Capita plc: Half-yearly Report

23 July 2014 


              Half year results for the 6 months to 30 June 2014
                Good financial performance and sales activity


                        Underlying  Underlying                 Reported
Financial highlights          2014*       2013**      Change          2014 
Revenue                     £2,071.0m    £1,818.8m   +13.9 %      £2,071.0m
Operating profit             £260.2m      £226.8m    +14.7 %       £182.4m
Profit before tax            £238.0m      £205.2m    +16.0 %       £152.3m
Earnings per share            28.88p      25.82p     +11.9 %        18.60p
Interim dividend per share     9.6p        8.7p      +10.3 %         9.6p 
Highlights 
Delivering profitable growth 
£1.3bn of major contract wins secured in H1 2014 including: 
- £400m strategic partnership contract with the Defence Infrastructure
Organisation (DIO) 
- £325m framework contract for Scottish Wide Area Network (SWAN) 
- £145m congestion charging and traffic enforcement schemes contract for
Transport for London (TfL) 
- £93.5m online customer management contract with John Lewis 
Major contract win rate above 2 in 3 
Organic revenue growth of 11% (H1 2013: 3%); full year organic
revenue growth expectation of at least 8%, net of attrition 
Bid pipeline replenished to a record £5.7bn (Feb 2014: £5.5bn); strong
platform for 2015/16 growth 
Highest ever level of prospects behind bid pipeline, with opportunities
across our diverse markets 
Active acquisition pipeline; £240m invested to date on 10
businesses, expanding capabilities and market reach to fuel future organic
growth 
Good financial performance 
Revenue up 13.9% to £2.1bn (H1 2013: £1.8bn**) 
Underlying profit before tax* up 16.0% to £238.0m (H1 2013: £205.2m**) 
Underlying operating margin* of 12.6% (H1 2013: 12.5%**) 
Operating cash flow up 21.6% to £291m*** (H1 2013: £239m); 112% cash
conversion (H1 2013: 105%) 
Gearing at 2.3 times net debt to EBITDA (H1 2013: 2.2 times) 
Andy Parker, Chief Executive of Capita plc, commented: 
"I am pleased to report good financial results for the first 6
months of the year, demonstrating the strength of Capita's sales offering and
operational delivery and the health of the UK customer and business process
management market. Our breadth of capability across a diversified and growing
market base enables us to move flexibly across sectors and to maintain a high
level of selectivity regarding the opportunities that we pursue. We have had
an excellent sales period securing £1.3bn of contracts and we are continuing
to see a high level of activity across our markets, particularly in the
private sector, providing a strong future platform for growth. 
As a consequence of our sales and acquisition performance in 2013
and to date in 2014, we have a high level of revenue visibility for 2014.
This, together with the strength of our bid and acquisition pipelines, gives
us confidence in our full year performance and provides a good platform for
growth in 2015 and beyond." 
*Excludes non-underlying items being: intangible amortisation, acquisition 
expenses, 
net contingent consideration movements, impairments, non-cash impact of mark-to-market finance costs.
**Includes businesses exited in H2 2013.
***Excludes closure costs of businesses exited in H2 2013 and Arch Cru costs. 
______________________________________________________________________________ 
Analyst presentation 
Andy Parker, Chief Executive of Capita plc, will host an analyst
presentation and conference call in London at 8.30am UK time today. 
There will be a conference call and live webcast of the full event.
Details can be found at www.capita.co.uk/investors. 
(Please dial into the call in time to allow for registration) 
8.30am conference call details below: 
Dial-in number: +44 20 3059 8125 
Replay: A replay of the conference call will be available for 7 days by
dialling +44 121 260 4861 (access code is 9825457#). 
______________________________________________________________________________ 
For further information: 
Capita plc                                         Tel: 020 7799 1525
Andy Parker, Chief Executive
Shona Nichols, Corporate Communications  Director 
Capita Press Office                                Tel: 020 7654 2152 or 
                                               020 7654 2399 out of hours 
FTI Consulting                                     Tel: 020 7269 7291
Andrew Lorenz 
About Capita 
Capita plc is the UK's leading provider of customer and business process
management (BPM) and integrated professional support service solutions. With
64,000 people at more than 350 sites, including 73 business centres across the
UK, Europe, India and South Africa, the Group 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), and is a constituent of the FTSE 100 with 2013 revenue of £3.9bn.
Further information on Capita plc can be found at: www.capita.co.uk 


                                 
                                  Capita plc
                   Results for the 6 months to 30 June 2014

Overview

Capita is today reporting good financial results for the first half
of 2014 underpinned by strong sales and operational performance.

Financial results for the first 6 months of the year include
revenue increasing by 13.9% to £2.1bn (H1 2013: £1.8bn**), underlying 
operating
profit* up 14.7% to £260.2m (H1 2013: £226.8m**) and underlying profit before
taxation* increasing by 16.0% to £238.0m (H1 2013: £205.2m**). Underlying
earnings per share* grew by 12% to 28.9p (H1 2013: 25.8p**) and we have
increased our dividend for the half year by 10.3% to 9.6p per share (H1 2013:
8.7p).

To date this year, we have secured £1.3bn of major contracts (H1
2013: £2.0bn, which included our largest ever contract with O2 of £1.2bn),
comprising 90% new business and 10% renewed contracts. As a result of strong
sales performance in 2013 and to date in 2014, we have generated strong
organic growth in H1 2014 of 11% (H1 2013: 3%). We have also swiftly
replenished the bid pipeline to £5.7bn (February 2014: £5.5bn), reflecting
strong sales momentum across our 11 private and public sector markets. In
addition to our established sectors, we continue to see a particularly high
level of interest in a number of our newer growth areas, including justice and
emergency services and across the telecoms, retail, utilities and financial
services sectors.

Our divisions are trading well with particularly strong performance
in our Workplace Services and Customer Management businesses. Following the
management changes introduced last year, together with the more positive
macroeconomic environment, our Property & Infrastructure and IT businesses are
reporting improved sales and trading performance.

We retain our position at the forefront of the customer and
business process management market by continually evolving our capability and
identifying changes in market dynamics which create a compelling business case
for outsourcing. The acquisition of small to medium sized businesses extend
our capabilities and market reach, enhancing our value creating propositions,
facilitating entry into new target sectors and thereby fuelling future organic
growth. To date in 2014, we have invested £240m in acquiring 10 businesses.
This has included establishing a footprint in a new sector for Capita through
the acquisition of a mortgage processing business. We have also extended our
existing customer management offering into a new geographic region through
acquiring a niche customer management business in Germany to support our
current and new clients' needs in Europe.

Financial update

Revenue - In the half year 2014, revenue increased by 13.9% to
£2,071m (H1 2013: £1,819m**). This comprised 11% organic growth (net of
attrition), 3% from acquisitions completed in 2013 and 1% to date in 2014,
less 1% from businesses exited in H2 2013. We now operate across 11
diversified markets with revenue derived 51% private and 49% public sector.

