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REG-Capita PLC: Half Year Results 2020

                                            
Capita plc

                                    Half
Year Results 2020

Summary

• Challenging six months for Capita and our colleagues

• We continue to make progress delivering operational improvement as part of
our transformation

• It enabled us to respond to COVID-19 with robust and decisive action to
protect services and the business

• COVID-19 impact has come in a pivotal year for Capita when we expected to
see revenue growth

• Profit has been significantly affected and the delay in the return to
growth means we will not generate sustainable cash flow(2) for 1-2 years

• We have accelerated strategic decisions including to simplify and align
the Software portfolio with core Capita

• Disposal proceeds will be used to strengthen the balance sheet

H1 2020 Financial outcome

• Adjusted revenue(1) decreased by 9% to £1,652.2m (H1 2019 £1,815.5m),
mainly due to 2019 contract losses and COVID-19 impact

• Adjusted profit before tax(1) of £30.1m (H1 2019 £117.8m); decline
resulting from change in profit mix from prior year revenue losses, net impact
of COVID-19 and £42.6m non-cash accrual for untaken holiday

• Reported loss before tax of £28.5m (H1 2019 profit £31.2m)

• Adjusted cash from trading operations(2) of £193.3m (H1 2019 £187.8m);
Adjusted free cash flow £176.0m (H1 2019 £30.1m); improved operating cash
flow and a £77m benefit from early customer payments

• H1 covenants achieved: gearing ratios at 2.1x for Euro and 1.5x for US
notes; net debt of £1,096.6m (31 December 2019 £1,353.2m); liquidity of
£704.1m; includes £117.3m benefit from VAT deferral scheme

Continuing to improve the business

• Fixing underperforming contracts, improving operational delivery and
strengthening client relationships, developed further by strong COVID-19
response

• £73m delivered in the cost transformation programme

• Winning and renewing significant contracts to offset losses; more
opportunities in the pipeline

Robust response to COVID-19

• Colleagues’ safety prioritised; over 50,000 employees working remotely
and 4,400 furloughed at peak

• Decisive action to secure delivery of resilient core of long-term digital
business process outsourcing ('BPO') and software contracts

• Robust cost and cash preservation measures deliver £57m of offset to
revenue loss in the first half

Simplify the portfolio and strengthen the balance sheet

• Accelerated strategic decisions, including to focus on a portfolio of
software capabilities better aligned to Capita’s core services and vertical
markets; Eclipse Legal Systems ('Eclipse') sold on 30 June

• Disposal proceeds to be used to strengthen the balance sheet by reducing
net debt and pension liabilities

Outlook

• Expect COVID-19 to continue to negatively impact volumes and transactional
revenue

• Further cost action and holiday accrual reversal to benefit H2

• Expect to comply with H2 covenants; net debt returns towards 31 December
2019 levels

• Inflection to sustainable cash flow(2) delayed by 1-2 years

• Continue to build a more focused, sustainable business for the long term

Jon Lewis, Chief Executive Officer, said:

“Capita and its people faced a challenging first half of the year, like many
other companies. Thanks to our transformation progress over the last two years
- and the hard work and professionalism of our colleagues - we were able to
deliver a strong and decisive operational response to the COVID-19 crisis.

“However, this crisis has come in a pivotal year for Capita when we had
expectations of beginning to generate revenue growth and sustainable cash
flow.

“Instead, we have had to focus on managing our way through the crisis, while
accelerating some strategic decisions, including our plan for the disposal of
Education Software Solutions, a standalone business in our Software division.

“We expect to make further disposals which, alongside other measures, will
strengthen the balance sheet and help build towards a more focused,
sustainable Capita for the long term. These are unprecedented times and we
need to adapt but our strategy remains the right one.”

 Six months ended 30 June 2020                                                                                                            
 Financial highlights - continuing operations  Reported 2020  Reported 2019  Adjusted (1)2020  Adjusted (1)2019  Adjusted (1) YOY change  
 Revenue                                         £1,682.7m      £1,852.0m        £1,652.2m         £1,815.5m               (9)%           
 Operating profit/(loss)                          (£34.6m)        £60.8m          £57.6m            £146.1m               (61)%           
 Profit/(loss) before tax                         (£28.5m)        £31.2m          £30.1m            £117.8m               (74)%           
 Earnings per share                                0.38p          1.36p            3.38p             5.43p                (38)%           
 Free cash flow                                   £277.7m        (£85.9m)         £176.0m           £30.1m                 485%           
 Net debt                                       (£1,096.6m)    (£1,215.1m)      (£1,096.6m)       (£1,215.1m)              10%            

(1)  Capita reports results on an adjusted basis to aid understanding of
business performance. In 2019, International Financial Reporting Standard 16
Leases (IFRS 16) was adopted, and to aid comparison with 2019, the primary
adjusted measures used by the Board for evaluating performance were presented
before the impact of IFRS 16. The 2019 adjusted results have been represented
in 2020 to include IFRS 16. Refer to alternative performance measures in the
appendix.

(2) Sustainable cash flow = reported free cash flow including restructuring
costs, pension deficit payments, non-recourse trade receivables financing and
payment of deferred VAT

Investor presentation

A presentation for institutional investors and analysts hosted by Jon Lewis,
CEO and Patrick Butcher, CFO, will be held at 09:00am UK time, Tuesday 18th
August 2020. This will be a live audio webcast on our website
www.capita.com/investors and will subsequently be available on demand. The
presentation slides will be published on our website at 07:00am and a full
transcript will be available by midday the following day.

Webcast link:

https://webcast.openbriefing.com/capita-hy20/

Participant Conference Call dial-in details:

United Kingdom 0800 640 6441

United Kingdom (Local) 020 3936 2999

All other locations +44 20 3936 2999

Access code 158011

For further information:

 Capita                                                              
 Stuart Morgan, Investor Relations Director  T +44 (0) 7989 665 484  
 Capita press office                         T +44 (0) 20 7654 2399  
 Powerscourt                                                         
 Victoria Palmer-Moore or James White        T +44 (0) 20 72501446   

This announcement contains inside information for the purposes of article 7 of
EU Regulation 596/2014.

LEI no. CMIGEWPLHL4M7ZV0IZ88.

Chief Executive Officer's Review

Summary

This has been a challenging six months for Capita. We began 2020 with
expectations of improving the business further, delivering modest growth
(halting three years of revenue decline) and significantly increasing adjusted
free cash flow, although with lower adjusted profit than 2019. The first
quarter, up until the impact of COVID-19, was in line with our expectations.

However, since then we have had to respond to the impact of COVID-19. We
reacted early and our strong programmatic response has enabled us to focus on
our colleagues’ wellbeing and client service delivery and reflects the
resilience of much of the outsourced services work that we do. Robust cost and
cash saving initiatives have partly mitigated the negative impact; these have
only been possible due to the actions we have taken over the past two years to
simplify and strengthen the organisation.

Whilst we have met our debt covenants at the half year, the pandemic has also
amplified financial challenges, in particular to our balance sheet at a time
when we were planning to reduce risk through improving cash from trading
operations, an intended bond issuance and the disposal of a large part of our
Specialist Services division. We repaid £163m to our noteholders in June and
will repay another £56m in September.

We have scheduled debt repayments of around £500m between 1 July 2020 and 31
December 2022. Proceeds from non-core disposals, including standalone software
products which do not align to our core digital BPO services, will be used to
support these payments and to manage our pension liabilities. If market
conditions allow, we will also look to push our maturities out by raising new
debt.

We now expect the impact of COVID-19 to delay our inflection to the generation
of sustainable free cash flow. But we will continue to work towards making
this a simpler, more predictable and stable business, generating sustainable
growth and free cash flow. Following the investment to date we are now better
placed, with more tools and information for leadership to manage the business,
in a better position to engage with more satisfied clients on the back of
improved service delivery and having invested in our digital core
competencies. Our ambition is to increase revenue in 2021 and beyond, at
higher margins, and at the same time implement structural cost savings and
further efficiencies in our core digital BPO and software businesses.

Financial outcome

Adjusted revenue(1) in the first half has declined by 9% to £1,652.2m (H1
2019 £1,815.5m). Around 4% of this (c.£80m) relates to revenue lost due to
the impact of COVID-19, mainly in transactional businesses and those where
client end-markets were severely affected. We managed to offset this partially
with Government contracts to support the Department for Work and Pensions
('DWP') in particular and which benefited half-year revenue by £32m. The
remainder of the decline was expected, representing the impact of contracts
lost in the second half of 2019, specifically local government contracts.

Adjusted profit before tax(1) for the half year was £30.1m (H1 2019 £117.8m)
on a post-IFRS 16 basis. The decline is due firstly to the net change in
margin from revenue losses and wins from 2019, as we lost high contribution
and margin contracts and renewed or won lower margin work, as well as the
impact of revenue losses from COVID-19. We partially offset this with £129.5m
of cost savings: £72.6m from our ongoing transformation programme and £56.9m
in additional cost savings specifically as a result of COVID-19, such as lower
travel and property costs and payroll savings, some of which are expected to
continue into 2021. There is also a £42.6m non-cash charge for holiday pay
accrual which is as a result of high levels of untaken holiday for our 60,000
colleagues; this is expected to reduce significantly in the second half. The
loss relating to the start-up of the Defence Fire and Rescue Project ('DFRP')
is £6m at the half year and is still expected to be around £20m on a full
year basis. This contract is going well to date and over its lifetime is
forecast to generate good profit and cash flow.

Adjusted cash from trading operations was £193.3m (H1 2019 £187.8m) as the
improvement in underlying cash conversion along with cash preservation and
profit protection measures offset the negative impact of COVID-19 and contract
losses, as well as positive impact from contractual working capital. Adjusted
free cash flow(1) during the first half year was £176.0m (H1 2019 £30.1m),
which in addition to the above impacts reflects the expected year on year
reduction in capital expenditure and £77m of advance customer receipts.
Further cash benefits including £117m of deferred VAT and £33m from a
receivables financing facility, put in place for additional risk management,
have contributed to a positive movement in headline net debt of £256.6m. Net
debt at 30 June 2020 was £1,096.6m (31 December 2019 £1,353.2m), helped by
these cash preservation initiatives, with covenants compliant with gearing
ratios at 1.5x for the US notes and 2.1x on the Euro notes. Liquidity at 30
June was £704.1m.

