Half year results
for the 6 months to 30 June 2017
Creating a simpler business well positioned for the future
Financial
highlights - continuing operations |
Underlying1 2017 |
Underlying1 2016 |
YOY change |
Reported 2017 |
Reported 2016 |
Reported YOY change |
Revenue |
£2,066m |
£2,131m |
(3 |
%) |
£2,127m |
£2,156m |
(1 |
%) |
Operating profit |
£228m |
£166m |
+38 |
% |
£63m |
£87m |
(28 |
%) |
Profit before tax |
£195m |
£134m |
+46 |
% |
£28m |
£37m |
(26 |
%) |
Earnings/(loss) per
share |
22.92p |
16.12p |
+42 |
% |
(0.11)p |
4.66p |
(102 |
%) |
Interim dividend per
share |
11.1p |
11.1p |
— |
|
11.1p |
11.1p |
— |
|
Free cash flow |
£179m |
£214m |
(16 |
%) |
£182m |
£199m |
(9 |
%) |
Highlights
Strategic
initiatives: re-positioning going to plan
• Disposal of our Asset Services businesses for £888m to Link
Group, expected to complete in Q4 2017
• Completed disposal of transactional specialist recruitment
businesses
• Cost initiatives on track to realise around £57m savings by
the end of 2018
• Implemented new simplified market facing organisation
structure.
2017 H1 financial
summary: trading broadly in line with expectations
• Early adopted IFRS 15 from 1 January
2017 on a fully retrospective basis
• Underlying revenue declined by 3%. Growth on a like for like
basis1 was 1% including 0.5% organic decline
• Underlying profit before tax1 up 46% to £195m (H1
2016: £134m)
• Underlying earnings per share1 up 42% to 22.92p (H1
2016: 16.12p)
• Maintained interim dividend of 11.1p (H1 2016: 11.1p)
• Free cash flow before non-underlying items1 £179m
(H1 2016: £214m) and after non-underlying items £182m (H1 2016:
£199m)
• Net debt at end June 2017 of
£1,596m (H1 2016 £1,901m)
• Reported profit before tax £28m (H1 2016: £37m)
• Reported loss per share (0.11)p (H1 2016: 4.66p).
Major sales: win
rate improved in quiet market
• £403m of major contract wins (H1 2016: £879m)
• Major contract win rate 1 in 2 (2016: 1 in 3)
• Bid pipeline £3.1bn (March 2017:
£3.8bn), with a weighted average contract length of 5.5 years
(March 2017: 7 years). Annual value
of bids maintained.
Outlook
• Underlying pre-tax profits before significant new contracts
and restructuring to rise modestly in the second half, compared to
the first half of 2017
• Leverage at the end of 2017 around the bottom of our 2.0 to
2.5 times range, prior to the impact of IFRS 15 and potential
unwind of receivables financing
• We remain confident that the actions we commenced last year
are making Capita a simpler business, well positioned for the
future under new leadership.
Nick
Greatorex of Capita plc, commented:
“In the first half of 2017, we made good progress on executing
the plans laid out at the end of last year to reposition the Group:
we announced the sale of our Asset Services businesses, completed
the disposal of our specialist recruitment business and commenced a
number of cost initiatives. We remain confident that these actions
are making Capita a simpler business, well positioned for the
future under new leadership."
1 |
Refer
to appendix 1 for calculation of Alternative Performance Measures.
Capita Asset Services has been treated as a discontinued
operation. |
__________________________________________________________________________________________
Analyst & investor
presentation:
Ian Powell Chairman and Nick
Greatorex Interim CEO and Group Finance Director of Capita plc will
host a presentation of our results in London at 08:30 UK time today.
There will also be a live video webcast and a telephone dial-in
facility of the presentation on the day, at 08.30am UK time, with an on-demand version
available on our website www.capita.com/investors later that
day.
Please find the webcast link and dial-in details below:
Webcast link
http://www.investis-live.com/capita/594d0292e8adb21200ac6f59/hsre
To register for the webcast please paste the link above into
your browser and follow the on-screen instructions.
Telephone dial-in:
Location you are dialling from: Number to
dial:
United
Kingdom
020 3059 8125
All other locations
+ 44 20 3059 8125
Participant password: Capita - this must be quoted to the
Operator in order for participants to gain access to the
conference.
_____________________________________________________________________________________
For further information:
Capita plc
Tel: 020 7799 1525
Shona Nichols, Executive Director,
Communications
Andrew Ripper, Head of Investor
Relations
Media enquiries
Powerscourt Tel: 020 7250 1446
capita@powerscourt-group.com
Victoria Palmer-Moore and
Andy Jones
This announcement contains inside information.
About Capita
Capita is a leading UK provider of technology enabled customer
and business process services and integrated professional support
services. With 73,000 people at over 500 sites, including 94
business centres across the UK, Europe, India
and South Africa, Capita uses its
expertise, infrastructure and scale benefits to transform its
clients' services, driving down costs and adding value. Capita is
quoted on the London Stock Exchange (CPI.L). Further information on
Capita can be found at: http://www.capita.com.
Results for the 6
months to 30 June 2017
Overview
Capita has early adopted IFRS 15, the new revenue recognition
standard, and is reporting its performance in 2017 against the
comparative period in 2016 under this new standard.
Trading was broadly in line with our expectations in the first
half of 2017. The turn-around of our IT Services division
progressed better than expected, following restructuring of the
management team and operating model, but we continued to be
impacted by weakness in a number of discretionary services. We
improved our major contract win rate in a relatively subdued
business process management market in the public sector.
Capita made good progress in the first half of 2017 on executing
the plans laid out at the end of last year to reposition the Group.
We announced the disposal of our Asset Services businesses for
£888m to Link Group, which is expected to complete in Q4 2017
following regulatory approvals, completed the disposal of our
transactional specialist recruitment businesses, implemented our
new organisation structure and progressed a number of cost
initiatives.
These actions increase the Group's focus upon technology-enabled
Business Process Management, reduce leverage and leave us better
placed to return to sustainable growth over the course of 2018 and
beyond.
Financial review
IFRS 15 Revenue from Contracts with
Customers
We have adopted IFRS 15 fully retrospectively from 1 January 2017 to provide investors with clarity
on the impact of the new accounting standard in what is a
transitional year for the Group. IFRS 15 gives rise to changes in
the timing of revenue and cost recognition, better aligning
Capita’s financial results with the delivery of its high value
complex solutions to clients.
IFRS 15 will not impact upon the lifetime profitability of
contracts, the cash flow of contracts or the majority of our
transactional businesses. The main changes for Capita from the
adoption of IFRS 15 are on its long term contracts and software
businesses, in particular:
• Revenue is more evenly phased over the life of contracts and
active software licences in line with the delivery of outcomes to
clients and, consequently, the timing of profits is
re-profiled.
• Capita will potentially recognise lower profits or losses in
the early years of contracts where there are significant upfront
restructuring costs or higher operating costs prior to
transformation, with a compensating increase in profits in later
years. The total net impact at Group level is a function of the
balance of contracts in early or late stage of their life cycle at
transition to IFRS 15 and in subsequent years. As a result contract
profits, and in certain cases contract losses, are now reported in
the comparative periods.
• The Group's balance sheet includes:
- new “contract fulfilment assets” created in the process of
transforming services; and
- an increased level of deferred income in relation to contracts
where payments have been received from clients to undertake
transformation prior to the planned outcomes being delivered. The
majority of deferred income will unwind within the following 12
months and is expected to be replaced by similar advanced payments
subject to additions or changes to the Group’s contract
portfolio.
Major contracts performance
We have concluded discussions with the Ministry of Defence in
relation to the Defence Infrastructure Organisation ('DIO'), which
is now expected to end in 2019. The H1 2017 results include a £16m
benefit from the re-shaping of the DIO contract which is not
expected to recur in 2018. We are currently not expecting to
recognise the benefit of any gain share up to the contract
modification date in the second half of 2017. For the remaining two
years, we will focus on supporting the DIO in achieving its goal of
being able to operate effectively in a delegated environment.
Service delivery across our NHS Primary Care Support England
('PCSE) contract has continued to improve but we are still
addressing a number of challenges. We are continuing to invest in
completing the transformation of this service prior to an
inflection point in profitability being achieved. As previously
announced, the cash cost of these continuing improvements has been
and will remain high for the remainder of 2017.
We are still in discussion with a major life and pensions client
which may lead to the continuation of the contract with amended
terms or a termination of the contract. Subject to the outcome of
this discussion, we will review the carrying value of assets
related to the contract and may incur associated costs.
Revenue
Reported revenue decreased by 1% to £2,127m (H1 2016 £2,156m)
and underlying revenue1 decreased by 3% to £2,066m (H1
2016: £2,131m). Underlying revenue on a like for like
basis1, excluding results from businesses exited and
assets held for sale in both years, increased by 1% including 0.5%
organic decline and 1.5% growth from acquisitions. Revenue
benefited from new contracts with Tesco Mobile and
mobilcom-debital, continued expansion of Department for Work and
Pensions (DWP) PIP assessments, an increase in BBC TV Licencing
revenue after contract modification and improved performances in
network solutions and our other IT businesses. This was offset by
attrition from the loss of part of our Civil Service Learning
contract and weakness in real estate and central government
services. Our revenue mix in H1 2017 was 71% long term contractual,
16% short term contractual and 13% transactional.
Cost initiatives
We have commenced a number of short and long term cost
initiatives, including reductions in overheads, the offshoring of
some IT applications support, centralising more of our procurement
and rationalising our property estate, to further increase the
efficiency of the Group. The net benefit from these actions is
still expected to be around £57m by the end of 2018, albeit with
slightly less benefit than originally anticipated being realised in
the current year.
Underlying operating profit
Underlying operating profit1 increased by 38% to
£228.4m (H1 2016: £166.0m). Profit rose as a result of a
significant improvement in the performance of our IT Services
division and higher profits from a number of major contracts which
either reached post transformation inflection points or were
renegotiated. This was partially offset by an increase in central
costs, reflecting a re-phasing of incentive schemes and higher
professional fees, and a decline in profits in the Digital &
Software Solutions division.
Divisional performance
We have modified our segmental reporting to align it with our
management view of divisional performance. This includes
allocating only direct overheads, such as payroll administration,
pension and insurance costs, to the divisions, and showing central
costs separately. The impact of IFRS 15 is to re-profile the timing
of revenue and costs, which is reflected in the discussion of
divisional performance below:
Private Sector Partnerships - underlying revenue
increased by 6%, driven by growth in Capita Europe and an increase
in BBC TV Licencing. Profitability improved due to the dropping out
of one-off contract modifications in the prior year and the
renegotiation of our Co-operative Bank contract, partially offset
by lower contributions from remediation services and employee
solutions.
Public Services Partnerships - underlying revenue fell by
6% due to weakness in central government services and real estate,
which is not recovering as quickly as expected. Underlying profits
increased as a result of TfL, which went live in H2 2016, the
aforementioned re-shaping of DIO, lower costs on PCSE and a good
performance from our DWP PIP contract.
Professional Services - underlying revenue fell by 29% as
a result of the disposal of specialist recruitment. Underlying
revenue on a like for like basis fell by 4% due to the loss of part
of our Civil Service Learning contract, which was partially offset
by growth in the Army Recruiting Partnering Project (RPP).
Underlying profits increased due to costs reducing on RPP and
growth in Fera and some of our trading businesses.
Digital & Software Solutions - underlying revenue
fell by 1% and underlying profits fell by 13%, as a result of two
major long-term active software licences ending in H2 2016. We are
making good progress on the offshoring of development work to
enhance capability and efficiency.
IT Services - underlying revenue increased by 14% due to
the acquisitions of Trustmarque and Acutest and increased volumes
in network solutions. Underlying profits doubled, following our
restructuring of the business in the second half of 2016.
Underlying operating margin
Underlying operating margin1 was 11.1% (H1 2016:
7.8%).
Underlying net finance costs
The underlying net interest charge1 was £33.4m (H1
2016: £32.3m). Capita terminated its higher coupon fixed rate
interest rate swaps in the first half and we now expect underlying
interest costs to be in the range of £65m to £70m in the full year
to December 2017, subject to the
timing of the completion of disposals.
Profit before tax
Underlying profit before tax1 increased by 46% to
£195.0m (H1 2016: £133.7m). Reported profit before tax1
was £27.6m (H1 2016: £37.2m), reflecting the impact of business
exits and specific charges detailed in notes 5 and 7 of this
statement.
Discontinued operations
The results above exclude Capita Asset Services, which was
treated as a discontinued operation, as detailed in note 6 of this
statement.
Earnings per share
Underlying earnings per share1 for continuing
operations rose by 42% to 22.9p (H1 2016: 16.1p). Our underlying
tax rate was 18.5% (H1 2016: 15.7%) and we expect our underlying
tax rate to be around 19% in the full year to December 2017. Reported loss per
share1 for total operations was (0.11)p (H1 2016:
4.66p).
Dividend
The Board is recommending an interim dividend of 11.1p per
ordinary share (H1 2016: 11.1p). The interim dividend will be
payable on 30 November 2017 to
shareholders on the register at the close of business on
20 October 2017.
Cash flow
Free cash flow1 before non-underlying expenses was
£179.2m (H1 2016: £213.8m) and free cash flow1 after
non-underlying expenses was £182.0m (H1 2016: £199.2m). Net capital
expenditure was £50m (H1 2016: £80m) and we expect capital
expenditure in the full year to be slightly lower than 2016.
Balance sheet and net debt
Net liabilities at end June 2017
were £668.3m (H1 2016: £552.9m). This includes significant deferred
income balances recognised on the adoption of IFRS 15, as explained
in Appendix 2.
Net debt at end June 2017 was
£1,596m (H1 2016: £1,901m). This included £1,568m outstanding
private placement bond debt, of which £90.3m matures in the next 12
months and the remainder at various maturities to 2027. In
addition, we have £620m of bank debt which matures in 2018 and
2019, and an undrawn £600m revolving credit facility of which £81m
matures in August 2020 and £519m in
August 2021.
At 30 June 2017, our net debt to
annualised EBITDA1 ratio was 2.9 and annualised interest
cover1 was 7.8 times. Following the receipt of proceeds
from the disposal of our Asset Services businesses and expected
cash flow in the second half of the year, we expect leverage to
fall to around the bottom of our 2.0 to 2.5 times range at the end
of 2017. Subject to the completion of this disposal, we may choose
to unwind our receivables financing which was a balance of £120m at
30 June 2017 and, in conjunction with
the impact of IFRS 15 upon contingent obligations under bonds and
guarantees, this may result in leverage being around the middle of
our range.
Return on capital employed
Our post-tax return on average capital employed in the first
half of 2017 was 15.2% (FY 2016: 12.9%).
Pension
Capita's pension deficit increased to £381m at 30 June 2017 (FY 2016: £345m), reflecting a
decrease in the discount rate. The latest triennial valuation
commenced in April 2017. We continue
to expect a £12m increase in the IAS 19 pension charge this year
and an increase in cash contributions from June 2018.
Capita has consulted with affected parties and their
representatives concerning its decision to close to future accrual
the Group defined benefit scheme. The defined benefit scheme will
be replaced by a defined contribution scheme for the affected
employees. We will provide a further update on our plans to close
the financial deficit in due course, once we have reached agreement
with the scheme's trustees.
Connaught
This is an update on the potential costs in resolving matters
relating to the Connaught Income Series 1 Fund (“The Fund”), of
which Capita Financial Managers Limited ("CFM") was the Operator
until September 2009, when it was
replaced by an unrelated company as Operator, following which CFM
had no further involvement with the Fund. The Fund went into
liquidation in 2012 and its liquidator brought a claim against both
former Operators, which for its part, the Group settled in 2016 for
a sum of £18.5m.
The Financial Conduct Authority's (FCA) formal review of the
activities of both operators is ongoing. The FCA has recently
indicated to the Company that it is minded to seek a financial
penalty against CFM in connection with its conduct as operator of
the Fund and to seek redress for the substantial losses incurred by
all investors when the Fund collapsed three years after CFM’s
involvement, notwithstanding the amount settled during 2016.
The Company is continuing discussions with the FCA in relation
to its findings in respect of CFM‘s conduct and the associated
potential financial penalty. While these discussions with the
FCA take place, provision at this time has been made for the full
potential amount of the financial penalty and associated legal
costs (£37m). The Company has taken a prudent approach to this
provision reflecting the early stages of our discussions with the
FCA and the lack of clarity on the basis supporting the FCA's
position.
In respect of the redress the Board does not consider that the
Company is liable to pay further sums in addition to the amounts
already paid in respect of the settled claims and therefore no
provision has been made at this time. Based on the information
available to date it is not possible at this stage to determine
what the ultimate outcome of the FCA review might be.
1 |
Refer
to appendix for calculation of Alternative Performance Measures.
Capita Asset Services has been treated as a discontinued
operation. |
Major sales and business
development
Our Group Business Development team work on major transformation
contracts, which are reported in our sales bid pipeline, and
campaigns of replicable solutions, such as in local government.
They also engage with divisional sales teams to enhance their
capability and sales performance.
Capita has secured major contracts with an aggregate total value
of £403m in the year to date (H1 2016 £879m), comprised of 27% new
contracts and 73% renewals and extensions. Our win rate increased
to 1 in 2 by value. The market for major transformation contracts
has remained subdued in the public sector to date in 2017.
We secured a new contract to deliver apprenticeship services to
the Civil Service. Extensions were secured to our Personal
Independence Payments contract with the Department for Communities,
Northern Ireland until end
July 2019 and our IT services
contract with the Northern Ireland Education Authority to
March 2019. The London Borough of Lambeth intends to extend
our revenue, benefits and customer services contract until 2026. We
have also renewed our RSPCA customer management contract,
Royal London life and pensions
contracts and mortgage administration contract with Tesco Bank.
In addition to the above, we have also secured £45m of new local
government campaign wins in the year to date.
We are continuing with our period of exclusive engagement with
British Airways to explore forming a potential partnership to
support its global customer contact operations, which currently
handles approximately 9.5 million calls per annum.
Bid pipeline
Our bid pipeline shows the total contract value of our major
sales bids at a specific point in time. It contains all bids with
total contracted revenue worth between £25m and a capped ceiling of
£1bn, where we have been short-listed to the last 4 or fewer. The
total contract value of the bid pipeline currently stands at £3.1bn
(March 2017: £3.8bn), comprised of 28
bids including 79% new business and 21% renewals and extensions.
The weighted average contract length of bids in the pipeline is 5.5
years (March 2017: 7 years) and the
annual value of the bid pipeline has been maintained. We expect
decisions on the majority of bids within the next 12 months and
continue to have a large, active prospect list of opportunities
behind the pipeline.
Rebids
There are no material contracts, defined as being in excess of
1% of Group revenue, up for rebid in 2017 and 2018. Our next major
contract renewal is the Department for Work & Pensions Personal
Independence Payments contract in mid 2019.
Disposals and acquisitions
In June, we announced the sale of our Asset Services businesses
to Link Administration Holdings ("Link Group") for a cash free,
debt free consideration of £888m. The transaction is subject to
certain regulatory and other approvals and is expected to complete
in Q4 2017.
Upon completion of the sale, after the deduction of transaction
expenses (including certain separation related costs and a £17
million one-off pension contribution) of approximately £72 million,
the net cash proceeds are intended to be used to reduce
indebtedness.
We have completed the disposal of our stand-alone, transactional
specialist recruitment businesses (education, social care and
health personnel) to Endless. We are committed to our remaining
Workplace Services businesses which include our public and private
recruitment process outsourcing (‘RPO’), executive search, vetting,
employer branding agency and learning services businesses.
We made two small acquisitions in the first half of 2017,
Acutest, a provider of software testing services, and NYS, a travel
management business. The aggregate consideration for these
businesses was £10m, excluding deferred and contingent
consideration.
Group Board
Andy Parker stepped down from the
Board and left Capita on 15 September
2017. Andy has contributed strongly to the Company over the
last 17 years and played a key role in leading Capita, as Chief
Executive, for the past three years and through the challenges of
2016. Nick Greatorex, Capita’s Group
Finance Director, was appointed as Interim Chief Executive from
that date until a successor takes up the post as Capita’s new Chief
Executive. During this interim period, Nick will also continue with
his responsibilities as Group Finance Director. The Board is
pleased with progress in our search process for a successor.
Future prospects
We expect underlying pre-tax profits before significant new
contracts and restructuring to rise modestly in the second half,
compared to the first half of 2017, supported by the cumulative
benefit from cost initiatives, partially offset by some of our
trading businesses which are not improving as quickly as
expected.
Following the receipt of proceeds from the disposal of our Asset
Services businesses and expected cash flow in the second half of
the year, we expect leverage to fall to around the bottom of our
2.0 to 2.5 times range at the end of 2017. Subject to the
completion of this disposal, we may choose to unwind our
receivables financing and, in conjunction with the impact of IFRS
15 upon contingent obligations under bonds and guarantees, this may
result in leverage being around the middle of our range.
We remain confident that the actions we commenced last year are
making Capita a simpler business, well positioned for the future
under new leadership.