Operating profit and margin - In H1 2014, the Group's underlying
operating margin* was 12.6% (H1 2013: 12.5%**). The increase in margin in the
first half is due to a combination of factors including the improvement in our
Property & Infrastructure and IT Services businesses and the disposal of the
underperforming insurance businesses in the second half of 2013. These were
partly offset by the expected start up costs on some key major contracts and
the ending of the Disclosure and Barring contract in March 2014.

Our large scale infrastructure, lean corporate overhead, the high
level of selectivity we maintain regarding bid opportunities and the value
creating nature of our services enables us to retain double digit Group
operating margins while providing competitive pricing for clients. We remain
confident that underlying full year Group operating margins will be maintained
in the range of 12.5% to 13.5% for the forseeable future.

Dividend - The Board has declared an interim dividend of 9.6p per
ordinary share (H1 2013: 8.7p) representing an increase of 10.3%. The interim
dividend will be payable on 7 October 2014 to shareholders on the register at
the close of business on 29 August 2014.

Cash flow - In H1 2014, £291m*** (H1 2013: £239m) was generated by
operations representing an operating profit1 to cash conversion ratio*** of 
112%
(H1 2013: 105%). This high conversion rate reflects the Group's focus on cash
generation and working capital management which is firmly embedded through all
our divisions and business units. Based on current circumstances, we are
comfortable that we can continue to achieve a medium to long term annual cash
conversion ratio at or above 100%.

Underlying free cash flow, defined as underlying operating cash
flow*, less capital expenditure, interest and taxation for the half year was
£170m (H1 2013: £161m).

Capital expenditure - We aim to contain capital expenditure at or
below 4% of revenue. In H1 2014, we met this objective, with net capex at 2.8%
of revenue (H1 2013: 2.6%). There are currently no indications of significant
capex increases in our business forecasts or bid pipeline.

Return on capital employed - We focus on driving a healthy return
on capital. Over the last 12 months to 30 June 2014, our post-tax return on
average capital employed was 15.4%* (12 months to 30 June 2013: 15.1%**). This
compares to our estimated post-tax WACC which is 7.7%.

To further align management interests with those of our shareholders, earlier
this year we introduced ROCE targets to the incentive schemes of our Board
Directors and our Executive Management Team, alongside the existing EPS
targets. With the key driver of ROCE being organic profit growth and sound
capital and cashflow management, we plan to include this measure in all of the
Group's long term employee share incentive schemes.

Debt profile - As at 30 June 2014, we have £1,133m of private
placement bond debt of which only £11m matures in 2014, £97m in 2015 and the
remainder gradually maturing to 2021. In addition, we have £300m of bank debt
of which £200m matures in July 2015 and a £425m revolving credit facility
maturing in December 2015. In total, 52% of our debt is subject to fixed
interest rates and 48% is subject to floating rates.

We expect to keep the ratio of net debt to EBITDA in the range of 2
to 2.5 over the long term and we would be unlikely to incur borrowings which
would reduce interest cover below 7 times. At 30 June 2014, our annualised net
debt to EBITDA ratio was 2.3 (H1 2013: 2.2**) with annualised interest cover at
13 times (H1 2013: 11 times).

* Excludes non-underlying items being: intangible amortisation, acquisition 
expenses, 
net contingent consideration movements, impairments, non-cash impact of mark-to-
market finance costs.
** Includes businesses exited in H2 2013.
*** Excludes closure costs of businesses exited in H2 2013 and Arch Cru costs.


Delivering profitable growth

We generate profitable growth by winning major contracts from new
and existing customers and through acquiring businesses that broaden our
capability and market reach, enhancing our sales propositions and creating
future organic growth.

As demonstrated by our recent sales performance and the health of
our bid pipeline, we are currently experiencing a high level of activity, both
in our central major sales team, which targets contracts over £50m and in our
divisional sales teams. Opportunities sitting behind our bid pipeline across
our diverse markets are at their highest ever level.

Major contracts: We have made a good start to the year securing 12
major contracts with an aggregate value of £1.3bn in the first 6 months (H1
2013: 6 contracts totalling £2.0bn, which included our largest ever contract
with O2 of £1.2bn). Our major sales win rate in this period was above 2 in 3.
This includes:

-  BAE - signed a strategic partnership contract with BAE Systems
Maritime - Submarines to transform the existing method of IT service delivery
for its submarine building business in a contract expected to be worth between
£60m and £70m over the next five years. We will deliver an enhanced IT 
service
model across the submarine building business which will be aligned with the
wider BAE Systems group IT framework. Capita will develop a strategic
partnership capable of delivering innovation alongside a robust and evolving
IT management service to meet the changing needs of BAE Systems Maritime -
Submarines.

-  John Lewis - selected by John Lewis to provide its online
contact centre. Under the agreement, which is worth £93.5m over 5 years,
Capita will support John Lewis' online growth strategy and deliver a digital
service, built around John Lewis' customers, that integrates with the full
range of customer contact channels. Capita will apply the latest technology
and service design methods to deliver an enhanced experience to John Lewis'
customers and make it even easier for them to engage with the brand.

-  Ministry of Defence (MOD) - selected to be the Strategic
Business Partner for the Defence Infrastructure Organisation (DIO). Capita
will lead a partnership comprising two integrated sub-contractors, URS and PA
Consulting. The 10-year contract could be worth around £400m to Capita. The
partnership will lead the management and transformation of the UK's national
and international defence infrastructure. It will help to unlock the
knowledge, skills and resources that already exist within the DIO while adding
capability to tackle the significant cost-saving targets currently facing the
MOD.

-  Scottish Wide Area Network (SWAN) - signed a framework contract
to deliver SWAN, a single public services network for the use of all public
service organisations within Scotland. The contract value for SWAN is up to
£325m over 9 years. More than 4,600 sites will be connected to the initial
network including schools, hospitals, GP surgeries, pharmacists and local
council offices. As part of the Scottish Government's national digital public
services strategy, Capita will deliver a platform designed to support the ever
increasing need for data sharing and tighter interworking requirements across
the wider Scottish public sector.

-  Transport for London (TfL) - secured a 5 year contract with TfL
to operate and enforce the congestion charging, low emission zone and traffic
enforcement notice processing schemes. Capita will provide the IT systems,
back office and contact centre to run the schemes and the associated
enforcement processes. Capita will take responsibility for the schemes in
November 2015, following a period of implementation which commences in 2014.
The overall agreement, including the implementation period, is expected to
generate revenue of approximately £145m to Capita.

-  Major contracts worth £25m - £50m: We have secured a further 7
contracts worth an aggregate value of £263m including a new contract with
Genesis Housing Association and an extension to our Metropolitan Police radio
managed services contract.