Continued progress in operational improvement

As part of our ongoing transformation, we have continued to focus on
delivering better quality service to our clients. We are also focused on
reducing the cash burn on underperforming contracts as well as making the
whole contract base more efficient. Over time this leads to more sustainable
revenue from satisfied clients and higher profit and cash margins.

Previously we have focused on three large contracts that have underperformed
historically, both operationally and financially: the Army Recruiting
Partnering Project ('RPP') contract, Primary Care Support England ('PCSE') and
mobilcom-debitel. Operationally these are all now performing better, with RPP
achieving 96% of its soldier recruitment targets in the year to March 2020
(and would have achieved 100% had basic training not been paused due to the
pandemic) and key performance indicators ('KPIs') on the other two closer to
targets. As a result of COVID-19-related restrictions we now expect profit
across the three contracts to break even in 2021. We continue to target
significant cash improvement on these and other cash-negative contracts, where
poor execution in early transformation phases now results in cash-negative
performance.

Our contract renewal rate for the Group is 70%, a reduction since 2019 as more
regularly we have chosen not to bid for contracts where they do not align with
strategy or we don't believe we can achieve acceptable margins. This renewal
rate is partly a reflection of overall increases in customer satisfaction but
in particular a positive result of our COVID-19 response and handling of the
move to remote working and preserving service delivery wherever possible.
There have also been pragmatic, short-term extensions during the pandemic as
clients minimise change and disruption and we will continue to work with those
clients to seek longer term renewals on better terms.

An example of Capita’s better approach and execution of large-scale
programmatic transformation contracts is the Defence Fire and Rescue Project
(Capita Fire and Rescue) which we secured in July 2019. All three elements of
the contract have now transferred to Capita (training, vehicles & equipment,
service delivery). All KPIs have been met through the first quarter of full
service. The programme milestones continue to be met on time, on budget and at
the planned quality, including the first tranche of vehicles being delivered
and the roll out of enabling IT systems.

Building for future revenue growth

Our ability to sustainably grow our revenue remains a fundamental part of our
long-term success.

We have improved the way that we go to market. Every division except
Specialist Services, now uses one single CRM, reducing from 34 different
systems. This allows us to maximise opportunities and leverage our products,
capabilities and relationships across Capita. It also allows us for the first
time to access accurate, real time data which is a step up in our ability to
manage the revenue outlook. Our investment in Capita Consulting has been
affected by the impact of COVID-19, and we have had to take some difficult
decisions on the short term future of that business, but it has already
delivered contract work that we believe will result in significant associated
pull-through revenue, for example through our work in local government or with
the Ministry of Defence ('MoD'). The consulting practice is still expected to
grow this year, against the tough market backdrop, albeit behind our original
ambitions.

In the first half we won £1.5bn of Total Contract Value ('TCV') revenue, of
which £770m was new order book revenue and the remainder comprises framework
and transactional revenue. Major contract wins included the Ministry of
Justice Electronic Monitoring Scheme ('EMS') (£114m over three years), a two
year extension for a European telecoms client worth £114m, the renewal of the
Teachers Pension Scheme (£60m over four years), the Civil Service Apprentices
framework (estimated at £80m over ten years) and the new Irish Water customer
support contract (£60m over five years). Subsequent to the 30 June we have
secured a £355m contract extension for Transport for London's ('TfL')
congestion charge and Ultra Low Emission Zone ('ULEZ') as well as implementing
the ULEZ extension.

We have also lost a number of contracts which will negatively impact the
remainder of 2020 and 2021. These include a competitive retender for a
customer management contract for an automotive client and a Transport industry
customer management, which is being taken in house.

At 30 June 2020 the orderbook was £6,273.8m, a decrease of £445.8m since
December 2019. Around £400m of the decrease relates to two divisions,
Government Services and Customer Management. As noted above, although we won
£1.5bn of TCV in the first six months of the year, only £770m of this is
included as wins in the orderbook, with the remainder mainly relating to
transactional business or framework agreements which do not meet the
definition. Whilst we are expecting some recovery in both divisions in the
second half of 2020, as evidenced by the recent TfL win, the timing of
contract awards is uncertain.

The improved quality of our customer relationship management ('CRM') has
allowed us to capture and track our data better. During COVID-19 we have
managed to maintain a stable pipeline of potential revenue, which at 30 June
was £24.4bn on an unweighted basis. The largest opportunities included a
£1bn bid for Royal Navy training, on which a decision is expected later this
year, the £355m TfL contract noted above that we have now won and an
extension of RPP.

We are continuing to invest in those areas of our business that we believe
will be long term growth markets and where the shift to digital over the last
few months, and the UK Government’s investment plans, will be strong
tailwinds. For example, the move into the Cloud has been a major factor of the
COVID-19 crisis and cyber security is also a major focus for our clients. Our
automation work has been growing this year and we are developing new services
to leverage the Smart DCC network, Europe’s largest 'Internet of Things'
project.

Reducing cost and targeting margin increases

As part of the transformation, and to right-size the cost base for current
revenue, we have continued to target and deliver significant sustainable cost
reductions. By the end of 2019 we had delivered £160m of cumulative recurring
cost savings. During the six months to 30 June we have realised further cost
savings of £72.6m. These have been in the following main areas:

• Operational excellence - we are reducing cost through better contract
management and reducing the cost of poor quality. We are implementing better
reporting and business information tools that allow us to identify operational
issues and cost inefficiency and then fix them. We are increasing the use of
automation to deliver efficiencies both to client contracts and our own
processes. We are also starting to leverage the Global Delivery Centre,
consolidating fragmented operations into Group locations that offer the
biggest cost advantages.

• Structural Optimisation - we are making changes to the way the divisions
and Group are structured, reducing the number of business units and legal
entities, taking out the associated layers of management, offshoring or
relocating administration roles with cost arbitrage opportunities or that
present shared service centre efficiencies.

• Technology - as a significant part of the cost base, technology is an area
where we have an opportunity for both substantial cost savings but also
increasing efficiency in our operations. We continue to build out the Digital
Development Centre in India as well as in the UK. We continue to derive scale
benefits from our partnerships with major suppliers such as Microsoft’s
Azure Cloud and Amazon Web Services Connect contact management solution.

• Group - savings in Group procurement benefits from volume-driven rebates
and better contract management, particularly in professional services and
agency fees. We are also seeing returns on our investment in systems, in
particular with Workday and Salesforce.

Across the Group we see opportunities to continue to leverage these cost
initiatives to drive further sustainable efficiency savings in contract
delivery.

COVID-19 - our response to protect Capita

The investment in Capita’s people, client service, governance and systems
over the past two years has been fundamental to the way in which Capita has
been able to respond to the COVID-19 crisis; and has resulted in a significant
degree of resilience in the Group’s revenue, alongside strong cost saving
and cash preservation initiatives to mitigate its negative effects.

We started our planning for COVID-19 well before the lockdown, adopting a
programmatic approach based on our improved operational competencies that
allowed for a fast and effective implementation when required. This focused
on:

• The welfare of our colleagues and their safety

• Protecting service delivery for our clients to safeguard and reassure
their customers, for example in pensions administration

• Cost action to protect profit, including payroll costs and discretionary
expenses

• Cash conservation to ensure liquidity and to comply with H1 covenants

We are proud of our colleagues’ response to the need to continue to deliver
operational services to our clients, including the rapid move to having around
85% of the workforce now working from home and the safeguarding of our
workforce who are deemed key workers in the offices that have remained open.
Around 5% of our workforce has not been working. In the UK we are using the UK
government furlough scheme, and we are continuing to pay our colleagues in
India and South Africa who are unable to work from home or in the office due
to local circumstances.

We have worked collaboratively with a supportive client base, further
improving the relationships we have with them. With our move to a remote
working basis, we have been able to deliver on most of our contractual
obligations where we are still able to provide a service and to sustain
quality standards. We have secured additional work during the period worth
£80m over the full year to support Government, including NHS contracts to
send letters to vulnerable people and a contract to support the Department for
Work and Pensions.

In addition to our planned cost and efficiency programme we have implemented a
range of cost saving initiatives to mitigate the revenue impact of COVID-19,
and we are on track to deliver significant cost savings in the full year.
COVID-related savings in the first half year were £56.9m, including:

• Discretionary expenditure has been reduced to save £28m, specifically in
areas such as travel, marketing, non-essential training and recruitment

• Staff related savings of £25m, including £13m of furlough savings as
well as temporary salary reductions for higher paid staff and withdrawal of
the main company 2020 bonus scheme

• We have secured variable cost savings of £4m from not running properties:
out of 294 properties, 168 have been closed since early April (and we do not
expect around 25 to reopen)

In addition, we have secured cash savings and timing benefits with initiatives
such as moving rent payments from quarterly to a monthly basis, reducing 2019
discretionary bonus payments, reducing uncommitted capital expenditure and
restructuring programmes and enhancing our focus on cash collection processes.
We have also taken advantage of the Government VAT payment deferral measures
which will benefit the Group by around £117m in 2020.

At the end of May we took additional steps to reduce the cost base in line
with our revised expectations for the business over the next 12 months,
primarily in central functions. There has been no material impact in the first
half but this is expected to save an additional £25m in 2020 and around £50m
on an annualised basis. Further cost reductions are being developed to respond
if revenue reductions are greater than expected, or recovery is slower than
expected.

We are now starting to look at longer term cost opportunities resulting from
our experiences amid the COVID-19 crisis, with remote working practices
meaning that we will not return to a number of our properties. The
productivity gains and positive customer feedback in some of our contact
centre business are also resulting in our working with some major customers to
rework contract structures to mutual benefit.

Simplifying the portfolio and strengthening the balance sheet

The COVID-19 crisis and its impact on our cash generation has led us to
accelerate some strategic decisions. This includes a decision to focus on
software capabilities which are better aligned with and support our
consulting, transformation and digital BPO services, and the vertical markets
of the rest of the Group.