-Ends-
Half year condensed consolidated income
statement
for the 6 months ended 30 June
2017
|
Notes |
30 June 2017 |
|
30 June 2016 (restated) |
|
Underlying |
Business exit |
Specific items |
Total |
|
Underlying |
Business exit |
Specific items |
Total |
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
Continuing
operations: |
|
|
|
|
|
|
|
|
|
|
Revenue |
3 |
2,065.9 |
|
61.4 |
|
— |
|
2,127.3 |
|
|
2,131.3 |
|
24.6 |
|
— |
|
2,155.9 |
|
Cost of sales |
|
(1,524.3 |
) |
(49.7 |
) |
— |
|
(1,574.0 |
) |
|
(1,656.6 |
) |
(17.9 |
) |
— |
|
(1,674.5 |
) |
Gross profit |
|
541.6 |
|
11.7 |
|
— |
|
553.3 |
|
|
474.7 |
|
6.7 |
|
— |
|
481.4 |
|
Administrative
expenses |
5,7 |
(313.2 |
) |
(75.6 |
) |
(101.9 |
) |
(490.7 |
) |
|
(308.7 |
) |
(6.7 |
) |
(78.7 |
) |
(394.1 |
) |
Operating
profit |
3 |
228.4 |
|
(63.9 |
) |
(101.9 |
) |
62.6 |
|
|
166.0 |
|
— |
|
(78.7 |
) |
87.3 |
|
Net finance costs |
8 |
(33.4 |
) |
— |
|
2.1 |
|
(31.3 |
) |
|
(32.3 |
) |
— |
|
(17.7 |
) |
(50.0 |
) |
Loss on disposal |
5 |
— |
|
(3.7 |
) |
— |
|
(3.7 |
) |
|
— |
|
(0.1 |
) |
— |
|
(0.1 |
) |
Profit before
tax |
3 |
195.0 |
|
(67.6 |
) |
(99.8 |
) |
27.6 |
|
|
133.7 |
|
(0.1 |
) |
(96.4 |
) |
37.2 |
|
Income tax
expense |
|
(36.0 |
) |
(0.1 |
) |
12.2 |
|
(23.9 |
) |
|
(21.0 |
) |
— |
|
18.2 |
|
(2.8 |
) |
Profit for the
period from continuing operations |
|
159.0 |
|
(67.7 |
) |
(87.6 |
) |
3.7 |
|
|
112.7 |
|
(0.1 |
) |
(78.2 |
) |
34.4 |
|
Discontinued
operations: |
|
|
|
|
|
|
|
|
|
|
Profit for the
period |
6 |
— |
|
25.8 |
|
— |
|
25.8 |
|
|
— |
|
23.5 |
|
(2.2 |
) |
21.3 |
|
Total profit for
the period |
|
159.0 |
|
(41.9 |
) |
(87.6 |
) |
29.5 |
|
|
112.7 |
|
23.4 |
|
(80.4 |
) |
55.7 |
|
Attributable
to: |
|
|
|
|
|
|
|
|
|
|
Owners of the
Company |
|
152.5 |
|
(41.9 |
) |
(85.5 |
) |
25.1 |
|
|
106.9 |
|
23.4 |
|
(78.1 |
) |
52.2 |
|
Non-controlling
interests |
|
6.5 |
|
— |
|
(2.1 |
) |
4.4 |
|
|
5.8 |
|
— |
|
(2.3 |
) |
3.5 |
|
|
|
159.0 |
|
(41.9 |
) |
(87.6 |
) |
29.5 |
|
|
112.7 |
|
23.4 |
|
(80.4 |
) |
55.7 |
|
Earnings/(loss) per
share |
9 |
|
|
|
|
|
|
|
|
|
Continuing
operations: |
|
|
|
|
|
|
|
|
|
|
– basic |
|
22.92 |
p |
(10.18) |
p |
(12.85) |
p |
(0.11) |
p |
|
16.12 |
p |
(0.02) |
p |
(11.44) |
p |
4.66 |
p |
– diluted |
|
22.87 |
p |
(10.15) |
p |
(12.83) |
p |
(0.11) |
p |
|
16.03 |
p |
(0.01) |
p |
(11.38) |
p |
4.64 |
p |
Total
operations: |
|
|
|
|
|
|
|
|
|
|
– basic |
|
22.92 |
p |
(6.30) |
p |
(12.85) |
p |
3.77 |
p |
|
16.12 |
p |
3.53 |
p |
(11.78) |
p |
7.87 |
p |
– diluted |
|
22.87 |
p |
(6.29) |
p |
(12.82) |
p |
3.76 |
p |
|
16.03 |
p |
3.51 |
p |
(11.71) |
p |
7.83 |
p |
Half year condensed consolidated statement of comprehensive
income
for the 6 months ended 30 June
2017
|
30 June 2017 |
|
30 June 2016 (restated) |
|
£m |
£m |
|
£m |
£m |
Profit for the
period |
|
29.5 |
|
|
|
55.7 |
|
Other comprehensive
(expense)/income |
|
|
|
|
|
Items that will
not be reclassified subsequently to profit or loss |
|
|
|
|
|
Actuarial loss on
defined benefit pension schemes |
(25.5 |
) |
|
|
(88.9 |
) |
|
Deferred tax
effect |
4.3 |
|
|
|
16.0 |
|
|
|
|
(21.2 |
) |
|
|
(72.9 |
) |
Items that will
or may be reclassified subsequently to profit or loss |
|
|
|
|
|
Exchange differences
on translation of foreign operations |
|
1.9 |
|
|
|
36.9 |
|
Net investment
hedge |
|
(2.4 |
) |
|
|
(20.0 |
) |
|
|
|
|
|
|
Gain on cash flow
hedges |
2.8 |
|
|
|
4.2 |
|
|
Reclassification
adjustments for losses included in the income statement |
— |
|
|
|
1.5 |
|
|
Income tax effect |
(0.5 |
) |
|
|
(1.0 |
) |
|
|
|
2.3 |
|
|
|
4.7 |
|
|
|
1.8 |
|
|
|
21.6 |
|
Other comprehensive
expense for the period net of tax |
|
(19.4 |
) |
|
|
(51.3 |
) |
Total comprehensive
income for the period net of tax |
|
10.1 |
|
|
|
4.4 |
|
Attributable
to: |
|
|
|
|
|
Owners of the
Company |
|
5.7 |
|
|
|
0.9 |
|
Non-controlling
interests |
|
4.4 |
|
|
|
3.5 |
|
|
|
10.1 |
|
|
|
4.4 |
|
Half year condensed consolidated balance sheet
at 30 June 2017
|
|
30 June 2017 |
31 December 2016 (restated) |
|
Notes |
£m |
£m |
Non-current
assets |
|
|
|
Property, plant and
equipment |
|
311.8 |
|
394.7 |
|
Intangible assets |
|
2,449.1 |
|
2,754.2 |
|
Contract fulfilment
assets |
12 |
255.3 |
|
240.6 |
|
Financial assets |
16 |
274.9 |
|
337.6 |
|
Deferred taxation |
|
177.1 |
|
222.4 |
|
Trade and other
receivables |
|
37.6 |
|
48.8 |
|
|
|
3,505.8 |
|
3,998.3 |
|
Current
assets |
|
|
|
Financial assets |
16 |
63.9 |
|
92.6 |
|
Contract fulfilment
assets |
12 |
43.1 |
|
41.6 |
|
Disposal group assets
held for sale |
5 |
755.3 |
|
— |
|
Funds assets |
|
— |
|
173.6 |
|
Trade and other
receivables |
|
692.7 |
|
801.1 |
|
Cash |
|
1,122.6 |
|
1,098.3 |
|
|
|
2,677.6 |
|
2,207.2 |
|
Total
assets |
|
6,183.4 |
|
6,205.5 |
|
Current
liabilities |
|
|
|
Trade and other
payables |
|
797.0 |
|
977.0 |
|
Deferred income |
|
1,472.9 |
|
1,374.9 |
|
Overdrafts |
16 |
577.3 |
|
532.5 |
|
Financial
liabilities |
16 |
292.2 |
|
224.2 |
|
Disposal group
liabilities held for sale |
5 |
346.3 |
|
— |
|
Funds liabilities |
|
— |
|
173.6 |
|
Provisions |
14 |
182.9 |
|
112.5 |
|
Income tax
payable |
|
8.8 |
|
18.6 |
|
|
|
3,677.4 |
|
3,413.3 |
|
Non-current
liabilities |
|
|
|
Trade and other
payables |
|
21.9 |
|
21.0 |
|
Deferred income |
|
212.9 |
|
216.7 |
|
Financial
liabilities |
16 |
2,526.1 |
|
2,694.4 |
|
Deferred taxation |
|
17.5 |
|
19.6 |
|
Provisions |
14 |
15.1 |
|
48.2 |
|
Employee benefits |
|
380.8 |
|
345.2 |
|
|
|
3,174.3 |
|
3,345.1 |
|
Total
liabilities |
|
6,851.7 |
|
6,758.4 |
|
Net
liabilities |
|
(668.3 |
) |
(552.9 |
) |
Capital and
reserves |
|
|
|
Issued share
capital |
|
13.8 |
|
13.8 |
|
Share premium |
|
501.3 |
|
501.3 |
|
Employee benefit trust
and treasury shares |
|
(0.2 |
) |
(0.2 |
) |
Capital redemption
reserve |
|
1.8 |
|
1.8 |
|
Foreign currency
translation reserve |
|
(6.7 |
) |
(6.2 |
) |
Cash flow hedging
reserve |
|
2.3 |
|
— |
|
Retained earnings |
|
(1,253.2 |
) |
(1,131.6 |
) |
Equity attributable
to owners of the Company |
|
(740.9 |
) |
(621.1 |
) |
Non-controlling
interests |
|
72.6 |
|
68.2 |
|
Total
equity |
|
(668.3 |
) |
(552.9 |
) |
Half year condensed consolidated statement of changes in
equity
for the 6 months ended 30 June
2017
|
Share capital |
Share premium |
Employee benefit trust & treasury shares |
Capital redemption reserve |
Retained earnings |
Foreign currency translation reserve |
Cash flow hedging reserve |
Total |
Non-controlling interests |
Total equity |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
At 1 January 2016, as
reported |
13.8 |
|
500.7 |
|
(0.3 |
) |
1.8 |
|
196.5 |
|
(21.2 |
) |
(12.0 |
) |
679.3 |
|
74.0 |
|
753.3 |
|
Impact of change in
accounting standards - IFRS 15 |
— |
|
— |
|
— |
|
— |
|
(934.7 |
) |
— |
|
— |
|
(934.7 |
) |
(7.6 |
) |
(942.3 |
) |
At 1 January 2016,
restated |
13.8 |
|
500.7 |
|
(0.3 |
) |
1.8 |
|
(738.2 |
) |
(21.2 |
) |
(12.0 |
) |
(255.4 |
) |
66.4 |
|
(189.0 |
) |
Profit for the period,
restated |
— |
|
— |
|
— |
|
— |
|
52.2 |
|
— |
|
— |
|
52.2 |
|
3.5 |
|
55.7 |
|
Other comprehensive
(expense)/income |
— |
|
— |
|
— |
|
— |
|
(72.9 |
) |
16.9 |
|
4.7 |
|
(51.3 |
) |
— |
|
(51.3 |
) |
Total comprehensive
(expense)/income for the period |
— |
|
— |
|
— |
|
— |
|
(20.7 |
) |
16.9 |
|
4.7 |
|
0.9 |
|
3.5 |
|
4.4 |
|
Share based
payment |
— |
|
— |
|
— |
|
— |
|
5.0 |
|
— |
|
— |
|
5.0 |
|
— |
|
5.0 |
|
Income tax deduction
on exercise of share options |
— |
|
— |
|
— |
|
— |
|
0.9 |
|
— |
|
— |
|
0.9 |
|
— |
|
0.9 |
|
Deferred income tax
relating to share based payments |
— |
|
— |
|
— |
|
— |
|
(11.7 |
) |
— |
|
— |
|
(11.7 |
) |
— |
|
(11.7 |
) |
Fair value movement in
put option of non-controlling interest |
— |
|
— |
|
— |
|
— |
|
(2.4 |
) |
— |
|
— |
|
(2.4 |
) |
— |
|
(2.4 |
) |
Shares issued |
— |
|
0.6 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
0.6 |
|
— |
|
0.6 |
|
Equity dividends
paid |
— |
|
— |
|
— |
|
— |
|
(140.9 |
) |
— |
|
— |
|
(140.9 |
) |
(4.2 |
) |
(145.1 |
) |
At 30 June 2016,
restated |
13.8 |
|
501.3 |
|
(0.3 |
) |
1.8 |
|
(908.0 |
) |
(4.3 |
) |
(7.3 |
) |
(403.0 |
) |
65.7 |
|
(337.3 |
) |
At 1 January 2017,
as reported |
13.8 |
|
501.3 |
|
(0.2 |
) |
1.8 |
|
(102.3 |
) |
(6.2 |
) |
— |
|
408.2 |
|
75.2 |
|
483.4 |
|
Impact of change in
accounting standards - IFRS 15 |
— |
|
— |
|
— |
|
— |
|
(1,029.3 |
) |
— |
|
— |
|
(1,029.3 |
) |
(7.0 |
) |
(1,036.3 |
) |
At 1 January 2017,
restated |
13.8 |
|
501.3 |
|
(0.2 |
) |
1.8 |
|
(1,131.6 |
) |
(6.2 |
) |
— |
|
(621.1 |
) |
68.2 |
|
(552.9 |
) |
Profit for the
period |
— |
|
— |
|
— |
|
— |
|
25.1 |
|
— |
|
— |
|
25.1 |
|
4.4 |
|
29.5 |
|
Other comprehensive
(expense)/income |
— |
|
— |
|
— |
|
— |
|
(21.2 |
) |
(0.5 |
) |
2.3 |
|
(19.4 |
) |
— |
|
(19.4 |
) |
Total comprehensive
income/(expense) for the period |
— |
|
— |
|
— |
|
— |
|
3.9 |
|
(0.5 |
) |
2.3 |
|
5.7 |
|
4.4 |
|
10.1 |
|
Share based
payment |
— |
|
— |
|
— |
|
— |
|
3.5 |
|
— |
|
— |
|
3.5 |
|
— |
|
3.5 |
|
Fair value movement in
put option of non-controlling interests |
— |
|
— |
|
— |
|
— |
|
8.1 |
|
— |
|
— |
|
8.1 |
|
— |
|
8.1 |
|
Equity dividends
declared (see note 10) |
— |
|
— |
|
— |
|
— |
|
(137.1 |
) |
— |
|
— |
|
(137.1 |
) |
— |
|
(137.1 |
) |
At 30 June
2017 |
13.8 |
|
501.3 |
|
(0.2 |
) |
1.8 |
|
(1,253.2 |
) |
(6.7 |
) |
2.3 |
|
(560.3 |
) |
72.6 |
|
(668.3 |
) |
Half year condensed consolidated cash flow statement
for the 6 months ended 30 June
2017
|
|
30 June 2017 |
|
30 June 2016 (restated) |
|
|
Total |
|
Total |
|
Notes |
£m |
|
£m |
Cash generated from
operations before non-underlying cash items |
15 |
241.6 |
|
|
355.2 |
|
Non-underlying
trading |
5 |
0.5 |
|
|
— |
|
Asset Services
insurance recovery received |
|
9.0 |
|
|
— |
|
Business exit costs
paid |
14 |
(6.7 |
) |
|
(11.3 |
) |
Pension settlement
paid |
|
— |
|
|
(3.3 |
) |
Cash generated from
continuing operations |
|
244.4 |
|
|
340.6 |
|
Cash generated from
discontinued operations |
|
13.6 |
|
|
7.4 |
|
Income tax
refunded/(paid) |
|
16.0 |
|
|
(32.0 |
) |
Net interest paid |
|
(28.7 |
) |
|
(29.1 |
) |
Net cash inflow
from operating activities |
|
245.3 |
|
|
286.9 |
|
Cash flows from
investing activities |
|
|
|
|
Purchase of property,
plant and equipment |
|
(30.5 |
) |
|
(44.5 |
) |
Purchase of intangible
assets |
|
(19.2 |
) |
|
(35.8 |
) |
Acquisition of
subsidiary undertakings and businesses |
13 |
(16.7 |
) |
|
(91.6 |
) |
Cash acquired on
acquisition of subsidiary undertakings |
13 |
4.2 |
|
|
12.3 |
|
Debt repaid on
acquisition of subsidiary undertakings |
|
— |
|
|
— |
|
Proceeds on disposal
of subsidiary undertakings |
5 |
16.4 |
|
|
25.0 |
|
Cash disposed of with
subsidiary undertakings |
|
— |
|
|
(5.4 |
) |
Deferred consideration
received |
|
3.0 |
|
|
— |
|
Public sector
subsidiary partnership payment |
|
(4.7 |
) |
|
— |
|
Deferred consideration
paid |
|
(0.8 |
) |
|
(6.7 |
) |
Contingent
consideration paid |
|
(2.1 |
) |
|
(9.0 |
) |
Purchase of financial
assets |
|
— |
|
|
(0.2 |
) |
Investing activities
from discontinued operations |
|
(7.5 |
) |
|
(8.4 |
) |
Net cash outflow
from investing activities |
|
(57.9 |
) |
|
(164.3 |
) |
Cash flows from
financing activities |
|
|
|
|
Issue of ordinary
share capital |
|
— |
|
|
0.6 |
|
Dividends paid |
10 |
— |
|
|
(145.1 |
) |
Capital element of
finance lease rental payments |
15 |
(1.8 |
) |
|
(2.4 |
) |
Proceeds from term
loans |
15 |
— |
|
|
500.0 |
|
Repayment of fixed
rate swaps |
15 |
(84.6 |
) |
|
— |
|
Repayment of term
loan |
15 |
(30.0 |
) |
|
— |
|
Repayment of
bonds |
15 |
(33.8 |
) |
|
(70.0 |
) |
Financing arrangement
costs |
15 |
(1.2 |
) |
|
— |
|
Net cash
(outflow)/inflow from financing activities |
|
(151.4 |
) |
|
283.1 |
|
Net increase in
cash and cash equivalents |
|
36.0 |
|
|
405.7 |
|
Cash and cash
equivalents at the beginning of the period |
|
565.8 |
|
|
85.3 |
|
Impact of movement in
exchange rates |
15 |
(3.2 |
) |
|
8.9 |
|
Cash and cash
equivalents at 30 June |
|
598.6 |
|
|
499.9 |
|
Cash and cash
equivalents comprise: |
|
|
|
|
Cash at bank and in
hand |
|
1,122.6 |
|
|
935.0 |
|
Cash held by
discontinued operations |
|
53.3 |
|
|
— |
|
Overdraft |
|
(577.3 |
) |
|
(435.1 |
) |
Total |
15 |
598.6 |
|
|
499.9 |
|
Notes to the half year condensed consolidated financial
statements
for the 6 months ended 30 June
2017
1 Corporate information
Capita plc is a public limited company incorporated in
England and Wales whose shares are publicly traded. The
half year condensed consolidated financial statements of the
Company and its subsidiaries (‘the Group’) for the 6 months ended
30 June 2017 were authorised for
issue in accordance with a resolution of the Directors on
20 September 2017.
2 Basis of preparation, judgements and
estimates, significant accounting policies, principal risks and
uncertainties and going concern
(a) Basis of
preparation
The half year condensed consolidated financial statements for
the 6 months ended 30 June 2017 have
been prepared in accordance with the Disclosure and Transparency
Rules (DTR) of the Financial Conduct Authority and with IAS 34
Interim Financial Reporting.
The half year condensed consolidated financial statements do not
include all the information and disclosures required in the annual
financial statements and should be read in conjunction with the
Group’s annual financial statements as at 31
December 2016, which have been prepared in accordance with
IFRSs as adopted by the European Union.
The half year condensed consolidated financial statements do not
comprise statutory accounts within the meaning of Section 434 of
the Companies Act 2006. The statutory accounts for the year ended
31 December 2016 were approved by the
Board of Directors on 1 March 2017
and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under Section 498 of the Companies Act 2006.
The half year condensed consolidated financial statements for
the 6 months ended 30 June 2017 have
been reviewed by the Group's auditors pursuant to the Auditing
Practices Board guidance on Review of Interim Financial
Information.
(b) Judgements and
estimates
In preparing these half year condensed consolidated financial
statements, management make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amount of assets, liabilities, income and expense. Actual results
may differ from these estimates. The significant judgements made by
management in applying the Group’s accounting policies and the key
sources of estimation uncertainty were the same as those that
applied to the consolidated financial statements as at the year
ended 31 December 2016 other than
those additional areas which have arisen as a consequence of the
early adoption of IFRS 15 Revenue from Contracts with Customers -
see appendix 2 where these are explained.
(c) Significant
accounting policies
The accounting policies adopted in preparation of the half year
condensed consolidated financial statements are consistent with
those followed in the preparation of the Group’s annual financial
statements for the year ended 31 December
2016, except for the early adoption of IFRS 15 Revenue from
Contracts with Customers.
Initial adoption
of IFRS 15 Revenue from Contracts with Customers
The standard has an effective date of 1
January 2018 but the Group has decided to early adopt this
standard with a date of initial application to the Group of
1 January 2017.
IFRS 15 replaces all existing revenue requirements in IFRS and
applies to all revenue arising from contracts with customers unless
the contracts are within the scope of other standards such as IAS
17 Leases.
The standard outlines the principles entities must apply to
measure and recognise revenue with the core principle being that
entities should recognise revenue at an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for fulfilling its performance obligations to a
customer.
The principles in IFRS 15 must be applied using the following 5
step model:
- Identify the contract(s) with a customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations
in the contract
- Recognise revenue when or as the entity satisfies its
performance obligations
The standard requires entities to exercise considerable
judgement taking into account all the relevant facts and
circumstances when applying each step of this model to its
contracts with customers. The standard also specifies how to
account for the incremental costs of obtaining a contract and the
costs directly related to fulfilling a contract, as well as
requirements covering matters such as licences of intellectual
property, warranties, principal versus agent assessment and options
to acquire additional goods or services.
The Group has applied IFRS 15 fully retrospectively in
accordance with paragraph C3 (a) of the standard, restating the
prior period’s comparatives and electing to use the following
expedients:
• in respect of completed contracts, the Group will not restate
contracts that (i) begin and end within the same annual reporting
period; or (ii) are completed contracts at the beginning of the
earliest period presented (para. C5(a));
• in respect of completed contracts that have variable
consideration, the Group will use the transaction price at the date
the contract was completed rather than estimating variable
consideration amounts in the comparative periods (para. C5(b));
and
• for all reporting periods presented before the date of initial
application, the Group will not disclose the amount of the
transaction price allocated to the remaining performance
obligations or an explanation of when the Group expects to
recognise that amount as revenue (para C5(c)).
Details of the change in the Group’s accounting policy in
respect of revenue recognition, related matters consequent upon the
early adoption of IFRS 15 and an explanation of the impact on the
Group’s prior period financial statements are set out in appendix
2.
IFRS 16 Leases
The adoption of IFRS 16 Leases is mandatory for the Group for
the financial year beginning 1 January
2019.
