Results for the 6 months to 30 June 2007

(1)

Results for the 6 months

to 30 June 2007

(2)

Agenda

Financial results – Gordon Hurst

Fuelling growth through contract wins and acquisitions – Paul Pindar

Realising the benefits of scale – Simon Pilling - Building scale in local government

- Building scale in life & pensions – Steve Parkinson

(3)

Building value for shareholders

Excellent organic growth

Continued margin progression

Strong free cash flow

Material dividend increase plus special dividend

Record contract wins

Markets remain highly active

(4)

Financial results

Gordon Hurst

(5)

Turnover

Comparative growth 17% 1,739 1,436 1,282 1,081 898 985 845 687 617 532 391 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2007 2006 2005 2004 2003 2002 £m 1/2 Year Full Year

(6)

Turnover by market

12 20 13 1 6 10 9 3 26 Local government 20% (17%) Education 13% (14%) Health 1% (1%) Transport 6% (6%) Insurance 10% (10%) Life & pensions 9% (8%) Financial services 3% (4%) Other private sector 26% (26%) Public sector 52% (2006: 52%)

Private sector 48% (2006: 48%)

Central government 12% (14%)

(7)

Half year organic growth

2001 (36) 2003 2004 845 Organic £m 2007 845 £m 2006 Growth % Turnover 2007 acquisitions 2006 acquisitions 13% -17% 985 (13) (15) -957

(8)

Profit before tax and amortisation

Comparative growth 18% 200.1 169.3 143.9 121.2 98.3 103.8 88.3 71.3 61.0 51.0 40.2 0 50 100 150 200 250 2007 2006 2005 2004 2003 2002 £m 1/2 Year Full Year

* excluding one-off items *

(9)

Operating profit before amortisation

Comparative growth 20% 225.1 183.1 155.8 131.4 107.3 118.9 99.1 77.8 66.5 56.1 44.3 0 50 100 150 200 250 2007 2006 2005 2004 2003 2002 £m 1/2 Year Full Year

(10)

Half year operating margin after share based payment

12.1 11.7 11.3 10.8 10.6 11.3 9 10 11 12 13 2002 2003 2004 2005 2006 2007 %

(11)

Drivers behind widening margin

Adding value to our clients’ business

– Selecting opportunities which focus on innovation, not price

– Identifying ways of enhancing customer’s P & L

Benefits of scale

– Ever increasing economies of scale and use of technology – Increased utilisation of business centres

– Offshoring back office to India – Improved purchasing power

Financial discipline

(12)

Earnings per share before amortisation

Comparative growth 22% 23.1 18.6 15.3 13.0 10.5 12.13 9.96 7.72 6.63 5.38 4.3 0 10 20 30 2007 2006 2005 2004 2003 2002 Pence 1/2 Year Full Year

(13)

Dividends

Comparative growth 48% 9.0 7.0 5.4 4.0 3.0 2.7 2.1 1.75 1.3 1.0 4.0 0 2 4 6 8 10 2007 2006 2005 2004 2003 2002 Pence 1/2 Year Full Year

(14)

Special dividend

Increasing and predictable cash flow

Undergeared balance sheet

25p special dividend (returning £155m to shareholders)

Share consolidation

Currently the best use of excess cash

Still substantial headroom for acquisitions & investments

(15)

Cash flow statement

Cash flow from operating activities Net interest paid

Taxation paid

Capital expenditure

Free cash flow

£m 6 months to 30 June 2006 122 (11) (20) (33) 58

Share option proceeds 11

Acquisitions and disposals Equity dividends paid

Share buybacks

Investments in insurance captive

Bond issue (27) (32) (215) (5) 103 £m 6 months to 30 June 2007 145 83 (32) (15) (15) (5) (29) (39) (52) 27

-Decrease in cash in the period

Other financing (1)

(108) 8

(40)

(16)

-279 232 200 158 117 145 122 95 82 61 41 0 50 100 150 200 250 300 2007 2006 2005 2004 2003 2002 £m 1/2 Year Full Year

Cash flow from operating activities

Comparative growth 19%

(17)

Free cash flow

154 127 106 83 25 83 58 38 40 31 3 0 50 100 150 200 2007 2006 2005 2004 2003 2002 £m 1/2 Year Full Year Comparative growth 43%

(18)

Half year capex as % of turnover

% 6.3% 3.4% 3.6% 4.1% 3.9% 3.2% 0 1 2 3 4 5 6 7 2002 2003 2004 2005 2006 2007

(19)

% Net return on capital (debt plus equity)