Software capability remains critical. We will retain software assets that are
catalysts for growing our other services, providing microservices and
client-centric solutions, built using flexible, scalable and reusable digital
componentry. For example, Capita One, which provides local government
administration software will be integrated into wider Government Services
service offering. The Digital Delivery Centre, a core part of the strategy for
agile, integrated software development also used the One platform to build the
Standards and Testing Agency ('STA') solution.

We therefore plan to dispose of standalone software products that have little
overlap or cross-sell with the rest of Capita. During the first half, we sold
Eclipse, a standalone legal process software product, for £56.5m(2).

We have also announced our intention to dispose of Education Software
Solutions ('ESS'). ESS is a standalone provider of management information
system (MIS) software for the education sector. The process has now been
launched and we will provide updates when appropriate.

Proceeds from disposals will be used to strengthen the company balance sheet
by reducing net debt and pension liabilities. Further disposals will be
announced in due course.

During the half year we have also continued to simplify the portfolios of
other divisions either where Capita’s strategy does not reflect the nature
of those businesses or if they would do better under other ownership. In April
we announced the sale of our Irish Life and Pensions Services business to SS&C
technologies and since the end of the period, we have completed the disposal
of Capita Workplace Technology.

Outlook

Precise forecasting is challenging in these uncertain times.

We expect the majority of our revenue to remain resilient, given the client
base and the long-term nature of our contracts. Based on expectations of a
slow economic recovery throughout the next six months and ongoing challenges
to our ability to win transactional work, our current expectation is that
revenue in the second half is flat to slightly down on H1.

We will continue our transformation cost savings programme to address revenue
decline and target to increase margins. We expect these sustainable cost
savings, alongside the short-term cost preservation action, to benefit the
second half of 2020, alongside the reversal of the holiday pay accrual.

Net debt is expected to return towards 31 December 2019 levels, as some of the
first half benefits reverse in the second half of 2020.

Strengthening the balance sheet remains a priority for Capita. We have
disposed of Eclipse and have now launched a process to sell ESS. We have also
identified a number of other assets that are not core to our long- term
strategy. Proceeds will be used to reduce our debt and pension liabilities.

As a result of the COVID-19 crisis and its impact on the business we expect
the inflection to sustainable free cash flow to be delayed by 1-2 years.

In the longer term we will continue to make this a more predictable and stable
business that delivers increasing, sustainable free cash flow for our
shareholders.

___________________________________________

(1) Refer to alternative performance measures in the appendix

(2) On a cash and debt free basis. Gross proceeds of £58.4m in cash with net
proceeds of £53.2m following the repayment of an inter-company balance.

Divisional performance review

The following divisional financial performance is presented on an adjusted
revenue(1) and adjusted operating profit(1) basis. Reported profit is not
included, because the Board assesses divisional performance on adjusted
results. The calculation of adjusted figures and KPIs are contained in the
APMs in the appendix to this statement.

All the divisions have been impacted by the one-off COVID-related holiday pay
accrual, and COVID-related savings were staff related and discretionary spend.
This explanation has therefore not been repeated throughout this section.

Software

 Divisional financial summary                         2020   2019  % change  
 Adjusted revenue (1)(£m)                            173.4  170.7    1.6%    
 Adjusted operating profit (1)(£m)                    38.2   46.6   (18.0)%  
 Adjusted operating margin (1)(%)                    22.0%  27.3%            
 Adjusted cash from trading operations (£m)           86.5   90.9   (4.8)%   
 Order book (£m) (comparative at 31 December 2019)   559.2  578.4   (3.3)%   

Adjusted revenue(1) increased by 1.6% to £173.4m, with resilience in
Education, Capita One and AMT Sybex, whilst COVID-19 adversely impacted the
volume-driven payments business. Contracts ending in Secure Solutions and
Services and AMT Sybex, were more than offset by new go-lives and licence
upgrades respectively in those two businesses.

Adjusted operating profit(1) fell by 18.0% to £38.2m, due to the
COVID-related transactional decline, an increase in depreciation and
amortisation, margin mix of trading churn and increased costs of the digital
development centre.

Adjusted cash from trading operations fell by 4.8% to £86.5m, reflecting the
decline in profitability, partially offset by working capital improvements.

Strategy and growth

Following a strategic review of our software division over the past year, we
have decided to focus on a portfolio of core software capabilities which are
better aligned with and support our consulting, transformation and digital BPO
services, and the vertical markets of the rest of the Group. We will retain
our software assets that are catalysts for growing our other services and plan
to dispose of the standalone software products that have little overlap or
cross-sell with the rest of Capita.

We have invested in new product development, with rapidly reducing development
cycles, and increasing the move to microservices and digital componentry as a
catalyst for pan-Capita digital services. The investment in our cloud
platforms has benefited sales in Capita One, where we have assisted local
authorities in transitioning from legacy systems.

At 30 June 2020, the total unweighted pipeline was £696m a decrease of £89m
since February, with £221m of TCV won in H1. The order book at 30 June was
£559m, a decrease of £19m since 31 December 2019; however, when Eclipse is
excluded from the opening position (£29m), the order book has grown. This is
due to benefits of the recent sales transformation and improved deal
execution, with increases in Capita One and Healthcare Decisions. Our renewals
rate was 65% as we reduced the number of contracts that we chose not to rebid.

Notable wins and renewals include: a £6m, five year contract with a city
council in Capita One; a £19m, seven year, regional NHS contract in
Healthcare Decisions and a renewal worth £4m, over two years, with a major UK
police force in Secure Solutions.

Cost and operational excellence

Swift action was taken to protect the business from the impact of COVID-19 and
we have sustained delivery on 97% of our service level agreements ('SLAs').
Our rapid response strengthened customer relationships, with very positive
feedback from local government and ambulance services.

The new streamlined division is improving collaboration and standardisation;
and we are leveraging the Digital Development Centre’s common tools and best
practice processes for faster, better, pan-Capita development capability, for
example: AXELOS, Capita One Housing, and Pay 360. Margin pressure from cost
increases and the impact of investment has compounded the effect of a high
fixed cost base. We continue to progress well with generating savings to
offset this, particularly in deploying technology and operational excellence.

People Solutions

 Divisional financial summary                         2020   2019  % change  
 Adjusted revenue (1)(£m)                            245.7  271.6   (9.5)%   
 Adjusted operating profit (1)(£m)                    17.8   28.5   (37.5)%  
 Adjusted operating margin (1)(%)                     7.2%  10.5%            
 Adjusted cash from trading operations (£m)           8.5    21.9   (61.2)%  
 Order book (£m) (comparative at 31 December 2019)   455.5  497.2   (8.4)%   

Adjusted revenue(1) decreased by 9.5% to £245.7m, with resilience in HR
Solutions, Pensions Administration and RPP, whilst COVID-19 adversely impacted
our ability to deliver services in Learning and Resourcing. Public sector
contract losses in the resourcing business and a decline in transactional
revenue, were not offset by contract wins, however the revenue has benefited
from renewals and improved account management.

Adjusted operating profit(1) fell by 37.5% to £17.8m, due to COVID-related
transactional decline which was partially offset by savings. Cost containment
became the focus as the transactional nature of learning and resourcing
business mean there is a higher stranded cost base. Contract losses and
investments in the pensions business adversely impacted profit.

Adjusted cash from trading operations fell 61.2% to £8.5m, reflecting the
decline in profit and contractual working capital movements in Learning
Services, Resourcing and Pensions.

Strategy and growth

The HR outsourcing market is expected to continue to grow in the UK and we are
expecting more growth in the demand for pensions consulting, digital learning
and the Government skills and youth employment agenda. The key market growth
drivers are: (i) our clients’ needs for financial sustainability; (ii) a
better employee experience to execute on their strategy; and (iii) the
necessity to have access to skills to enable them to be fit for a digital
future. Our strategy focuses on a client management model that aims to retain
and grow existing accounts, while driving profitable growth.

We have invested in the development of our products, mainly the completion of
product development for vetting and onboarding, a digital platform for
learning, and a CRM system to improve employee experience in HR Solutions.

At 30 June 2020, the total unweighted pipeline was £2,480m an increase of
£1,100m since February, with £242m of TCV won in H1. The order book at 30
June was £456m, a decrease of £41m since 31 December 2019. RPP continues to
reduce as we move towards the end of the initial contract term, however
Pensions and Benefits were able to grow their order book. Less than 30% of the
wins in the first half met the order book definition, as they are mainly
framework agreements. We secured around £40m of the TCV in H1 through the
benefit of our account management model and an improved renewal rate of 71%.

Notable wins and renewals include: COVID-related wins of £3m, a renewal worth
around £8m over two years with a major Financial Services organisation, a
renewal worth £29m over two years with the Crown Commercial Services ('CCS'),
the renewal of around £80m, over 10 years, CCS Apprenticeships Framework and
an expansion and renewal worth £60m, over four years, with the Teachers’
Pension Scheme.

Cost and operational excellence

We delivered a fast and effective response to COVID-19, with around 80% of the
division working from home within two weeks. The associated goodwill generated
has created an opportunity to ensure that any short-term contract extensions
are agreed on better terms.

The division has made significant progress in stabilising the business,
including the appointment of new leadership in key roles, improving the
renewal rate and significantly reducing service credits.

Despite the intervention of COVID-19, we achieved 96% of the recruitment
target on RPP in the recruiting year 19/20 and would have achieved 100% had
basic training not been paused due to the pandemic.

Improved governance and division-wide optimisation of resources has reduced
the cost base. Initiatives that will continue throughout the year include:
further simplification of the structure and product offerings; productivity
gains; commercial remediation of loss making contracts; supplier
renegotiations; and digitisation. We are expecting structural changes to be
completed in 2021.

Customer Management

 Divisional financial summary                          2020     2019   change %  
 Adjusted revenue (1)(£m)                             561.8    569.5    (1.4)%   
 Adjusted operating profit (1)(£m)                     41.6     53.9    (22.8)%  
 Adjusted operating margin (1)(%)                      7.4%     9.5%             
 Adjusted cash from trading operations (£m)            42.3     11.7    261.5%   
 Order book (£m) (comparative at 31 December 2019)   2,522.5  2,760.5   (8.6)%   

Adjusted revenue(1) decreased by 1.4% to £561.8m, whilst COVID-19 adversely
impacted scope and volume on contracts with challenged end markets, these were
almost offset by COVID-related projects. Scope and volume reductions on
telecommunications and the Life and Pensions business (newly included in the
Customer Management division) and a contract that was lost, were offset by
wins.