IFRS 16 replaces the existing accounting requirements in IAS 17
Leases. A single model for lessees will be required, eliminating
off balance sheet accounting for non-exempt operating leases. As a
result, lease liabilities and corresponding right of use lease
assets would come onto the balance sheet and would generally be
unwound and depreciated over the term of the lease. The
presentation and timing of income and expense recognition in the
income statement would change, however the total income and expense
over the term of the lease remains the same. There would be no
impact on cash flows as the payments received or paid under the
leases remain the same, although there would be a change in
presentation of cash flows. The application of the new standard
would have a varying impact on opening retained earnings at the
initial date of adoption dependent upon which transition method is
chosen.
The Group is assessing the potential impact on its consolidated
financial statements resulting from the application of IFRS 16 and
expects to disclose a range of estimates for the quantitative
impact prior to initial adoption. It is not practicable to provide
a reasonable estimate of the effect of IFRS 16 or to conclude on
the transition approach to be taken until the detailed reviews have
been completed.
(d) Principal
risks and uncertainties and going concern
The Directors have considered the principal risks and
uncertainties affecting the Group’s financial position and
prospects in 2017 and out 12 months beyond the reporting date. As
described on pages 46 to 55 of the Group’s annual report for 2016,
the Group continues to be exposed to a number of risks and has well
established systems and procedures in place to identify, assess and
mitigate those risks.
The principal risks include those arising from: significant
failures in internal control systems; lack of corporate financial
stability; failures in information security controls; legal and
regulatory risk; adverse financial/business performance; failure to
innovate; increased internal business complexity; adverse changes
in the national or international political landscape; operational
issues leading to reputational risk; operational IT risks; failure
to effectively manage the Group’s talent and human resources; and
weaknesses in the acquisition and contracting life cycle.
The Directors continue to review the principal risks on an
ongoing basis and confirm that there are no further principal
risks, although noting that the residual risk arising from the lack
of corporate financial stability has reduced during 2017 as the
mitigating measures undertaken have impacted our position. Further
the residual risk from Operational IT risk has increased due to
identified dependencies on certain aged infrastructure which the
Group will address through its longer term IT strategy.
In assessing the basis of preparation for the period
30 June 2017, the Directors have
considered the principles of the FRC's “Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting 2014”, namely assessing the applicability of the going
concern basis, the review period and disclosures.
The Group has net debt of £1,595.5m at 30
June 2017 (31 December 2016: £1,778.8m).
The Group’s committed revolving credit facility, bank term loan
facilities and private placement notes are subject to compliance
with covenant requirements including maximum ratios of adjusted net
debt to adjusted EBITDA before exceptional items. The Group's
covenanted maximum ratio for all debt instruments is currently 3.5
times falling to 3.0 times under some debt instruments following
receipt of the proceeds of the sale of the Capita Asset Services
businesses. They are tested semi-annually. The Group’s
calculation of adjusted net debt to adjusted EBITDA at 30 June 2017 is 2.86 times and is in compliance
with the relevant ratios.
The Board has undertaken a rigorous assessment of the forecast
assumptions that support the going concern basis, taking into
account the financial forecasts, the Group’s existing debt levels,
the committed funding and liquidity positions, the Group’s historic
experience in generating cash from trading activities, and the
working capital management strategies available to it. They
have applied sensitivity analysis to these forecasts through both
reductions in cash collections, underperformance against the 2017
business plan, a potential delay of the completion of the sale of
the Capita Asset Services businesses into 2018, and the possible
range of settlements described in note 19 Contingent
Liabilities. They have considered mitigating actions
available to the Group in response to these sensitivities.
After applying these sensitivities and mitigating actions, the
Group forecasts that it will continue to operate within its
covenants.
Accordingly and notwithstanding that the half year condensed
consolidated balance sheet shows a net liability position (which
from December 2017 will have the
effect of adding all outstanding contingent liabilities under
performance bonds and bank guarantees to adjusted net debt under
the covenant calculation), the Board has a reasonable expectation
that the Company and the Group will be able to operate as a going
concern for the foreseeable future and are satisfied that the half
year condensed consolidated financial statements should be prepared
on a going concern basis.
3 Segmental information
The Group’s operations are managed separately according to the
nature of the services provided, with each segment representing a
strategic business division offering a different package of client
outcomes across the markets the Group serves. As announced at
the 2016 year end, the Group from 1 January
2017 introduced a new simplified structure that better
aligns sales and operations to the markets and customers that the
Group addresses. This is now reflected in the segment
reporting and the comparatives have been restated on this same
basis. No segments are aggregated to form the operating
segments below, and the information presents the information as it
is reported to the Group Board. In preparing these interim
statements, the Board has considered how business performance is
assessed internally and in addition to the announced new business
divisions, Group trading and central functions will also be
reported separately going forwards. Comparative information
has been restated accordingly. The Board believe the changes
improve accountability and transparency across the Group.
|
Digital & Software Solutions |
IT Services |
Public Sector Partnerships |
Professional Services |
Private Sector Partnerships |
Group trading and central functions |
Total underlying |
Total non-underlying |
Total |
6 months to 30 June
2017 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Continuing
operations |
|
|
|
|
|
|
|
|
|
Contract length > 2
years |
185.7 |
|
169.6 |
|
382.9 |
|
109.5 |
|
601.7 |
|
5.0 |
|
1,454.4 |
|
— |
|
1,454.4 |
|
Contract length < 2
years |
17.2 |
|
31.8 |
|
86.2 |
|
44.3 |
|
156.0 |
|
— |
|
335.5 |
|
0.9 |
|
336.4 |
|
Transactional (point
in time) |
4.0 |
|
72.5 |
|
69.7 |
|
96.8 |
|
33.0 |
|
— |
|
276.0 |
|
60.5 |
|
336.5 |
|
Total segment
revenue |
206.9 |
|
273.9 |
|
538.8 |
|
250.6 |
|
790.7 |
|
5.0 |
|
2,065.9 |
|
61.4 |
|
2,127.3 |
|
|
|
|
|
|
|
|
|
|
|
Trading revenue |
224.1 |
|
378.5 |
|
577.6 |
|
310.0 |
|
857.7 |
|
40.2 |
|
2,388.1 |
|
— |
|
2,388.1 |
|
Inter-segment
revenue |
(17.2 |
) |
(104.6 |
) |
(38.8 |
) |
(59.4 |
) |
(67.0 |
) |
(35.2 |
) |
(322.2 |
) |
— |
|
(322.2 |
) |
Total underlying
segment revenue |
206.9 |
|
273.9 |
|
538.8 |
|
250.6 |
|
790.7 |
|
5.0 |
|
2,065.9 |
|
— |
|
2,065.9 |
|
Non-underlying
revenue |
— |
|
— |
|
5.9 |
|
54.6 |
|
0.9 |
|
— |
|
|
61.4 |
|
61.4 |
|
Total segment
revenue |
206.9 |
|
273.9 |
|
544.7 |
|
305.2 |
|
791.6 |
|
5.0 |
|
|
|
2,127.3 |
|
|
|
|
|
|
|
|
|
|
|
Underlying trading
result |
58.6 |
|
46.2 |
|
45.8 |
|
51.2 |
|
81.5 |
|
(54.9 |
) |
228.4 |
|
— |
|
228.4 |
|
Non-underlying trading
result |
— |
|
— |
|
0.2 |
|
0.2 |
|
0.1 |
|
— |
|
|
0.5 |
|
0.5 |
|
Total trading
result |
58.6 |
|
46.2 |
|
46.0 |
|
51.4 |
|
81.6 |
|
(54.9 |
) |
|
|
228.9 |
|
Non-trading items: |
|
|
|
Business
exit costs |
|
|
(64.4 |
) |
Intangible amortisation |
|
|
(63.9 |
) |
Acquisition costs |
|
|
(1.1 |
) |
Contingent consideration movement |
|
|
0.1 |
|
Asset
Services settlement provision |
|
|
(37.0 |
) |
Operating profit |
|
|
62.6 |
|
Net
finance costs |
|
|
(31.3 |
) |
Loss on
business disposal |
|
|
(3.7 |
) |
Profit
before tax |
|
|
27.6 |
|
Income
tax expense |
|
|
(23.9 |
) |
Profit
for the period - continuing operations |
|
|
3.7 |
|
Profit
for the period - discontinued operations |
|
|
25.8 |
|
Profit
for the period - total |
|
|
29.5 |
|
|
Digital & Software Solutions |
IT Services |
Public Sector Partnerships |
Professional Services |
Private Sector Partnerships |
Group trading and central functions |
Total underlying |
Total non-underlying |
Total |
6 months to 30 June
2016 (restated) |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Continuing
operations |
|
|
|
|
|
|
|
|
|
Contract length > 2
years |
189.4 |
|
136.5 |
|
394.0 |
|
118.7 |
|
576.3 |
|
10.1 |
|
1,425.0 |
|
24.6 |
|
1,449.6 |
|
Contract length < 2
years |
16.4 |
|
35.6 |
|
112.4 |
|
39.2 |
|
132.4 |
|
— |
|
336.0 |
|
— |
|
336.0 |
|
Transactional (point
in time) |
3.8 |
|
69.1 |
|
64.1 |
|
195.2 |
|
38.1 |
|
— |
|
370.3 |
|
— |
|
370.3 |
|
Total segment
revenue |
209.6 |
|
241.2 |
|
570.5 |
|
353.1 |
|
746.8 |
|
10.1 |
|
2,131.3 |
|
24.6 |
|
2,155.9 |
|
|
|
|
|
|
|
|
|
|
|
Trading revenue |
227.8 |
|
362.0 |
|
599.4 |
|
417.6 |
|
800.3 |
|
35.8 |
|
2,442.9 |
|
— |
|
2,442.9 |
|
Inter-segment
revenue |
(18.2 |
) |
(120.8 |
) |
(28.9 |
) |
(64.5 |
) |
(53.5 |
) |
(25.7 |
) |
(311.6 |
) |
— |
|
(311.6 |
) |
Total underlying
segment revenue |
209.6 |
|
241.2 |
|
570.5 |
|
353.1 |
|
746.8 |
|
10.1 |
|
2,131.3 |
|
— |
|
2,131.3 |
|
Non-underlying
revenue |
— |
|
— |
|
22.5 |
|
— |
|
2.1 |
|
— |
|
|
24.6 |
|
24.6 |
|
Total segment
revenue |
209.6 |
|
241.2 |
|
593.0 |
|
353.1 |
|
748.9 |
|
10.1 |
|
|
|
2,155.9 |
|
|
|
|
|
|
|
|
|
|
|
Underlying trading
result |
67.1 |
|
15.3 |
|
5.4 |
|
46.8 |
|
45.5 |
|
(14.1 |
) |
166.0 |
|
— |
|
166.0 |
|
Non-underlying trading
result |
— |
|
— |
|
(0.8 |
) |
— |
|
0.8 |
|
— |
|
|
— |
|
— |
|
Total trading
result |
67.1 |
|
15.3 |
|
4.6 |
|
46.8 |
|
46.3 |
|
(14.1 |
) |
|
|
166.0 |
|
Non-trading items: |
|
|
|
Intangible amortisation |
|
|
(72.6 |
) |
Acquisition costs |
|
|
(5.5 |
) |
Contingent consideration movement |
|
|
(0.6 |
) |
Operating
profit |
|
|
87.3 |
|
Net
finance costs |
|
|
(50.0 |
) |
Loss on
business disposal |
|
|
(0.1 |
) |
Profit
before tax |
|
|
37.2 |
|
Income
tax expense |
|
|
(2.8 |
) |
Profit
for the period - continuing operations |
|
|
34.4 |
|
Profit for the period
- discontinued operations |
|
|
|
|
|
|
|
|
21.3 |
|
Profit for the period
- total |
|
|
|
|
|
|
|
|
55.7 |
|
4 Underlying operating profit
|
|
30 June 2017 |
|
30 June 2016 (restated) |
|
|
Underlying before significant new contracts and
restructuring |
Significant new contracts and restructuring |
Total underlying |
|
Underlying before significant new contracts and
restructuring |
Significant new contracts and restructuring |
Total underlying |
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
Continuing
operations: |
|
|
|
|
|
|
|
|
Revenue |
|
2,065.9 |
|
— |
|
2,065.9 |
|
|
2,131.3 |
|
— |
|
2,131.3 |
|
Cost of sales |
|
(1,524.3 |
) |
— |
|
(1,524.3 |
) |
|
(1,656.6 |
) |
— |
|
(1,656.6 |
) |
Gross profit |
|
541.6 |
|
— |
|
541.6 |
|
|
474.7 |
|
— |
|
474.7 |
|
Administrative
expenses |
|
(313.2 |
) |
— |
|
(313.2 |
) |
|
(308.7 |
) |
— |
|
(308.7 |
) |
Operating
profit |
|
228.4 |
|
— |
|
228.4 |
|
|
166.0 |
|
— |
|
166.0 |
|
Following the adoption of IFRS 15, the Board has adopted a
policy to separately disclose the in-period operating profit/loss
from significant new contract wins and significant restructuring,
in order for users of the financial statements to obtain a proper
understanding of the financial information and the performance of
the business.
A new contract is assessed as that which is either entirely new
to the Group, or a significant amendment to the scope and scale of
an existing contract.
The Group continually assesses the resourcing levels, both at a
divisional level and also in relation to the management and
delivery of individual contracts. This results in
restructuring in the normal course of business and any such charges
are recorded in "Underlying before significant new contracts and
restructuring" results. A significant restructuring is
assessed as that above this normal level of restructuring.
Contract terminations arising in the normal course of business
and which result in the disposal of a contract fulfilment asset
and/or a true-up of revenue recognised, will be included within
"Underlying before significant new contracts and restructuring",
and separately disclosed if considered material.
5 Business exits
2017 business
exits
Business exits are businesses that have been exited during the
year or in the process of being disposed of. None of these
business exits meet the definition of “discontinued operations” as
stipulated by IFRS 5, which requires disclosure and comparatives to
be restated where the relative size of a disposal or business
closure is significant, which is normally understood to mean a
reported segment. Accordingly, the separate presentation described
below does not fall within the requirements of IFRS 5 concerning
discontinued operations. The expected disposal of Capita Asset
Services does meet the definition of a discontinued operation, and
is disclosed separately in note 6 - Discontinued Operations.
In the 2016 annual report, we disclosed that the Group intended
to dispose of the majority of our specialist recruitment businesses
which no longer fit the Group's core business strategy. At
31 December 2016, neither of these
businesses met the criteria to be treated as held for sale.
During the period, the disposal of the specialist recruitment
businesses has been completed, along with the disposal of part of
the Capita Europe business, and the closure of an events business,
and their results are all included within business exits for the
period. As at 30 June 2017, the
Group was in an active process to sell a non core property business
and has treated this as a disposal group held for sale at this
date.
Income statement
impact |
|
|
|
|
|
|
|
Non-trading |
|
|
Trading
£m |
Cash
£m |
Non-cash
£m |
Total
£m |
Total
£m |
Revenue |
61.4 |
|
— |
|
— |
|
— |
|
61.4 |
|
Cost of sales |
(49.7 |
) |
— |
|
— |
|
— |
|
(49.7 |
) |
Gross
profit |
11.7 |
|
— |
|
— |
|
— |
|
11.7 |
|
Administrative
expenses |
(11.2 |
) |
(56.4 |
) |
(8.0 |
) |
(64.4 |
) |
(75.6 |
) |
Operating
profit/(loss) |
0.5 |
|
(56.4 |
) |
(8.0 |
) |
(64.4 |
) |
(63.9 |
) |
Profit/(loss) on
business disposal (see below) |
— |
|
16.3 |
|
(20.0 |
) |
(3.7 |
) |
(3.7 |
) |
Profit/(loss)
before tax |
0.5 |
|
(40.1 |
) |
(28.0 |
) |
(68.1 |
) |
(67.6 |
) |
Income tax
expense |
(0.1 |
) |
— |
|
— |
|
— |
|
(0.1 |
) |
Profit/(loss) for
the period |
0.4 |
|
(40.1 |
) |
(28.0 |
) |
(68.1 |
) |
(67.7 |
) |
Trading revenue and costs represent the current period trading
performance of those businesses being exited or disposed.
There are no cumulative income or expenses included in other
comprehensive income relating to the disposal group.
Loss on business
disposal |
Cash |
Non-cash |
Total |
|
£m |
£m |
£m |
Property, plant and
equipment |
— |
|
1.2 |
|
1.2 |
|
Intangible assets |
— |
|
6.9 |
|
6.9 |
|
Trade and other
receivables |
— |
|
24.0 |
|
24.0 |
|
Cash |
0.1 |
|
— |
|
0.1 |
|
Trade and other
payables |
— |
|
(11.0 |
) |
(11.0 |
) |
Income tax |
— |
|
(0.2 |
) |
(0.2 |
) |
Deferred tax |
— |
|
(0.8 |
) |
(0.8 |
) |
Provisions |
— |
|
(0.1 |
) |
(0.1 |
) |
Total net assets
disposed of |
0.1 |
|
20.0 |
|
20.1 |
|
Cash consideration
received |
17.0 |
|
— |
|
17.0 |
|
Costs of disposal |
(0.6 |
) |
— |
|
(0.6 |
) |
Proceeds, less
costs, on disposal |
16.4 |
|
— |
|
16.4 |
|
Loss on business
disposal |
16.3 |
|
(20.0 |
) |
(3.7 |
) |
Non-trading
administrative expenses |
|
Disposal/
closure |
Held for
disposal |
Total |
|
|
£m |
£m |
£m |
Cash paid or to be
paid: |
|
|
|
|
Separation costs
paid |
|
(0.5 |
) |
(5.0 |
) |
(5.5 |
) |
Provision in respect
of disposal and closure costs |
|
(3.4 |
) |
(47.5 |
) |
(50.9 |
) |
|
|
(3.9 |
) |
(52.5 |
) |
(56.4 |
) |
Non-cash: |
|
|
|
|
Accelerated
depreciation on property, plant and equipment |
|
(1.7 |
) |
— |
|
(1.7 |
) |
Accelerated
amortisation on goodwill |
|
— |
|
(6.3 |
) |
(6.3 |
) |
|
|
(1.7 |
) |
(6.3 |
) |
(8.0 |
) |
|
|
(5.6 |
) |
(58.8 |
) |
(64.4 |
) |
Analysed above are non-trading administrative expenses which
include cash costs from exiting the disposed business, the ongoing
stranded costs such as property and redundancy payments and
impairment losses recognised in the disposal group. These
include costs in respect of the disposal of Capita Asset Services
as at 30 June 2017.
As at 30 June 2017, the Group was
in an active process to sell a non core property business and has
treated this as a disposal group held for sale at this date.
Assets and liabilities of disposal group held for sale -
continuing operations |
|
|
|
|
|
|
As at
30 June 2017 |
As at
31 December 2016 |
|
|
|
£m |
£m |
Property, plant and
equipment |
|
|
— |
|
0.1 |
|
Intangible assets |
|
|
2.4 |
|
— |
|
Trade and other
receivables |
|
|
3.5 |
|
4.2 |
|
Assets held for
sale |
|
|
5.9 |
|
4.3 |
|
|
|
|
|
|
Trade and other
payables |
|
|
(1.7 |
) |
(9.1 |
) |
Provisions |
|
|
(0.2 |
) |
— |
|
Liabilities held
for sale |
|
|
(1.9 |
) |
(9.1 |
) |
Disposal group as
reported on balance sheet |
|
Continuing operations |
Discontinued operations |
Total |
|
|
£m |
£m |
£m |
Assets held for
sale |
|
5.9 |
|
749.4 |
|
755.3 |
|
Liabilities held for
sale |
|
(1.9 |
) |
(344.4 |
) |
(346.3 |
) |
2016 business
exits
In the 6 months to 30 June 2016,
the Group exited some of its small non-core health businesses.
Income statement
impact |
|
Non-trading |
|
|
Trading
£m |
Cash
£m |
Non-cash
£m |
Total
£m |
Total
£m |
Revenue |
24.6 |
|
— |
|
— |
|
— |
|
24.6 |
|
Cost of sales |
(17.9 |
) |
— |
|
— |
|
— |
|
(17.9 |
) |
Gross
profit |
6.7 |
|
— |
|
— |
|
— |
|
6.7 |
|
Administrative
expenses |
(6.7 |
) |
— |
|
— |
|
— |
|
(6.7 |
) |
Operating
loss |
— |
|
— |
|
— |
|
— |
|
— |
|
Loss on business
disposal |
— |
|
39.6 |
|
(39.7 |
) |
(0.1 |
) |
(0.1 |
) |
Loss before
tax |
— |
|
39.6 |
|
(39.7 |
) |
(0.1 |
) |
(0.1 |
) |
Income tax
expense |
— |
|
— |
|
— |
|
— |
|
— |
|
Loss for the
period |
— |
|
39.6 |
|
(39.7 |
) |
(0.1 |
) |
(0.1 |
) |
Trading revenue and costs represent the trading performance of
these businesses in the period to the date of exit.
Non-trading costs include the costs of exiting a number of small
non-core health businesses and ongoing stranded costs such as IT,
property lease and redundancy payments.
Loss on business
disposal |
Cash |
Non-cash |
Total |
|
£m |
£m |
£m |
Disposal group
assets |
— |
|
63.7 |
|
63.7 |
|
Disposal group
liabilities |
— |
|
(20.0 |
) |
(20.0 |
) |
Total net assets
disposed of |
— |
|
43.7 |
|
43.7 |
|
Cash (net of cash
disposed of) |
19.6 |
|
— |
|
19.6 |
|
Deferred consideration
receivable |
20.0 |
|
— |
|
20.0 |
|
Fair value of residual
interest |
— |
|
4.0 |
|
4.0 |
|
Proceeds on
disposal |
39.6 |
|
4.0 |
|
43.6 |
|
Loss on business
disposal |
39.6 |
|
(39.7 |
) |
(0.1 |
) |
6 Discontinued operations
In the 2016 annual report, we disclosed that the Group intended
to dispose of the majority of the Capita Asset Services
Division. At 31 December 2016,
this business did not meet the criteria to be treated as held for
sale as the sale process had not progressed sufficiently to be
reasonably certain at that time, but at 30
June 2017 the disposal process met the criteria to be
treated as held for sale.