Other updates - Electronic Monitoring: Under an interim services
agreement with the Ministry of Justice, Capita took on responsibility for the
frontline delivery of the existing electronic monitoring operations in March
2014. We have now been awarded the contract for the new service which will be
introduced in stages beginning around May 2015. In the meantime, Capita will
continue to deliver the current service. As previously disclosed, we expect
the new contract to generate revenues of c.£400m to Capita over the initial 6
year period.

Bid pipeline: Following a period of strong sales wins, the pipeline
has been replenished swiftly and currently stands at £5.7bn (February 2014:
£5.5bn) including 27 bids of which 90% relates to new business and 10% to
contract renewals. The pipeline is well diversified across our target markets
and is comprised of 47% in the private sector, mainly in financial services,
utilities, telecoms and retail and 53% public sector, primarily in justice and
local government. We are expecting over 50% of bids in the current pipeline to
reach decisions by the year end.

We announce the pipeline in February, July and November and it is
therefore a snapshot of major bid opportunities at a specific point in time.
The pipeline typically reflects the health of the outsourcing market and can
be a useful indicator of Capita's potential organic growth. It includes bids
worth £25m or above, capped at £1bn and where we have been shortlisted by the
client to the last 4 bidders or fewer.

Contract rebids: We have one material contract up for rebid in 2015
(arising from a recent acquisition), and then no further material rebids for
the next 5 years (defined as having forecast annual revenue in excess of 1% of
2013 revenue).

Securing value enhancing acquisitions

Our acquisition strategy is to expand our capability and market
reach to generate further future organic growth. We acquire small to medium
sized businesses which build capability in existing areas and enhance our
sales propositions and which also provide accelerated entry into new sectors.
This is clearly evidenced by the acquisitions we have made in the last 3 years
which are now a key source of our growth, for example, following our
acquisitions in the customer management sector, we were able to secure
contracts with O2 and npower and in the justice market, we secured the
Electronic Monitoring contract.

To date in 2014, we have invested a total of £240m in acquiring 10
organisations including:

Expanding our presence and capability in the utilities sector: To
support our growing presence in the utilities sector and enhance our data
management capabilities, we have acquired AMT-SYBEX Group (AMT) a proprietary
software business providing software and related services in mobile technology
and smart data management to the utilities and transport sectors. We acquired
the business for an initial consideration of £82m on a cash free, debt free
basis, plus a contingent consideration of up to £23m (based on the business
reaching specific profit targets over the first 12 months of ownership).

Increasing our IT networking capabilities: We have extended our
networking capabilities with the acquisition of IT network services provider
Updata Infrastructure (UK) for a cash consideration of £80m. Updata provides a
range of networking and connectivity services to mainly public sector clients
and is working with Capita on the framework contract to deliver SWAN. Updata's
fully accredited network provides a secure and trusted platform from which
multiple services can be delivered across both the private and public sectors.
Following the acquisition, Capita's existing networking business will be
combined with Updata to create the UK's leading networking integrator.

Extending our capabilities into a new financial services segment:
We have acquired Crown Mortgage Management (`Crown') a provider of residential
and commercial mortgage administration services to banks and financial
institutions for a cash consideration of £7.5m. Crown is one of the longest
established residential and small balance commercial mortgage servicers in the
UK and has significant experience in managing clients' strategies across both
performing and non-performing mortgage assets. Capita currently processes
£129bn of commercial loans on behalf of banks. The combination of Crown's
specialist skills with Capita's large scale administration capability and
infrastructure provides us with a strong platform for growth in this sector.

Taking our customer management capabilities into a new geographic
region: Earlier this month, we further enhanced this model through the
acquisition of tricontes, a Munich based customer management company which
adds to Capita's customer management capability in the UK and enables us to
further support our existing clients, a number of whom have German or other
European heritage. The acquisition allows Capita to gain experience and
expertise in a new region where there is strong appetite for customer
management services and provides a solid platform for gradual, organic
expansion. tricontes specialises in delivering a premium service to clients,
including contact centre benchmarking and model office services across the
retail, telecommunications, utilities and insurance industries.

Market landscape

The UK customer management and BPM market continues to provide
significant growth potential for Capita. Leading independent industry
analysts, Ovum, estimate that the total UK customer management and BPM
addressable market is £126bn per year (72% private and 28% public sector),
with less than 10% (£11.9bn) outsourced in 2013.

With this wealth of market opportunity, Capita is well positioned
for future growth, particularly due to its continuous drive to broaden its
capability and expertise, increasing its ability to penetrate the market
further. Operating across 11 distinct markets allows Capita to move flexibly
across sectors and focus our sales and operational resources on the most
attractive contract opportunities where we can meet both our clients'
expectations and generate good returns for the Group.

Market demand for Capita's services remains high due to
organisations having to evolve rapidly to meet the challenges they face in
their sectors due to structural, regulatory, technology and customer behaviour
change particularly in an increasingly digital and mobile world. Our expertise
in insight, analytics-led and technology enabled services allows us to help
our clients meet these challenges by driving organisational change, improving
customer experiences and creating enhanced value for private and public sector
organisations.

Future prospects

The market drivers for customer and business process management
remains strong resulting in high levels of activity across our 11 target
markets. This provides a good platform for long term growth in these markets
and new areas where we see opportunity to replicate our experience and
expertise and add value. Our proven business model is underpinned by robust
financial and governance structures which result in a disciplined sales
process, robust operational delivery and good, sustainable financial
performance.

We have delivered strong organic growth, excellent cash conversion
and stable double digit margins in the first half of 2014. The combination of
our good financial and sales performance to date in 2014 and the continued
strength of our bid and acquisition pipelines gives us confidence in our full
year performance and provides a steady platform for continued growth in 2015
and beyond.
                                    -Ends-

Half year condensed consolidated income statement
for the 6 months ended 30 June 2014


                    Notes                 30 June 2014                   30 
June 2013 


                                                Non-                            
        Non-


                         Underlying   underlying         Total    
Underlying  underlying         Total 
                                 £m           £m            £m           
 £m          £m            £m
Continuing operations:
Revenue                     3  2,071.0           --        2,071.0      1,818.8  
     --        1,818.8
Cost of sales                 (1,491.6 )         --       (1,491.6 )   (1,307.4 
)        --       (1,307.4 )
Gross profit                     579.4           --          579.4        511.4  
     --          511.4
Administrative expenses         (319.2 )      (77.8 )       (397.0 )     (284.6 
)     (62.0 )       (346.6 )
Operating profit            3    260.2        (77.8 )        182.4        226.8  
  (62.0 )        164.8
Net finance costs                (22.2 )       (7.9 )        (30.1 )      (21.6 
)      14.3           (7.3 )
Profit before tax           3    238.0        (85.7 )        152.3        205.2  
  (47.7 )        157.5
Income tax expense               (44.0 )       16.4          (27.6 )      (39.0 
)       9.9          (29.1 )
Profit for the period            194.0        (69.3 )        124.7        166.2  
  (37.8 )        128.4
Attributable to:
Owners of the Company            190.1        (67.7 )        122.4        167.9  
  (37.5 )        130.4
Non-controlling
interests                          3.9         (1.6 )          2.3         (1.7 
)      (0.3 )         (2.0 ) 
                             194.0        (69.3 )        124.7        166.2  
  (37.8 )        128.4
Earnings per share          4
- basic                          28.88 p     (10.28 )p       18.60 p      25.82 
p     (5.77 )p       20.05 p
- diluted                        28.62 p     (10.19 )p       18.43 p      25.56 
p     (5.71 )p       19.85 p 
Half year condensed consolidated statement of comprehensive income
for the 6 months ended 30 June 2014 
                                                     30 June 2014         
30 June 2013 
                                                    £m        £m         
£m        £m 
Profit for the period                                          124.7             
128.4
Other comprehensive (expense)/income
Items that will not be reclassified subsequently
to profit or loss
Actuarial (loss)/gain on defined benefit pension
schemes                                            (28.0 )                 1.7
Deferred tax effect                                  5.6                  (0.4 
) 