Adjusted operating profit(1) fell by 22.8% to £41.6m, due to the overall fall
in revenue which was partly offset by COVID-related savings and the on-going
cost efficiency programme. Salary inflation, including the impact of the Real
Living Wage in the UK, has adversely impacted profit, as well as the
impairment of contract assets on our mobilcom-debitel contract.

Adjusted cash from trading operations improved by 261.5% to £42.3m, because
the decline in profit was offset by contractual working capital upsides
reflecting £28m deferred income and £9m accrued income inflows largely
caused by timing of payments (on the O2 contract and life and pensions
business), timing of contract milestones and an impairment of contract assets
on mobilcom-debitel.

Strategy and growth

Capita competes with a range of local and global players for transactional
contracts which are typically priced on a price per full-time equivalent (FTE)
hour basis, and a smaller number of strategic players for outcome-based
contracts which help our clients transform their customer experience
capability.

Our approach is to build partnerships, based on shared outcomes and value,
while continuing to deliver transactional supply where this helps our clients
meet customer demands. The value we bring to our clients is increasingly built
around transforming the customer experience through the application of digital
services underpinned by data insight and analytics. These enable us to manage
complex, high-value interactions, automate repetitive tasks and use technology
and capability to drive quality improvement. A function of the market shift is
a move in both engagement and commercial models to focus on 'outcomes'
leveraging a hybrid mix of people and technology.

At 30 June 2020, the total unweighted pipeline was £9,219m an increase of
£3,502m since February, with £417m of TCV won in H1. Due to COVID-19, we
have seen a number of opportunities shift right. The order book at 30 June was
£2,523m, a decrease of £238m since 31 December 2019. Our order book has
decreased because new wins did not offset revenue recognised and terminated.
The largest renewal in the period does not meet the order book definition.
Whilst we are expecting some recovery in the second half of 2020, the timing
of contract awards is uncertain, as mentioned previously. Our renewal rate was
52% and to date in 2020 we have renewed all the contracts we planned to.

Notable wins and renewals include: COVID-related wins of £33m, £33m over
three years with a UK retail bank, £60m over five years with Irish Water and
a renewal worth £114m over two years with a major European telecoms provider.

Cost and operational excellence

Operational delivery has been challenging for the business due to the
significant change in operating model and due to local lockdowns impacting the
global delivery centre, but we have managed to maintain a high service level
to clients. Accelerated investment in computer equipment, customer experience
and digital platforms, such as chatbots and cloud technologies, has allowed
70% of the division to work from home, alongside a number of critical services
operating with key workers in our offices. Home working efficiencies have not
come at the cost of quality customer experience and we have actually seen
significant uplifts across all accounts analysed where customer satisfaction
data is available. We responded quickly to take out as much cost associated
with volume reductions as possible. UK divisional attrition levels are
currently at their lowest level in many years, leading to recruitment and
training cost savings and customer service benefits.

Our customer services contract with mobilcom-debitel has been impacted by
initiatives not achieving the benefits anticipated. We now expect to reach the
inflection point and break even on this contract in 2021. The inability to
achieve this key milestone in 2020 led to the impairment of the associated
contract assets of £6.2m.

Whilst the legacy contract base continues to cause challenges, as part of the
transformation we have strengthened the sales process. This now brings a more
consistent go-to-market focus across the division. We will leverage the
opportunity presented to accelerate customer experience transformation with
large segments of the market as well as the major programme review process,
and benefits have been seen in project management from the Evolve training.
This has allowed us to mobilise large pieces of work in short time scales with
no material failures, such as in our DWP and NHS support work, and we have had
no significant issues on recent wins.

Progress on cost improvement continued in 2020, with further operating model
initiatives, technology changes and property closures.

Government Services

 Divisional financial summary                          2020     2019   % change  
 Adjusted revenue (1)(£m)                             364.8    424.2    (14.0)%  
 Adjusted operating profit (1)(£m)                     14.3     20.0    (28.5)%  
 Adjusted operating margin (1)(%)                      3.9%     4.7%             
 Adjusted cash from trading operations (£m)            18.5    (5.4)    442.6%   
 Order book (£m) (comparative at 31 December 2019)   2,019.1  2,176.7   (7.2)%   

Adjusted revenue(1) decreased by 14% to £364.8m, mainly as a result of prior
year contract losses in Local Government and Defence Infrastructure
Organisation ('DIO'), with some offset from new business such as DFRP. The
overall COVID-19 impact has been broadly neutral. Revenue has been resilient
in many verticals: Health, Transport, Defence, and Justice, but there has been
a negative impact on local government, Entrust and Fera. This was partially
offset by COVID-related projects.

Adjusted operating profit(1) fell by 28.5% to £14.3m. The impact of COVID-19
was offset by one-time savings from reductions in discretionary spend,
voluntary pay cuts, and making use of the Government’s furlough scheme. The
initial loss on DFRP had a one off impact on profit. The impact of the
above-mentioned contract losses was successfully offset by the scope and
volume increases above.

Adjusted cash from trading operations significantly improved to £18.5m,
mainly reflecting deferred income inflows across a number of contracts,
including DFRP £31m, offset by contract fulfilment asset ('CFA') recognition
of £20m on the DFRP transformation, with accrued income inflows driven by
invoice phasing, particularly within Local Government.

Strategy and growth

Capita is one of the largest providers to government, within this we have
top-three leadership positions in six sectors where we have deep, proven
experience and expertise: education, health, transport, defence, central and
local government.

Our strategy is to focus our business around the aforementioned sectors; offer
a refined set of value propositions developed on top of a defined and
controlled stack of underlying replicable digital products and capabilities;
extend out consulting and strategic advisory positions, further develop our
full-lifecycle digital transformation capability; and maintain excellence in
operational service delivery performance.

We expect a significant increase in central government spending over the next
few years, particularly in infrastructure and digital delivery, while local
government is more likely to need more cost-effective service delivery due to
shortfalls in their sources of income.

We have invested in our infrastructure, including an on-line platform for
customer care services and a new platform with reduced hosting charges.

At 30 June 2020, the total unweighted pipeline was £9,246m an increase of
£2,473m since February, with £296m of TCV won in H1. Pipeline growth has
been generated by TCV increases on existing opportunities, such as from
changes in contractual arrangements, and a number of large FY21 onwards
opportunities, including current contract extensions. The order book at 30
June was £2,019m, a decrease of £158m since 31 December 2019, however we
have recently won an extension and expansion with TfL ending October 2026
worth £355m. Our renewal rate was 90%, as we see the benefits of the
investment in fixing contracts and the rebuilding of trust with clients. This
investment has also led to a willingness to discuss commercial terms on
contracts that are currently cash-negative.

Notable wins and renewals include: COVID-related work of £30m (with service
delivery often being provided across Capita), a renewal of Electronic
Monitoring worth £114m over three years, and an extension of a local
authority contract worth £13m over four years.

Cost and operational excellence

We have continued to execute the vast majority of client delivery across
government, despite the external challenges, receiving positive feedback from
clients in all verticals. 75% of the division are servicing contracts from
home. Contractual performance has continued to improve throughout 2020 with a
significant reduction in risk to scheduled delivery and cost of our major
contracts. As a result, we have seen a material reduction in service credits
and the cost of poor quality and are becoming a trusted partner to Government.

Operational excellence continues to be the driving force for savings in the
division and we continue to reduce overhead cost. We are now planning the next
stage of our cost transformation with an operational strategy to work towards
a more agile service structure based on leveraging best practice between our
chosen verticals.

A significant example of the progress we have made is in the transformation
and service delivery of DFRP which is going to plan, despite the COVID-19
pandemic. This demonstrates our new resilience, dedication to partnership and
industry expertise to deal with client requirements. Our agility has allowed
us to overcome any challenges faced and we are avoiding the issues we have
seen on many legacy contracts. Whilst the legacy issues have been overcome on
PCSE, COVID-19 has delayed the roll-out of the new ophthalmic
solution. Progress on the roll-out continues to go well though with the
profit inflection point now forecast at the start of 2021. The majority of
the transformation milestones have been delivered and operational service
delivery remains stable. On another contract, while underlying operational
service delivery continued to perform well, with a limited impact of COVID-19,
the delivery of transformation has been delayed. Go-live has been deferred
from August to December 2020 and a provision has been recognised at the half
year as a consequence. Any further delays and/or inability to reach key
milestones on either of these projects could lead to reduced contract
profitability and a risk of impairment of the associated contract assets.

Technology Solutions

 Divisional financial summary                         2020   2019  % change  
 Adjusted revenue (1)(£m)                            190.5  224.2   (15.0)%  
 Adjusted operating profit (1)(£m)                    14.9   28.7   (48.1)%  
 Adjusted operating margin (1)(%)                     7.8%  12.8%            
 Adjusted cash from trading operations (£m)           37.9   44.9   (15.6)%  
 Order book (£m) (comparative at 31 December 2019)   417.1  389.7    7.0%    

Adjusted revenue(1) decreased by 15% to £190.5m, with a significant negative
impact of COVID-19 on our transactional and volume-based businesses. These
were partially offset by COVID-19 wins in IT Services and a strong
performance in our public sector clients in Trustmarque. Revenue was also
impacted by known contract exits, including BAE Systems (which we chose not to
bid for) and reduced demand for our professional services, partially offset by
increased scope across TfL.

Adjusted operating profit(1) decreased by 48.1% to £14.9m, of which a small
amount related to COVID-19. In line with the overall market, profit was
adversely impacted by the exit of historic higher margin contracts, volume
reduction and increased depreciation from our infrastructure investments.
These were partially offset by cost savings.

Adjusted cash from trading operations decreased by 15.6% to £37.9m,
reflecting a decline in profit, partially offset by improvements in accrued
and deferred income inflows, partially offset by an outflow from increased
CFAs, largely on TfL Networks.

Strategy and growth

Our strategy is to create innovative technology solutions, underpinned by a
comprehensive range of services which address the needs of our enterprise
clients; such as how to benefit from robotic process automation technologies.