The disposal meets the definition of a discontinued operation as
stipulated by IFRS 5. The comparatives have been
restated. The following presentation, and that included in
other notes, follows the requirements of IFRS 5.
|
30 June 2017 |
|
30 June 2016 |
Trading |
Non-trading |
Total |
|
Trading |
Non-trading |
Total |
£m |
£m |
£m |
|
£m |
£m |
£m |
Discontinued
operations: |
|
|
|
|
|
|
|
Revenue |
157.9 |
|
— |
|
157.9 |
|
|
147.3 |
|
— |
|
147.3 |
|
Cost of sales |
(56.4 |
) |
— |
|
(56.4 |
) |
|
(57.2 |
) |
— |
|
(57.2 |
) |
Gross profit |
101.5 |
|
— |
|
101.5 |
|
|
90.1 |
|
— |
|
90.1 |
|
Administrative
expenses |
(70.7 |
) |
(0.6 |
) |
(71.3 |
) |
|
(62.2 |
) |
(2.6 |
) |
(64.8 |
) |
Operating
profit |
30.8 |
|
(0.6 |
) |
30.2 |
|
|
27.9 |
|
(2.6 |
) |
25.3 |
|
Net finance costs |
— |
|
0.6 |
|
0.6 |
|
|
— |
|
(0.1 |
) |
(0.1 |
) |
Profit before
tax |
30.8 |
|
— |
|
30.8 |
|
|
27.9 |
|
(2.7 |
) |
25.2 |
|
Income tax
expense |
(5.0 |
) |
— |
|
(5.0 |
) |
|
(4.4 |
) |
0.5 |
|
(3.9 |
) |
Profit for the
period |
25.8 |
|
— |
|
25.8 |
|
|
23.5 |
|
(2.2 |
) |
21.3 |
|
Non-trading items include amortisation on acquired intangibles
within administrative expenses, and fair value movements on
available for sale assets in net finance costs.
|
Note |
30 June 2017 |
31 December 2016 |
|
|
£m |
£m |
Non-current
assets |
|
|
|
Property, plant and
equipment |
|
72.6 |
|
76.3 |
|
Intangible assets |
|
250.5 |
|
250.8 |
|
Financial assets |
|
— |
|
3.5 |
|
Deferred taxation |
|
1.1 |
|
0.6 |
|
Trade and other
receivables |
|
1.9 |
|
5.9 |
|
|
|
326.1 |
|
337.1 |
|
Current
assets |
|
|
|
Financial assets |
|
5.0 |
|
10.5 |
|
Funds assets |
|
282.6 |
|
173.6 |
|
Income tax
receivable |
|
4.6 |
|
3.0 |
|
Trade and other
receivables |
|
77.8 |
|
113.6 |
|
Cash |
|
53.3 |
|
37.7 |
|
|
|
423.3 |
|
338.4 |
|
Assets held for
sale |
|
749.4 |
|
675.5 |
|
Current
liabilities |
|
|
|
Trade and other
payables |
|
36.4 |
|
109.9 |
|
Deferred income |
|
13.9 |
|
7.9 |
|
Funds liabilities |
|
282.6 |
|
173.6 |
|
Provisions |
14 |
0.2 |
|
24.4 |
|
|
|
333.1 |
|
315.8 |
|
Non-current
liabilities |
|
|
|
Trade and other
payables |
|
0.3 |
|
0.4 |
|
Deferred taxation |
|
11.0 |
|
5.1 |
|
|
|
11.3 |
|
5.5 |
|
Liabilities held
for sale |
|
344.4 |
|
321.3 |
|
|
|
|
|
Net assets held for
sale |
|
405.0 |
|
354.2 |
|
|
|
30 June 2017 |
30 June 2016 |
|
|
£m |
£m |
Cash
flows from (used in) discontinued operations |
|
|
Net cash
inflow from operating activities |
13.6 |
|
7.4 |
|
Net cash
outflow from investing activities |
(7.5 |
) |
(8.4 |
) |
Net
cash flow for period |
6.1 |
|
(1.0 |
) |
7 Specific items
Included within the specific items column are:
|
6 months to 30 June 2017 |
6 months to 30 June 2016 (restated) |
|
|
Cash in year |
Cash in future |
Non-cash |
Total |
Cash in year |
Cash in future |
Non-cash |
Total |
|
Notes |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Amortisation of
acquired intangibles |
|
— |
|
— |
|
63.9 |
|
63.9 |
|
— |
|
— |
|
72.6 |
|
72.6 |
|
Contingent
consideration movements |
16 |
— |
|
— |
|
(0.1 |
) |
(0.1 |
) |
— |
|
— |
|
0.6 |
|
0.6 |
|
Asset Services
settlement provision |
|
— |
|
37.0 |
|
— |
|
37.0 |
|
— |
|
— |
|
— |
|
— |
|
Professional fees
regarding acquisitions |
|
0.7 |
|
0.3 |
|
— |
|
1.0 |
|
3.3 |
|
2.0 |
|
— |
|
5.3 |
|
Stamp duty paid on
acquisitions |
|
0.1 |
|
— |
|
— |
|
0.1 |
|
0.2 |
|
— |
|
— |
|
0.2 |
|
Total |
|
0.8 |
|
37.3 |
|
63.8 |
|
101.9 |
|
3.5 |
|
2.0 |
|
73.2 |
|
78.7 |
|
The above items are presented as specific items as the Board has
concluded that these items are not reflective of the in-period
performance of the Group. The tax impact of the above items is a
£12.6m credit (30 June 2016: £14.6m
credit). These items are discussed below:
Amortisation of acquired intangible assets: the Group
carries on its balance sheet significant balances related to
acquired intangible assets. The amortisation of these assets,
and any impairment charges, are reported separately as they distort
the in-year trading results and performance of the acquired
businesses is assessed through the underlying operational
results.
Contingent consideration movements: in accordance with
IFRS 3, movements in the fair value of contingent consideration on
acquisitions go through the Group income statement. These are
reported separately because performance of the acquired businesses
is assessed through the underlying operational results and such a
charge/credit movement would distort underlying results.
Asset services settlement provision: these costs relate
to the litigation and regulatory review concerning the Connaught
Income series 1 Fund (“The Fund”) (see note 14), and are included
in specific items as they are not reflective of the in-year
performance of the Group's operational activities.
Acquisition related costs and stamp duty: these costs
incurred with acquisitions are not included in the assessment of
business performance which is based on the underlying results. IFRS
requires certain costs incurred in connection with acquired
businesses to be recorded within the Group income statement.
These charges are not included in the internal assessment of
business performance which as above is based on the underlying
operational results. These charges are therefore separately
disclosed as specific items.
8 Net finance costs
|
|
6 months to |
6 months to |
|
|
30 June 2017 |
30 June 2016 |
|
|
£m |
£m |
Interest
receivable |
|
(0.1 |
) |
(0.1 |
) |
Bonds |
|
18.8 |
|
18.0 |
|
Fixed rate interest
rate swaps - realised |
|
3.2 |
|
5.9 |
|
Finance lease |
|
— |
|
0.1 |
|
Bank loans and
overdrafts |
|
6.8 |
|
5.2 |
|
Net interest cost on
defined benefit pension schemes |
|
4.7 |
|
3.2 |
|
Interest payable |
|
33.5 |
|
32.4 |
|
Underlying net
finance costs |
|
33.4 |
|
32.3 |
|
Fixed rate interest
rate swaps – mark to market |
|
(0.5 |
) |
22.8 |
|
Discount unwind on
public sector subsidiary partnership payment |
|
1.0 |
|
1.0 |
|
Fair value movement in
trade investments |
|
— |
|
0.1 |
|
Non-designated foreign
exchange forward contracts – mark to market |
|
(1.6 |
) |
(7.3 |
) |
Derivatives’
counterparty credit risk adjustment – mark to market |
|
(1.0 |
) |
0.9 |
|
Derivatives’ own
credit risk adjustment – mark to market |
|
— |
|
0.2 |
|
Non-underlying net
finance (income)/costs |
|
(2.1 |
) |
17.7 |
|
Total net finance
costs |
|
31.3 |
|
50.0 |
|
9 Earnings/(loss) per share
Basic earnings per share have been calculated using the weighted
average number of shares in issue during the period of 665.3m
(30 June 2016: 663.2m). The
diluted average number of shares is 666.7m (30 June 2016: 666.9m) having adjusted the
weighted average number of shares for shares yet to be issued that
will be dilutive.
The profits used to calculate the measures are:
|
30 June 2017 |
30 June
2016 |
|
Continuing operations |
Total operations |
Continuing operations |
Total operations |
|
£m |
£m |
£m |
£m |
Underlying profit
attributable to shareholders |
152.5 |
|
152.5 |
|
106.9 |
|
106.9 |
|
Total profit/(loss)
attributable to shareholders |
(0.7 |
) |
25.1 |
|
30.9 |
|
52.2 |
|
As at 20 September 2017, there
were 670.2m shares in issue.
10 Dividends
The interim dividend of 11.1p (2016: 11.1p) per share (not
recognised as a liability at 30 June
2017) will be payable on 20 October 2017 to
ordinary shareholders on the register at the close of business on
30 November 2017. The dividend disclosed in the statement
of changes in equity represents the final ordinary dividend of
20.6p (2016: 21.2p) per share as proposed in the 31 December 2016 financial statements and
approved at the Group’s AGM (not recognised as a liability at
31 December 2016) that was paid on
3 July 2017 and so recognised as a
financial liability at 30 June
2017.
11 Goodwill
Goodwill acquired through business combinations has been
allocated to Cash-Generating Units (CGUs), for impairment testing
purposes, on the basis of the expected benefit that will accrue to
the individual CGU through synergies realised from the acquisitions
and integration with the Group as a whole. These represent
the lowest level within the Group at which goodwill can be
allocated on a reasonable and consistent basis.
Following the difficult trading conditions witnessed in 2016 as
a result of certain economic and political factors and having
reviewed the constituent businesses and markets in which Capita
operates and the underlying assumptions used to calculate the value
in use for each CGU, goodwill was impaired by £66.6m as at
31 December 2016.
In the 2016 annual financial statements, it was noted that the
CGUs impaired in the year are the most sensitive to a change in a
single or combination of assumptions and therefore any
deterioration in assumptions would lead to further
impairment. In preparing these half year condensed
consolidated financial statements, the Group undertook a review to
identify indicators of impairment of goodwill for those CGUs.
Consideration was given to their operating performance in 2017
versus the 1 year budget forecast used in identifying the cash
flows for each CGU during the impairment testing performed for the
2016 annual financial statements. Where this gave rise to an
indicator of potential impairment, further review was
performed.
No impairments were identified as at 30
June 2017.
12 Contract fulfilment assets
In preparing these half year condensed consolidated financial
statements, the Group undertook a review to identify indicators of
impairment of contract fulfilment assets. The Group
determined whether or not the contract fulfilment assets and
capitalised costs to obtain a contract were impaired by comparing
the carrying amount of the asset to the remaining amount of
consideration that the Group expects to receive less the costs that
relate to providing services under the relevant contract. In
determining the estimated amount of consideration, the Group used
the same principles as it does to determine the contract
transaction price, except that any constraints used to reduce the
transaction price were removed for the impairment test.
In line with our accounting policy, as set out in Appendix 2, if
a contract or specific performance obligation exhibited marginal
profitability or other indicators of impairment, judgement was
applied to ascertain whether or not the future economic benefits
from these contracts were sufficient to recover these assets.
In performing this impairment assessment, management is required to
make an assessment of the costs to complete the contract. The
ability to accurately forecast such costs involves estimates around
cost savings to be achieved over time, anticipated profitability of
the contract, as well as future performance against any
contract-specific KPIs that could trigger variable consideration,
or service credits.
No contract fulfilment asset impairments were identified as at
30 June 2017 (31 December 2016: £nil).
13 Business combinations
The Group has made two acquisitions in the period which are
shown in aggregate below:
|
|
|
|
Provisional fair value to Group |
|
|
|
|
£m |
Intangible assets |
|
|
|
5.6 |
|
Trade and other
receivables < 1 year |
|
|
|
7.0 |
|
Cash and cash
equivalents |
|
|
|
4.2 |
|
Trade and other
payables < 1 year |
|
|
|
(0.6 |
) |
Accruals < 1
year |
|
|
|
(2.4 |
) |
Income tax |
|
|
|
(0.4 |
) |
Deferred tax |
|
|
|
(1.0 |
) |
Total identifiable
net assets |
|
|
|
12.4 |
|
Goodwill arising on
acquisition |
|
|
|
9.4 |
|
Total |
|
|
|
21.8 |
|
Discharged by: |
|
|
|
|
Cash consideration
paid |
|
|
|
15.6 |
|
Contingent
consideration accrued |
|
|
|
6.2 |
|
Total
consideration |
|
|
|
21.8 |
|
The full exercise to determine the fair value of intangible
assets acquired is still to be completed, thus the above numbers
are provisional. In respect of the acquisitions made in 2017, 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 3 years in
duration and will be settled in cash on their payment date on
achieving the relevant target. The range of the additional
consideration payment is between £nil and £7.0m and the Group has
included £6.2m as contingent consideration related to the
additional consideration, which represents its fair value at the
acquisition date. The fair value of the 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 weighting the probability of a range of
payments to give an estimate of the final obligation.
Further cash consideration was paid in respect of previous
acquisitions of £7.6m.
Detail on the total amount of contingent consideration the Group
has provided as at 30 June 2017 is
disclosed in note 16.
Acquisition related costs
The Group incurred acquisition related costs of £1.1m related to
professional fees paid for due diligence, general professional fees
and legal related costs. These costs have been included in
specific items administrative costs in the Group's consolidated
income statement.
14 Provisions
|
Restructuring provision |
Business exit provision |
Asset services settlement provision |
Claims and litigation provision |
Property provision |
Other |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
At 1 January 2017 |
49.4 |
|
6.0 |
|
23.1 |
|
41.5 |
|
28.0 |
|
12.7 |
|
160.7 |
|
Utilisation |
(15.4 |
) |
(6.7 |
) |
(0.2 |
) |
(6.6 |
) |
(0.6 |
) |
(8.5 |
) |
(38.0 |
) |
Provided/(released) in
the period - net |
— |
|
56.4 |
|
37.5 |
|
0.5 |
|
(1.0 |
) |
(1.5 |
) |
91.9 |
|
Provisions
acquired |
— |
|
— |
|
— |
|
— |
|
(0.1 |
) |
— |
|
(0.1 |
) |
Transfer to
accruals |
— |
|
— |
|
(16.1 |
) |
— |
|
— |
|
— |
|
(16.1 |
) |
Transfer to disposal
group |
(0.1 |
) |
— |
|
— |
|
— |
|
(0.3 |
) |
— |
|
(0.4 |
) |
At 30 June 2017 |
33.9 |
|
55.7 |
|
44.3 |
|
35.4 |
|
26.0 |
|
2.7 |
|
198.0 |
|
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.
Restructuring provision: the provision is in
respect of the cost of the major restructuring activities
undertaken by the Group commencing in the last quarter of
2016. It represents the cost of reducing role count where
there is a constructive obligation created through communication to
affected employees which has crystallised a valid expectation that
roles are at risk. Additionally it reflects the onerous
nature of property lease provisions (net of any sub-letting
opportunity) on a discounted basis, where due to the reduced
requirement for space due to the redundancy programme there is
additional surplus capacity. The provision, due to the tail
of the property lease run-offs, is expected to unwind over 2
years.
Business exit provision: the provision relates to the
cost of exiting businesses through disposal or closure, including
professional fees related to business exits and the costs of
separating the businesses being disposed. Refer to note 5 for
further detail. The provision is expected to unwind over 2
years.
Asset Services settlements:
- Arch Cru: the parties to the CF Arch Cru Funds litigation have
entered into a full and final settlement of the proceedings on
confidential terms.
- Connaught: the potential costs in resolving matters relating to
the Connaught Income Series 1 Fund (“The Fund”), of which Capita
Financial Managers Limited ("CFM") was the Operator until
September 2009, when it was replaced
by an unrelated company as Operator, following which CFM had no
further involvement with the Fund. The Fund went into liquidation
in 2012 and its liquidator brought a claim against both former
Operators, which for its part, the Group settled in 2016 for a sum
of £18.5m.
The Financial Conduct Authority's (FCA) formal review of the
activities of both operators is ongoing. The FCA has recently
indicated to the Company that it is minded to seek a financial
penalty against CFM in connection with its conduct as operator of
the Fund and to seek redress for the substantial losses incurred by
all investors when the Fund collapsed three years after CFM’s
involvement, notwithstanding the amount settled during 2016 as
noted above.
The Company is continuing discussions with the FCA in relation to
its findings in respect of CFM‘s conduct and the associated
potential financial penalty. While these discussions with the
FCA take place, provision at this time has been made for the full
potential amount of the financial penalty and associated legal
costs. The Company has taken a prudent approach to this provision
reflecting the early stages of our discussions with FCA and the
lack of clarity on the basis supporting the FCA's position.
In respect of the redress the Board does not consider that the
Company is liable to pay further sums in addition to the amounts
already paid in respect of the settled claims and therefore no
provision has been made at this time. Based on the
information available to date it is not possible at this stage to
determine what the ultimate outcome of the FCA review might be.
- Capita plc as part of the sale of the Asset Services business
has provided an indemnity against certain legacy claims. The
provisions held, namely the Asset Services settlement provision
which includes provisions for Arch Cru, Connaught and other legacy
claims, have therefore been retained within the Group and not
transferred to held for sale assets. Legacy claims have been
settled post the balance sheet date and as the precise value of
settlement is known, the provision reflects a transfer from
provisions to accruals, the cash settlement of these claims
occurring in July 2017.
Giving due consideration to these claims, the Group has a
provision of £44.3m at 30 June 2017
(31 December 2016: £23.1m).
Claims and litigation provision: in addition to
the Asset Services Settlement provision the Group is exposed to
other claims and litigation. The Group makes a provision when
a claim has been made where it is more probable than not that a
loss might occur. These provisions are reassessed regularly
to ensure that the level of provisioning is consistent with the
claims that have been reported. The range of values attached
to these claims can be significant and where obligations are
probable and estimable, provisions are made representing the
Group's best estimate of the expenditure to be incurred. The Group
robustly defends its position on each claim and they are often
settled for amounts significantly smaller than the initial claim
and may result in no transfer of economic benefits.
In the period 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, which originate
due to the nature of the Group's operations and existing provisions
where more information on the progress of the claim has become
apparent. The Group's exposure to claims is mitigated by
having a number of large insurers providing cover for the Group's
activities, albeit insurance recoveries are only recognised as an
asset at the point the recovery is virtually certain. As at
30 June 2017, £5.0m of such assets
are held on the Group's consolidated balance sheet (31 December 2016: £15.5m). Due to the
nature of these claims the Group can not give an estimate of the
period over which the provision will unwind.
Property provisions: includes a discounted
provision for the difference between the market value of the
property leases acquired in 2011 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 24 years.
Other provision: relates to provisions in respect of
potential claims arising due to the nature of some of the
operations that the Group provides, and an onerous contract
provision. These are likely to unwind over a period of 1 to 3
years.
15 Additional cash flow
information
Operating cash flow
for the 6 months ended 30 June |
|
|
|
|
|
|
2017 |
|
2016 |
|
Notes |
£m |
|
£m |
Cash flows from
operating activities |
|
|
|
|
Operating profit
before interest and taxation from continuing operations |
|
62.6 |
|
|
87.3 |
|
Adjustment for
underlying non-cash items: |
|
|
|
|
Depreciation |
|
33.4 |
|
|
36.0 |
|
Amortisation of
intangible assets (treated as depreciation) |
|
9.9 |
|
|
8.1 |
|
Share based payment
expense |
|
3.5 |
|
|
5.0 |
|
Employee benefits |
|
5.4 |
|
|
(1.8 |
) |
Adjustment for
non-underlying non-cash items: |
|
|
|
|
Accelerated
depreciation on business closure |
5 |
1.7 |
|
|
— |
|
Accelerated
amortisation on business exit |
5 |
6.3 |
|
|
— |
|
Amortisation of
intangible assets recognised on acquisition |
7 |
63.9 |
|
|
72.6 |
|
Contingent
consideration |
7 |
(0.1 |
) |
|
0.6 |
|
Non-underlying
provisions |
14 |
93.4 |
|
|
— |
|
Non-underlying
trading |
|
(0.5 |
) |
|
— |
|
Movement in underlying
provisions - net |
|
(32.3 |
) |
|
0.2 |
|
Net movement in
payables and receivables |
|
(5.6 |
) |
|
147.2 |
|
Cash generated from
continuing operations before non-underlying cash
items1 |
|
241.6 |
|
|
355.2 |
|
Income tax
refunded/(paid) |
|
16.0 |
|
|
(32.0 |
) |
Net interest paid |
|
(28.7 |
) |
|
(29.1 |
) |
Purchase of property,
plant and equipment |
|
(30.5 |
) |
|
(44.5 |
) |
Purchase of intangible
assets |
|
(19.2 |
) |
|
(35.8 |
) |
Free cash flow
before non-underlying items |
|
179.2 |
|
|
213.8 |
|
Non-underlying
trading |
|
0.5 |
|
|
— |
|
Asset Services
insurance recovery received |
|
9.0 |
|
|
— |
|
Business exit costs
paid |
|
(6.7 |
) |
|
(11.3 |
) |
Pension settlement
paid |
|
— |
|
|
(3.3 |
) |
Free cash flow
after non-underlying items |
|
182.0 |
|
|
199.2 |
|
1see cash flow statement
Reconciliation of net cash flow to
movement in net debt
|
|
|
Non-cash flow movements |
|
|
|
Net debt at 1 January 2017
£m |
Cash flow movements £m |
Acquisitions in 2017
£m |
Foreign exchange movements £m |
Fair value changes £m |
Amortisation of bond issue costs £m |
Net debt at 30 June 2017
£m |
|
|
|
|
|
Cash+ |
565.8 |
|
36.0 |
|
— |
|
(3.2 |
) |
— |
|
— |
|
598.6 |
|
|
Loan notes |
(0.3 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
(0.3 |
) |
|
Bonds* |
(1,961.7 |
) |
35.0 |
|
— |
|
(7.6 |
) |
79.9 |
|
(0.6 |
) |
(1,855.0 |
) |
|
Currency swaps in
relation to US $ denominated bonds* |
357.9 |
|
— |
|
— |
|
— |
|
(77.7 |
) |
— |
|
280.2 |
|
|
Interest rate swaps in
relation to GBP denominated bonds* |
7.7 |
|
— |
|
— |
|
— |
|
(1.2 |
) |
— |
|
6.5 |
|
|
Term loan |
(650.0 |
) |
30.0 |
|
— |
|
— |
|
— |
|
— |
|
(620.0 |
) |
|
Finance leases |
(2.3 |
) |
1.8 |
|
— |
|
— |
|
— |
|
— |
|
(0.5 |
) |
|
Total net
liabilities from financing activities |
(2,248.7 |
) |
66.8 |
|
— |
|
(7.6 |
) |
1.0 |
|
(0.6 |
) |
(2,189.1 |
) |
|
Underlying net
debt |
(1,682.9 |
) |
102.8 |
|
— |
|
(10.8 |
) |
1.0 |
|
(0.6 |
) |
(1,590.5 |
) |
|
Fixed rate interest
rate swaps |
(85.1 |
) |
84.6 |
|
— |
|
— |
|
0.5 |
|
— |
|
— |
|
|
Deferred
consideration |
(10.8 |
) |
5.8 |
|
— |
|
— |
|
— |
|
— |
|
(5.0 |
) |
|
|
(1,778.8 |
) |
193.2 |
|
— |
|
(10.8 |
) |
1.5 |
|
(0.6 |
) |
(1,595.5 |
) |
|
+ Cash comprises cash, cash equivalents and
overdrafts. Included in overdrafts on the Group's
consolidated balance sheet are balances totalling £577.3m (2016:
£532.5m) held in the Group's notional cash pools under which the
bank has the right of offset against cash at bank of the same
amount.
