Delivering Stakeholder Value
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Delivering stakeholder value Capita plc Annual report and accounts 2012 What’s in this report A snapshot of our business 1 OurStrategic business review 6 Our 2012 performance 7 Our business strategy in operation 14 Governance 58 Board members 59 Corporate governance report 61 Audit Committee report 67 Remuneration report 78 Accounts 90 Financial statements 91 Notes to financial statements 95 Other information 129 There’s more on our new website: www.capita.co.uk Directors’ report The Directors present the Annual Report for the year ended 31 December 2012 which includes the business review (which comprises sections: A snapshot of our business and Our business), governance and audited Group accounts for the year. Pages 1 to 89 of this Annual Report comprise a Report of the Directors that has been drawn up and presented in accordance with English company law and the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law. Where we refer in this report to other reports or material, such as a website address, this has been done to direct the reader to other sources of Capita information which may be of interest to the reader. Such additional materials do not form part of this report. A snapshot of our business Capita plc 1 Our business goal is to deliver value to all our stakeholders To achieve our business goal, we have a strategy of continuously growing our operations in a controlled, profitable manner across all our target markets. Our strategy is delivered through our consistent business model which enables us to deliver effective service solutions for our clients, generate healthy returns for our shareholders and build a sustainable business. We maintain our leading position in the UK business process management market where we play a key role in our clients’ operations, delivering their customer, administration and professional support services. We create unique, cost effective services that meet the individual needs of our clients. And we don’t just design these services, we also deliver them. However complex the challenge, we bring together the right people with the right skills to streamline our clients’ services and improve customer experiences across hundreds of public and commercial organisations. Our business model focuses on four key elements highlighted in the next few pages and explored in more depth in this report A snapshot of our business Capita plc 2 Targeting growth markets find out more on page 16 From a starting point in local government in 1984, Capita now operates in 10 markets and our revenue is currently split 47% public sector and 53% private sector. And we are continually targeting new market areas. During the year we increased our presence in a number of our newer sectors including defence, health, justice and emergency services. We have also significantly extended our private sector footprint particularly across utilities, telecoms and retail. For example, we are now providing full customer management services for major retailer Debenhams plc. A snapshot of our business Capita plc 3 We continually enrich our offering in existing and new sectors, internally and through small to medium sized acquisitions, helping us to Building maintain our leading market position. Our unrivalled business centre network provides our clients with choice and flexibility regarding how and where they deliver services. We capability currently have business centres in the UK, Europe and India and, following the acquisition of Full Circle in July 2012, we are now also able to deliver services from a new business centre and scale in South Africa. find out more on page 20 A snapshot of our business Capita plc 4 Creating innovative solutions find out more on page 24 Responsive service design is central to our sales offering. We have unrivalled experience of helping our clients improve the way they do business. Whether we are bidding for a government or private sector contract, the first step is to understand the current and future requirements of our client, and vitally, the end-user of the service. In 2012, we secured our first major business process management (BPM) contract in the defence market with the announcement of the Recruiting Partnership Project (RPP) which will see a transformation of Army recruiting for the Ministry of Defence (MOD). A snapshot of our business Capita plc 5 Securing organic growth find out more on page 26 2012 was a record sales year for Capita with £4.0bn of contracts secured, of which 90% relates to new contracts and 10% to extensions. This total is more than double our previous record year in 2011 and includes the largest single contract win in Capita’s history, to create an innovative educational support services joint venture with Staffordshire County Council. StrategicOur business review Capita plc 6 Our 2012 performance 7 Our Chief Executive reviews our performance in 2012 and progress against our Our business financial and non-financial key performance indicators. Our