                                                               (22.4 )          
      1.3
                                                               (22.4 )          


  1.3
Items that will or may be reclassified
subsequently to profit or loss
Exchange differences on translation of foreign
operations                                                      (5.2 )           
  1.7
Gain/(loss) on cash flow hedges                      2.3                  (0.3 
)
Reclassification adjustments for losses included
in the income statement                              2.8                   1.2
Income tax effect                                   (1.0 )                (0.2 
) 


                                                                 4.1            
      0.7
                                                                (1.1 )          


  2.4
Other comprehensive (expense)/income for the
period net of tax                                              (23.5 )           
  3.7
Total comprehensive income for the period net of
tax                                                            101.2             
132.1
Attributable to:
Owners of the Company                                           98.9             
134.1
Non-controlling interests                                        2.3             


     (2.0 )
                                                               101.2            
    132.1

Half year condensed consolidated balance sheet
at 30 June 2014
                                                   30 June  31 December
                                                      2014       2013


                                                    £m         £m
Non-current assets
Property, plant and equipment                        441.3      419.8
Intangible assets                                  2,550.7    2,330.7
Financial assets                                     124.0      166.4
Trade and other receivables                           71.6       77.6 
                                               3,187.6    2,994.5
Current assets
Financial assets                                       4.6        3.1
Funds assets                                         128.9      100.8
Trade and other receivables                        1,042.9      892.9
Cash                                                 538.6      610.8 
                                               1,715.0    1,607.6
Total assets                                       4,902.6    4,602.1
Current liabilities
Trade and other payables                           1,173.5    1,023.5
Overdrafts                                           504.6      453.0
Financial liabilities                                 75.9       79.2
Funds liabilities                                    128.9      100.8
Provisions                                            67.6       62.2
Income tax payable                                    49.5       52.5 
                                               2,000.0    1,771.2
Non-current liabilities
Trade and other payables                              22.3       26.5
Financial liabilities                              1,802.4    1,729.9
Deferred tax liability                                 2.8        7.1
Provisions                                            38.5       52.7
Employee benefits                                    149.1      118.4 
                                               2,015.1    1,934.6
Total liabilities                                  4,015.1    3,705.8
Net assets                                           887.5      896.3
Capital and reserves
Issued share capital                                  13.8       13.8
Share premium                                        494.1      491.2
Employee benefit trust and treasury shares            (0.4 )     (0.4 )
Capital redemption reserve                             1.8        1.8
Foreign currency translation reserve                  (3.2 )      2.0
Cash flow hedging reserve                            (20.0 )    (24.1 )
Retained earnings                                    337.5      350.4
Equity attributable to owners of the Company         823.6      834.7
Non-controlling interests                             63.9       61.6
Total equity                                         887.5      896.3 
Included in aggregate financial liabilities is an amount of £1,232.6m (31
December 2013: £1,267.3m) which represents the fair value of the Group's bonds
which should be considered in conjunction with the aggregate value of currency
and interest rate swaps of £120.9m (31 December 2013: £147.1m) included in
financial assets and £21.0m (31 December 2013: £13.5m) included in financial
liabilities. Consequently, this gives an effective liability of £1,132.7m (31
December 2013: £1,133.7m). 
Half year condensed consolidated statement of changes in equity 
for the 6 months ended 30 June 2014 