* The aggregate bond fair value above of £1,855.0m
(30 June 2016: £1,843.1m) includes
the GBP value of the US$ denominated bonds. 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 swaps are being used to hedge the
exposure to changes in the fair value of GBP denominated bonds. The
sum of these items held at fair value equates to the underlying
value of the Group’s bond debt of £1,568.3m (30 June 2016: £1,491.2m).
In June 2017, the Group repaid
USD$50m of Series A bonds at
maturity, equivalent to £33.8m. Of the Group’s bond debt,
£90.3m matures in the next 12 months and the remainder at various
maturities to 2027. In February 2017,
the Group elected to terminate all of its fixed rate interest rate
swaps. In the period ended 30 June
2017, the Group prepaid £30m on a term loan. Of the
remaining outstanding term loans of £620m, having agreed amendments
and extensions, £520m now matures in September 2018 and £100m matures in May 2019. In addition as at 30 June 2017, the Group has available to it a
committed Revolving Credit Facility of £600m of which £81m matures
in August 2020 and £519m matures in
August 2021. This facility is
available for the Group's immediate use and £nil was drawn down at
30 June 2017.
|
|
|
Non-cash flow movements |
|
|
|
Net debt at 1 January 2016
£m |
Cash flow movements £m |
Acquisitions in 2016
£m |
Foreign exchange movements £m |
Fair value changes £m |
Amortisation of bond issue costs £m |
Net debt at 30 June 2016
£m |
|
|
|
|
|
Cash+ |
85.3 |
|
405.7 |
|
— |
|
8.9 |
|
— |
|
— |
|
499.9 |
|
|
Bonds* |
(1,749.4 |
) |
70.0 |
|
— |
|
(31.1 |
) |
(132.3 |
) |
(0.3 |
) |
(1,843.1 |
) |
|
Currency swaps in
relation to US $ denominated bonds* |
213.9 |
|
— |
|
— |
|
— |
|
128.7 |
|
— |
|
342.6 |
|
|
Interest rate swaps in
relation to GBP denominated bonds* |
6.9 |
|
— |
|
— |
|
— |
|
2.4 |
|
— |
|
9.3 |
|
|
Term loan |
(300.0 |
) |
(500.0 |
) |
— |
|
— |
|
— |
|
— |
|
(800.0 |
) |
|
Finance leases |
(7.0 |
) |
2.4 |
|
(0.8 |
) |
— |
|
— |
|
— |
|
(5.4 |
) |
|
Total net liabilities
from financing activities |
(1,835.6 |
) |
(427.6 |
) |
(0.8 |
) |
(31.1 |
) |
(1.2 |
) |
(0.3 |
) |
(2,296.6 |
) |
|
Underlying net
debt |
(1,750.3 |
) |
(21.9 |
) |
(0.8 |
) |
(22.2 |
) |
(1.2 |
) |
(0.3 |
) |
(1,796.7 |
) |
|
Fixed rate interest
rate swaps |
(67.0 |
) |
— |
|
— |
|
— |
|
(22.8 |
) |
— |
|
(89.8 |
) |
|
Deferred
consideration |
(21.5 |
) |
6.7 |
|
— |
|
— |
|
— |
|
— |
|
(14.8 |
) |
|
|
(1,838.8 |
) |
(15.2 |
) |
(0.8 |
) |
(22.2 |
) |
(24.0 |
) |
(0.3 |
) |
(1,901.3 |
) |
|
16 Financial instruments
Carrying values
and fair values of financial instruments
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 twelve fixed rate bonds totalling £601.0m
(31 December 2016: £593.1m), included
below in the bond value of £1,855.0m (31
December 2016: £1,961.7m), with a carrying value of £601.0m
(31 December 2016: £593.1m) and a
fair value of £632.9m (31 December
2016: £616.9m).
As at 30 June
2017 |
Available-for-sale |
At fair value through the income statement |
Loans and receivables |
Derivatives used for hedging |
Other financial liabilities |
|
Total |
|
£m |
£m |
£m |
£m |
£m |
|
£m |
Financial
assets |
|
|
|
|
|
|
|
Unlisted equity
securities |
2.3 |
|
— |
|
— |
|
— |
|
— |
|
|
2.3 |
|
Investment loan |
— |
|
— |
|
5.0 |
|
— |
|
— |
|
|
5.0 |
|
Investment |
— |
|
— |
|
4.0 |
|
— |
|
— |
|
|
4.0 |
|
Deferred consideration
receivable |
— |
|
— |
|
14.0 |
|
— |
|
— |
|
|
14.0 |
|
Insurance asset
recoverable |
— |
|
— |
|
5.0 |
|
— |
|
— |
|
|
5.0 |
|
Cash flow hedges |
— |
|
— |
|
— |
|
8.7 |
|
— |
|
|
8.7 |
|
Non-designated foreign
exchange forwards and swaps |
— |
|
7.5 |
|
— |
|
— |
|
— |
|
|
7.5 |
|
Interest rate swaps in
relation to GBP denominated bonds |
— |
|
— |
|
— |
|
6.5 |
|
— |
|
|
6.5 |
|
Currency swaps in
relation to USD denominated bonds |
— |
|
— |
|
— |
|
285.8 |
|
— |
|
|
285.8 |
|
|
2.3 |
|
7.5 |
|
28.0 |
|
301.0 |
|
— |
|
|
338.8 |
|
Financial
liabilities |
|
|
|
|
|
|
|
Overdrafts |
— |
|
— |
|
— |
|
— |
|
577.3 |
|
|
577.3 |
|
Unsecured loan
notes |
— |
|
— |
|
— |
|
— |
|
0.3 |
|
|
0.3 |
|
Bonds |
— |
|
— |
|
— |
|
— |
|
1,855.0 |
|
|
1,855.0 |
|
Term loan |
— |
|
— |
|
— |
|
— |
|
620.0 |
|
|
620.0 |
|
Cash flow hedges |
— |
|
— |
|
— |
|
3.1 |
|
— |
|
|
3.1 |
|
Non-designated foreign
exchange forwards and swaps |
— |
|
1.7 |
|
— |
|
— |
|
— |
|
|
1.7 |
|
Foreign
exchange swaps held for foreign net investment |
— |
|
— |
|
— |
|
0.1 |
|
— |
|
|
0.1 |
|
Currency swaps in
relation to USD denominated bonds
|
— |
|
— |
|
— |
|
5.6 |
|
— |
|
|
5.6 |
|
Contingent
consideration |
— |
|
— |
|
— |
|
— |
|
27.0 |
|
|
27.0 |
|
Deferred
consideration |
— |
|
— |
|
— |
|
— |
|
5.0 |
|
|
5.0 |
|
Obligations under
finance leases |
— |
|
— |
|
— |
|
— |
|
0.5 |
|
|
0.5 |
|
Public sector
subsidiary partnership payment |
— |
|
— |
|
— |
|
— |
|
55.1 |
|
|
55.1 |
|
Put options of
non-controlling interests |
— |
|
— |
|
— |
|
— |
|
107.8 |
|
|
107.8 |
|
Dividends
declared |
— |
|
— |
|
— |
|
— |
|
137.1 |
|
|
137.1 |
|
|
— |
|
1.7 |
|
— |
|
8.8 |
|
3,385.1 |
|
|
3,395.6 |
|
As at 31 December
2016 |
Available-for-sale |
At fair value through the income statement |
Loans and receivables |
Derivatives used for hedging |
Other financial liabilities |
|
Total |
|
£m |
£m |
£m |
£m |
£m |
|
£m |
Financial assets: |
|
|
|
|
|
|
|
Available-for-sale
assets |
5.6 |
|
— |
|
— |
|
— |
|
— |
|
|
5.6 |
|
Investment loan |
— |
|
— |
|
5.0 |
|
— |
|
— |
|
|
5.0 |
|
Investment |
— |
|
— |
|
4.0 |
|
— |
|
— |
|
|
4.0 |
|
Deferred
consideration |
— |
|
— |
|
17.0 |
|
— |
|
— |
|
|
17.0 |
|
Insurance asset
recoverable |
— |
|
— |
|
15.5 |
|
— |
|
— |
|
|
15.5 |
|
Cash flow hedges |
— |
|
— |
|
— |
|
7.0 |
|
— |
|
|
7.0 |
|
Non-designated foreign
exchange forwards and swaps |
— |
|
7.4 |
|
— |
|
— |
|
— |
|
|
7.4 |
|
Interest rate swaps in
relation to GBP denominated bonds |
— |
|
— |
|
— |
|
7.7 |
|
— |
|
|
7.7 |
|
Currency swaps in
relation to USD denominated bonds |
— |
|
— |
|
— |
|
361.0 |
|
— |
|
|
361.0 |
|
|
5.6 |
|
7.4 |
|
41.5 |
|
375.7 |
|
— |
|
|
430.2 |
|
Financial
liabilities: |
|
|
|
|
|
|
|
Overdraft |
— |
|
— |
|
— |
|
— |
|
532.5 |
|
|
532.5 |
|
Unsecured loan
notes |
— |
|
— |
|
— |
|
— |
|
0.3 |
|
|
0.3 |
|
Bonds |
— |
|
— |
|
— |
|
— |
|
1,961.7 |
|
|
1,961.7 |
|
Term loan |
— |
|
— |
|
— |
|
— |
|
650.0 |
|
|
650.0 |
|
Cash flow hedges |
— |
|
— |
|
— |
|
4.2 |
|
— |
|
|
4.2 |
|
Non-designated foreign
exchange forwards and swaps |
— |
|
3.3 |
|
— |
|
— |
|
— |
|
|
3.3 |
|
Foreign exchange swaps
held for foreign net investment |
— |
|
— |
|
— |
|
0.1 |
|
— |
|
|
0.1 |
|
Currency swaps in
relation to USD denominated bonds
|
— |
|
— |
|
— |
|
3.1 |
|
— |
|
|
3.1 |
|
Contingent
consideration |
— |
|
— |
|
— |
|
— |
|
23.0 |
|
|
23.0 |
|
Deferred
consideration |
— |
|
— |
|
— |
|
— |
|
10.8 |
|
|
10.8 |
|
Obligations under
finance leases |
— |
|
— |
|
— |
|
— |
|
2.3 |
|
|
2.3 |
|
Public sector
subsidiary partnership payment |
— |
|
— |
|
— |
|
— |
|
58.8 |
|
|
58.8 |
|
Put options of
non-controlling interests |
— |
|
— |
|
— |
|
— |
|
115.9 |
|
|
115.9 |
|
Fixed rate interest
rate swaps |
— |
|
85.1 |
|
— |
|
— |
|
— |
|
|
85.1 |
|
|
— |
|
88.4 |
|
— |
|
7.4 |
|
3,355.3 |
|
|
3,451.1 |
|
The fair value of financial instruments has been calculated by
discounting the expected future cash flows at prevailing interest
rates, except for unlisted equity securities and investment loans.
The valuation models incorporate various inputs including foreign
exchange spot and forward rates and interest rate curves. Unlisted
equity securities and investment loans are held at amortised cost.
The Group enters into derivative financial instruments with
multiple counterparties, all of which are financial institutions
with investment grade credit ratings.
Fair value hierarchy
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities
Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
As at 30 June 2017, the Group held
the following financial instruments measured at fair value:
|
30 June 2017 |
31 December 2016 |
|
£m |
£m |
Assets measured at
fair value |
|
|
Cash flow hedges |
8.7 |
|
7.0 |
|
Non-designated foreign
exchange forwards and swaps |
7.5 |
|
7.4 |
|
Interest rate swaps in
relation to GBP denominated bonds |
6.5 |
|
7.7 |
Currency swaps in
relation to USD denominated bonds |
285.8 |
|
361.0 |
|
308.5 |
|
383.1 |
Liabilities
measured at fair value |
|
|
Bonds |
1,254.0 |
|
1,368.6 |
Cash flow hedges |
3.1 |
|
4.2 |
Non-designated foreign
exchange forwards and swaps |
1.7 |
|
3.3 |
Foreign
exchange swaps held for foreign net investment |
0.1 |
|
0.1 |
|
Currency swaps in
relation to USD denominated bonds |
5.6 |
|
3.1 |
Fixed rate interest
rate swaps |
— |
|
85.1 |
Public sector
subsidiary partnership payment |
55.1 |
|
58.8 |
Put options of
non-controlling interests |
107.8 |
|
115.9 |
Contingent
consideration |
27.0 |
|
23.0 |
|
1,454.4 |
|
1,662.1 |
During both periods the Group only had Level 2 assets or
liabilities measured at fair value apart from contingent
consideration, the public sector subsidiary partnership payment and
the put options of non-controlling interests which are Level 3
liabilities. It is the Group’s policy to recognise transfers
between levels of the fair value hierarchy at the end of the
reporting period during which the transfer occurred. During the 6
months ended 30 June 2017, 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.
Contingent consideration arises in business acquisitions where
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 3
years in duration and will be settled in cash on their
payment date on achieving the performance criteria. The Group makes
provision for such contingent consideration for each acquisition
based on an assessment of 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 weighting the probability
of a range of payments to give an estimate of the final
obligation. A sensitivity analysis was performed on the
expected contingent consideration of £27.0m. The sensitivity
analysis performed adjusted the probability of payment of the
contingent amounts. A 10% increase in the probability of contingent
consideration being paid results in an increase in potential
contingent consideration of £3.9m. A 10% decrease in the
probability of the contingent consideration being paid results in a
decrease in potential contingent consideration of £3.3m.
The public sector subsidiary partnership payment liability is an
estimate of the annual preferred payments to be made by Axelos
Limited (the partnership formed with the Cabinet Office) to the
Cabinet Office in years 2017 to 2023. This payment is funded by
Axelos Limited and is contingent on profits. The fair value has
been derived by discounting the expected payment at the Group cost
of debt to arrive at its present value. If the discount rate was to
increase/decrease by 1% the present value would decrease/increase
by £2.0m.
The put options of the non-controlling interests are measured at
amortised cost based on the expected redemption value of the shares
that will be paid in cash by the Group. This value is
determined by reference to the expected date of exercise of the
options, which is then discounted to arrive at a present
value. The sensitivity of the valuation to movements in
both the discount rate and the cash flows that have been used to
calculate it, are as follows: a 10% increase/decrease in the
earnings potential of the business results in a £10.7m
increase/decrease in the valuation; a 1% increase/decrease in the
discount rate applied to the valuation results in a £2.0m
decrease/£2.0m increase in the valuation.
The following table shows the reconciliation from the opening
balances to the closing balances for level 3 fair values:
|
Contingent consideration |
Subsidiary partnership payment |
Put options of
non-controlling interests |
|
£m |
£m |
£m |
At 1 January
2017 |
23.0 |
|
58.8 |
|
115.9 |
|
Arising from business
combinations in the period |
6.2 |
|
— |
|
— |
|
Profit and loss
movement - administrative expenses |
(0.1 |
) |
— |
|
— |
|
Discount unwind - net
finance costs |
— |
|
1.0 |
|
— |
|
Movement of put
options recognised in equity |
— |
|
— |
|
(8.1 |
) |
Utilised |
(2.1 |
) |
(4.7 |
) |
— |
|
At 30 June
2017 |
27.0 |
|
55.1 |
|
107.8 |
|
17 Capital commitments
At 30 June 2017, amounts
contracted for but not provided in the financial statements for the
acquisition of property, plant and equipment amounted to £7.5m
(31 December 2016: £10.0m).
18 Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Compensation of key management personnel (including Directors of
the parent company):
|
6 months 30 June 2017 |
6 months
30 June 2016 |
|
£m |
£m |
Short term employment
benefits |
4.2 |
3.5 |
Post employment
benefits |
0.2 |
0.1 |
Share based
payments |
0.4 |
2.4 |
|
4.8 |
|
6.0 |
|
|
|
|
Gains on share options exercised in the period by key management
personnel totalled £0.4m (30 June
2016: £9.9m).
The following companies are substantial shareholders in the
Company and therefore a related party of the Company (in each case,
for the purposes of the Listing Rules of the UK Listing Authority).
The number of shares held on 15 September
2017 was as below:
Shareholder |
No.
of shares |
% of
voting rights |
Veritas Asset
Management LLP |
92,861,962 |
13.91% |
Invesco Asset
Management |
59,067,929 |
8.85% |
Woodford Investment
Management LLP |
56,727,196 |
8.50% |
The Capital Group
Companies, Inc. |
52,017,183 |
7.79% |
Baillie Gifford &
Co Limited |
48,627,828 |
7.29% |
BlackRock, Inc. |
47,468,674 |
7.11% |
T. Rowe Price |
25,441,630 |
3.81% |
Marathon Asset
Management LLP |
22,093,405 |
3.31% |
19 Contingent liabilities
The Group has provided, through the normal course of its
business, performance bonds and bank guarantees of £91.1m
(31 December 2016: £91.7m).
One of the Group’s major life and pensions clients is conducting
a strategic review, the outcome of which is uncertain but could
result in the continuation of the contract with amended terms or
the termination of the contract. If the operation is
terminated, the Group will incur associated costs, including the
costs of transferring the service provided, and the impairment of
associated contract assets, off-set by the release of contract
liabilities. As the outcome of the client's review is
uncertain, the Group has not made any provision for a future
outflow of funds or for any asset impairments that might result
from the eventual outcome. The review is expected to conclude
in 2017 and any outflow of funds will likely be in late 2017 or
early 2018.
Further narrative on contingent liabilities, specifically in
regard to the Connaught Fund matter, can be seen in note 14.
INDEPENDENT REVIEW REPORT TO CAPITA
PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which
comprises the condensed consolidated income statement, condensed
consolidated statement of comprehensive income, condensed
consolidated balance sheet, condensed consolidated statement of
changes in equity, condensed consolidated cash flow statement and
the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended
30 June 2017 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU and the Disclosure Guidance and
Transparency Rules (“the DTR”) of the UK’s Financial Conduct
Authority (“the UK FCA”).
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity
issued by the Auditing Practices Board for use in the UK. A
review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit
opinion.
Whilst the company has previously produced a half-yearly report
containing a condensed set of financial statements, those financial
statements have not previously been subject to a review by an
independent auditor. As a consequence, the review procedures set
out above have not been performed in respect of the comparative
period for the six months ended 30 June
2016.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are
responsible for preparing the half-yearly financial report in
accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to
whom we owe our responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this 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
for our review work, for this report, or for the conclusions we
have reached.
Robert Brent
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
20 September 2017
Statement of Directors’
responsibilities
The Directors confirm, to the best of their knowledge, that this
condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the Half Year Management Report includes a fair review of the
information required by Rules 4.2.4, 4.2.7 and 4.2.8 of the
Disclosure and Transparency Rules of the United Kingdom Financial
Conduct Authority.
The names and functions of the Directors of Capita plc are as
listed in the Group’s Annual Report for 2016. A list of current
Directors is maintained on the Group website: www.capita.com.
By order of the Board
A N Greatorex
Interim Chief Executive & Group Finance Director
20 September 2017
Appendix 1 - Alternative Performance
Measures (APMs) used in the half yearly report for the 6 months to
30 June 2017
The Group presents various APMs as the Directors believe that
these are useful for users of the financial statements in helping
to provide a balanced view of, and relevant information on, the
Group’s financial performance, position and cash flows. These APMs
are mainly measures which disclose the ‘underlying’ performance of
the Group excluding specific items which are regarded as
non-underlying.
The Group separately presents intangible amortisation, asset
impairments, acquisition contingent consideration movements,
acquisition expenses, the financial impact of business exits or
businesses in the process of being exited, movements in the mark to
market valuation of certain financial instruments and other
specific items in the income statement which, in the Directors’
judgement, need to be disclosed separately (see notes 5, 6 and 7)
by virtue of their nature, size and incidence in order for users of
the financial statements to obtain a proper understanding of the
financial information and the underlying performance of the
business.
In addition, the Group presents other APMs including Key
Performance Indicators (KPIs) such as return on capital employed
and interest cover by which we monitor our performance and others
such as organic and acquisition revenue growth which provide useful
information to users which is not otherwise readily available from
the financial statements.