– 12 months to 30 June 2007 18.6 17.9 16.7 15.1 11.7 13.4 8.1 7.8 8.0 8.5 8.1 8.6 4 8 12 16 20 2002 2003 2004 2005 2006 2007 % re tu rn Actual WACC PBIT (normalised) Avg Capital (£m) Tax (%) 2002 2003 2004 2005 2006 90 119 142 167 204 542 634 674 719 823 29.5 28.6 28.2 28.1 27.7 2007 245 954 27.7

(20)

% Free cash flow return on capital

(debt plus equity)

– 12 months to 30 June 2007

18.8 17.9 16.3 15.3 9.9 6.4 4 8 12 16 20 2002 2003 2004 2005 2006 2007 % re tu rn FCF (pre interest) Avg Capital (£m) 2002 2003 2004 2005 2006 35 63 117 147 542 634 719 823 2007 103* 674 179 954

(21)

Balance sheet gearing

Net debt

Bond debt

Bank facilities drawn

30 June 2006 (£m) 30 June 2007 (£m) Loan notes 379 31 6 302 127 23

Total net debt 416 452

Interest cover 8x 10x

(22)

Share buybacks

We undertake opportunistic share buybacks where market

conditions allow

2007 update:

4.5m shares (0.7% of share capital) cancelled at average of £6.44

Cost £29m (including stamp duty)

Shares in issue at 30.06.07 – 620m

£248m to be returned this year to shareholders through share buybacks, dividends and special dividend

(23)

Fuelling growth through

contract wins & acquisitions

Paul Pindar

(24)

Contracts secured to date in 2007

Total major contracts secured in 6 months to June 2007: £1.15bn (2006: £655m)

* subject to contract Southampton City Council New contract* £290m 10 years Countrywide New contract £19m 15 years Swindon Borough Council Updated value Initial value: £140m / 10 yrs Now signed at: £243m / 15 yrs Resolution New contract £580m 12 years Service Birmingham Customer services Additional contract £142m 10 years OSPT New contract £12m 10 years

(25)

Rebid of existing major contracts

Criteria: more than 1% of 2006 turnover

2007 None 2008 None 2011 None 2009 TfL: CC £56m p.a. DSGi: Sheffield £18m p.a. 2010 DCSF*: National Strategies £35m p.a. * Formerly DfES

(26)

Bid activity

Exceptional period for new contract wins - £1.15bn to date (2006: £655m)

Despite major wins, pipeline* has been swiftly replenished

Bid pipeline of £3bn (comprising 15 bids)

Life & pensions and local government particularly strong

Current win rate 1:2 (long term rate 1:3)

Prospect & suspect lists encouraging

Focus on 2008

(27)

Acquisitions

We continue to acquire small to medium sized companies that: – create new market opportunities

– strengthen existing market positions – help us to grow organically

– access a new customer base – build economies of scale

(28)

2007 acquisitions

Total spent on acquisitions in 2007 to date: £63m

Spectrum Software £1.8m Harry Weeks Travel admin £21m + £12m CPFR Solutions Software £3.1m + £10m CMGL Insurance £32m NHS Partners Resourcing £1.9m + £0.9 GFA Fund admin £2m + £2.5m MVRA Insurance £1.3m + £1.6m

(29)

CMGL

Rationale: strengthen existing market position, expand management capability and access new customer

segment

CMGL is a leading provider of outsourced claims and insurance management services

440 staff in London, Cheltenham, Birmingham & overseas

Offers our customers complete end-to-end services in both the live and run-off markets

Capability to respond to the challenges set out in the London Market reform

Substantial synergies from integrating CMGL with Capita London Market Services

(30)

Global Fund Administration (GFA)

Rationale: strengthens existing market position and provides access to new customer segment

GFA is a leading provider of fund administration services to 20 fund managers and 45 hedge funds

£1 billion of assets under administration

Rapidly growing marketplace

Adds the jurisdiction of Gibraltar to our existing fund administration services

(31)

NHS Partners

Rationale: build market position and access to a new customer segment

Acquisition of NHS Partners increases our capability in employee surveys, pay & labour research

Strengthens our existing position in the health market and expands our HR offering

HR outsourcing is one of the fastest growing outsourcing sectors

(32)

Simon Pilling

Joint Chief Operating Officer

(33)

Our business model

– business centres

Onshore - UK

48 business centres

Back office admin

Customer services

Life & pensions

IT & software

Resourcing & training

Share registration

Property consultancy

Electronic document processing

Claims & policy admin

HR admin

Nearshore – Ireland,

Channel Islands, Gibraltar

4 business centres

Customer services

Life & pensions admin

Financial services

Corporate registrars

Offshore - India

2 business centres

(Currently securing 3rd_site)

Data validation & entry

Claims & policy admin

Fund management admin

(34)

Benefits of scale

We have developed our capability and scale over time by securing new contracts and acquiring niche companies