We are developing repeatable propositions to meet our client’s needs with a
focus on creating improved customer experience and expanding our client base.
Our expertise in business process improvement, complemented by consulting,
allows us to address emerging opportunities. This combination of expertise in
technology with a robust and integrated product offering helps clients extract
value out of their legacy systems, while adopting and gaining benefit from the
latest digital, cloud-enabled technologies.

Longer term our core digital offering: cloud; cyber security; hybrid working;
Internet-of-Things; and robotics process automation, are increasingly in
demand as the market adapts to new ways of working.

At 30 June 2020, the total unweighted pipeline was £2,095m an increase of
£132m since February, with £192m of TCV won in H1. The order book at 30 June
was £417m, an increase of £27m since 31 December 2019, due to upselling
across our networks business. Our renewal rate was 54% where we are renewals
with core clients who are tending to renew during the pandemic instead of
switching to a new supplier. While this is beneficial, it means there is less
new business coming to market.

Notable wins and renewals include: a £24m one-year Emergency Services Network
('ESN') deal with TfL; £8m over five years with Cheshire East Council; and an
annual rolling contract worth £4m with AEGIS London, which is expected to
last a further three years.

We have invested in our ongoing data centre consolidation and cloud migration
programme. We are also continuing to invest in our capabilities, including
data, cloud and security, to build on improving external perception.

Cost and operational excellence

In recent Whitelane research, we received the highest percentage improvement
for customer satisfaction against UK end user computing competitors. This
rewards a multiple year continuous improvement programme to deliver high
quality and resilient solutions to our customers. We were also awarded, for
the fourth year in a row, the DELL Client Solutions Group Partner of the year.
As a Titanium partner, this award showcases our ability to continue to deliver
value to our customers.

We provided an agile response to client demands and enabled them to continue
operating successfully with very positive feedback from both private and
public sector. Customer satisfaction remained high and services levels were
not impacted by a move to remote working. We were responsible for Capita’s
successful move to remote working for 35,000 colleagues. This was made
possible by the investment to date as part of the transformation.

COVID-19 has accelerated the transformation of our working practices.
Currently over 80% of the division are working remotely with no detriment to
our operational KPIs. This has led to a reassessment of our property footprint
and a programme of consolidation and closure is now under way.

Margins on our larger key contracts remain stable. We continue to work hard to
reduce our fixed cost base and cross sell existing service lines to existing
clients. We expect to generate further savings from further consolidation,
technology and operational improvement initiatives.

Specialist Services

 Divisional financial summary                         2020    2019  % change  
 Adjusted revenue (1)(£m)                             102.4  143.2   (28.5)%  
 Adjusted operating profit (1)(£m)                    (4.1)   20.1  (120.4)%  
 Adjusted operating margin (1)(%)                    (4.0)%  14.0%            
 Adjusted cash from trading operations (£m)            5.4    25.0   (78.4)%  
 Order book (£m) (comparative at 31 December 2019)    287.1  306.6   (6.4)%   

Adjusted revenue(1) decreased by 28.5% to £102.4m, as COVID-19 severely
affected end markets such as Travel and Enforcement. Due to the transactional
nature of the division, most businesses have seen a downturn in revenue except
for Insurance Services, which has seen an extension to the FloodRe contract,
and PageOne, which has seen an increase in transactional sales for pagers.

Adjusted operating profit(1) became a loss of £4.1m, due to the fall in
transactional revenue caused by COVID-19, partially offset by furlough and
discretionary spend savings.

Adjusted cash from trading operations has decreased by 78.4% to £5.4m,
reflecting the loss in the first six months of the year.

Strategy and growth

Specialist Services includes a range of businesses serving public and private
clients across multiple vertical sectors, which are generally mature. Due to
the varied nature of the activities in the division, each Specialist Services
business has its own strategy uniquely tailored to their service offerings and
the needs of their clients.

The strategy remains to prepare earmarked businesses for disposal, albeit the
timeline has been impacted by COVID-19.

At 30 June 2020, the total unweighted pipeline was £487m a decrease of £157m
since February, with £99m of TCV won in H1. The order book at 30 June was
£287m, a decrease of £20m since 31 December 2019. Due to the transactional
nature of the division, the order book is not considered a suitable metric for
growth.

Notable wins and renewals include: Multiple contracts with Highways England in
Real Estate & Infrastructure with a TCV of £12m; a local authority renewal in
Enforcement with a £3m TCV; and a FloodRE extension in Insurance worth £2m.

Cost and operational excellence

We have maintained service levels where possible throughout the crisis, with
around 65% of staff working from home. However, we have furloughed large
numbers of colleagues and reduced services to a minimum in those businesses
whose end markets were most affected by COVID-19, including Travel and Events,
and Enforcement in particular.

Whilst we took decisive action to cut costs as part of the pandemic, we were
unable to cut too deeply into the fixed cost base in order to ensure a timely
recovery. However, this has encouraged us to review the long-term operating
model of several business units, particularly those that are expected to see
long term impact from COVID-19.

___________________________________________

(1) Refer to alternative performance measures in the appendix

Financial review

Overview

These are unusual and uncertain times and they provide a very particular
backdrop to our half year results. 2020 was always going to be a key proving
year for Capita. In March we explained that the Transformation of Capita was
going to take longer and cost more than had been expected at the outset. Since
2018, we have invested heavily in our growth capability and were ready for the
year ahead - and we were expecting revenue growth for the first time in
several years. In March, we knew that our balance sheet was in need of
attention and our plans for asset disposals and a public markets bond issue
were well advanced, and then COVID-19 struck.

A small decline in adjusted revenue was expected in the first half due to
contract losses reported in 2019. The first quarter of 2020 was broadly in
line with expectations, but the economic impact of the COVID-19 pandemic
resulted in lower transactional revenue in a number of businesses. We saw a
resilient revenue performance in the majority of our operations from long-term
contracts with a stable government and blue-chip customer base, and saw
contract wins with the DWP and NHS, which will help performance in the second
half of 2020. The weaknesses in transactional revenue and volume-related
framework contracts related to businesses such as travel and events,
resourcing, face-to-face training, and the payment services software we use to
collect the congestion charge.

Adjusted profit before tax(1) was impacted by the decline in revenue and lower
margins on contract renewals, increase in depreciation from completed
functional investments, and other cost increases, including an increase in
holiday pay accruals due to delays in colleagues taking holidays, the
additional holiday offered to senior management in return for salary
reductions as part of our response to COVID-19, and a more accurate assessment
of the level of holiday pay across Capita following the investment in a new HR
system, partially off-set by cost saving initiatives.

Cash from trading operations was improved by contractual working capital
movements more than off-setting the decline in adjusted EBITDA.

Adjusted free cash flow(1) was underpinned by improvement in cash from trading
operations, better working capital management, accelerated customer receipts,
lower capital expenditure and lower spend on certain transformation projects.

As part of our drive for simplification, we continue to seek to dispose of a
number of non-core businesses. In June 2020, we completed the disposal of
Eclipse Legal Services for net cash proceeds of £50.0m, realising a gain of
£42.1m, and we are progressing the recently announced disposal of ESS with
strong expressions of interest already received. Proceeds from both of these
disposals will be used to strengthen the Group's balance sheet by reducing net
debt and pension liabilities. Further disposals will be considered in due
course in accordance with our previously announced disposal programme.

Liquidity at 30 June 2020 was £704.1m, made up of £375.5m representing the
undrawn part of committed credit facilities and £328.6m of unrestricted cash
and cash equivalents net of overdrafts. The Group was in compliance with its
financial covenants at 30 June 2020.

Performance in the second half of 2020 is dependent on the pace of economic
recovery and continued cost reduction across the Group.

Summary of financial performance

                                                                              Financial highlights                                                                               
                                                Adjusted (1)results – continuing operations                                Reported results – continuing operations              
                               Adjusted (1) 30 June 2020  Adjusted (1) 30 June 2019  Adjusted (1) POP change  Reported 30 June 2020  Reported 30 June 2019  Reported POP change  
 Revenue                               £1,652.2m                  £1,815.5m                    (9)%                 £1,682.7m              £1,852.0m                (9)%         
 Operating profit/(loss)                 £57.6m                    £146.1m                    (61)%                  (£34.6m)                £60.8m                (157)%        
 Profit/(loss) before tax                £30.1m                    £117.8m                    (74)%                  (£28.5m)                £31.2m                (191)%        
 Earnings per share                      3.38p                      5.43p                     (38)%                   0.38p                  1.36p                 (72)%         
 Cash from trading operations           £193.3m                    £187.8m                      3%                                                                               
 Free cash flow                         £176.0m                     £30.1m                     485%                  £277.7m                (£85.9m)                423%         
 Net debt                             (£1,096.6m)                (£1,215.1m)                   10%                 (£1,096.6m)            (£1,215.1m)               10%          

Adjusted results

Capita reports results on an adjusted basis to aid understanding of business
performance. The Board has adopted a policy to separately disclose those items
that it considers are outside the underlying operating results for the
particular period under review and against which the Group’s performance is
assessed. In the Directors’ judgement, these need to be disclosed separately
by virtue of their nature, size and/or incidence for users of the financial
statements to obtain a proper understanding of the financial information and
the underlying in-period performance of the business. Those items which relate
to the ordinary course of the Group’s operating activities remain within
adjusted profit.

In 2019, International Financial Reporting Standard 16 Leases (IFRS 16) was
adopted, and to aid comparison with 2018, the primary adjusted measures used
by the Board for evaluating performance were presented before the impact of
IFRS 16. In 2020, adjusted results are presented after the impact of IFRS 16
and 2019 has been restated on the same basis.

Reconciliations between adjusted and reported operating profit, profit before
tax and free cash flow are provided on the following pages and in the notes to
the financial statements.