APMs
presented |
|
2017 |
2016 (restated) |
%
change |
|
Source or
calculation |
Revenue |
|
|
|
|
|
|
Total revenue as
reported |
|
£2,127.3 |
m |
£2,155.9 |
m |
(1.3)% |
|
Line item in income
statement |
2016 disposals
reported H1 2016 |
|
£— |
m |
(£24.6 |
m) |
|
|
Line item in income
statement |
2017 disposals |
|
(£61.4 |
m) |
£— |
m |
|
|
|
Underlying
revenue |
|
£2,065.9 |
m |
£2,131.3 |
m |
(3.1)% |
|
|
2016 disposals
reclassed from business exit in H2 |
|
£— |
m |
£16.5 |
m |
|
|
|
2017 disposals |
|
£— |
m |
(£101.9 |
m) |
|
|
Line item in income
statement |
Underlying revenue
on a like-for-like basis |
|
£2,065.9 |
m |
£2,045.9 |
m |
1.0% |
|
Underlying revenue
excluding businesses exited |
2016 acquisitions |
|
(24.0 |
) |
£0.0 |
m |
(1.2)% |
|
Additional
contribution in H1 2017 of acquisitions acquired in 2016 |
2017 acquisitions |
|
(6.5 |
) |
£0.0 |
m |
(0.3)% |
|
Contribution in H1
2017 of acquisitions acquired in 2017 |
Underlying organic
revenue |
|
£2,035.4 |
m |
£2,045.9 |
m |
(0.5)% |
|
Underlying revenue
excluding businesses exited |
Profit |
|
|
|
|
|
|
Operating profit
from continuing operations as reported |
|
£62.6 |
m |
£87.3 |
m |
(28.3)% |
|
Line item in income
statement |
Business exit |
|
£63.9 |
m |
£— |
m |
|
|
Line item in income
statement |
Specific items |
|
£101.9 |
m |
£78.7 |
m |
|
|
Line item in income
statement |
Underlying
operating profit from continuing operations |
|
£228.4 |
m |
£166.0 |
m |
37.6% |
|
Line item in income
statement |
Businesses held for
sale like-for-like comparison |
|
n/a |
(£5.6 |
m) |
|
|
Businesses reported in
H1 2016 as underlying reported in H1 2017 as non-underlying |
Like-for-like
operating profit |
|
£228.4m |
£160.4 |
m |
42.4% |
|
Underlying operating
profit excluding businesses exited |
Underlying profit
before tax from continuing operations |
|
£195.0 |
m |
£133.7 |
m |
45.8% |
|
Line item on income
statement |
Underlying
operating margin |
|
11.1 |
% |
7.8 |
% |
|
|
Calculation
(underlying operating profit/underlying revenue) |
Like-for-like
operating margin |
|
11.2 |
% |
7.8 |
% |
340
b.p. |
|
Calculation
(like-for-like operating profit/like-for-like underlying
revenue) |
Profit before tax
from continuing operations as reported |
|
£27.6 |
m |
£37.2 |
m |
(25.8)% |
|
Line item in income
statement |
Underlying profit
before tax from continuing operations |
|
£195.0 |
m |
£133.7 |
m |
45.8% |
|
Line item in income
statement |
Basic
earnings per share from continuing operations as reported |
|
(0.11)p |
4.66p |
(102.4)% |
|
Line item in income
statement |
Underlying earnings
per share |
|
22.92p |
16.12p |
42.2% |
|
Line item in income
statement and note 9 |
Cash flow |
|
|
|
|
|
|
Cash generated by
continuing operations before non-underlying cash items |
|
£241.6m |
£355.2 |
m |
(32.0)% |
|
Line item in note 15 –
additional cash flow information |
Underlying free
cash flow from continuing operations |
|
£179.2m |
£213.8m |
(16.2)% |
|
Line item in note 15 –
additional cash flow information |
Free cash flow
after non-underlying items from continuing operations |
|
£182.0m |
£199.2m |
(8.6)% |
|
Line item in note 15 –
additional cash flow information |
APMs presented
(continued) |
|
2017 |
2016
(as reported† ) |
|
Source or
calculation |
Gearing |
|
|
|
|
|
Annualised underlying
EBIT |
|
£482.8 |
m |
£667.8 |
m |
|
This is underlying
operating profit. To arrive at an annualised figure, HY1 results
are added to the prior year's HY2 results which can be deduced by
subtracting the prior year's HY1 results from the FY results. |
Deduct:
non-controlling interest |
|
(£14.8 |
m) |
(£12.6 |
m) |
|
Annualised result from
income statement before tax charge |
Deduct: acquisition
costs |
|
(£4.6 |
m) |
(£13.0 |
m) |
|
Annualised result from
line item in note 7 |
Add back: share based
payment expense |
|
£— |
m |
£11.0 |
m |
|
Annualised result from
line item in note 15 - expense only |
Add back: disposal of
non-current assets |
|
£0.8 |
m |
(£1.5 |
m) |
|
Annualised results
from line item in note 15 |
Add back: non-current
service pension charge |
|
£2.8 |
m |
£2.4 |
m |
|
|
Annualised adjusted
EBIT |
a |
£467.0 |
m |
£654.1 |
m |
|
|
Add back:
pre-acquisition underlying profit |
|
£1.4 |
m |
£17.8 |
m |
|
|
Annualised adjusted
EBIT |
|
£468.4 |
m |
£671.9 |
m |
|
|
Depreciation and
amortisation |
|
£99.5 |
m |
£95.3 |
m |
|
Line items per cash
flow |
Annualised adjusted
EBITDA |
b |
£567.9 |
m |
£767.2 |
m |
|
|
Underlying net
interest charge |
|
£33.4 |
m |
£32.3 |
m |
|
Line item in income
statement |
Interest charge
attributable to pensions |
|
(£4.7 |
m) |
(£3.2 |
m) |
|
Line item in note
8 |
Borrowing
costs |
|
£28.7 |
m |
£29.1 |
m |
|
Calculation
(underlying interest charge excluding pension interest) |
Annualised
underlying interest charge |
c |
£59.6 |
m |
£55.5 |
m |
|
To arrive at an
annualised figure, HY1 results are added to the prior year's HY2
results which can be deduced by subtracting the prior year's HY1
results from the FY results. |
Equity attributable to
shareholders |
d |
£408.2 |
m |
£679.3 |
m |
|
Last reported December
shareholders funds |
15% of equity
attributable to shareholders |
e |
£61.2 |
m |
£101.9 |
m |
|
Calculation (d x 15%),
minimum £nil |
Contingent obligations
under bonds and guarantees |
f |
£91.1m |
£88.1m |
|
|
|
g |
£29.9 |
m |
£0.0m |
|
If f>e, the
difference is treated as debt |
Net debt |
h |
1,595.5 |
m |
£1,901.3 |
m |
|
Line item in note
13 |
Adjusted net
debt |
i |
£1,625.4 |
m |
£1,901.3 |
m |
|
Calculation (g +
h) |
Annualised underlying
interest cover |
|
7.8 |
x |
11.8 |
x |
|
Calculation (a /
c) |
Annualised adjusted
net debt to Annualised adjusted EBITDA ratio |
|
2.86 |
x |
2.48 |
x |
|
Calculation i /
b) |
|
|
|
|
|
† Prior
period debt covenants are not required to be restated |
|
|
|
(Dec 16 restated) |
|
|
Return on capital
employed (ROCE) |
|
|
|
|
|
Underlying operating
profit |
A |
£457.0 |
£394.6 |
|
Annualised underlying
operating profit, per Note 4 |
Tax rate |
B |
18.5 |
% |
18.5 |
% |
|
|
Tax |
C = A x
B |
£84.5m |
£73.0m |
|
Calculation
(underlying profit multiply tax rate) |
Underlying operating
profit after tax |
D = A -
C |
£372.5m |
£321.6m |
|
Calculation
(underlying profit less tax) |
Current period net
assets |
E |
(£668.3m) |
(£552.9m) |
|
Line item in balance
sheet |
Current period
underlying net debt |
F |
£1,590.5m |
£1,682.9m |
|
Line item in note 15 -
additional cash flow information |
Adjustments to capita
employed |
G |
£1,385.9m |
£1,226.8m |
|
Includes post-tax
impact of accumulated acquired intangible amortisation, fixed rate
swaps, put options and pensions |
|
H =
E+F+G |
£2,308.1m |
£2,356.8m |
|
Used in 2017 average
capital employed |
Less acquisition spend
in the period |
I |
(£19.8m) |
(£89.5m) |
|
Consideration paid -
cash acquired + debt acquired, per note 13 |
Current period capital
employed |
M1 = I H |
£2,288.3m |
£2,267.3m |
|
|
Prior period net
assets |
J |
(£337.3m) |
(£189.0m) |
|
|
Prior period
underlying net debt |
K |
£1,796.7m |
£1,750.3m |
|
|
Comparative prior
period adjustments |
L |
£1,129.9m |
£1,046.2m |
|
Includes post-tax
impact of accumulated acquired intangible amortisation, fixed rate
swaps, put options and pensions |
Prior period capital
employed |
M2 = J+K+L |
£2,589.3m |
£2,607.5m |
|
|
Average capital
employed pre-acquisitions |
N =
(M1+M2)/2 |
£2,438.8m |
£2,437.4m |
|
|
Weighted average
acquisition spend in the period |
O |
£12.8m |
£59.7m |
|
Pro-rata no. of months
post-acquisition profit |
Average capital
employed |
P =
N+O |
£2,451.6m |
£2,497.1m |
|
|
ROCE |
Q = D /
P |
15.2 |
% |
12.9 |
% |
|
|
Appendix 2 - Financial statements
restatement under IFRS 15
The Group early adopted IFRS 15 Revenue from Contracts with
Customers ("IFRS 15") on 1 January
2017 using the full retrospective method. This appendix
details the Group's new accounting policy for revenue and shows the
impact of the adoption of IFRS 15 on the Group’s primary financial
statements.
The cumulative effect of the adoption of IFRS 15 has resulted in
a decrease in net assets of £942.3 million as at 1 January 2016 (31
December 2016: £1,036.3million). This reflects an
important change in accounting policy as the Group moves from one
based predominantly on percentage of completion revenue recognition
to a methodology that is focused on aligning revenue recognition to
the delivery of solutions and value to its customers.
Accounting policy
for revenue
The Group generates revenue largely in the UK and Europe.
The Group operates a number of diverse businesses and
accordingly applies a variety of methods for revenue recognition,
based on the principles set out in IFRS 15. Many of the
contracts entered into are long term and complex in nature given
the breadth of solutions the Group offers.
The revenue and profits recognised in any period are based on
the delivery of performance obligations and an assessment of when
control is transferred to the customer.
In determining the amount of revenue and profits to record, and
related balance sheet items (such as contract fulfilment assets,
capitalisation of costs to obtain a contract, trade receivables,
accrued income and deferred income) to recognise in the period,
management is required to form a number of key judgements and
assumptions. This includes an assessment of the costs the Group
incurs to deliver the contractual commitments and whether such
costs should be expensed as incurred or capitalised. These
judgements are inherently subjective and may cover future events
such as the achievement of contractual milestones, performance KPIs
and planned cost savings. In addition, for certain contracts, key
assumptions are made concerning contract extensions and amendments,
as well as opportunities to use the contract developed systems and
technologies on other similar projects.
Revenue is recognised either when the performance obligation in
the contract has been performed (so 'point in time' recognition) or
'over time' as control of the performance obligation is transferred
to the customer.
For all contracts, the Group determines if the arrangement with
a customer creates enforceable rights and obligations. This
assessment results in certain Master Service Agreements (‘MSA’s’)
not meeting the definition of a contract under IFRS 15 and as such
the individual call-off agreements, linked to the MSA, are treated
as individual contracts.
The Group enters into contracts which contain extension periods,
where either the customer or both parties can choose to extend the
contract or there is an automatic annual renewal, and/or
termination clauses that could impact the actual duration of the
contract. Judgement is applied to assess the impact that
these clauses have when determining the appropriate contract
term. The term of the contract impacts both the period over
which revenue from performance obligations may be recognised and
the period over which contract fulfilment assets and capitalised
costs to obtain a contract are expensed.
For contracts with multiple components to be delivered such as
transformation, transitions and the delivery of outsourced
services, management applies judgement to consider whether those
promised goods and services are (i) distinct - to be accounted for
as separate performance obligations; (ii) not distinct - to be
combined with other promised goods or services until a bundle is
identified that is distinct or (iii) part of a series of distinct
goods and services that are substantially the same and have the
same pattern of transfer to the customer.
At contract inception the total transaction price is estimated,
being the amount to which the Group expects to be entitled and has
rights to under the present contract. This includes an
assessment of any variable consideration where the Group's
performance may result in additional revenues based on the
achievement of agreed KPIs. Such amounts are only included based on
the expected value or the most likely outcome method, and only to
the extent that it is highly probable that no revenue reversal will
occur.
The transaction price does not include estimates of
consideration resulting from change orders for additional goods and
services unless these are agreed.
Once the total transaction price is determined, the Group
allocates this to the identified performance obligations in
proportion to their relative stand-alone selling prices and
recognises revenue when (or as) those performance obligations are
satisfied. The Group infrequently sells standard products
with observable standalone prices due to the specialised services
required by customers and therefore the Group applies judgement to
determine an appropriate standalone selling price. More frequently,
the Group sells a customer bespoke solution, and in these cases the
Group typically uses the expected cost plus margin or a
contractually stated price approach to estimate the standalone
selling price of each performance obligation.
The Group may offer price step downs during the life of a
contract, but with no change to the underlying scope of services to
be delivered. In general, any such variable consideration,
price step down or discount is included in the total transaction
price to be allocated across all performance obligations unless it
relates to only one performance obligation in the contract.
For each performance obligation, the Group determines if revenue
will be recognised over time or at a point in time. Where the Group
recognises revenue over time for long term contracts, this is in
general due to the Group performing and the customer simultaneously
receiving and consuming the benefits provided over the life of the
contract.
For each performance obligation to be recognised over time, the
Group applies a revenue recognition method that faithfully depicts
the Group’s performance in transferring control of the goods or
services to the customer. This decision requires assessment of the
real nature of the goods or services that the Group has promised to
transfer to the customer. The Group applies the relevant
output or input method consistently to similar performance
obligations in other contracts.
When using the output method the Group recognises revenue on the
basis of direct measurements of the value to the customer of the
goods and services transferred to date relative to the remaining
goods and services under the contract. Where the output method is
used, in particular for long term service contracts where the
series guidance is applied (see below for further details), the
Group often uses a method of time elapsed which requires minimal
estimation. Certain long term contracts use output methods
based upon estimation of number of users, level of service activity
or fees collected.
If performance obligations in a contract do not meet the over
time criteria, the Group recognises revenue at a point in time (see
below for further details).
The Group disaggregates revenue from contracts with customers by
contract type, as management believe this best depicts how the
nature, amount, timing and uncertainty of the Group’s revenue and
cash flows are affected by economic factors:
Contract term
longer than 2 years
The Group provides a range of services in the majority of its
reportable segments under customer contracts with a duration of
more than two years.
The nature of contracts or performance obligations categorised
within this revenue type is diverse and includes (i) long term
outsourced service arrangements in the public and private sectors;
and (ii) active software licence arrangements (see definition
below).
The service contracts in this category include contracts with
either a single or multiple performance obligations.
The Group considers that the services provided meet the
definition of a series of distinct goods and services as they are
(i) substantially the same and (ii) have the same pattern of
transfer (as the series constitutes services provided in distinct
time increments (e.g., daily, monthly, quarterly or annual
services)) and therefore treats the series as one performance
obligation. Even if the underlying activities performed by the
Group to satisfy a promise vary significantly throughout the day
and from day to day, that fact, by itself, does not mean the
distinct goods or services are not substantially the same.
For the majority of long service contracts with customers in this
category, the Group recognises revenue using the output method as
it best reflects the nature in which the Group is transferring
control of the goods or services to the customer.
Active software licences are those where the Group has a
continuing involvement after the sale or transfer of control to the
customer, which significantly affects the intellectual property to
which the customer has rights. The Group is in a majority of cases
responsible for any maintenance, continuing support, updates and
upgrades and accordingly the sale of the initial software is not
distinct. The Group’s accounting policy for licences is discussed
in more detail below.
Over time service
with contract length less than 2 years
The nature of contracts or performance obligations categorised
within this revenue type is diverse and includes (i) short term
outsourced service arrangements in the public and private sectors;
and (ii) software maintenance contracts.
The Group has assessed that maintenance and support (i.e.
on-call support, remote support) for software licences is a
performance obligation that can be considered capable of being
distinct and separately identifiable in a contract if the customer
has a passive licence. These recurring services are substantially
the same as the nature of the promise is for the Group to 'stand
ready' to perform maintenance and support when required by the
customer. Each day of standing ready is then distinct from each
following day and is transferred in the same pattern to the
customer.
Transactional
(Point in time) contracts
The Group delivers a range of goods or services in all
reportable segments that are transactional services for which
revenue is recognised at the point in time when control of the
goods or services has transferred to the customer. This may
be at the point of physical delivery of goods and acceptance by a
customer or when the customer obtains control of an asset or
service in a contract with customer-specified acceptance
criteria.
The nature of contracts or performance obligations categorised
within this revenue type is diverse and includes (i) provision of
IT hardware goods; (ii) passive software licence agreements; (iii)
commission received as agent from the sale of third party
software; and (iv) fees received in relation to delivery of
professional services.
Passive software licences are licences which have significant
stand-alone functionality and the contract does not require, and
the customer does not reasonably expect, the Group to undertake
activities that significantly affect the licence. Any ongoing
maintenance or support services for passive licences are likely to
be separate performance obligations. The Group’s accounting
policy for licences is discussed in more detail below.
Contract
modifications
The Group’s contracts are often amended for changes in contract
specifications and requirements. Contract modifications exist when
the amendment either creates new or changes the existing
enforceable rights and obligations. The effect of a contract
modification on the transaction price and the Group’s measure of
progress for the performance obligation to which it relates, is
recognised as an adjustment to revenue in one of the following
ways:
- prospectively as an additional separate contract;
- prospectively as a termination of the existing contract and
creation of a new contract;
- as part of the original contract using a cumulative catch up;
or
- as a combination of b) and c).
For contracts for which the Group has decided there is a series
of distinct goods and services that are substantially the same and
have the same pattern of transfer where revenue is recognised over
time, the modification will always be treated under either a) or
b). d) may arise when a contract has a part termination and a
modification of the remaining performance obligations.
The facts and circumstances of any contract modification are
considered individually as the types of modifications will vary
contract by contract and may result in different accounting
outcomes.
Judgement is applied in relation to the accounting for such
modifications where the final terms or legal contracts have not
been agreed prior to the period end as management need to determine
if a modification has been approved and if it either creates new or
changes existing enforceable rights and obligations of the parties.
Depending upon the outcome of such negotiations, the timing and
amount of revenue recognised may be different in the relevant
accounting periods. Modification and amendments to contracts
are undertaken via an agreed formal process. For
example, if a change in scope has been approved but the
corresponding change in price is still being negotiated, management
use their judgement to estimate the change to the total transaction
price. Importantly any variable consideration is only
recognised to the extent that it is highly probably that no revenue
reversal will occur.
Principal versus
agent
The Group has arrangements with some of its customers whereby it
needs to determine if it acts as a principal or an agent as more
than one party is involved in providing the goods and services to
the customer. The Group acts as a principal if it controls a
promised good or service before transferring that good or service
to the customer. The Group is an agent if its role is to arrange
for another entity to provide the goods or services. Factors
considered in making this assessment are most notably the
discretion the Group has in establishing the price for the
specified good or service, whether the Group has inventory risk and
whether the Group is primarily responsible for fulfilling the
promise to deliver the service or good.
This assessment of control requires judgement in particular in
relation to certain service contracts. An example, is the
provision of certain recruitment and learning services where the
Group may be assessed to be agent or principal dependent upon the
facts and circumstances of the arrangement and the nature of the
services being delivered.
Where the Group is acting as a principal, revenue is recorded on
a gross basis. Where the Group is acting as an agent revenue is
recorded at a net amount reflecting the margin earned.
Licences
Software licences delivered by the Group can either be right to
access (‘active’) or right to use (‘passive’) licences. Active
licences are licences which require continuous upgrade and updates
for the software to remain useful, all other licences are treated
as passive licences. The assessment of whether a licence is
active or passive involves judgement. The key determinant of
whether a licence is active is whether the Group is required to
undertake activities that significantly affect the licensed
intellectual property (or the customer has a reasonable expectation
that it will do so) and the customer is, therefore, exposed to
positive or negative impacts resulting from those changes.
When software upgrades are sold as part of the software licence
agreement (i.e. software upgrades are promised to the customer),
the Group applies judgement to assess whether the software upgrade
is distinct from the licence (i.e. a separate performance
obligation). If the upgrade is considered fundamental to the
ongoing use of the software by the customer, the upgrades are not
considered distinct and not accounted for as a separate performance
obligation.
The Group considers for each contract that includes a separate
licence performance obligation all the facts and circumstances in
determining whether the licence revenue is recognised over time or
at a point in time from the go live date of the licence.
Contract related
assets and liabilities
As a result of the contracts which the Group enters into
with its customers, a number of different assets and liabilities
are recognised on the Group’s balance sheet. These include but are
not limited to:
• Property, plant and equipment*
• Intangible assets*
• Contract fulfilment assets^
• Contract assets derived from costs to obtain a contract^
• Trade receivables*
• Accrued income^
• Deferred income^
* No change in the accounting policies for these assets as a
result of the adoption of IFRS 15
^ Refer below for the accounting policy applied following the
adoption of IFRS 15
Contract
fulfilment assets
Contract fulfilment costs are divided into (i) costs that give
rise to an asset; and (ii) costs that are expensed as incurred.
When determining the appropriate accounting treatment for such
costs, the Group firstly considers any other applicable standards.
If those other standards preclude capitalisation of a particular
cost, then an asset is not recognised under IFRS 15.
If other standards are not applicable to contract fulfilment
costs, the Group applies the following criteria which, if met,
result in capitalisation: (i) the costs directly relate to a
contract or to a specifically identifiable anticipated contract;
(ii) the costs generate or enhance resources of the entity that
will be used in satisfying (or in continuing to satisfy)
performance obligations in the future; and (iii) the costs are
expected to be recovered. The assessment of this criteria
requires the application of judgement, in particular when
considering if costs generate or enhance resources to be used to
satisfy future performance obligations and whether costs are
expected to be recoverable.
The Group regularly incurs costs to deliver its outsourcing
services in a more efficient way (often referred to as
‘transformation’ costs). These costs may include process mapping
and design, system development, project management, hardware
(generally in scope of the Group’s accounting policy for property,
plant and equipment), software licence costs (generally in scope of
the Group’s accounting policy for intangible assets), recruitment
costs and training.
The Group has determined that, where the relevant specific
criteria are met, the costs for (i) process mapping and design;
(ii) system development; and (iii) project management are likely to
qualify to be capitalised as contract fulfilment assets.