                                  Employee
                                   benefit


                                 trust                             Foreign   
Cash 
                                     &     Capital                currency   
flow                  Non- 
            Share      Share  treasury  redemption    Retained translation  
hedging           controlling    Total 
          capital    premium    shares     reserve    earnings     reserve  
reserve     Total  interests    equity 
               £m         £m        £m          £m          £m         
 £m       £m        £m         £m        £m
At 1 January
2013             13.8      470.4      (0.4 )      1.8        408.1         1.7  
  (17.3 )   878.1         --     878.1
Profit for the
period             --         --        --         --        130.4          --   
 --     130.4       (2.0 )   128.4
Other
comprehensive
income/(expense)   --         --        --         --          1.3         1.7   
0.7       3.7         --       3.7
Total
comprehensive
income/(expense)
for the period     --         --        --         --        131.7         1.7   
0.7     134.1       (2.0 )   132.1
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     --         --        --         --          4.7          --   
 --       4.7         --       4.7
Acquisition of
subsidiary with
a
non-controlling
interest           --         --        --         --           --          --   
 --        --       30.2      30.2
Shares issued     0.1       11.4        --         --           --          --   
 --      11.5         --      11.5
Equity dividends
paid               --         --        --         --       (102.1 )        --   
 --    (102.1 )       --    (102.1 )
At 30 June 2013  13.9      481.8      (0.4 )      1.8        448.3         3.4  
  (16.6 )   932.2       28.2     960.4
At 1 January
2014             13.8      491.2      (0.4 )      1.8        350.4         2.0  
  (24.1 )   834.7       61.6     896.3
Profit for the
period             --         --        --         --        122.4          --   
 --     122.4        2.3     124.7
Other
comprehensive
income/(expense)   --         --        --         --        (22.4 )      (5.2 
)    4.1     (23.5 )       --     (23.5 )
Total
comprehensive
income/(expense)
for the period     --         --        --         --        100.0        (5.2 
)    4.1      98.9        2.3     101.2
Share based
payment            --         --        --         --          5.8          --   
 --       5.8         --       5.8
Income tax
deduction on
exercise of
share options      --         --        --         --          2.0          --   
 --       2.0         --       2.0
Deferred income
tax relating to
share
based payments     --         --        --         --          1.1          --   
 --       1.1         --       1.1
Fair value
movement in put
option of
non-controlling
interest           --         --        --         --         (4.6 )        --   
 --      (4.6 )       --      (4.6 )
Shares issued      --        2.9        --         --           --          --   
 --       2.9         --       2.9
Equity dividend
paid               --         --        --         --       (117.2 )        --   
 --    (117.2 )       --    (117.2 )
At 30 June 2014  13.8      494.1      (0.4 )      1.8        337.5        (3.2 
)  (20.0 )   823.6       63.9     887.5 
Half year condensed consolidated cash flow statement
for the 6 months ended 30 June 2014 
                                                                30 June   
30 June 
                                                                   2014     
 2013 
                                                           Notes     £m     
£m
Cash flows from operating activities
Operating profit on continuing activities before interest and
taxation                                                              182.4     
164.8
Adjustment for non-cash items:
Depreciation                                                           39.2     
 38.5
Amortisation of intangible assets (treated as depreciation)             3.1     
  1.3
Amortisation of intangible assets recognised on acquisition            71.1     
 52.9
Share based payment expense                                             5.8     
  5.0
Employee benefits                                                       0.1     
  1.7
Non-underlying items                                                   (2.0 )   
  1.6
Movement in provisions (net)                                           (0.2 )   
 (0.9 )
Loss on disposal of property, plant and equipment                       0.7     
  0.1
Movement in receivables and payables                                   (9.3 )   
(25.8 )
Cash generated from operations before non-underlying cash
items                                                                 290.9     
239.2
Arch Cru                                                               (0.7 )    
--
Movement in restructuring provision                                   (10.5 )    
--
Cash generated from operations                                        279.7     
239.2
Income tax paid                                                       (42.0 )   
(11.8 )
Net interest paid                                                     (19.8 )   
(19.2 )
Net cash inflow from operating activities                             217.9     
208.2
Cash flows from investing activities
Purchase of property, plant and equipment                             (55.9 )   
(41.5 )
Purchase of intangible assets                                          (3.1 )   
 (5.4 )
Proceeds from sale of property, plant and equipment                     0.3      
--
Acquisition of public sector subsidiary partnerships                   (6.8 )   
(24.9 )
Debt repaid on acquisition of public sector subsidiary
partnerships                                                             --     
 (9.2 )
Acquisition of subsidiary undertakings and businesses                (219.6 )  
(190.1 )
Debt repaid on acquisition of subsidiary undertakings                 (17.1 )   
 (1.6 )
Cash acquired with subsidiary undertakings                             15.7     
 10.2
Deferred consideration paid                                           (23.9 )    
--
Contingent consideration paid                                          (8.5 )   
(14.0 )
Purchase of financial assets                                           (5.9 )   
 (0.7 )
Net cash outflow from investing activities                           (324.8 )  
(277.2 )
Cash flows from financing activities
Issue of ordinary share capital                                         2.9     
 11.5
Dividends paid                                                  5    (117.2 )  
(102.1 )
Capital element of finance lease rental payments                8      (2.4 )   
 (4.2 )
Proceeds on issue of debt                                       8     100.0      
--
Financing arrangement costs                                            (0.2 )    
--
Repayment of bonds and long term debt                           8        --     
(32.3 )
Net cash outflow from financing activities                            (16.9 )  
(127.1 )
Net decrease in cash and cash equivalents                            (123.8 )  
(196.1 )
Cash and cash equivalents at the beginning of the period              157.8     
306.7
Cash and cash equivalents at 30 June                                   34.0     
110.6
Cash and cash equivalents comprise:
Cash at bank and in hand                                              538.6     
544.1
Overdraft                                                            (504.6 )  
(433.5 )
Total                                                           8      34.0     
110.6 
Notes to the half year condensed consolidated financial statements
for the 6 months ended 30 June 2014 
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 2014 were authorised for issue in accordance with a
resolution of the Directors on 22 July 2014. 
2 Basis of preparation, judgements and estimates, 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 2014 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 2013, which have been prepared in accordance with
IFRSs as adopted by the European Union. 
This condensed consolidated half year financial information does
not comprise statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 December 2013
were approved by the Board of Directors on 26 February 2014 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 2014 have not been audited or reviewed by 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 and
liabilities and 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 2013. 
(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 2013, except for the adoption of the following new
standards, amendments and interpretations with an initial date of application
of 1 January 2014. 
IAS 27 Amendment: Separate Financial Statements Reissued as IAS 27 Separate
Financial Statements (as amended in 2011) previously IAS 27 Consolidated and
Separate Financial Statements (2008). Consolidation requirements previously
forming part of IAS 27 (2008) have been revised and are now contained in IFRS
10 Consolidated Financial Statements. There has been no impact in relation to
this amendment. 
IAS 28 Amendment: Investments in Associates and Joint Ventures The objective
of the proposed amendments is to provide additional guidance to IAS 28 on the
application of the equity method, a method of accounting whereby the
investment is initially recognised at cost and subsequently adjusted to
reflect the change in the investor's share of the investee's net assets.
Specifically, it aims to provide guidance on how investors should recognise
their share of the changes in the net assets of an investee that are not
recognised in profit or loss or other comprehensive income of the investee,
and that are not distributions received (`other net asset changes'). There has
been no impact as a result of applying this amendment. 
IAS 32 Amendment: Offsetting Financial Assets and Financial Liabilities The
amendment clarifies that a legal and enforceable right of set-off exists if
that set-off is not contingent on a future event and is enforceable both in
the normal course of business and in the event of default, insolvency or
bankruptcy of the entity and all counterparties; and that some gross
settlement systems may be equivalent to net settlement. The impact of not
having the right to enforce set-off in the circumstances described, would be
to decrease the amounts that could be set-off; there is no impact on the Group
as a result of applying the amended standard. 
IFRS 10 Consolidated Financial Statements - establishes the principles for the
presentation and preparation of consolidated financial statements when an
entity controls one or more other entities. An investor determines whether it
is a parent by assessing whether it controls one or more investees. An
investor considers all relevant facts and circumstances when assessing whether
it controls an investee. An investor controls an investee when it is exposed,
or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee.
An investor controls an investee if and only if the investor has all of the
following elements: 
- power over the investee, i.e. the investor has existing rights that give it
the ability to direct the relevant activities (the activities that
significantly affect the investee's returns) 
- exposure, or rights, to variable returns from its involvement with the
investee 
- the ability to use its power over the investee to affect the amount of the
investor's returns 
The Group has conducted a review of the entities that it consolidates to
ensure that control is exhibited. This exercise demonstrated that the Group
had the requisite control over these entities and thus the introduction of the
new standard has not impacted these financial statements. 
IFRS 10, IFRS 12, IAS 27 Amendments: Investment Entities provides an exception
to the requirement to consolidate for entities that meet the definition of an
"Investment entity" under IFRS 10 Consolidated Financial Statements i.e. one
whose sole purpose is to make investments for capital appreciation, investment
income, or both and who evaluate the performance of those investments on a
fair value basis. The amendments also set out the disclosure requirements of
such entities and requirements for their separate financial statements. As the
Group has no component that would meet the definition as described above,
there is no impact from these amendments. 
IFRS 11 Joint Arrangements involves the assessment of an entity's rights and
obligations in respect of a joint arrangement and how it accounts for those
rights and obligations in accordance with the classification of that joint
arrangement. The Group has made an assessment of each of its activities that
might involve a joint arrangement and potentially result in a change in
presentation. On conclusion of this exercise it was determined that there had
been no change in presentation required by the new standard as no existing
arrangements fall to be treated as proposed. 
IFRS 12 Disclosure of Interests in Other Entities is a consolidated disclosure
standard requiring a wide range of disclosures about an entity's interests in
subsidiaries, joint arrangements, associates and unconsolidated 'structured
entities'. The standard applies to annual financial statements only. The
impact of the standard will be to introduce extra disclosure into the annual
financial statements describing the nature of the Group's interests in the
types of entity referred to above. 
IFRS 10, IFRS 11, IFRS 12 Amendments: Transition Guidance The amendments are
intended to provide additional transition relief in IFRS 10 , IFRS 11 Joint
Arrangements and IFRS 12 Consolidated Financial Statements, IFRS 11 Disclosure
of Interests in Other Entities, by "limiting the requirement to provide
adjusted comparative information to only the preceding comparative period".
Also, amendments were made to IFRS 11 and IFRS 12 to eliminate the requirement
to provide comparative information for periods prior to the immediately
preceding period. 
IAS 36 Amendments: Recoverable Amount Disclosures for Non-Financial Assets
These amendments remove the unintended consequences of IFRS 13 Fair Value
Measurement on the disclosures required for IAS 36 Impairment of assets. In
addition, these amendments require disclosure of the recoverable amounts for
the assets or cash-generating units for which an impairment loss has been
recognised or reversed during the period. 
IAS 39 Amendments: Novation of Derivatives and Continuation of Hedge
Accounting These amendments provide relief from discontinuing hedge accounting
when novation of a derivative designated as a hedging instrument meets certain
criteria. These amendments have no impact on the Group as the Group has not
novated any derivatives in the current or prior period. 
IFRIC 21 Levies is effective for annual periods beginning or after 1 January
2014 and is applied retrospectively. It provides guidance on when to recognise
a liability for a levy imposed by a government, both for levies that are
accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and
Contingent Assets and those where the timing and amount of the levy is
certain. The Interpretation covers the accounting for outflows imposed on
entities by governments (including government agencies and similar bodies) in
accordance with laws and/or regulations. However, it does not include income
taxes, fines and other penalties, liabilities arising from emissions trading
schemes and outflows within the scope of other Standards. There has been no
impact on these financial statements as a result of adopting this
interpretation. 
(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 2014. As described
on pages 35 to 39 of the Group's Annual Report for 2013, 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 risks
faced by the Group have not changed significantly over the first 6 months of
2014 and are not expected to change materially in the remaining 6 months. 
The principal risks include those arising from: failure to meet
service level agreements, possible loss of contracts and damage to brand
reputation; counter-party failure including disruption to supply chains or
service interruption; failure to achieve planned synergies in acquisitions;
weaker economic conditions are a key driver for outsourcing but extreme
economic uncertainty may result in delays in purchasing decisions and reduced
discretionary spend in some market segments; regulatory changes in different
jurisdictions may impact businesses in those locations; failure to attract and
maintain key staff; failure to secure sensitive or confidential data; and
failure to comply with complex laws and regulations. 
Although the Group is not directly exposed to significant overseas
sovereign and currency risks, it is exposed indirectly to increased
counter-party risk. The Group attempts to mitigate this risk by counter-party
monitoring and the avoidance of concentrations of counter-party risk. 
The Group has considerable financial resources together with long
term contracts with a wide range of public and private sector clients and
suppliers. As a consequence, the Directors believe the Group is well placed to
manage its business risks successfully. 
After making enquiries and in accordance with the FRC's "Going
Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009", the
Directors have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing the half year
condensed consolidated financial statements. 
3 Segmental information 
The following tables present revenue and profit information
regarding the Group's operating segments for the six months ended 30 June 2014
and 2013 respectively. The comparative figures have been restated due to a
reorganisation of the Group's business segments and a consequent change in the
way in which the results of the business are reported to the Group Board.
6 months ended 30 June                                      2014                 


