1.1 Creating profitable organic growth

Our organic growth is created in 2 ways:

The majority of our organic growth comes through securing high quality, recurring revenues from long term contracts delivering multiple, integrated administration and customer services. These contracts have been consistently increasing in length as clients seek longer lasting partnerships to deliver more complex service transformation: they currently average 9 years.

We also seek single service business that rolls over annually, has a high repeat rate or is secured under medium to long term contracts of 2 to 7 years.

The combination of long term contracts and recurrent business secures highly visible future revenues.

Major new contracts and extensions secured in 2008
Total value 2008: £1.24bn, 17 contracts*   2007 total: £1.89bn, 8 contracts		Value	Duration
New Marsh UK	To deliver back office adminstration functions in Norwich and Pune, India, and processing services to enhance Marsh’s broking activities to clients across its business.	£187m	10 years
New Principle Insurance Holdings**	To provide outsourced services for Principle’s motor and home insurance and an IT platform to launch and sell Sharia compliant insurance products in the UK.	Over £80m	8 years
New Sefton Metropolitan Borough Council	To deliver a wide range of property and highway services.	£70m	10 years
New Capita Glamorgan Consultancy***	Joint venture to deliver wide range of property services and infrastructure consultancy in Wales. Will deliver cost savings and create 100 new jobs in next 5 years.	£75m	15 years
Additional Service Birmingham	Builds on current partnership. Contract to manage and transform Birmingham City Council’s contact centre to ensure easier access to council services for citizens of Birmingham.	£110m	8 years
New Health and Safety Executive	To operate a new gas installer registration scheme, Gas Safe RegisterTM, in Great Britain and to renew focus on gas safety.	£140m	10 years
New Department of Health	To develop, deliver and host NHS Choices, the digital channel to connect citizens and intermediaries with the NHS.	£60m	3 years
New Abbey Life	To administer approximately 1.1 million life and pension policies. Approx 300 staff transfer to Capita in March 2009.	£137m	10 years
New Sheffield City Council	Service improvement and business transformation including ICT, revenue, benefits and cashiering, HR and payroll and financial business transactions.	Over £200m	7 years

* Contracts listed above + 8 further deals valued at £10m to £50m worth an aggregate of £154m.

** Formerly British Islamic Insurance Holdings

*** Comprises Bridgend County BC, Merthyr County BC and Rhondda Cynon Taf County BC

Fuelling a strong pipeline of new business opportunities

We constantly identify areas of opportunity and potential clients across the public and private sectors. We actively engage with potential clients to demonstrate the benefits and added value that outsourcing offers to their organisations and customers.

In the private sector we actively seek out opportunities through business intelligence and existing relationships; increasingly, we are also approached directly by organisations. The procurement process is determined by each individual customer, often working with advisers.

UK public sector contracts are subject to defined procurement processes. EU policy requires 'fair and open competition', and opportunities are formally advertised and notified. In addition, under EU competition law, public sector outsourcing contracts that are already in place must be offered for tender when the initial contract term is complete.

A valuable measure of our success is our bid pipeline of major contract opportunities, which we report twice a year in our half year and full year results. It contains contracts of £10m or above, where we have been short listed to the last 4 or fewer: all bids are capped at £500m to prevent very large individual contracts distorting the total.

Behind our bid pipeline is an active ‘prospect list’ of opportunities where the bidding process is underway but we have yet to reach a shortlist or final bidding stage. This prospect list is in turn supported by a list of ‘suspects’ – relationships which we are nurturing to generate future bid opportunities.

To ensure that our bid pipeline is regularly replenished with new opportunities across all our markets, it is essential that we support our experienced sales teams with a proactive strategy for prospect identification and development. We recently expanded our intelligence and initial business development resources to increase the flow of potential new business. We have also enlarged our Major Sales Team to ensure we are well placed to convert the attractive opportunities we identify.

Maintaining selectivity

Procurement processes on major bids, particularly in the public sector, may take up to 2 years to complete. They can be costly in both time and resources. So we are highly selective and disciplined throughout the bid process, only bidding where we see realistic opportunity for a sensible working relationship that benefits both the client and the Group. We look for:

If at any stage we feel that conditions have shifted significantly or that any of these criteria are no longer met, we will, after detailed consultation, withdraw from the process. It is essential for us to pursue only those contracts that can both meet the client’s expectations and generate reasonable returns for Capita.

Converting a strong pipeline of new business opportunities

We manage procurements either centrally or at business level, depending on the size and complexity of the opportunity. Our Major Sales Team pursues complex, long term contracts. It can draw on the resources of the whole Group to tailor solutions to each client’s requirements.

Sales teams in each business unit of each division pursue smaller or less complex contracts, usually focused on a single service. Where these are worth over £10m, the Major Sales Team may provide extra support.

Setting our bid success rate against our bid pipeline provides a useful indicator of likely future sales growth. In 2008, we continued our success rate of 1 in 2. This compares with an industry average of 1 in 5. Once a bidding process is completed, the contract moves out of the pipeline – which is replenished as other bids reach the shortlist stage.