Capitalisation of
costs to obtain a contract
The incremental costs of obtaining a contract with a customer
are recognised as an asset if the Group expects to recover them.
The Group incurs costs such as bid costs, legal fees to draft a
contract and sales commissions when it enters into a new
contract.
Judgement is applied by the Group when determining what costs
qualify to be capitalised in particular when considering whether
these costs are incremental and whether these are expected to be
recoverable. For example, the Group considers which type of
sales commissions are incremental to the cost of obtaining specific
contracts and the point in time when the costs will be
capitalised.
The Group has determined that the following costs may be
capitalised as contract assets (i) legal fees to draft a contract
(once the Group has been selected as a preferred supplier for a
bid); and (ii) sales commissions that are directly related to
winning a specific contract.
Costs incurred prior to selection as preferred supplier are not
capitalised but are expensed as incurred.
Utilisation,
derecognition and impairment of contract fulfilment assets and
capitalised costs to obtain a contract
The Group utilises contract fulfilment assets and capitalised
costs to obtain a contract to cost of sales over the expected
contract period using a systematic basis that mirrors the pattern
in which the Group transfers control of the service to the
customer. The utilisation charge is included within cost of
sales. Judgement is applied to determine this period, for
example whether this expected period would be the contract term or
a longer period such as the estimated life of the customer
relationship for a particular contract if, say, renewals are
expected.
A contract fulfilment asset or capitalised costs to obtain a
contract is derecognised either when it is disposed of or when no
further economic benefits are expected to flow from its use or
disposal.
Management is required to determine the recoverability of
contract related assets within property, plant and equipment,
intangible assets as well as contract fulfilment assets,
capitalised costs to obtain a contract, accrued income and trade
receivables. At each reporting date, the Group determines whether
or not the contract fulfilment assets and capitalised costs to
obtain a contract are impaired by comparing the carrying amount of
the asset to the remaining amount of consideration that the Group
expects to receive less the costs that relate to providing services
under the relevant contract. In determining the estimated amount of
consideration, the Group uses the same principles as it does to
determine the contract transaction price, except that any
constraints used to reduce the transaction price will be removed
for the impairment test.
Where the relevant contracts or specific performance obligations
are demonstrating marginal profitability or other indicators of
impairment, judgement is required in ascertaining whether or not
the future economic benefits from these contracts are sufficient to
recover these assets. In performing this impairment
assessment, management is required to make an assessment of the
costs to complete the contract. The ability to accurately forecast
such costs involves estimates around cost savings to be achieved
over time, anticipated profitability of the contract, as well as
future performance against any contract-specific KPIs that could
trigger variable consideration, or service credits. Where a
contract is anticipated to make a loss, these judgements are also
relevant in determining whether or not an onerous contract
provision is required and how this is to be measured.
Deferred and
accrued income
The Group’s customer contracts include a diverse range of
payment schedules dependent upon the nature and type of goods and
services being provided. The Group often agrees payment
schedules at the inception of long term contracts under which it
receives payments throughout the term of the contracts. These
payment schedules may include performance-based payments or
progress payments as well as regular monthly or quarterly payments
for ongoing service delivery. Payments for transactional
goods and services may be at delivery date, in arrears or part
payment in advance.
Where payments made are greater than the revenue recognised at
the period end date, the Group recognises a deferred income
contract liability for this difference. Where payments made are
less than the revenue recognised at the period end date, the Group
recognises an accrued income contract asset for this
difference.
Property
commercialisation
Part of the Group’s strategy is to create and deliver maximum
value from assets that are either owned by its customers or are
acquired by the Group as part of a wider transaction. By combining
the Group’s capabilities with the expertise and assets of any
organisation, the Group can significantly increase the value that
can be generated from often under-utilised assets. Our strategy
often involves the commercialisation of property assets, where the
Group will invest in real estate improvements to maximise the
future capital value or commercial letting potential. Such an
investment approach can generate substantial benefits that can be
realised up-front or over time. Examples of up-front value creation
include entering into transactions when current market values offer
opportunities to generate immediate shareholder returns, with
opportunities for continued investment in the underlying asset. For
example, the Group will acquire property with a view to resale and
subsequently complete a sale and lease back transaction resulting
in revenue and profit recorded in the year. The Group applies
judgement over the categorisation of such transactions as operating
or finance leases.
Consolidated income statement
restatement under IFRS 15
|
Adjustment |
As reported, six months ended 30 June 2016 |
|
Discontinued operations |
Impact of IFRS 15 |
|
Restated, six months ended 30 June 2016 |
|
|
Underlying |
Business exit |
Specific items |
Total |
|
Underlying / reclasification to business exit |
Specific items |
Underlying |
Specific items |
|
Underlying |
Business exit |
Specific items |
Total |
|
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
Revenue |
A,B,C |
2,405.4 |
|
24.6 |
|
— |
|
2,430.0 |
|
|
(147.3 |
) |
— |
|
(126.8 |
) |
— |
|
|
2,131.3 |
|
24.6 |
|
— |
|
2,155.9 |
|
Cost of sales |
A,D |
(1,716.9 |
) |
(17.9 |
) |
— |
|
(1,734.8 |
) |
|
57.2 |
|
— |
|
3.1 |
|
— |
|
|
(1,656.6 |
) |
(17.9 |
) |
— |
|
(1,674.5 |
) |
Gross profit |
|
688.5 |
|
6.7 |
|
— |
|
695.2 |
|
|
(90.1 |
) |
— |
|
(123.7 |
) |
— |
|
|
474.7 |
|
6.7 |
|
— |
|
481.4 |
|
Administrative
expenses |
H |
(370.9 |
) |
(6.7 |
) |
(81.3 |
) |
(458.9 |
) |
|
62.2 |
|
2.6 |
|
— |
|
— |
|
|
(308.7 |
) |
(6.7 |
) |
(78.7 |
) |
(394.1 |
) |
Operating
profit |
|
317.6 |
|
— |
|
(81.3 |
) |
236.3 |
|
|
(27.9 |
) |
2.6 |
|
(123.7 |
) |
— |
|
|
166.0 |
|
— |
|
(78.7 |
) |
87.3 |
|
Net finance costs |
|
(32.3 |
) |
— |
|
(17.8 |
) |
(50.1 |
) |
|
— |
|
0.1 |
|
— |
|
— |
|
|
(32.3 |
) |
— |
|
(17.7 |
) |
(50.0 |
) |
Loss on disposal |
|
— |
|
(0.1 |
) |
— |
|
(0.1 |
) |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
(0.1 |
) |
— |
|
(0.1 |
) |
Profit before
tax |
|
285.3 |
|
(0.1 |
) |
(99.1 |
) |
186.1 |
|
|
(27.9 |
) |
2.7 |
|
(123.7 |
) |
— |
|
|
133.7 |
|
(0.1 |
) |
(96.4 |
) |
37.2 |
|
Income tax
expense |
E |
(52.8 |
) |
— |
|
18.7 |
|
(34.1 |
) |
|
4.4 |
|
(0.5 |
) |
27.4 |
|
— |
|
|
(21.0 |
) |
— |
|
18.2 |
|
(2.8 |
) |
Profit for the
period from continuing operations |
|
232.5 |
|
(0.1 |
) |
(80.4 |
) |
152.0 |
|
|
(23.5 |
) |
2.2 |
|
(96.3 |
) |
— |
|
|
112.7 |
|
(0.1 |
) |
(78.2 |
) |
34.4 |
|
Profit for the period
from discontinued operations |
|
— |
|
— |
|
— |
|
— |
|
|
23.5 |
|
(2.2 |
) |
— |
|
— |
|
|
— |
|
23.5 |
|
(2.2 |
) |
21.3 |
|
Total profit for
the period |
|
232.5 |
|
(0.1 |
) |
(80.4 |
) |
152.0 |
|
|
— |
|
— |
|
(96.3 |
) |
— |
|
|
112.7 |
|
23.4 |
|
(80.4 |
) |
55.7 |
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the
Company |
|
227.1 |
|
(0.1 |
) |
(78.1 |
) |
148.9 |
|
|
|
|
(96.7 |
) |
— |
|
|
106.9 |
|
23.4 |
|
(78.1 |
) |
52.2 |
|
Non-controlling
interests |
|
5.4 |
|
— |
|
(2.3 |
) |
3.1 |
|
|
|
|
0.4 |
|
— |
|
|
5.8 |
|
— |
|
(2.3 |
) |
3.5 |
|
|
|
232.5 |
|
(0.1 |
) |
(80.4 |
) |
152.0 |
|
|
|
|
(96.3 |
) |
— |
|
|
112.7 |
|
23.4 |
|
(80.4 |
) |
55.7 |
|
Earnings per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– basic |
|
34.24 |
p |
(0.02) |
p |
(11.78) |
p |
22.44 |
p |
|
(3.54) |
p |
0.33 |
p |
(14.58) |
p |
— |
p |
|
16.12 |
p |
(0.02) |
p |
(11.44) |
p |
4.66 |
p |
– diluted |
|
34.05 |
p |
(0.01) |
p |
(11.71) |
p |
22.33 |
p |
|
(3.52) |
p |
0.33 |
p |
(14.50) |
p |
— |
p |
|
16.03 |
p |
(0.01) |
p |
(11.38) |
p |
4.64 |
p |
Total operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– basic |
|
34.24 |
p |
(0.02) |
p |
(11.78) |
p |
22.44 |
p |
|
— |
p |
— |
p |
(14.58) |
p |
— |
p |
|
16.12 |
p |
3.53 |
p |
(11.78) |
p |
7.87 |
p |
– diluted |
|
34.05 |
p |
(0.01) |
p |
(11.71) |
p |
22.33 |
p |
|
— |
p |
— |
p |
(14.50) |
p |
— |
p |
|
16.03 |
p |
3.51 |
p |
(11.71) |
p |
7.83 |
p |
Consolidated income statement
restatement under IFRS 15 (continued)
|
Adjustment |
As reported, year ended 31 December 2016 |
|
Discontinued operations |
Impact of IFRS 15 |
|
Restated, year ended 31 December 2016 |
|
|
Underlying |
Business exit |
Specific items |
Total |
|
Underlying / reclasification to business exit |
Specific items |
Underlying |
Specific items |
|
Underlying |
Business exit |
Specific items |
Total |
|
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
Revenue |
A,B,C |
4,897.9 |
|
11.3 |
|
— |
|
4,909.2 |
|
|
(316.3 |
) |
— |
|
(224.3 |
) |
— |
|
|
4,357.3 |
|
11.3 |
|
— |
|
4,368.6 |
|
Cost of sales |
A,D |
(3,627.7 |
) |
(6.7 |
) |
(7.5 |
) |
(3,641.9 |
) |
|
111.8 |
|
— |
|
97.4 |
|
(34.8 |
) |
|
(3,418.5 |
) |
(6.7 |
) |
(42.3 |
) |
(3,467.5 |
) |
Gross profit |
|
1,270.2 |
|
4.6 |
|
(7.5 |
) |
1,267.3 |
|
|
(204.5 |
) |
— |
|
(126.9 |
) |
(34.8 |
) |
|
938.8 |
|
4.6 |
|
(42.3 |
) |
901.1 |
|
Administrative
expenses |
H |
(728.9 |
) |
(1.8 |
) |
(388.3 |
) |
(1,119.0 |
) |
|
144.5 |
|
4.3 |
|
(19.8 |
) |
59.4 |
|
|
(604.2 |
) |
(1.8 |
) |
(324.6 |
) |
(930.6 |
) |
Operating
profit |
|
541.3 |
|
2.8 |
|
(395.8 |
) |
148.3 |
|
|
(60.0 |
) |
4.3 |
|
(146.7 |
) |
24.6 |
|
|
334.6 |
|
2.8 |
|
(366.9 |
) |
(29.5 |
) |
Net finance costs |
|
(66.0 |
) |
— |
|
(7.6 |
) |
(73.6 |
) |
|
(0.1 |
) |
(0.1 |
) |
— |
|
— |
|
|
(66.1 |
) |
— |
|
(7.7 |
) |
(73.8 |
) |
Loss on disposal |
|
— |
|
0.1 |
|
— |
|
0.1 |
|
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
0.1 |
|
— |
|
0.1 |
|
Profit before
tax |
|
475.3 |
|
2.9 |
|
(403.4 |
) |
74.8 |
|
|
(60.1 |
) |
4.2 |
|
(146.7 |
) |
24.6 |
|
|
268.5 |
|
2.9 |
|
(374.6 |
) |
(103.2 |
) |
Income tax
expense |
E |
(87.9 |
) |
0.5 |
|
54.9 |
|
(32.5 |
) |
|
9.5 |
|
(0.9 |
) |
32.0 |
|
(3.9 |
) |
|
(46.4 |
) |
0.5 |
|
50.1 |
|
4.2 |
|
Profit for the
period from continuing operations |
|
387.4 |
|
3.4 |
|
(348.5 |
) |
42.3 |
|
|
(50.6 |
) |
3.3 |
|
(114.7 |
) |
20.7 |
|
|
222.1 |
|
3.4 |
|
(324.5 |
) |
(99.0 |
) |
Profit for the period
from discontinued operations |
|
— |
|
— |
|
— |
|
— |
|
|
50.6 |
|
(3.3 |
) |
— |
|
— |
|
|
— |
|
50.6 |
|
(3.3 |
) |
47.3 |
|
Total profit for
the period |
|
387.4 |
|
3.4 |
|
(348.5 |
) |
42.3 |
|
|
— |
|
— |
|
(114.7 |
) |
20.7 |
|
|
222.1 |
|
54.0 |
|
(327.8 |
) |
(51.7 |
) |
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the
Company |
|
376.7 |
|
3.4 |
|
(343.2 |
) |
36.9 |
|
|
|
|
(115.5 |
) |
20.7 |
|
|
210.6 |
|
54.0 |
|
(322.5 |
) |
(57.9 |
) |
Non-controlling
interests |
|
10.7 |
|
— |
|
(5.3 |
) |
5.4 |
|
|
|
|
0.8 |
|
— |
|
|
11.5 |
|
— |
|
(5.3 |
) |
6.2 |
|
|
|
387.4 |
|
3.4 |
|
(348.5 |
) |
42.3 |
|
|
|
|
(114.7 |
) |
20.7 |
|
|
222.1 |
|
54.0 |
|
(327.8 |
) |
(51.7 |
) |
Earnings per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– basic |
|
56.67 |
p |
0.51 |
p |
(51.63) |
p |
5.55 |
p |
|
(7.61) |
p |
0.50 |
p |
(17.38) |
p |
3.11 |
p |
|
31.68 |
p |
0.51 |
p |
(48.02) |
p |
(15.83) |
p |
– diluted |
|
56.67 |
p |
0.51 |
p |
(51.63) |
p |
5.55 |
p |
|
(7.61) |
p |
0.50 |
p |
(17.38) |
p |
3.11 |
p |
|
31.68 |
p |
0.51 |
p |
(48.02) |
p |
(15.83) |
p |
Total operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– basic |
|
56.67 |
p |
0.51 |
p |
(51.63) |
p |
5.55 |
p |
|
— |
p |
— |
p |
(17.38) |
p |
3.11 |
p |
|
31.68 |
p |
8.12 |
p |
(48.52) |
p |
(8.71) |
p |
– diluted |
|
56.67 |
p |
0.51 |
p |
(51.63) |
p |
5.55 |
p |
|
— |
p |
— |
p |
(17.38) |
p |
3.11 |
p |
|
31.68 |
p |
8.12 |
p |
(48.52) |
p |
(8.71) |
p |
Total adjustment to Total profit for the period due to the
adoption of IFRS 15 is £(114.7)m to underlying + £20.7m to specific
items, being £94.0m.
Consolidated balance sheet restatement
under IFRS 15
|
Adjustment |
As reported
1 Jan 2016 |
Impact of
IFRS 15 |
Restated
1 Jan 2016 |
|
As reported
31 Dec 2016 |
Impact of
IFRS 15 |
Restated
31 Dec 2016 |
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
Non-current
assets |
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
406.0 |
|
— |
|
406.0 |
|
|
394.7 |
|
— |
|
394.7 |
|
Intangible assets |
|
2,810.0 |
|
— |
|
2,810.0 |
|
|
2,754.2 |
|
— |
|
2,754.2 |
|
Contract fulfilment
assets |
D |
— |
|
277.6 |
|
277.6 |
|
|
— |
|
240.6 |
|
240.6 |
|
Financial assets |
|
186.6 |
|
— |
|
186.6 |
|
|
337.6 |
|
— |
|
337.6 |
|
Deferred taxation |
E |
18.8 |
|
162.8 |
|
181.6 |
|
|
32.0 |
|
190.4 |
|
222.4 |
|
Trade and other
receivables |
F |
86.1 |
|
(41.7 |
) |
44.4 |
|
|
128.4 |
|
(79.6 |
) |
48.8 |
|
|
|
3,507.5 |
|
398.7 |
|
3,906.2 |
|
|
3,646.9 |
|
351.4 |
|
3,998.3 |
|
Current
assets |
|
|
|
|
|
|
|
|
Financial assets |
|
44.3 |
|
— |
|
44.3 |
|
|
92.6 |
|
— |
|
92.6 |
|
Contract fulfilment
assets |
D |
— |
|
40.4 |
|
40.4 |
|
|
|
41.6 |
|
41.6 |
|
Disposal group assets
held for sale |
|
84.1 |
|
— |
|
84.1 |
|
|
— |
|
— |
|
— |
|
Funds assets |
|
161.7 |
|
— |
|
161.7 |
|
|
173.6 |
|
— |
|
173.6 |
|
Trade and other
receivables |
F |
1,011.9 |
|
(284.1 |
) |
727.8 |
|
|
976.0 |
|
(174.9 |
) |
801.1 |
|
Cash |
|
534.0 |
|
— |
|
534.0 |
|
|
1,098.3 |
|
— |
|
1,098.3 |
|
|
|
1,836.0 |
|
(243.7 |
) |
1,592.3 |
|
|
2,340.5 |
|
(133.3 |
) |
2,207.2 |
|
Total
assets |
|
5,343.5 |
|
155.0 |
|
5,498.5 |
|
|
5,987.4 |
|
218.1 |
|
6,205.5 |
|
Current
liabilities |
|
|
|
|
|
|
|
|
Trade and other
payables |
G |
1,144.0 |
|
(271.0 |
) |
873.0 |
|
|
1,297.6 |
|
(320.6 |
) |
977.0 |
|
Deferred income |
B,C,G |
— |
|
1,157.3 |
|
1,157.3 |
|
|
— |
|
1,374.9 |
|
1,374.9 |
|
Overdrafts |
|
448.7 |
|
— |
|
448.7 |
|
|
532.5 |
|
— |
|
532.5 |
|
Financial
liabilities |
|
230.8 |
|
— |
|
230.8 |
|
|
224.2 |
|
— |
|
224.2 |
|
Disposal group
liabilities held for sale |
|
40.4 |
|
— |
|
40.4 |
|
|
— |
|
— |
|
— |
|
Funds liabilities |
|
161.7 |
|
— |
|
161.7 |
|
|
173.6 |
|
— |
|
173.6 |
|
Provisions |
|
69.4 |
|
— |
|
69.4 |
|
|
112.5 |
|
— |
|
112.5 |
|
Income tax
payable |
E |
46.2 |
|
— |
|
46.2 |
|
|
18.6 |
|
— |
|
18.6 |
|
|
|
2,141.2 |
|
886.3 |
|
3,027.5 |
|
|
2,359.0 |
|
1,054.3 |
|
3,413.3 |
|
Non-current
liabilities |
|
|
|
|
|
|
|
|
Trade and other
payables |
G |
29.3 |
|
(15.5 |
) |
13.8 |
|
|
35.1 |
|
(14.1 |
) |
21.0 |
|
Deferred income |
B,C,G |
— |
|
228.5 |
|
228.5 |
|
|
— |
|
216.7 |
|
216.7 |
|
Financial
liabilities |
|
2,163.4 |
|
— |
|
2,163.4 |
|
|
2,694.4 |
|
— |
|
2,694.4 |
|
Deferred taxation |
E |
19.0 |
|
(2.0 |
) |
17.0 |
|
|
22.1 |
|
(2.5 |
) |
19.6 |
|
Provisions |
|
49.0 |
|
— |
|
49.0 |
|
|
48.2 |
|
— |
|
48.2 |
|
Employee benefits |
|
188.3 |
|
— |
|
188.3 |
|
|
345.2 |
|
— |
|
345.2 |
|
|
|
2,449.0 |
|
211.0 |
|
2,660.0 |
|
|
3,145.0 |
|
200.1 |
|
3,345.1 |
|
Total
liabilities |
|
4,590.2 |
|
1,097.3 |
|
5,687.5 |
|
|
5,504.0 |
|
1,254.4 |
|
6,758.4 |
|
Net assets |
|
753.3 |
|
(942.3 |
) |
(189.0 |
) |
|
483.4 |
|
(1,036.3 |
) |
(552.9 |
) |
Capital and
reserves |
|
|
|
|
|
|
|
|
Issued share
capital |
|
13.8 |
|
— |
|
13.8 |
|
|
13.8 |
|
— |
|
13.8 |
|
Share premium |
|
500.7 |
|
— |
|
500.7 |
|
|
501.3 |
|
— |
|
501.3 |
|
Employee
benefit trust
and treasury shares |
|
(0.3 |
) |
— |
|
(0.3 |
) |
|
(0.2 |
) |
— |
|
(0.2 |
) |
Capital redemption
reserve |
|
1.8 |
|
— |
|
1.8 |
|
|
1.8 |
|
— |
|
1.8 |
|
Foreign currency
translation reserve |
|
(21.2 |
) |
— |
|
(21.2 |
) |
|
(6.2 |
) |
— |
|
(6.2 |
) |
Cash flow hedging
reserve |
|
(12.0 |
) |
— |
|
(12.0 |
) |
|
— |
|
— |
|
— |
|
Retained earnings |
|
196.5 |
|
(934.7 |
) |
(738.2 |
) |
|
(102.3 |
) |
(1,029.3 |
) |
(1,131.6 |
) |
Equity
attributable to
owners of the Company |
|
679.3 |
|
(934.7 |
) |
(255.4 |
) |
|
408.2 |
|
(1,029.3 |
) |
(621.1 |
) |
Non-controlling
interests |
|
74.0 |
|
(7.6 |
) |
66.4 |
|
|
75.2 |
|
(7.0 |
) |
68.2 |
|
Total
equity |
|
753.3 |
|
(942.3 |
) |
(189.0 |
) |
|
483.4 |
|
(1,036.3 |
) |
(552.9 |
) |
Consolidated cash flow statement
restatement under IFRS 15
As a result of the adoption of IFRS 15, certain
reclassifications are required in relation to the following cash
flow movements between relevant balance sheet accounts. There
has been no change in the net cash generated from operations as a
result of these reclassifications or restatement of these balance
sheet accounts:
• As identified in adjustment H (below), in 2016, the Group
recognised a write down of accrued income in underlying profit and
specific items in relation to certain long term service
contracts. Under IFRS 15 this accrued income would not have
been originally recognised and hence has been reversed out of the
income statement on adoption of IFRS 15. Movements in the
operating cash flow note reflect the reversal of this non-cash
movement;
• As identified in adjustment D (below), the Group has
recognised new contract fulfilment assets on adoption of IFRS 15
from 1 January 2016 with amortisation
and impairment expenses recorded through the income statement in
the six months ended 30 June 2016 and
year ended 31 December 2016. Movements in the operating cash
flow note reflect these non-cash movements recorded in the income
statement; and
• As identified in adjustments D, B and C, on transition to IFRS
15 as at 1 January 2016, the Group
has recognised contract fulfilment assets and restated the accrued
income and deferred revenue accounts recorded in the balance
sheet. Movements in the operating cash flow note reflect the
relevant cash and non-cash movements in reclassified line
items.