Economies of scale have allowed us to develop compelling

propositions for clients in terms of price and specialist skills

We have the financial strength, proven operational capability and management expertise to bid for large scale business

(35)

Blended onshore/offshore delivery

Offshore is an integral part of the Group offering – another business centre

Clients are favourable to our approach which can seamlessly mix the delivery to suit their requirements

Enables clients to take a staged approach rather than wholesale offshore

Service delivery in India has exceeded expectations in terms of quality, productivity and flexibility

Resolution will significantly increase the scale of our offshore capability over the next 2 years

(36)

Building scale

– offshore

Quality management team

2 sites in Mumbai with 1000 staff

Seat capacity for 2000 staff

Securing a 3rd _{site in Chennai - excellent infrastructure and large}

supply of skilled BPO staff

Plan to be operational in early 2008

Good progress offshoring internal functions, including finance and HR & payroll administration

High diversification of client base – across public and private sectors

(37)

Operational scale – local government

Eastgate

Revenues & benefits Revenues & benefits

HR & payroll HR & payroll Property consultancy Property consultancy Advisory Advisory Treasury Treasury Procurement Procurement Learning & development Learning & development

Pensions Pensions Software services Software services Children’s services Children’s services Customer contact services Customer contact services

IT Services IT Services 8000 employees 8000 employees Network of business centres Network of

business centres 8 strategic partners8 strategic partners

Revenue 2006 £296m

Revenue

2006 £296m

Market leader

+70% of all LAs

are clients +70% of all LAs

are clients

(38)

Capita’s major local government centres

Birmingham

Strategic partnership

Coventry

- Congestion Charging Scheme - Customer service centre of excellence

Cumbria

Blackburn with Darwen

Mendip

Bromley

Revenue collection centre of excellence Gwent property consultancy Swindon Salford Property consultancy Strategic partnerships

(39)

Largest Local Authority in the UK

Core ICT contract £475m over 10 years commenced in April 2006

Contract progressing well

Governance arrangements for additional business transformation programmes were introduced at the outset of the relationship:

– 1st _{programme approved in July 2006 – Corporate Services: £88m}

over 3 years

– 2nd _{programme approved in April 2007 – Customer Services: £142m}

over 10 years

Development underway for further business cases including property and adult services

(40)

Swindon Borough Council

Incremental strategic partnership worth approximately £243m over 15 years (originally announced at £140m over 10 years)

Commenced on 1 February 2007

Delivery of customer services, business support, HR & payroll, ICT, property (design and technical services) & facilities

management

Revenues and benefits on stream from April 2008

Development of a new contact centre and a refurbished 'one stop shop’

(41)

Southampton City Council

Preferred bidder to develop a 10 year strategic partnership valued at approximately £290 million

Deliver a wide range of services including customer services, IT, property and the administration of HR, payroll, revenues and

benefits, and procurement

Transfer of 600 staff

Final negotiations are currently in progress with the contract expected to commence on 1 October 2007

(42)

Building scale – life &

pensions

Steve Parkinson Managing Director

(43)

Building scale - Life & pensions timeline

•Children’s Mutual contract win – support Child Trust Funds (CTF)

•Acquisition of PPML & open book contract win •Children’s Mutual

contract win – support Child Trust Funds (CTF)

•Acquisition of PPML & open book contract win

•Entry into UK life & pensions market with acquisition of Lincoln

•Contract to administer Lincoln’s UK portfolio •Entry into UK life &

pensions market with acquisition of Lincoln

•Contract to administer Lincoln’s UK portfolio

•Entry into pensions administration with acquisition of Hartshead

•Alba Life contract win – group pensions admin

•Prudential & St James’s Place contract win - to deliver open book processing

•Alba Life contract win – group pensions admin

•Prudential & St James’s Place contract win - to deliver open book processing •Selected as partner to support Zurich’s UK Life operations •Selected as partner to support Zurich’s UK Life operations •Countrywide Assured contract win

•CIS contract win – preferred supplier •Countrywide Assured

contract win

•CIS contract win – preferred supplier •Selected as strategic partner to support Resolution plc’s Life operations •Selected as strategic partner to support Resolution plc’s Life operations 2003 2003 2002 2002 2004₂₀₀₄ 2005 2005 2007₂₀₀₇ 2006 2006 1995 1995

(44)

Benefits of scale – realising cost savings

Source: Troika analysis/DTI returns

Current average book size 800,000 £0 £20 £40 £60 £80 £100 £120 £140 £160 £180 0 5 10 15 20 25

Number of policies (millions)

Adminis trat ion costs per pol icy (£ ) £30 per policy £10 per policy Acceptable long term unit cost

(45)

