Results centre

Key document

Full year results statement 2016

(pdf, 1.5MB)
Key document

Full year results presentation 2016

(pdf, 1.5MB)
Key document

Annual Report 2016

(pdf, 7.8MB)

FY 2016 financial summary

Financial highlights Underlying1
2016
Underlying1
2015
Underlying
YOY change
Reported
2016
Reported
YOY change 
Revenue £4,898m £4,674m +5% £4,909m +1%
Operating profit £541.3m £639.0m (15)% £148.3m (28)% 
Profit before tax £475.3m £585.5m (19)% £74.8m (33)%
Earnings per share 56.67p 70.73p (20)% 5.55p (30)% 
Total dividend per share 31.7p 31.7p -
31.7p

1 Refer to appendix for calculation of Alternative Performance Measures.

FY 2016 summary

2016 financial summary: a challenging year

  • Underlying revenue growth on a like-for-like basis1 of 3.4% including 0.1% organic growth
  • Underlying cash flow from operations1 £750m (2015: £686m), a cash conversion ratio of 139% (2015: 108%)
  • Free cash flow after non-underlying items1 £409m (2015: £304m)
  • Underlying profit before tax1 down 19% to £475.3m (2015: £585.5m), including the recently announced £39.6m write down of accrued income with regard to our 2016 review of contracts
  • Reported profit before tax £74.8m (2015: £112.1m)
  • Underlying earnings per share1 down 20% to 56.67p (2015: 70.73p)
  • Reported earnings per share down 30% to 5.55p (2015: 7.96p)
  • Total dividend unchanged at 31.7p (2015: 31.7p)

Major contracts: existing relationships extended and first strategic partnership in Europe

  • £1.3bn of major contract wins and extensions (2015: £1.8bn) including: 
    • mobilcom-debitel customer services strategic partnership, worth £197m over 7 years
    • Extension of our relationship with Department for Work and Pensions Personal Independence Payments (PIP) assessments, worth £210m (based on volume assumptions)
  • Major contract win rate 1 in 3
  • Bid pipeline £4.0bn (December 2016: £3.8bn), with a weighted average contract length of 7 years (December 2016: 7 years)

Decisive actions position us better to exploit our fundamental strengths and return to growth

  • Business review: commenced process to exit the majority of Capita Asset Services and Specialist Recruitment businesses to increase focus on technology-enabled business process and customer management and reduce leverage
  • New leaner, simpler organisation and management structure: customer facing, with better alignment of sales and operations, shorter reporting lines, less complexity and more transparency
  • Performance improvement initiatives: cost actions and turn-around commenced in IT Services
  • Growth agenda: sales teams re-shaped to drive growth through both major contracts and additional new, high value replicable services to new and existing clients in the public and private sectors.

Andy Parker, Chief Executive of Capita plc, commented:

“2016 was a challenging year and Capita delivered a disappointing performance. We are determined to turn this performance around. We have taken quick and decisive action to reduce our cost base, increase management accountability, simplify the business, strengthen the balance sheet, and return the Group to profitable growth.

We remain very confident that our target markets continue to offer long term structural growth. Capita is well placed in these markets with our unique set of complementary capabilities and the talent of our people. The bid pipeline of major contract opportunities remains active, and we are also seeing success in providing additional new, high value, replicable services to clients.

The proposed sale of our Asset Services businesses and Specialist Recruitment businesses are on track. We have received good interest and, following regulatory approvals where required, we remain confident in concluding these transactions this year, which will leave us with a more focussed Group and significantly strengthen our balance sheet.

We expect 2017 to be a transitional year for the business, as we complete our disposals, bed down the structural changes inside the business, and re-position Capita for a return to growth in 2018”

(1) Refer to appendix for calculation of Alternative Performance Measures

FY 2016 CEO review

2016 was a challenging year and our financial performance was weaker than we had expected at the outset of the year. There were a number of reasons for this. The business process management (BPM) market in 2016 was generally more subdued, some client decisions were deferred and we also won a lower proportion of major bids than in recent years. Furthermore, some of our businesses under-performed and we experienced weakness in a number of discretionary services toward the year end.

This weaker financial performance masked a number of positive developments over the course of the year. We renewed and extended a significant number of contracts, including our Department for Work and Pensions Personal Independence Payments and BBC TV Licensing contracts, and announced our first strategic transformational customer management partnership in Europe with mobilcom-debitel.

Most importantly, we took a series of decisive actions in the fourth quarter to address the weaker trading performance, reposition the Group and create a simpler business, with a clear pathway to return to sustainable profitable growth:

  • In November, we announced changes to our management and business structure, effective 1 January 2017, which better align sales and operations to the markets and customers we address, shorten reporting lines, reduce complexity and increase management oversight.
  • In December, we announced our intention to dispose of a group of businesses within the Capita Asset Services division and, following unsolicited interest, our stand-alone Specialist Recruitment businesses to increase the Group's focus on technology-enabled BPM and reduce leverage. 
  • We commenced a number of performance improvement initiatives, including actions to reduce our cost base and the appointment of new management to drive the turn-around of our IT Services division.

Finally over the course of 2016, we re-shaped our sales teams to respond to the evolving needs of our clients in their dynamically changing markets and drive growth from additional, new high value replicable solutions alongside our continued focus on securing major contracts.

These actions position us better to exploit our fundamental strengths of having leading competitive positions in large, growing addressable markets and our unique combination of business re-engineering, customer service and IT, digital and software credentials.

(1) Refer to appendix for calculation of Alternative Performance Measures

Business development and future prospects

Bid pipeline: Our bid pipeline shows the total contract value of our major sales bids at a specific point in time, which we disclose 3 times a year. It contains all bids with total contracted revenue worth between £25m and a capped ceiling of £1bn, where we have been shortlisted to the last 4 or fewer. The total contract value of the bid pipeline currently stands at £3.8bn (December 2016: £3.8bn), comprised of 28 bids including 78% new business and 22% renewals and extensions, 61% private sector and 39% public sector, with a weighted average contract length of 7 years (December 2016: 7 years). We continue to have a large, active prospect list of opportunities behind the pipeline.

Our next material contract renewal is the DWP PIP contract, which is expected to exceed 1% of Group revenue this year and is due for renewal in 2019, following the recent 2 year extension.

Summary and future prospects: 2017 is a transitional year for Capita, as we complete our disposals, bed down the structural changes inside the business and re-position the Group for a return to growth in 2018.

The headwinds we faced in the second half of 2016 will affect trading performance in the first half of 2017, which we expect to be slightly weaker than the second half of last year, excluding the write down of accrued income. The structural and cost reduction actions we announced toward the end of 2016 will support progress in the second half of 2017. For the full year, we expect a similar trading performance to 2016 before the impact of the expected increase in pension charge. [This excludes the write down of accrued income and the potential impact from planned disposals.]

We are confident that the decisive actions we are taking will make Capita a simpler business, better positioned to exploit our fundamental strengths with a clear pathway to return to sustainable profitable growth from 2018 and beyond.

Results

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