 Adjusted revenue (1)bridge by key driver         £m    
 Six months ended 30 June 2019                 1,815.5  
 Losses                                        (128.5)  
 Scope and volume                               (20.7)  
 Transactional                                  (4.3)   
 Wins                                            66.5   
 Six months ended 30 June 2020 - pre-COVID-19  1,728.5  
 COVID-19 - Scope and volume                    (29.8)  
 COVID-19 - Transactional                       (78.1)  
 COVID-19 - Wins                                 31.6   
 Six months ended 30 June 2020                 1,652.2  

Adjusted revenue(1) reduced year on year by around 9%. The adjusted revenue(1)
bridge details the movements:

• contract losses, mainly the impact of 2019 local government hand backs in
Government Services such as Birmingham and Southampton Councils;

• contract wins which include the first full year of DFRP revenue, projects
performed for the BBC, and a number of smaller wins within Software; and

• net reduction of £76.3m (4%) attributed to COVID-19, largely due to lower
transactional revenues in our businesses heavily impacted by COVID-19 in
Specialist Services, Government Services and People Solutions, including a
number of our framework agreements which are driven by volumes, offset by
additional revenue won, predominantly within Government Services, to assist
with the UK's response to COVID-19, including contracts with DWP and various
NHS schemes.

 Adjusted profit before tax (1)bridge by key driver           £m    
 Six months ended 30 June 2019                               117.8  
 Contract wins                                               18.8   
 Contract losses                                            (42.6)  
 Scope & volume                                             (46.5)  
 Transactional                                              (66.9)  
 COVID-19 cost actions                                       56.9   
 Transformation savings                                      72.6   
 Other cost                                                 (37.4)  
                                                             72.7   
 Increase in the accrual for untaken holiday by colleagues  (42.6)  
 Six months ended 30 June 2020                               30.1   

Adjusted profit before tax(1) declined in 2020. The adjusted profit before
tax(1) bridge above breaks out the revenue and cost impacts on profit:

• the net impact of the contract wins (which includes the £6m loss on the
DFRP contract), contract losses, reduced transactional revenue (mostly
attributable to COVID-19), scope and volume reductions described earlier, and
margin erosion on contract renewals;

• mitigated by cost saving initiatives, including £56.9m from actions taken
to off-set the financial impact of COVID-19;

• increased functional investments relates to the additional depreciation on
completed transformation programmes;

• other cost increases, which includes inflation (including the commitment
to the Real Living Wage), additional depreciation, amortisation and running
costs on completed transformation programmes, and increase in bad debt
provision; and

• an increase in holiday pay accruals due to delays in colleagues taking
holidays, the additional holiday offered to senior management in return for
salary reductions as part of our response to COVID-19 and a more accurate
assessment of the level of holiday pay across Capita following the investment
in a new HR system.

Additional cost savings are expected in the second half of 2020 as cost
reduction and cash preservation programmes continue.

 Adjusted operating profit to adjusted free cash flow (1)                                                30 June 2020  £m   30 June 2019 £m  
 Adjusted operating profit (1)                                                                                 57.6              146.1       
 Add: depreciation/amortisation and impairment of property, plant and equipment and intangible assets          93.2              95.2        
 Adjusted EBITDA                                                                                              150.8              241.3       
 Contractual working capital movement (deferred income, contract fulfilment assets and accrued income)         42.5             (53.5)       
 Cash from trading operations*                                                                                193.3              187.8       
 Net capital expenditure                                                                                      (49.0)            (64.4)       
 Other                                                                                                         31.7             (93.3)       
 Adjusted free cash flow (1)                                                                                  176.0              30.1        
 * Cash from trading operations defined as adjusted EBITDA less contractual working capital movements.                                       

Adjusted free cash flow(1) in the six months ended 30 June 2020 was an inflow
of £176.0m (2019: inflow £30.1m).

Adjusted free cash flow(1) benefited from the adoption of IFRS 16, as rental
payments previously included in free cash flow were reclassified as financing
cash flows, being repayment of the lease liability and interest. The 2019
adjusted free cash flow(1) was restated in 2020 to include IFRS 16 to enable a
like-for-like comparison.

We analyse working capital between ‘contractual’ – being those balances
which relate to contract unwinds of deferred income, accrued income and
contract fulfilment assets to derive cash from trading operations, and
‘other’ – which includes routine normal working capital items such as
trade receivables, trade payables and prepayments. Cash from trading
operations is a more helpful way to think about these movements rather than
describing them as working capital outflows and provides a more stable and
consistent view of operating cash flows.

Cash from trading operations was affected by the decline in adjusted profit
before tax(1) explained above, but this was more than offset by the movement
in contractual working capital, being an outflow of £53.5m in the first half
of 2019, but an inflow of £42.5m in the first half of 2020. This swing of
£96.0m arises from:

• an accrued income inflow of £54m, mostly arising from invoice phasing on
contracts in Government Services and Customer Management, higher accrued
revenue in 2019 in Technology Solutions due to timing of contract milestones,
and write-offs in Customer Management and Software;

• a deferred income inflow of £63m, largely from contracts in Government
Services, including £31m on DFRP where cash has been received in 2020 in
respect of transformation compared an outflow in 2019 from the ending of local
government contracts, and in Customer Management phasing of invoices year on
year; offset by

• a contract fulfilment asset outflow of £21m, driven by additions on
Government Services contracts, the most significant being £20m on DRFP,
offset by an impairment of assets on mobilcom-debitel.

Capital investment reduced following planned reductions to reflect the
changing mix in IT from capital to operating expenditure. Further reductions
in response to the COVID-19 pandemic will take effect in the second half of
2020.

Other includes the benefit of advanced receipts from customers, in particular
public sector, planned improvements in working capital management, and the
release of the 2019 bonus accrual which was not paid.

Reported results

Adjusted operating profit(1) and adjusted profit before tax(1) excludes a
number of specific items, including significant restructuring, the
amortisation and impairment of acquired intangibles, including goodwill, and
business exits to aid understanding of business performance.

 Reported to adjusted profit bridge                         Operating (loss)/profit            (Loss)/profit before tax     
                                                        30 June 2020    30 June 2019 £m    30 June 2020    30 June 2019 £m  
                                                              £m                                 £m                         
 Reported                                                   (34.6)           60.8              (28.5)           31.2        
 Amortisation and impairment of acquired intangibles         20.2            28.7               20.2            28.7        
 Business exit - trading and non-trading                     21.3            (0.7)              21.3            (0.7)       
 Business exit – gain on disposals                            —                —               (42.1)             —         
 Business exit – on hold disposal costs                      7.0               —                7.0               —         
 Significant restructuring                                   40.0            56.5               40.0            56.5        
 Other                                                       3.7              0.8               12.2             2.1        
 Adjusted                                                    57.6            146.1              30.1            117.8       

Business exits are businesses that have been disposed of or exited during the
period or are in the process of being disposed of or exited. At 30 June 2020
these comprised:

• the Eclipse business whose disposal completed on 30 June 2020, realising
a profit of £42.1m;

• two businesses in the process of being exited and which met the
held-for-sale criteria. Accordingly, these businesses were treated as disposal
groups held-for-sale at this date;

• one business in the process of being exited but which did not meet the
held-for-sale criteria at 30 June 2020; and

• the exit costs relating to further planned disposals, including
professional fees and separation planning costs.

In accordance with our policy, the trading results of these businesses, along
with the non-trading expenses and gain on disposal, were included in business
exits and therefore excluded from adjusted results. To enable a like-for-like
comparison of adjusted results, the 2019 comparatives have been restated to
exclude the 2020 business exits.

During the period, the Group was in the active process of disposing of a
number of businesses, however due to the impact that the COVID-19 pandemic had
on the underlying trading of these businesses, the disposal process was put on
hold. The costs incurred in respect of these disposals are excluded from the
Group's adjusted results but disclosed separately to the continuing business
exits given their materiality. These costs included professional fees in
respect of legal and financial due diligence, and separation planning costs.

Further disposals are planned in the second half of 2020, including the
announced disposal of ESS. Since these disposals did not meet the definition
of business exits and assets held-for-sale at 30 June 2020, their trading
results were included within adjusted results.

In 2018, the Board launched a multi-year transformation plan to support the
objectives of simplifying and strengthening Capita. The plan has extended to
property rationalisation, procurement centralisation, transformation of
support functions, including investment in growth, and transformation of
finance, and operational excellence, including investment in automation. These
activities are designed to improve the cost competitiveness of the Group and
secure Capita’s position in the markets it serves and strengthen governance
and control. In response to the varied impacts of COVID-19 we have had to
adapt and reassess our restructuring activities that will now extend through
2020 and into 2021. The bottom up exercise by the businesses is capturing the
restructuring costs expected to arise across this period. This will be subject
to challenge by the Board who will set appropriate boundaries and approve the
restructuring budget, and we shall update the market once this is set.

The costs of the transformation plan, including redundancy costs, are excluded
from adjusted operating profit(1) as significant restructuring. We plan that
any major transformation activities post 2021 and any costs incurred will not
be presented separately as adjusting items.

Further detail of the specific items charged in arriving at reported operating
profit for 2020 is provided in note 3.

 Reported to adjusted free cash flow       30 June 2020    30 June 2019 £m  
                                                 £m                         
 Reported                                      277.7           (85.9)       
 Pension deficit contributions                  14.1            57.1        
 Significant restructuring                      28.1            57.7        
 Business exits - on hold disposal costs        2.0               —         
 Business exits                                 4.2             (0.2)       
 Non-recourse trade receivables financing      (32.8)             —         
 VAT deferral                                 (117.3)             —         
 Other                                           —               1.4        
 Adjusted                                      176.0            30.1        

Reported free cash flow was higher than adjusted free cash flow(1) reflecting
spend in relation to known commitments, including pension deficit
contributions (which the directors consider to be debt-like in nature) and
restructuring cost.

In 2020, the benefit from the Government VAT deferral measures and utilisation
of a non-recourse trade receivables financing facility were also excluded from
adjusted free cash flow(1). A non-recourse trade receivables financing
facility was put in place to mitigate the risk of customer receipts slippage.

Impact on net debt

Net debt at 30 June 2020 was £1,096.6m (31 December 2019: £1,353.2m),
reflecting the above cash inflow in the year.

