How we have performed

Businesses across the Group performed well in 2009. The majority of our businesses delivered good sales and operational performance, especially our businesses servicing the local authority and education markets.

Less than 10% of our Group revenues are generated by businesses that are potentially vulnerable to a weaker economy and the majority of these delivered to our 2009 business plan expectations, particularly our property consultancy, resourcing and share registration businesses.

Conversely, our collectives and investment trust administration business, Capita Financial Managers (CFM), which administers nearly 600 funds and has annual revenues of c.£50m, was adversely affected by the increased costs of IT and the sharply increasing obligations of regulatory compliance.

Arch cru funds – As previously reported, dealings in 2 open ended investment companies (OEICs), for which CFM is the authorised corporate director (ACD) and Arch Financial Products LLP (Arch) was the delegated investment manager, were suspended on 13 March 2009. Since the suspension, CFM has been working with specialist advisers to conduct a detailed review assessing how this matter should be resolved. This detailed work undertaken since March 2009 has resulted in significant costs. We have set aside estimated costs of £30m (both incurred and potentially to be incurred) in respect of resolving this matter. This figure has been disclosed separately from the Group’s underlying profit in our accounts for 2009. See note 25.

CFM predominately provides administration services to investment funds and, in some cases, additionally acts as ACD. In the light of the experience gained from the Arch cru situation, we have undertaken a strategic review of CFM and decided that the balance between risk and reward in some of the ACD business does not serve our shareholders well. Accordingly, we are now in active discussions to dispose of this higher risk part of this business.

We remain the clear leader in the overall UK BPO market with 27.0%^† market share (2008: 25.5%).

Independent analysts have estimated that the total 2009 market for BPO in the UK was £6bn, against market potential of £94.2bn a year^†. The capacity for long term growth therefore remains substantial as organisations review their business models and acknowledge the benefits of outsourcing.

We remain focused on selecting opportunities where we believe we can meet clients’ expectations and add value, fuelling controlled growth and achieving a reasonable return for the Group.

In 2009, our most active market was local government. We also saw increased activity in financial services and central government and ongoing interest from the life and pensions market. We have seen a steady flow of outsourcing opportunities across both public and private sectors in 2009. As a result, the sector split of revenues remained broadly in balance at 50% private/50% public (2008: 52%/48%).

^†Ovum 2008 and 2009.

Our markets continue to offer good opportunities and our new sales performance in 2009 was satisfactory. However, due to the prevailing economic conditions it was more difficult to secure additional revenues from existing clients.

Our central major sales team pursues complex, long term contracts which bring together a wide range of the Group’s skills and generate high quality, recurring revenues. Securing and renewing major contracts is an important component of our growth.

Contracts: In 2009, we secured and extended 15 major contracts with a total value of £1bn (2008: 17 contracts totalling £1.24bn) including with AXA Sun Life, Learning and Skills Council, Office for National Statistics, Department for Children, Schools and Families, BBC Audience Services, Becta and NHS BSA. 8 contracts and renewals worth between £10m and £50m were secured with an aggregate value of £159m.

To date in 2010, 9 new contracts and extensions worth between £10m and £50m with an aggregate value of £195m have been secured.

Bid pipeline: Alongside these contract wins, our bid pipeline has been replenished and reflects the quality of business opportunities across our markets. In February 2010, the bid pipeline stood at £3.7bn (Feb 2009: £3.1bn). Behind this is an active prospect list of opportunities which are yet to reach a shortlist stage.

Contract renewals: We have no material rebids of our contracts (defined as having annual revenue in excess of 1% of 2009 turnover) in 2010 and 2011, 2 rebids in 2012 and none in the following 2 years. See Generating profitable growth.

A key element of our growth is the acquisition of small to medium sized companies which widen our skills and knowledge, extend our presence in existing marketplaces or provide a foothold in a new market. We have substantial experience of integrating acquired businesses and achieving synergies with our existing operations.

In 2009, we completed 12 acquisitions for a total consideration of £177.5m, including CHKS, NHS Membership Services, Hero Insurance Services, Capmark Services Europe, Carillion IT Services Ltd and Synetrix.

In 2010, our pipeline of potential acquisitions is healthy. To date, we have acquired 2 businesses for a total consideration of £16.8m: Inventures, a leading healthcare property consultancy and NB Real Estate Ltd, commercial property management specialists. See Generating profitable growth.

We have built up an extensive operational infrastructure and a depth of capabilities which enable us to fully support our clients, provide flexible operating models and share economies of scale. Wherever possible, we will migrate and integrate systems, share resources and rationalise premises to optimise our infrastructure while maintaining and enhancing services. In 2009, we have taken significant steps forward in this ongoing process, particularly across our Life & Pensions business. See Building scale and capacity and optimising our infrastructure.

After 9 years with Capita, Eric Walters decided to step down as Chairman with effect from 1 January 2010. We thank Eric for his considerable contribution and wish him well as he pursues other interests. We are delighted that Martin Bolland, who has been an active and valuable Non-Executive Director since March 2008, has assumed the role of Chairman. We also announced last year that Paddy Doyle would be moving to a part-time Executive Director role. He has now decided to reduce his business interests further and will continue on the Board as a Non-Executive Director from 1 March 2010. We welcome Paddy’s continued valuable contribution to the Group. See Board members.

Capita owes its success to its people and the Board would like to take this opportunity to thank all the talented employees across our businesses who have played a key role in Capita’s consistent growth. Against a backdrop of difficult market conditions during 2009, the effort made by our 36,800 employees has been outstanding and has contributed to another successful year for the Group. Whether joining us through direct recruitment, contracts or acquisitions, their hard work, commitment and enthusiasm play a vital role in helping us to meet client expectations and in sustaining our growth. See Motivating and supporting our people.

Capita is well placed to continue its growth and is experiencing a healthy flow of new business opportunities.

Our pipeline of sales prospects, strong forward visibility of revenues from our long term contracts and consistent operational performance position us well for further strong progress in 2010 and thereafter.