.1 158.4 (10.3) 16 results provided in appendix. Operating profit margin 7.7% 8.0% - Interest (15.4) (27.6) (44.2) Profit before tax 126.1 130.8 (3.6) Earnings per share (p) 5.86 10.22 (42.6) Free cash flow (20.2) (109.0) (81.5) EBITDA* 402.8 465.3 (13.4) Net debt* (666.0) (729.5) (8.7) Net debt/EBITDA* 1.7x 1.6x - 8 | Capita HY Results 2019 *EBITDA on a rolling twelve month basis. Net debt/EBITDA based on defined debt covenants calculation. For details please see APMs.
Revenue stabilising Capita’s Order Book Revenue £7bn £4bn FY18 HY19 FY18 F2019 F2020 Digitally-enabled services and software Structural change/run-off* Digitally-enabled services and software Structural change/run-off* 9 | Capita HY Results 2019 *Structurally challenged local government multi-service or legacy IT-dependent life insurance contracts
Change in revenue £2,400m • Contract losses: £2,200m Chose not to rebid – Tascor Escorting - & Detention 1,977 £2,000m Terminated early – Prudential and - 1,852 51 Marsh £1,800m (138) (27) (11) • Reduction in volume and scope changes £1,600m from Specialist and Networks partly offset by growth within Smart Metering £1,400m • Contract wins including TfL within IT&N and Government Services £1,200m £1,000m HY 2018 Contract losses Scope/volume Transactional Contract wins HY 2019 changes 10 | Capita HY Results 2019
Change in revenue by division Revenue £m Change % • Reduction in Software due to a large HY19 HY18 active licence coming to an end • Stable overall performance in People 192.3 Software 200.5 (4.1) during a period of transformation, CL1 exit offset by other revenue wins 253.4 252.5 0.4 People Solutions • Customer Management revenues reflect Customer Management 399.2 404.6 (1.3) some terminations and lower business volumes in certain retail customers Government Services 413.6 407.9 1.4 • Loss of Tascor E&D offset by growth within Smart Metering in Government 213.5 IT & Networks 213.4 0.0 Services 376.1 493.2 (23.7) • Specialist impacted by Marsh and Pru Specialist Services terminations in 2018 Central 3.5 4.7 (25.5) • Further losses expected in second half in Local Government and Life Insurance Total 1,851.6 1,976.8 (6.3) 11 | Capita HY Results 2019
Movements in profit before tax by division £200m PBT £180m • One-off gains in 2018, Marsh £9m £160m • Software: lower revenue and investment in 2 £140m 131 3 126 new sales capability offset by cost reduction 9 122 0 £120m (2) • People Solutions: lower volumes from public (4) (9) (4) sector resourcing and investment in new £100m capability £80m • Customer Management: operational efficiencies £60m and reduced losses on mobilcom-debitel £40m • Government Services: Reduced losses £20m on PCSE £0m • Specialist Services: Loss in trading from HY 2018 H1 2018 one-offs HY 2018 Software PS CM GS IT&N SS Interest/Central HY 2019 rebased Prudential offset by cost reduction • Other: reduction in interest costs offset by functional investments 12 | Capita HY Results 2019
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