                   2013
                                             Inter-                             
    Inter-


                              Total     segment     External         Total   
segment     External 
                            revenue     revenue      revenue        evenue   
revenue      revenue
Analysis of segment revenue          £m          £m           £m            
£m          £m           £m 
Health & Wellbeing                 96.3       (11.7 )       84.6          106.7  
 (10.8 )       95.9
IT Services                       295.4       (60.0 )      235.4          283.0  
 (53.7 )      229.3
Professional Services             335.4       (63.3 )      272.1          312.9  
 (56.5 )      256.4
Justice & Secure Services         262.5       (19.8 )      242.7          194.4  
 (19.2 )      175.2
Property & Infrastructure         159.5       (16.4 )      143.1          140.7  
 (15.3 )      125.4
Workplace Services                361.8       (16.1 )      345.7          292.0  
 (17.0 )      275.0
Customer Management &
International                     343.1        (8.3 )      334.8          198.2  
 (10.2 )      188.0
Asset Services                    131.3       (11.0 )      120.3          121.2  
 (10.5 )      110.7
Insurance & Benefits Services     332.4       (40.1 )      292.3          399.8  
 (36.9 )      362.9
Total segments                  2,317.7      (246.7 )    2,071.0        2,048.9  


    (230.1 )    1,818.8
                                                   6 months to  6 months to


                                              30 June 2014 30 June 2013
Analysis of segment profit                                  £m           £m 
Health & Wellbeing                                         9.5         15.5
IT Services                                               15.3         10.0
Professional Services                                     62.7         59.6
Justice & Secure Services                                 30.9         30.8
Property & Infrastructure                                 10.1          6.9
Workplace Services                                        43.6         33.4
Customer Management & International                       36.9         21.2
Asset Services                                            29.4         27.6
Insurance & Benefits Services                             21.8         21.8
Total underlying segment profit                          260.2        226.8
Net underlying finance costs                             (22.2 )      (21.6 )
Underlying profit before tax                             238.0        205.2
Non-underlying items:
Intangible amortisation                                  (71.1 )      (52.9 )
Acquisition costs                                         (8.7 )       (7.5 )
Other operating income/(expense)                           2.0         (1.6 )
Finance (expense)/income                                  (7.9 )       14.3
Profit before tax                                        152.3        157.5 
4 Earnings per share 
The average number of shares in issue during the period was 658.2m
(30 June 2013: 650.2m). The diluted earnings per share have been calculated on
the profit for the period attributable to shareholders of £122.4m (30 June
2013: £130.4m) and an average diluted number of shares of 664.2m (30 June
2013: 657.0m). As at July 22, 2014, there were 658.8m shares in issue. 
5 Dividends 
The interim dividend of 9.6p (2013: 8.7p) per share (not recognised
as a liability at 30 June 2014) will be payable on 7 October 2014 to ordinary
shareholders on the register at the close of business on 29 August 2014. The
dividend disclosed in the cash flow statement represents the final ordinary
dividend of 17.8p (2013: 15.6p) per share as proposed in the 31 December 2013
financial statements and approved at the Group's AGM (not recognised as a
liability at 31 December 2013). 
6 Business combinations 
The Group has made a number of acquisitions in the period which are shown in
aggregate below: 