Consolidated statement of changes in
equity restatement under IFRS 15
No reconciliation of the restated consolidated statement of
changes in equity is presented as the only changes to this primary
statement for the relevant period presented are as follows:
• Consolidated statement of changes in equity as at
1 January 2016: recognition
of the restated retained earnings figure as presented in the
restated consolidated balance sheet as at this date.
• Consolidated statement of changes in equity as at
30 June 2016: recognition of
the restated profit for the six month period ended 30 June 2016 as presented in the restated
consolidated income statement for this period.
• Consolidated statement of changes in equity as at
31 December 2016: recognition
of the restated profit for the year ended 31
December 2016 as presented in the restated consolidated
income statement for this year.
Notes to the financial statements
restatement under IFRS 15
Management has undertaken an extensive exercise to consider the
Group's major contractual arrangements as part of the
implementation of IFRS 15. A number of significant areas have
been identified for adjustment which include:
• Recognition of revenue by the Group as agent or principal
(Adjustment A);
• Accounting for software licences (Adjustment B);
• Recognition of profit from service contracts over time in line
with the output method (Adjustment C);
• Recognition, utilisation and derecognition of contract
fulfilment assets (Adjustment D);
• Impact on tax balances as a result of adoption of IFRS 15
(Adjustment E);
• Decrease in trade and other receivables (Adjustment F);
• Reclassification of trade and other payables (Adjustment
G);
• Reversal of prior period accrued income impairment within
specific items (Adjustment H); and
• Reclassification of significant restructuring costs to
underlying (Adjustment I).
These adjustments are discussed in the relevant sections
below.
Under IFRS 15, the pattern and timing of revenue recognition has
changed resulting in an overall decrease of £126.8m in revenue for
the 6 months ended 30 June 2016 (year
ended 31 December 2016: £224.3m),
increase in deferred income of £1,099.3m at the 1 January 2016 opening balance sheet date
(31 December 2016: £1,256.9m) and
decrease in accrued income of £325.8m at the 1 January 2016 opening balance sheet date
(31 December 2016:
£254.5m).
Table 1 on the following page reconciles the movements in
relation to IFRS 15 for the income statement for the six months
ended 30 June 2016 and the year ended
31 December 2016 and the balance
sheet as at 1 January 2016 and as at
31 December 2016.
Table 2 provides further detail on the reconciling movements for
the income statement for the year ended 31
December 2016.
Following the tables are explanatory notes for each of the
adjustments referred to above.
The table below reconciles movements in relation to IFRS 15 for
the income statement for the six months ended 30 June 2016 and the year ended 31 December 2016 and the balance sheet as at
1 January 2016 and as at 31 December
2016. Refer to below the tables for explanatory notes on each
of the adjustments.
Table 1: |
Consolidated income statement for the six months ended
30 June 2016 |
|
|
|
Adjustment to net assets at 1 January
2016 |
Underlying |
Specific items |
Profit for the period |
|
Trade and other receivables |
Deferred income |
Trade and other payables |
Contract fulfilment asset |
Deferred tax |
Adjustment to net liabilities at 31 December
2016 |
Adjustment |
Revenue |
Cost of sales |
Admin expenses |
Tax |
Cost of sales |
Admin expenses |
Tax |
|
Non-current |
Current |
Current |
Non-current |
Current |
Non-current |
Non-current |
Current |
Asset |
Liability |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
A - Agent vs.
principal |
— |
|
0.7 |
|
(0.7 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
B - Software
licences |
(163.2 |
) |
(7.2 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(7.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
C - Recognition in
line with output |
(1,214.8 |
) |
(120.3 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(120.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
D - Recognition of
non-current contract fulfilment assets |
214.7 |
|
— |
|
(3.7 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
(3.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
D - Recognition of
software contract fulfilment assets |
62.9 |
|
— |
|
1.7 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
D - Recognition of
current contract fulfilment assets |
40.4 |
|
— |
|
5.8 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
E - Tax |
164.8 |
|
— |
|
— |
|
— |
|
27.4 |
|
— |
|
— |
|
— |
|
27.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
H - Reversal of
accrued income impairment |
(47.1 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
I - Reclassification
of significant restructuring |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(942.3 |
) |
(126.8 |
) |
3.1 |
|
— |
|
27.4 |
|
— |
|
— |
|
— |
|
(96.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income statement for the year ended 31
December 2016 |
|
Consolidated balance sheet for the year ended 31
December 2016 |
A - Agent vs.
principal |
— |
|
(90.9 |
) |
90.9 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
B - Software
licences |
(163.2 |
) |
(15.3 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(15.3 |
) |
|
— |
|
— |
|
(104.8 |
) |
(73.7 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(178.5 |
) |
C - Recognition in
line with output |
(1,214.8 |
) |
(118.1 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(118.1 |
) |
|
(79.6 |
) |
(174.9 |
) |
(949.5 |
) |
(128.9 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1,332.9 |
) |
D - Recognition of
non-current contract fulfilment assets |
214.7 |
|
— |
|
(0.6 |
) |
— |
|
— |
|
(42.3 |
) |
— |
|
— |
|
(42.9 |
) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
171.8 |
|
— |
|
— |
|
— |
|
171.8 |
|
D - Recognition of
software contract fulfilment assets |
62.9 |
|
— |
|
5.9 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
5.9 |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
68.8 |
|
— |
|
— |
|
— |
|
68.8 |
|
D - Recognition of
current contract fulfilment assets |
40.4 |
|
— |
|
1.2 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1.2 |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
41.6 |
|
— |
|
— |
|
41.6 |
|
E - Tax |
164.8 |
|
— |
|
— |
|
— |
|
32.0 |
|
— |
|
— |
|
(3.9 |
) |
28.1 |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
190.4 |
|
2.5 |
|
192.9 |
|
G - Reclassification
of trade and other payables |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
(320.6 |
) |
(14.1 |
) |
320.6 |
|
14.1 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
H - Reversal of
accrued income impairment |
(47.1 |
) |
— |
|
— |
|
39.6 |
|
— |
|
7.5 |
|
— |
|
— |
|
47.1 |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
I - Reclassification
of significant restructuring |
— |
|
— |
|
— |
|
(59.4 |
) |
— |
|
— |
|
59.4 |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
Total |
(942.3 |
) |
(224.3 |
) |
97.4 |
|
(19.8 |
) |
32.0 |
|
(34.8 |
) |
59.4 |
|
(3.9 |
) |
(94.0 |
) |
|
(79.6 |
) |
(174.9 |
) |
(1,374.9 |
) |
(216.7 |
) |
320.6 |
|
14.1 |
|
240.6 |
|
41.6 |
|
190.4 |
|
2.5 |
|
(1,036.3 |
) |
The table below provides further detail on the reconciling
movements for the income statement for the year ended 31 December
2016. Refer to below the table for explanatory notes in
respect of each adjustment.
Table 2: |
Consolidated income statement for the year ended 31
December 2016 |
Adjustment |
|
As reported |
Discontinued operations |
As reported - continuing operations |
Adjustments: from pre 1 Jan 16 and recognised in 2016 |
Adjustments: previously recognised in 2016 now spread
forward |
Reclassifications |
Restated |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Agent vs.
Principal |
A |
- |
|
|
— |
|
— |
|
(90.9 |
) |
|
Software revenue from
pre 1 Jan 16 and recognised in 2016 |
B |
- |
|
|
100.0 |
|
— |
|
— |
|
|
Software revenue
previously recognised in 2016 now spread forward |
B |
- |
|
|
— |
|
(115.3 |
) |
— |
|
|
Recognition in line
with output from pre 1 Jan 16 and recognised in 2016 |
C |
- |
|
|
1,096.6 |
|
— |
|
— |
|
|
Recognition in line
with output previously recognised in 2016 now spread forward |
C |
- |
|
|
— |
|
(1,214.7 |
) |
— |
|
|
Underlying
Revenue |
|
4,897.9 |
|
(316.3 |
) |
4,581.6 |
|
1,196.6 |
|
(1,330.0 |
) |
(90.9 |
) |
4,357.3 |
|
|
|
|
|
|
|
|
|
|
Agent vs.
Principal |
A |
- |
- |
- |
— |
|
— |
|
90.9 |
|
|
Non-current contract
fulfilment asset utilisation in 2016 |
D |
- |
- |
- |
(47.1 |
) |
— |
|
— |
|
|
Non-current contract
fulfilment asset disposals in 2016 |
D |
- |
- |
- |
(17.0 |
) |
— |
|
— |
|
|
Non-current contract
fulfilment asset additions in 2016 |
D |
- |
- |
- |
— |
|
63.5 |
|
— |
|
|
Software contract
fulfilment asset utilisation in 2016 |
D |
- |
- |
- |
(7.1 |
) |
— |
|
— |
|
|
Software contract
fulfilment asset additions in 2016 |
D |
- |
- |
- |
— |
|
13.0 |
|
— |
|
|
Completion of point in
time performance obligations |
D |
- |
- |
- |
(40.4 |
) |
— |
|
— |
|
|
Costs deferred to
future point in time performance obligations |
D |
- |
- |
- |
— |
|
41.6 |
|
— |
|
|
Underlying cost of
sales |
|
(3,627.7 |
) |
111.8 |
|
(3,515.9 |
) |
(111.6 |
) |
118.1 |
|
90.9 |
|
(3,418.5 |
) |
|
|
|
|
|
|
|
|
|
Reversal of accrued
income impairment |
H |
|
|
|
39.6 |
|
— |
|
— |
|
|
Reclassification of
2016 group restructuring to underlying from specific items |
I |
|
|
|
— |
|
— |
|
(59.4 |
) |
|
Underlying admin
expenses |
|
(728.9 |
) |
144.5 |
|
(584.4 |
) |
39.6 |
|
— |
|
(59.4 |
) |
(604.2 |
) |
|
|
|
|
|
|
|
|
|
Underlying
operating profit |
|
541.3 |
|
(60.0 |
) |
481.3 |
|
1,124.6 |
|
(1,211.9 |
) |
(59.4 |
) |
334.6 |
|
|
|
|
|
|
|
|
|
|
Underlying profit
before tax |
|
475.3 |
|
(60.1 |
) |
415.2 |
|
1,124.6 |
|
(1,211.9 |
) |
(59.4 |
) |
268.5 |
|
|
|
|
|
|
|
|
|
|
Specific items -
contract fulfilment asset disposal |
D |
— |
|
— |
|
— |
|
(42.3 |
) |
— |
|
|
|
Specific items -
reversal of accrued income impairment |
H |
— |
|
— |
|
— |
|
7.5 |
|
— |
|
— |
|
|
Specific items cost
of sales |
|
(7.5 |
) |
— |
|
(7.5 |
) |
(34.8 |
) |
— |
|
— |
|
(42.3 |
) |
|
|
|
|
|
|
|
|
|
Reclassification of
2016 group restructuring to underlying from specific items |
I |
— |
|
— |
|
— |
|
— |
|
— |
|
59.4 |
|
|
Specific Items
admin expenses |
|
(388.3 |
) |
4.3 |
|
(384.0 |
) |
— |
|
— |
|
59.4 |
|
(324.6 |
) |
|
|
|
|
|
|
|
|
|
Specific items
profit before tax |
|
(403.4 |
) |
4.2 |
|
(399.2 |
) |
(34.8 |
) |
— |
|
59.4 |
|
(374.6 |
) |
|
|
|
|
|
|
|
|
|
Profit before
tax |
|
74.8 |
|
(55.9 |
) |
18.9 |
|
1,089.8 |
|
(1,211.9 |
) |
— |
|
(103.2 |
) |
Adjustment A - Accounting for agent
vs. principal
The previous agent vs. principal guidance contained in IAS 18
has been revisited by the Group in light of the revised guidance
under IFRS 15 in assessing whether it acts as an agent or as a
principal in its major contractual arrangements.
As a result of this assessment, the Group concluded that for
certain contracts it is appropriate to move from principal to
agency accounting or vice versa. In respect to moving from
principal to agency, this related to certain software sales
arrangements as the Group has concluded that the Group does not
control the good or service being provided to the customer. As a
result, there is a net adjustment of £0.7m to increase revenue and
cost of sales for the 6 months period ended 30 June 2016, and of £90.9m to reduce revenue and
cost of sales for the year ended 31 December
2016.
Adjustment B - Accounting for software
licences
Under previous accounting, revenue in relation to certain
software licences was recognised at a point in time. Under
IFRS 15, the Group has determined that a number of these
arrangements result in the customer having the right to access the
licence (an ‘active’ licence) rather than having the right to use
the licence (a ‘passive’ licence). Under an active licence
the ongoing support and upgrades are fundamental to the ongoing use
of the licences by the customer.
Hence total revenue for the licence and upgrades are combined
with these revenues now recognised over the term of the customer
contract rather than at a point in time resulting in a net decrease
in accrued/deferred income at 1 January
2016 of £163.2m, 31 December
2016: £178.5m; and a net decrease in revenue in the six
months ended 30 June 2016 of £7.2m
and in the year ended 31 December
2016 of £15.3m.
For the year ended 31 December
2016 the net decrease in revenue comprises the recognition
of £100.0m of revenue from pre 1 January
2016 and the deferral of £115.3m of revenue previously
recognised in 2016.
Adjustment C - Revenue recognition in
line with output
Under the previous accounting, revenue for certain contracts was
recognised under the percentage of completion method based upon
costs incurred to date as a proportion of the estimated full cost
of completing the contract, and applying the percentage to the
total revenue expected to be earned. Such percentage of
completion accounting would typically result in higher levels of
revenue recognised in the earlier stages of a contract in line with
the profile of costs incurred.
Under IFRS 15, all elements of the contract, including
transformation activity, are combined. Due to the application
of the series guidance and output methodology within IFRS 15, these
contracts now have revenue recognised in line with their output
measured on a contract specific basis.
As such, revenue is now spread over the expected life of the
contract rather than in line with the costs profile, which has
resulted in a reduction in revenue recognised in periods prior to
1 January 2016 and a net increase in
deferred/accrued income as at 1 January
2016 of £1,214.8m, as at 31 December
2016: £1,332.9m; and a decrease in opening retained earnings
as at 1 January 2016 of £1,214.8m, a
decrease in revenue in the six months ended 30 June 2016 of £120.3m, and year ended
31 December 2016 of £118.1m.
For the year ended 31 December
2016 the net decrease in revenue comprises the recognition
of £1,096.6m of revenue from pre 1 January
2016 and the deferral of £1,214.7m of revenue previously
recognised in 2016.
Adjustment D - Recognition,
utilisation and derecognition of contract fulfilment assets
IFRS 15 specifies that certain costs to fulfil a contract are to
be capitalised as contract fulfilment assets if relevant criteria
are met.
The Group incurred costs that were previously expensed and which
related to resources to allow it to deliver services under its long
term contracts and active software licence arrangements. In
certain situations, costs associated with the installation of
certain IT equipment in contracts have also been capitalised as
contract fulfilment assets.
The adjustments to recognise contract fulfilment assets on the
balance sheet as at 1 January 2016 of
£318.0m recognises the net book value of the identified contract
fulfilment assets at the opening balance sheet date.
These adjustments also include the recognition of certain costs
of obtaining a contract. IFRS 15 specifies that the
incremental costs of obtaining a contract with a customer are
capitalised if the entity expects to recover them.
The cost of utilising these assets is recognised within cost of
sales on a consistent basis over the life of the relevant customer
contract.
The adjustment of £3.8m for the 6 months period ended
30 June 2016 (year ended 31 December 2016: £6.5m) is to recognise a net
decrease in cost of sales due to the de-recognition of contract
costs now capitalised as contract fulfilment assets net of the
utilisation charge recorded for the period in relation to these
assets and the de-recognition of certain contract fulfilment
assets.
For the year ended 31 December
2016, the above net adjustment of £6.5m comprises:
non-current contract fulfilment additions of £63.5m, utilisation of
£47.1m, and disposals of £17.0m; software contract fulfilment
additions of £13.0m, and utilisation of £7.1m; and current contract
fulfilment additions of £41.6m, and utilisation of £40.4m.
Specific item
As disclosed in the 31 December
2016 financial statements, Capita ceased to work on the IT
system transformation in respect of its contract with The
Co-operative Bank plc. Under IFRS 15 this modification has
led to an impairment of a contract fulfilment asset in respect of
this contract as these costs were no longer considered
recoverable.
The adjustment of £42.3m in the year ended 31 December 2016 recognises the charge incurred
on derecognising this contract fulfilment asset. This item has been
included within the other non-underlying column because it is
one-off in nature and is due to a contractual dispute rather than
arising as a result of service credit penalties
Adjustment E - Tax
Due to the changes in assets, liabilities, income and expenses
recognised as a result of the application of IFRS 15, there are
consequent IAS 12 Income taxes differences that arise as discussed
below.
Deferred tax
Due to the changes in the pattern and timing of revenue
recognition under IFRS 15, a deferred income liability is
recognised on the balance sheet from 1
January 2016, which will be recognised through the income
statement in later periods. The impact of these revenue recognition
changes is only recognised for tax purposes via a one-off
transitional tax adjustment on 1 January
2017, so no tax deduction is available in 2016 for the
reduction in historic revenue recognised.
Contract fulfilment assets have also been recognised on the
balance sheet from 1 January 2016,
which will be charged to the income statement in later periods.
Under IAS 12, the tax base of an asset is the amount that will be
deductible for tax purposes against any taxable economic benefits
that will flow to an entity when it recovers the carrying amount of
the asset. The tax base of the contract fulfilment asset recognised
on the balance sheet prior to 1 January
2017 is therefore reduced by the amounts for which tax
deductions have already been taken, creating a temporary
difference.
Under the principles of IAS 12, a movement of £164.8m in
deferred tax therefore arises, recognised as an increase in the
deferred tax asset of £162.8m and a reduction in the deferred tax
liability of £2.0m as at 1 January
2016 (31 December 2016:
£192.9m movement, increase in deferred tax asset of £190.4m, and
reduction in deferred tax liability of £2.5m) as a result of the
transition to IFRS 15.
Income statement deferred tax
credit
The deferred tax asset balance increase of £190.4m and the
deferred tax liability decrease of £2.5m as at 31 December 2016, give rise to an income
statement deferred tax credit of £27.4m for the 6 month period to
30 June 2016 and of £28.1m for the
year ended 31 December 2016.
Income statement current tax
expense
There is no income statement current tax expense impact for the
6 months ended 30 June 2016 or the
year ended 31 December 2016.
Adjustment F - decrease in trade and
other receivables
The decrease in trade and other receivables relates to the
restatement of accrued revenues as detailed in Adjustments B and C
above. The decrease in non-current accrued income is £41.7m as at
1 January 2016, and £79.6m at
31 December 2016, and the decrease in
current accrued income is £284.1m and £174.9m at 31 December 2016.
Adjustment G - Reclassification of
trade and other payables
In order to provide users with relevant financial information in
the primary financial statements, the Group has decided to
reclassify deferred income into its own primary statement line item
reflecting the materiality and nature of this balance in the
context of the Group’s business.
The decrease in trade and other payables relates to the
reclassification and restatement of deferred income as discussed
above. Prior to adoption of IFRS 15, deferred income was
classified within ‘Trade and other payables’ although this was not
accounted for as a financial liability.
Adjustment H - Reversal of accrued
income impairments
In 2016, the Group recognised an impairment of £47.1m historic
accrued income, of which £39.6m was recognised in underlying
profit, and £7.5m within the specific items column in relation to
the dispute with The Co-operative Bank plc. Under IFRS 15
this accrued income would not have been originally recognised as
the timing of revenue recognition has changed in comparison to the
previous accounting policy as discussed in Adjustment C above,
hence the adjustment of £47.1m for the year ended 31 December 2016 recognises the reversal of these
previous impairments.
Adjustment I - Reclassification of
significant restructuring
Following the adoption of IFRS 15, the Board has adopted a
policy to separately disclose the in year operating profit/loss
from significant new contract wins and related, or significant,
restructuring ("Significant new contract wins and restructuring")
within underlying results, in order for users of the financial
statements to obtain a proper understanding of the financial
information and the performance of the business.
The Group continually assesses the resourcing levels, both at a
divisional level and also in relation to the management and
delivery of individual contracts. This results in
restructuring in the normal course of business and any such charges
are recorded in "underlying before significant new contract wins
and restructuring" results. A significant restructuring is
assessed as that above this normal level of restructuring.
In the year ended 31 December
2016, the Board announced a major programme, with the
restructuring of the Group into 6 new reporting divisions under a
Group-wide programme. The cost of this Group-wide programme,
£59.4m, was charged to specific items, being the element above the
normal level of restructuring undertaken by the Group.
Following the adoption of the above policy, the 2016 income
statement has been restated to reclassify the cost of this
programme to 'Significant new contract wins and restructuring'
within underlying.