 Net debt                                              30 June 2020    30 June 2019 £m  
                                                             £m                         
 Opening net debt                                        (1,353.2)         (466.1)      
 Cash movement in net debt                                 307.5           (98.3)       
 Non-cash movements                                        (50.9)           (6.8)       
 Adoption of IFRS 16                                         —             (643.9)      
 Closing net debt                                        (1,096.6)        (1,215.1)     
 Remove closing IFRS 16 impact                             528.7            591.6       
 Headline net debt (pre-IFRS 16)                          (567.9)          (623.5)      
 Cash and cash equivalents net of overdrafts               370.2            376.9       
 Debt net of swaps                                        (938.1)         (1,000.4)     
 Headline net debt (pre-IFRS 16)/adjusted EBITDA (1)        1.9x            1.5x        
 Headline net debt (post-IFRS 16)/adjusted EBITDA (1)       2.7x                        

The Board’s view, prior to the adoption of IFRS 16, was that the
appropriate headline leverage ratio for Capita over the medium term should be
between 1.0 and 2.0 times headline net debt to adjusted EBITDA(1). At
30 June 2020, this ratio was 1.9 times (30 June 2019: 1.5 times;
31 December 2019: 2.1 times).

The Board has not formally reviewed the target range, but taking account of
the adoption of IFRS 16, the range would increase arithmetically to be between
1.7 and 2.7 times headline net debt to adjusted EBITDA(1). At the 30 June
2020, this ratio was 2.7 times (31 December 2019: 2.7 times). We will keep
our leverage target under review as the economic circumstances develop and our
balance sheet strengthens following asset disposals.

We were compliant with all debt covenants at 30 June 2020.

The impact of IFRS 16 adoption on the Group’s adjusted net debt to adjusted
EBITDA(1) debt covenant ratio is neutral, as the Group covenants are on frozen
generally accepted accounting principles ('GAAP'), with the exception of the
US Private Placement Loan Notes. The US Private Placement Loan Notes
covenant test includes the income statement impact of IFRS 16 but not the
balance sheet impact, and therefore adoption of IFRS 16 is favourable on this
covenant measure. At 30 June 2020, the US Private Placement Loan Notes ratio
was 1.5 times (30 June 2019: 1.4 times, 31 December 2019: 1.7 times). The
ratio was 2.1 times for all other financing agreements (30 June 2019: 1.7
times, 31 December 2019: 2.2 times).

Interest cover(1) was 8.1 times for the US Private Placement Loan Notes and
7.6 times for other financing arrangements (30 June 2019: 7.2 times and
9.3 times, and 31 December 2019: 11.2 times and 10.8 times respectively).

Capital and financial risk management

Liquidity remains a key area of focus for the Group. Financial instruments
used to fund operations, including the transformation plan, and to manage
liquidity comprise US Private Placement Loan Notes, Euro fixed-rate bearer
notes, a Schuldschein loan, a revolving credit facility ('RCF'), a backstop
liquidity facility, leases and overdrafts.

We have been very focused on conserving cash and maximising liquidity and this
has resulted in an improved liquidity as we enter the second half of 2020.

 Liquidity                                  30 June 2020    31 December 2019 £m  
                                                  £m                             
 RCF                                            452.0              414.0         
 Backstop liquidity facilities                   93.5                —           
 Less: drawing on RCF                          (170.0)               —           
 Undrawn committed facilities                   375.5              414.0         
 Net cash, cash equivalents and overdrafts      370.2              122.8         
 Less: restricted cash (1)                      (41.6)            (42.1)         
 Liquidity                                      704.1              494.7         

The Group’s RCF of £452.0m at 30 June 2020 (31 December 2019: £414.0m)
provides flexible liquidity available to fund operations and a reasonable
liquidity buffer allowing for contingencies. The facility is available until
31 August 2022, extendable for a further year to 31 August 2023 with the
consent of the lenders by 31 August 2021.  At 30 June 2020, £170.0m of the
Group’s £452.0m committed RCF was drawn (31 December 2019: £nil drawn).

Additionally, the Group secured a committed backstop liquidity facility in
February 2020 which was undrawn at 30 June 2020. The committed value of the
backstop facility at 30 June was £93.5m. The backstop liquidity facility has
an initial maturity in February 2021 and is extendable at the option of the
Group to a final maturity in August 2022. In August 2020, the Group secured an
additional backstop liquidity facility which is also extendable at the option
of the Group with a final maturity in April 2022 bringing the combined value
of the two facilities to £150m. The expectation is that the backstop
liquidity facilities will remain undrawn and will ultimately be cancelled
following receipt of the ESS disposal proceeds.

As part of the Group’s mitigation of the impact of COVID-19, in June 2020 a
non-recourse invoice discounting facility was executed. The value of invoices
sold under the facility at 30 June 2020 was £32.8m. The Group’s intention
is that the facility will be used only while COVID-19 continues to impact the
business.

At 30 June 2020, the Group had £370.2m of cash and cash equivalents net of
overdrafts, and £870.0m of private placement loan notes, fixed-rate bearer
notes, and Schuldschein loan. These debt instruments mature over the period to
2027, with repayment of £55.7m, £209.9m and £232.5m, in the second half of
2020, and in 2021 and 2022 respectively. The Group intends to extend the
average term to maturity of its debt, and thereby reduce refinancing risk, by
issuing new long-term debt instruments in 2021, market conditions permitting.

As noted previously, as part of our simplification drive, we also decided to
dispose of a number of non-core businesses in 2020. The anticipated disposal
proceeds will provide additional liquidity headroom with options available to
fund future investments and reduce the Group’s debt.

Going concern

In determining the appropriate basis of preparation for the six months ended
30 June 2020, the Board is required to consider whether the Group will be able
to operate within the level of available facilities and cash for the
foreseeable future.

In concluding that it is appropriate to adopt the going concern basis for the
interim financial statements, the Board has undertaken a rigorous assessment
of the financial forecasts, key uncertainties and sensitivities. The Board is
required to review a number of severe but plausible downside scenarios, which
have included potential impacts of COVID-19.

There are scheduled debt repayments totalling £265.6m over the period to 31
December 2021, with a further repayment of £67.1m due in the first half of
2022.

Financial projections across a range of severe but plausible scenarios, in
which downside risks are partially offset by appropriate mitigations, indicate
that there is potentially limited liquidity headroom and a risk of
insufficient headroom when assessing the Group’s future compliance with the
financial covenants.

In considering the potential impacts of these projections, the Board has
modelled the additional funds expected to be received from the disposal of ESS
which is planned for 2020. It is the Board’s expectation that these funds
will provide the necessary liquidity headroom to address any potential
shortfalls arising in the downside scenarios evaluated. It is also the Board's
expectation that these funds will provide for compliance with all covenants
although in certain circumstances this headroom is potentially limited at June
2021. The Board has confidence in the robustness of its primary mitigation
(the ESS disposal) against these downside scenarios. The Group has several
other options which are being actively pursued to provide further resilience
in the event of a downside scenario. These include additional disposals and a
refinancing of short-term maturities, which are discussed further below.

Medium term resilience

In addition to the previously announced disposal programme for businesses that
do not align with the longer-term strategy for the Group and which will
provide funds to support the medium term resilience for the Group, the Board
is also exploring covenant relaxations and amendments from the Group's
lenders, and a refinancing of short-term debt maturities. Together these will
cover future debt repayments and support the ongoing transformation programme.
The Board announced in June 2020 the completed disposal of Eclipse Legal
Services raising proceeds of £50m, and in June also announced the planned
disposal of the ESS business in line with this strategy. These disposals, once
completed, will introduce considerable funds to the Group.

An important consideration for the Board is the successful track record of
delivering planned disposals. This includes the Asset Services business in
2017 that delivered net proceeds of c.£865m, the disposals of ParkingEye and
Constructionline in 2018 that delivered total net proceeds of c.£390m and the
successful disposal of Eclipse in 2020.

For this reason, the Board is confident that the Group can deliver the 2020
disposals as planned given the strength of the underlying businesses and the
value they deliver, and have considered the disposal programme in maintaining
the medium-term financial resilience of the Group.

Material uncertainty

The disposal of ESS is subject to shareholder and lender approval, both of
which are outside the control of the Company. Accordingly, this gives rise to
material uncertainty, as defined in auditing and accounting standards,
relating to events and circumstances which may cast significant doubt about
the Group’s ability to continue as a going concern.

The Board is confident that the ESS disposal will be approved by shareholders
and lenders, and based on this expectation believes that, even in a plausible
but severe downside scenario, the Group will continue to have adequate
financial resources to realise its assets and discharge its liabilities as
they fall due over the period to 31 December 2021. Consequently, these
interim financial statements do not include any adjustments which would be
required if the going concern basis of preparation is inappropriate.

The Board's assessment is set out in more detail in note 2 of the interim
financial statements.

Pensions

As a result of the last triennial valuation as at 31 March 2017, deficit
repair contributions totalling £176.0m, were agreed and these will be fully
paid by early 2021. It was expected that the combination of the deficit
contributions and the schemes hedging strategy would largely eliminate the
deficit. Looking to the valuation at March 2020, we will need to take into
account the impact of COVID-19 and the planned delivery of the transformation
of the group. The Company and Trustees will continue their commitment to an
open dialogue between them, ensuring the financial health of the scheme is
maintained in a proportionate way with all other stakeholders.

Balance sheet

Consolidated net liabilities were £87.1m at 30 June 2020 (31 December 2019:
net liabilities £64.0m).

The increase in net liabilities is predominantly driven by the increase in the
deficit of the Group’s defined benefit pension schemes. The deficit has
increased due to an increase in the liabilities arising from the material fall
in the yields available on good quality, long term corporate bonds, which are
used to derive the discount rate for valuing the liabilities. This was
partially offset by an increase in scheme assets due to employer contributions
and higher than expected returns which were partly due to the material level
of hedging in Capita’s main defined benefit scheme.

Contingent liabilities

The Group has been notified under a supplier contract of a potential liability
relating to past services received. The quantum of the liability and method of
settlement is yet to be agreed, but the Directors' expectation, based on
discussions with the supplier, is that an element will be settled in cash, and
the remainder settled by a commitment to future purchases. This is expected to
lead to a significant commitment to future purchases over many years, but at a
level which is supported by the group’s forecast need for such products. The
future purchases are expected to be at the usual discounted price available to
the Group. Accordingly, the Group has made a provision for the expected cash
settlement, but not made any provision for the outflow of funds for future
purchases. We expect negotiations on this matter to be concluded in 2020.

Refer to note 18 of the interim financial statements for the contingent
liability disclosure note.