                                                   Provisional fair
                                                     value to Group
                                                                 £m

Property, plant and equipment                                   7.3
Intangible assets                                              99.0
Trade and other receivables < 1 year                           42.3
Trade and other receivables > 1 year                            0.9
Cash and cash equivalents                                      15.7
Trade and other payables < 1 year                             (51.5 )
Accruals < 1 year                                             (16.3 )
Trade and other payables > 1 year                              (4.8 )
Provisions                                                     (2.6 )
Income tax                                                     (0.2 )
Deferred tax                                                  (16.4 )
Employee benefits liability                                    (0.2 )
Long term debt                                                (17.1 )
Net assets                                                     56.1
Goodwill arising on acquisition                               191.7


                                                          247.8
Discharged by:
Cash consideration paid                                       215.4
Contingent consideration accrued                               32.4 
                                                          247.8
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 2014, the Group has agreed to pay the
vendors additional consideration dependent on the achievement of performance
targets in the periods post acquisition. These performance periods are of up
to 4 years in duration and will be settled in cash and loan notes on their
payment date on achieving the relevant target. The range of the additional
consideration payment is estimated to be between £20m and £40m. The Group has
included £32.4m as contingent consideration related to the additional
consideration, which represents its fair value at the acquisition date.
Contingent consideration has been calculated based on the Group's expectation
of what it will pay in relation to the post-acquisition performance of the
acquired entities by 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 £39.2m. 
7 Provisions 


                                                Insurance
                              Restructuring       captive    Property


                              provision     provision   provision      
Other     Total 
                                     £m            £m          £m        
 £m        £m 
At 1 January 2014                      41.3          25.1        36.6       
11.9     114.9
Utilisation                           (10.5 )        (1.1 )      (1.1 )     
(4.0 )   (16.7 )
Additional provisions in the period      --            --         1.8        
3.5       5.3
Provisions acquired                      --            --         2.6         -- 
   2.6
At 30 June 2014                        30.8          24.0        39.9       
11.4     106.1 
The restructuring provision is for unavoidable costs which will be incurred
due to the decision in 2013 to dispose of the insurance distribution business
and to close the SIP business. The provision is expected to unwind over 2
years. 
The insurance provision is made in relation to the Group's Professional
Indemnity, Motor and Employee Liability exposures. The Group uses a captive
insurer to reduce the cost of providing this cover for its operations; claims
that are in excess of the Captive's liability are reinsured with a number of
large insurance underwriters. The Group makes provision when a claim has been
made where it is more probable than not that an insured loss will occur. These
provisions are reassessed regularly to ensure that the level of provisioning
is consistent with the claims that have been reported. In the year the Group
has settled a number of insurance liabilities which it had provided for in
previous years. Additionally it has made provision for new claims and
increased or decreased existing provisions where more information on the
progress of the claim has become available. 
Within the property provisions there is included 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 25 years. 
Other relates to provisions in respect of potential claims arising due to the
nature of some of the operations that the Group provides and a provision for
an onerous contract in relation to contracts acquired with the Reliance Secure
Task Management acquisition. These are likely to unwind over a period of 1 to
3 years. 
8 Movement in net debt 
                                    Net debt at                             
  Non-cash 


                                         1 January      Acquisitions  Cash flow 
      flow    Net debt at


                                          2014           in 2014  movements 
 movements   30 June 2014 
                                            £m                £m       
£m          £m              £m 
Cash+                                        157.8              15.7   (139.5 )  
   --            34.0
Unsecured loan notes                         (10.4 )              --      0.2    
   --           (10.2 )
Bonds*                                    (1,267.3 )              --       --    
 34.7        (1,232.6 )
Currency swaps in relation to US $
denominated bonds*                           125.9                --       --    
(33.5 )          92.4
Interest rate swaps in relation to GBP
denominated bonds*                             7.7                --       --    
 (0.2 )           7.5
Term loan                                   (200.0 )              --   (100.0 )  
   --          (300.0 )
Long term debt                                  --             (17.1 )   17.1    
   --              --
Obligations under finance leases             (17.3 )              --      2.6    
   --           (14.7 )
Underlying net debt                       (1,203.6 )            (1.4 ) (219.6 )  
  1.0        (1,423.6 )
Fixed rate interest rate swaps               (26.6 )              --       --    


     (6.9 )         (33.5 )
                                          (1,230.2 )            (1.4 ) (219.6 ) 
     (5.9 )      (1,457.1 )

+ Cash comprises cash, cash equivalents and overdrafts.

* The aggregate bond fair value above of £1,232.6m (30 June 2013:
£1,362.3m) 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 £1,132.7m (30 June
2013: £1,117.0m).

In May 2014, the Group raised £100m of bank debt under a 5 year term loan
facility.
                                                                                