Capita’s major life & pensions centres

Gloucester/ Cheltenham Swindon Salisbury Belfast Glasgow Sheffield Dublin Manchester

(46)

750 FTEs will be completing live life and pensions processes

offshore by 2008

(47)

£300m over 10 years, service commenced 1 February 2006

Open book, 2.8m policies

1200 staff transferred to Capita

Seamless transfer of operation

Contract progressing well with improvements across the service: Prior to transfer % Today %

Call abandonment 11.6 2.3

Process all new business calls 76 98

Vetting new applications 69 99

Complex servicing 67 90

Training and competency 87 99

(48)

L iv in g th e th e o ry - O u ts o u rc in g re a lity w ith C a p ita ; S tra te g ic B e n e fits M a rk e tp la c e B e n e fits O p e ra tio n a l B e n e fits S tra te g ic F le x ib ility

Z u ric h m a in ta in s fle x ib ility o f c lo s u re , d iv e s titu re , a c qu is itio n o r s e cu ritis a tio n fo r b o o k s o r lin e s o f b u s in e s s , a lo n g s id e c o n v e n tio n a l te rm in a tio n rig h ts

; S tra te g ic Im p e ra tiv eC o n tra c tu a l p ro v is io n s in c e n tiv is e C a p ita to p e rfo rm a n d e n s u re

re la tio n s h ip g o a l co n g ru e n ce

; N e w W o rld P ro p o s itio n s

N e w s ys te m s o n a s tra te g ic p la tfo rm u n d e rp in n e w p ro p o s itio n d e liv e ry

; T re a tin g C u s to m e rs F a irly_{C o m m itm e n t a n d a lig n m e n t o n T C F p rin c ip le s}

; C o s t R e d u c tio n

Z u ric h a c h ie v e s v a ria b ilis a tio n o f its fix e d c o s ts a n d u n it c o s t re d u c tio n s o v e r th e life o f th e c o n tra c t

; B u s in e s s C o n tro lsG o v e rn a n c e fra m e w o rk d riv e n b y Z u ric h ’s a p p ro a c h to C o m p lia n c e ,

A u d it a n d R is k M a n a g e m e n t

Benefits of outsourcing – what it means to

Zurich

(49)

Resolution

New contract worth £580m over 12 years (includes existing books of business)

Largest ever contract for Capita

Delivery of customer services, IT services, policy servicing, claims and new business processing for approx 4.5m policies

Relationship expected to grow as Resolution develops existing business and takes on new books

Commences 1 August 2007

2000 staff transferring (largest Capita staff transfer)

(50)

Proven experience of large-scale business transformation

Customer service focus Customer service focus

Experience of delivering high volume services in an FSA regulated environment Experience of delivering high volume services in an FSA regulated environment

Market leading product administration platform Market leading product administration platform Cost reduction Cost reduction Customer service improvement Customer service improvement

Support for new business and retention

Mitigation of risk

(51)

Resolution – transition plan

Transfer some services from Glasgow to India

2007

Business transformation, IT transformation

Transfer some services from Wythall to India

Transfer services from Wythall to Glasgow

June & July 2007

Transfer in-scope people Transfer IT infrastructure & applications Novate contracts & licences Establish controls, governance, etc Transfer in-scope people Transfer IT infrastructure & applications Novate contracts & licences Establish controls, governance, etc Service s start 2008 2008 2009₂₀₀₉ 2010₂₀₁₀

(52)

Life & pensions - capability

FSAVC FSAVC Income drawdown Income drawdown Critical illness Critical illness Personal pensions Personal pensions Group pensions Group pensions Portfolio bonds Portfolio bonds Stakeholder pensions Stakeholder pensions SIPPs SIPPs SSAs SSAs Savings plans Savings plans

Unitised with profit bonds

Unit trust & ISA

Annuities

Investment bonds

Child Trust Funds

Decreasing term assurance

Level term assurance

Stakeholder term assurance

Term assurance with CI

Endowments Endowments Eastgate Eastgate 7000 employees 7000 employees Network of business centres Network of

business centres Administer 3.5m _{Group policies} Administer 3.5m

Group policies

Revenue 2006 £184m

Revenue

2006 £184m

Market leader

* Includes Resolution and Co-op

Administer 15m life policies* Administer 15m

(53)

Market opportunities

and outlook

Paul Pindar Chief Executive

(54)

Ingredients for continued growth

Excellent conditions for growth across our 9 markets

Consistently focused on the UK and Ireland where opportunities are strong

The BPO market in the UK is valued at £94.8bn with only £4.6bn outsourced in 2006*

Our big ticket and business sales teams are proactively targeting new opportunities

We are constantly evolving our offering into new market areas where there are good opportunities for growth