strategy in operation 14 In this section we introduce our strategy and business model and explain how this is underpinned by strong leadership and controls to ensure that we continue to develop Capita as a long term, sustainable business that consistently delivers value to all our stakeholders. A: Operating an efficient, profitable business model 15 We grow the business by providing compelling propositions to clients across our target markets and continuously enrich our offering, internally and through acquisition, fuelling further growth. We focus on the following four key areas: • Targeting growth markets 16 • Building capability and scale 20 • Creating innovative solutions 24 • Securing organic growth 26 B: Ensuring strong leadership and robust processes 30 Our growth is underpinned by disciplined management and operating processes which promote accountability and knowledge sharing across the Group. We are committed to: • Maintaining financial discipline 31 • Robust operational controls and risk management 36 • A flexible divisional structure 40 C: Delivering value to all our stakeholders 47 We grow our business in a transparent and socially responsible way which delivers long term, sustainable value to all our stakeholders. In this section, we explain: • Our approach to corporate responsibility (CR) 48 • How we deliver value to our five key stakeholder groups 49 StrategicOur business review 2012 performance Capita plc 7 Overview 2012 highlights 2012 was an excellent year for Capita. We achieved Our 2012 record sales, securing £4.0bn (2011: £2.0bn) of Return to organic growth contract wins, comprising 90% new business and • Record sales year, £4.0bn of contract wins (2011: £2.0bn), 10% extensions. This reflects the health of the UK 90% new/10% extensions performance customer and business process management (BPM) • Win rate of better than one in two market and the strength of our many service propositions. We have achieved particular sales • Largest ever contract win, Staffordshire County Council, success across the central and local government £1.7bn over 20 years markets and in health, justice and emergency • Organic growth of 3% (2011: -7%). services, defence and the private sector. We have delivered against the three key objectives Extending our capability and reach that we set for 2012: • Broadened our operational capability and market reach: • maintaining good profit performance £178m spent on 14 acquisitions in 2012 2012 was a year of strong sales • securing organic growth of 3% for the full year • New service delivery operation established in South Africa. • delivering improved conversion of operating profit and operational performance. to operating cash compared to 2011. Return to excellent cash generation We maintained good profit • Operating cash flow before settlements of £519m performance, returned to organic (2011: £364m) growth and delivered improved • Operating profit to operating cash conversion rate sharply improved to 110% (2011: 85%) cash generation. This has positioned us • Free cash flow more than doubled to £316m. well for 2013. Delivering strong returns Paul Pindar Chief Executive • Underlying earnings per share1 up 10% to 53.16p • Total dividend up 10% to 23.5p. Strong start to 2013 • Secured £160m contract with Carphone Warehouse • Two year extension of Civil Service Learning agreement • £5.2bn current pipeline (November 2012: £4.8bn)2. 1 Excludes non-underlying items detailed in note 4 on page 101. 2 We have adjusted the criteria of our bid pipeline from 1 January 2013 to reflect the greater size of the Group and the opportunities we are addressing. We now report all bids worth £25m or above (previously £10m or above), now capped at £1bn (previously £500m). Under the previous criteria the bid pipeline as at 28 February 2013 would have stood at £4.8bn (November 2012: £4.0bn). Our business 2012 performance Capita plc 8 Good financial performance 2012 financial highlights In the full year 2012, revenue increased by 14% to Revenue (£m) Underlying operating profit (£m)1 £3,352m (2011: £2,930m). Underlying operating profit1 rose by 10% to £471.7m (2011: £427.4m) and underlying profit before taxation1 increased by 10% to £425.6m (2011: £385.2m). Underlying earnings £3,352m £471.7m 1 per share grew by 10% to 53.16p (2011: 48.49p). 5 year compound growth 10% 5 year compound growth 12% We have increased our total dividend for the full year 2012 by 10% to 23.5p per share (2011: 21.4p). 2,073 271.3 2,441 320.9 The majority of our divisions traded well in 2012, 2,687 357.7 with particularly strong performance across our 2,744 395.1 Customer Management & International, Justice 2,930 427.4 & Secure Services, Workplace Services and Investor 3,352 471.7 & Banking divisions. The trading activities of two business areas, Property Services and parts of our Underlying profit before tax (£m)1 Underlying earnings per share (p)1 IT business, continue to be adversely affected by challenging economic conditions but are well positioned to benefit as the economy recovers.