    Non-cash     Net debt at


                                    Net debt at  Acquisitions      Cash 
flow        flow         30 June 
                                 1 January 2013       in 2013      
movements   movements            2013 
                                             £m            £m             
£m          £m              £m 
Cash+                                         306.7          10.2         
(206.3 )        --           110.6
Unsecured loan notes                           (0.5 )          --             -- 
      --            (0.5 )
Bonds*                                     (1,370.1 )          --           
32.3       (24.5 )      (1,362.3 )
Currency swaps in relation to US $
denominated bonds*                            206.2            --             -- 
    27.8           234.0
Interest rate swaps in relation to GBP
denominated bonds*                             15.9            --             -- 
    (4.6 )          11.3
Term loan                                    (185.0 )          --             -- 
      --          (185.0 )
Long term debt                                   --         (10.8 )         
10.8          --              --
Obligations under finance leases               (2.7 )       (25.4 )          
4.2         0.5           (23.4 )
Underlying net debt                        (1,029.5 )       (26.0 )       
(159.0 )      (0.8 )      (1,215.3 )
Fixed rate interest rate swaps                (52.9 )          --             -- 
    15.9           (37.0 ) 
                                       (1,082.4 )       (26.0 )       
(159.0 )      15.1        (1,252.3 )
9 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 two fixed rate bonds totalling
£125.0m, included below in the bond value of £1,232.6m, with a carrying value
of £125.0m and a fair value of £126.7m. 
                                         At fair value 
                                           through the                
Derivatives          Other 
                             Available-         income    Loans and      
used for      financial
As at 30 June 2014                 for-sale      statement  receivables       
hedging    liabilities           Total 
                                     £m             £m           £m       
  £m             £m              £m
Financial assets
Unlisted equity securities              2.3            --            --          
--             --             2.3
Investment loan                          --            --           5.0          
--             --             5.0
Non-designated foreign exchange
forward contracts                        --           0.4            --          
--             --             0.4
Interest rate swaps in relation to
GBP denominated bonds                    --            --            --         
  7.5             --             7.5
Currency swaps in relation to US$
denominated bonds                        --            --            --         
113.4             --           113.4 
                                    2.3           0.4           5.0         
120.9             --           128.6
Financial liabilities
Overdrafts                               --            --            --          
--          504.6           504.6
Unsecured loan notes                     --            --            --          
--           10.2            10.2
Bonds                                    --            --            --          
--        1,232.6         1,232.6
Term loan                                --            --            --          
--          300.0           300.0
Cash flow hedges                         --            --            --         
 25.1             --            25.1
Non-designated foreign exchange
forward contracts                        --           2.5            --          
--             --             2.5
Currency swaps in relation to US$
denominated bonds                        --            --            --         
 21.0             --            21.0
Contingent consideration                 --            --            --          
--           57.1            57.1
Deferred consideration                   --            --            --          
--           27.8            27.8
Obligations under finance leases         --            --            --          
--           14.7            14.7
Public sector subsidiary partnership
payment                                  --            --            --          
--           53.2            53.2
Put options of non-controlling
interests                                --            --            --          
--          100.6           100.6
Fixed rate interest rate swaps           --          33.5            --          
--             --            33.5 
                                     --          36.0            --         
 46.1        2,300.8         2,382.9 
                                        At fair value 
                                          through the                 
Derivatives          Other 
                              Available-       income     Loans and      
used for      financial
As at 31 December 2013             for-sale     statement   receivables       
hedging    liabilities           Total 
                                     £m            £m            £m       
  £m             £m              £m
Financial assets
Unlisted equity securities              1.5            --            --          
--             --             1.5
Investment loan                          --            --          20.8          
--             --            20.8
Non-designated foreign exchange
forward contracts                        --           0.1            --          
--             --             0.1
Interest rate swaps in relation to
GBP denominated bonds                    --            --            --         
  7.7             --             7.7
Currency swaps in relation to US$
denominated bonds                        --            --            --         
139.4             --           139.4 
                                    1.5           0.1          20.8         
147.1             --           169.5
Financial liabilities
Overdrafts                               --            --            --          
--          453.0           453.0
Unsecured loan notes                     --            --            --          
--           10.4            10.4
Bonds                                    --            --            --          
--        1,267.3         1,267.3
Term loan                                --            --            --          
--          200.0           200.0
Cash flow hedges                         --            --            --         
 30.2             --            30.2
Non-designated foreign exchange
forward contracts                        --           1.8            --          
--             --             1.8
Currency swaps in relation to US$
denominated bonds                        --            --            --         
 13.5             --            13.5
Contingent consideration                 --            --            --          
--           35.2            35.2
Deferred consideration                   --            --            --          
--           58.6            58.6
Obligations under finance leases         --            --            --          
--           17.3            17.3
Public sector subsidiary partnership
payment                                  --            --            --          
--           52.2            52.2
Put options of non-controlling
interests                                --            --            --          
--           96.0            96.0
Fixed rate interest rate swaps           --          26.6            --          
--             --            26.6 
                                     --          28.4            --         
 43.7        2,190.0         2,262.1 
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 2014, the Group held the following financial instruments
measured at fair value: 


                                                                            
                                                         30 June   31 December
                                                            2014          2013


                                                          £m            
£m
Assets measured at fair value
Non-designated foreign exchange forward contracts             --           0.1
Interest rate swaps in relation to GBP denominated bonds     7.5           7.7
Currency swaps in relation to US$ denominated bonds        113.4         139.4 
                                                       120.9         147.2
Liabilities measured at fair value
Bonds                                                    1,107.6       1,142.3
Cash flow hedges                                            25.1          30.2
Non-designated foreign exchange forward contracts            2.5           1.8
Currency swaps in relation to US$ denominated bonds         21.0          13.5
Fixed rate interest rate swaps                              33.5          26.6
Public sector subsidiary partnership payment                53.2          52.2
Put option of non-controlling interests                    100.6          96.0
Contingent consideration                                    57.1          35.2 
                                                     1,400.6       1,397.8 
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 2014, 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 and loan notes on their payment date on achieving the relevant target.
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 £57.1m. 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 £2.1m. A 10% decrease in
the probability of the contingent consideration being paid results in a
decrease in potential contingent consideration of £3.2m. 
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 4
to 10. This payment is funded by Axelos Limited and is contingent on profits.
The fair value of £53.2m 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
£3m. 
The put options of the non-controlling interests are valued 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 £9.0m
increase/decrease in the valuation; a 1% increase/decrease in the discount
rate applied to the valuation results in a £4.6m decrease/£4.9m increase in
the valuation. 
The following table shows the reconciliation from the opening
balances to the closing balances for level 3 fair values: 
                                                             Subsidiary   
Put options of 
                                            Contingent      partnership  
non-controlling 
                                         consideration          payment      
interests 
                                                    £m               £m    
        £m 
At 1 January 2014                                     35.2             52.2      
    96.0
Arising from business combinations in the period      32.4               --      
      --
Profit and loss movement - administrative expenses    (2.0 )             --      
      --
Profit and loss movement - finance expense              --              1.0      
      --
Equity movement - Fair value movement in put            --               --      
     4.6
options
Utilised                                              (8.5 )             --      
      --
At 30 June 2014                                       57.1             53.2      


       100.6

10 Capital commitments

At 30 June 2014, amounts contracted for but not provided in the
financial statements for the acquisition of property, plant and equipment
amounted to £0.2m (30 June 2013: £0.1m).

11 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
parent company)
                                                       6 months 6 months
                                                        30 June  30 June
                                                           2014     2013
                                                             £m       £m

Short term employment benefits                              3.1      2.8
Post employment benefits                                    0.1      0.1
Share based payments                                        2.1      2.0


                                                        5.3      4.9 
Gains on share options exercised in the period by key management
personnel totalled £3.3m (30 June 2013: £7.4m). 
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 17 July 2014 was as below: 
                                                           % of voting
Shareholder                                    No. of shares        rights 
Woodford Investment Management LLP                20,672,123        3.13 %
BlackRock Inc                                     34,081,348        5.16 %
Invesco Limited                                   78,545,228       11.88 %
Legal & General Group Plc                         19,818,538        3.00 %
Veritas Asset Management (UK) Limited             42,647,140        6.45 %
12 Contingent liabilities 
The Group has provided, through the normal course of its business,
performance bonds and bank guarantees of £81.2m (31 December 2013: £88.4m). 
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 2013. A list of current Directors is
maintained on the Group website: www.capita.co.uk. 
By order of the Board 
A Parker                G M Hurst
Chief Executive Group   Finance Director 
22 July 2014 
END 
-0- Jul/23/2014 06:00 GMT
 
 
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