Our sales performance in 2008 was excellent. We secured and extended 17 major contracts with a total value of £1.24bn (2007: 8 contracts totalling £1.89bn).These included 2 contracts – NHS Choices and the Gas Safe Register^TM scheme – that give us a strong footprint in markets we are looking to develop.

Alongside these contract wins our pipeline is constantly replenished reflecting the quality of business opportunities across our markets. In February 2009, our bid pipeline was £3.1bn (February 2008: £2.5bn).

Retaining and expanding contracts

Alongside securing new business from new clients, we work to renew or expand existing client relationships.

We concentrate on generating client satisfaction by meeting expectations and delivering value. We share management, ideas and expertise across our operations to add value for the benefit of our clients.

The higher the standards of service we provide, the more likely clients are to extend and expand their relationships with us. It is therefore important to measure the improvement in service that we deliver to clients and their customers. To do this, we agree detailed service standards and key performance indicators. On our largest contracts, strategic partnership boards help both parties understand each other’s needs better. As a result, clients find that outsourcing gives them more control over support operations, not less.

By delivering operational excellence and adding value for our clients and their customers, we achieve high client retention rates. We also create a pool of positive referees who provide powerful support in securing new sales opportunities.

We successfully renew the majority of our contracts when they come up for renewal. In our 25-year history we have only failed to renew 3 of our material contracts (defined as generating more than 1% of the previous year’s revenue).These were contracts to deliver the Driving Theory Test (ended 31 December 1999), office services for the Department of Work and Pensions (ended 2007) and the London Congestion Charging Scheme, which runs until the end of November 2009. We have only 1 material contract due for renewal before end 2011.

Impending rebids of existing material contracts*

Year	Contract	Value per annum (£m)
2009	None
2010	DCSF: National Strategies	35
2011	None
2012	TV Licensing	50
2012	Criminal Records Bureau	40
2013	None

*Defined as generating more than 1% of previous year’s revenue. Revenues p.a. as per original contract values.

We aim not just to keep our relationships, but to grow them. Once clients have experienced the quality service and added value we deliver, many of them want us to support further areas of their operations.

Securing appropriate pricing and contract terms

Our major contracts are long term commitments. So it is essential to get our pricing and contract terms correct from the start, to deliver value to both the Group and our clients.

To ensure prudent pricing, we clearly separate responsibilities. Sales teams are responsible for client relationships; sales support teams develop pricing and risk models. On all major bids, pricing is agreed by the Board.

We undertake extensive due diligence to build detailed service, risk and pricing models. We often share these openly with our prospective clients to ensure that all our assumptions for delivering successfully on the project are robust and that the benefits generated to both parties are fully understood.

Our contract price is generally made up of a base cost that covers the transformation and normal running costs of the service. Where demand on the service infrastructure fluctuates, the pricing will include a variable volume-related element. All contracts include a related basket of indices that reflect the cost elements of the service (such as wage inflation and RPI).Our track record experience in pricing contracts correctly enables us to offer clients sensible and realistic proposals while robustly managing and mitigating risk.

Maintaining a strong competitive position

Outsourcing has evolved rapidly from delivering cost driven, single service solutions to creating long term, multi-service partnerships focused on business transformation and added value. Cost efficiency remains an important reason for outsourcing, but it is equally important to consider how outsourcing can add more value to our clients’ operations and help them to increase effectiveness and maintain competitiveness. Our case studies illustrate how we deliver value.

Our knowledge base and technical infrastructure, built over 25 years, make us a compelling choice. We have unrivalled skills and infrastructure, and have consistently led and helped shape the market by developing our outsourcing offering. We respond to clients’ specified requirements but often also propose alternative service models that deliver even greater benefits.

We are the clear UK market leader in BPO, with an excellent track record of service delivery and a strong set of satisfied client referees. As a UK based business serving an almost exclusively UK based clientele, we have a detailed knowledge of our market; and our management team is highly accessible and swift to respond to our clients’ needs.

Our clients are highly selective. Increasingly, they seek outsourcing partners who have not just the expertise and capacity to support them but also the financial strength and stability essential to building a long term partnership. We, too, must be selective – and in weakening economic conditions we have been extending our due diligence of potential clients.

Capita’s strong balance sheet and cash flow reassure clients that their service is in the hands of a stable partner. Our proven record of strong governance and ethical, socially responsible behaviour is also a competitive strength. Together, these elements clearly differentiate us from competitors and are significant barriers to entry for new participants in all our markets.

We consistently provide:	We have an established track record of:
Market expertise Depth and flexibility of expert resources Extensive and flexible infrastructure A wide range of ICT solutions Onshore, nearshore and offshore delivery options Financial strength and stability.	Smoothly transferring processes and people Delivering business transformation and improved services Achieving business process efficiencies Delivering quality customer service Providing efficient, consistent service Innovating practically and realistically Creating scale economies Achieving cost savings Adding additional business benefits Creating long term sustainable partnerships.