Forward planning assumptions

There are many reasons to be positive about the future. However, the economic
landscape remains uncertain with the potential of the return of lockdown
restrictions as a result of a second wave. We are therefore not providing
detailed guidance. However, based on the modelling we have done, before the
impact of the ESS disposal, we expect:

• revenue to be flat to slightly down in H2 on H1 and 10% down for the full
year;

• further cost savings and the non-recurrence and partial reversal of the
holiday pay accrual will be tailwinds to H2 profit; and,

• the unwind of some H1 cash management actions will return Net Debt towards
December 2019 levels, pending the impact of any further mitigations.

___________________________________________

(1) Refer to alternative performance measures in the appendix

Forward looking statements

This half year results statement is prepared for and addressed only to the
Company's shareholders as a whole and to no other person. The Company, its
Directors, employees, agents and advisers accept and assume no liability to
any person in respect of this trading update save as would arise under English
law. Statements contained in this trading update are based on the knowledge
and information available to Capita’s Directors at the date it was prepared
and therefore facts stated and views expressed may change after that date.

This document and any materials distributed in connection with it may include
forward-looking statements, beliefs, opinions or statements concerning risks
and uncertainties, including statements with respect to Capita’s business,
financial condition and results of operations. Those statements and statements
which contain the words "anticipate", "believe", "intend", "estimate",
"expect" and words of similar meaning, reflect Capita’s Directors' beliefs
and expectations and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future and which may
cause results and developments to differ materially from those expressed or
implied by those statements and forecasts.

No representation is made that any of those statements or forecasts will come
to pass or that any forecast results will be achieved. You are cautioned not
to place any reliance on such statements or forecasts. Those forward-looking
and other statements speak only as at the date of this trading update. Capita
undertakes no obligation to release any update of, or revisions to, any
forward-looking statements, opinions (which are subject to change without
notice) or any other information or statement contained in this trading
update. Furthermore, past performance cannot be relied on as a guide to future
performance.

No statement in this document is intended as a profit forecast or a profit
estimate and no statement in this document should be interpreted to mean that
earnings per Capita share for the current or future financial years would
necessarily match or exceed the historical published earnings per Capita
share.

Nothing in this document is intended to constitute an invitation or inducement
to engage in investment activity. This document does not constitute or form
part of any offer for sale or subscription of, or any solicitation of any
offer to purchase or subscribe for, any securities nor shall it or any part of
it nor the fact of its distribution form the basis of, or be relied on in
connection with, any contract, commitment or investment decision in relation
thereto. This document does not constitute a recommendation regarding any
securities.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group are reported annually
within the Annual Report and Accounts and are summarised below. Consideration
of Brexit risks has been incorporated into the Group’s principal risks as
appropriate.

Since late March 2020, the Group has faced challenges and uncertainties due to
the COVID-19 pandemic, which has slowed the progress of the transformation
programme. The Group has considered the impact of the pandemic and associated
economic effects on its business and reassessed its risk factors accordingly.

The Board expects revenue over the rest of the year to remain resilient, given
the client base and the long-term nature of the Group's contracts.
Nevertheless, to enable a robust assessment of the medium term forecast
financial performance the Board commissioned an exercise in June 2020 to
revisit the outlook to the end of 2021 ahead of the normal business plan
process. The high level of uncertainty as to how the COVID-19 pandemic might
evolve over the remainder of 2020 and into 2021, including whether or not
there will be a second wave and what impact this may have on the operation of
each of the Group’s businesses, makes precise forecasting challenging. There
is a higher degree of uncertainty than would usually be the case in making the
key judgements and assumptions that underpin the Group’s financial
forecasts.

Our priority throughout the pandemic has been to ensure a safe working
environment for all Capita colleagues. As in previous economic downturns we
acted quickly to reduce costs, optimise cash flow, protect liquidity, and make
changes to how we operate. We had planned to dispose of certain businesses in
Specialist Services, which were adversely affected by the downturn as a result
of COVID-19. However, we successfully executed the sale of a standalone
software business - Eclipse and have announced the sale of another, ESS.

Capita management, together with the Board, performed a detailed assessment of
the principal risks faced specifically in relation to COVID-19, and defined
strategies for mitigating these risks and the specific actions for achieving
these are already underway.

Given the ongoing level of uncertainty around the possible duration and impact
of COVID-19, the Group’s financial guidance for the year ending 31 December
2020 was suspended on 27 March 2020 and the Group’s outlook for the year
ending 31 December 2020 included in the 2019 Annual Report and Accounts
should no longer be considered current.

The Group’s response is detailed in the Chief Executive Officer’s Review.
COVID-19 impacts almost all principal risks below with a summary for each
risk.

 Principal risk                                                                                                    Impact of COVID-19                                                                                                                                                                                                                             Mitigating actions                                                                                                              Long term potential impact                                                                                                                                                                                                          
 1. Failure to live our purpose and failure to change stakeholder perception so we are seen to live our purpose    The pandemic has put clients, customers and our service delivery under huge pressure. While that has presented challenges for all our people it has provided a unique opportunity for us to demonstrate the resilience of our commitment to our We continued the implementation the real living wage for c.9,000 colleagues in the UK. We have also had a range of very short   The overall net impact is likely to be positive since we have developed deeper relationships with our clients and showed them, and other stakeholders, that we are capable and trustworthy in difficult times.                      
                                                                                                                   purpose and values.                                                                                                                                                                                                                            notice requests from clients to which we have responded in a flexible and agile way.                                                                                                                                                                                                                                                                                
 2. Failure to refine and resource the right medium-term strategy                                                  We have had to take tactical actions in response to an uncertain and fast moving financial situation.                                                                                                                                          Tough decisions and actions have been taken to ensure the survival of the business during the crisis. We are redefining our     Some of the action taken may delay the transformation of Capita as we review our strategy and redouble our efforts to strengthen our balance sheet.                                                                                 
                                                                                                                                                                                                                                                                                                                                                                  strategy considering the future financial, government and geo-political climate.                                                                                                                                                                                                                                                                                    
 3. Failure to innovate and develop new value propositions for clients and customers to drive sustainable growth   The pandemic has thrown up a myriad of challenges and opportunities for new propositions for clients. Some clients are under pressure and will want to spend less. In addition, we have had to scale back the resources and investments in this Our agility in delivering to clients has improved. We are considering the level of investment needed in this area to position   The long-term impact is likely to be a delay in the return to growth.                                                                                                                                                               
                                                                                                                   area.                                                                                                                                                                                                                                          the Group for growth.                                                                                                                                                                                                                                                                                                                                               
 4. Failure to attract, develop, engage and retain the right people for current and future client propositions     We have lost some key people as a result of the cost reductions needed to bridge to the future and the tough operating and financial environment at Capita.                                                                                    We have reduced our reliance on contractors and developed new techniques to redeploy people with relevant skills, For example,  The financial position and the cuts in current remuneration packages may make Capita less attracting to new people and make it harder to retain key people. However overall levels of colleagues leaving voluntarily are very low.  
                                                                                                                                                                                                                                                                                                                                                                  Consulting into other roles so that we retain their expertise. We continue to recruit with correct approval in critical areas.                                                                                                                                                                                                                                      
 5. Failure to change the culture and practices of Capita in line with our responsible business agenda             Collaboration and teamwork have improved during this period. With a continued need to take tough decisions to bridge to the future and the change in work styles, there may be less focus, engagement and communication in this area, which    We have enhanced our technology to allow people to stay in touch and collaborate remotely. We have regular communications from  The reduction in central oversight and support may lead to the Divisions becoming more focused on their own agendas and less engaged in the corporate agenda.                                                                       
                                                                                                                   could slow down the culture change.                                                                                                                                                                                                            CEO, Ex Com and Business Leaders.                                                                                                                                                                                                                                                                                                                                   
 6. Failure to protect data, information and IT systems                                                            Within weeks of the lockdown we made provision for c.35,000 staff (55% of our workforce) in UK, India and South Africa to be able to work from home. This, as with other businesses has increased the risk in this area.                       We have increased our focus on cyber security particularly on new aspects of the risk arising from the increasing levels of home The learnings from this time will be put into designing the workplace security environment of the future to be flexible and more secure.                                                                                            
                                                                                                                                                                                                                                                                                                                                                                  working these have included: * Staff education and awareness;                                                                                                                                                                                                                                                                                                       
                                                                                                                                                                                                                                                                                                                                                                  * IT security controls;                                                                                                                                                                                                                                                                                                                                             
                                                                                                                                                                                                                                                                                                                                                                  * Cyber security at home and work guide;                                                                                                                                                                                                                                                                                                                            
                                                                                                                                                                                                                                                                                                                                                                  * Infrastructure security; and                                                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                                                                                  * End user security.                                                                                                                                                                                                                                                                                                                                                
 7. Inability to secure contracts with an acceptable risk and reward balance (including meeting societal changes)  We have seen some clients hit hard and want to pay less for services. On the other hand, we have had some increased demand from government.  We have responded with greater speed to client’s requirements with appropriate governance.        We have enhanced and streamlined our commercial governance process to fast track urgent propositions through the process, with a Given the on-going uncertainty we are aware that clients may push for lower margins and will continue to monitor this contract by contact.                                                                                          
                                                                                                                                                                                                                                                                                                                                                                  focus on maintaining margins.                                                                                                                                                                                                                                                                                                                                       
 8. Failure to delight clients and customers with software performance or projects and service delivery            Most projects are either continuing or have been change controlled. We have continued to deliver at normal levels or adjusted levels during the crisis.                                                                                        We have engaged with all clients and in many cases have managed to agree to revised service delivery KPI’s.                     We expect to be able to continue to deliver to the revised expectations.                                                                                                                                                            
 9. An inadequate risk-based system of internal control                                                            Planned changes to improve our financial processes and controls have been delayed. Staff have been working from home but with no impact to key finance processes, for example: accounts payable, billing, etc                                  We have continued to monitor the performance of our controls.                                                                   As the COVID-19 pandemic passes, we plan to accelerate the planned improvements.                                                                                                                                                    
 10. Failure to deliver the Transformation Programme in line with 2020 commitments                                 The operational and financial pressures have slowed down our transformation programme.                                                                                                                                                         The cost out programme has continued as planned and has provided the base for further cost out in response to COVID-19. A range As we prepare our Business Plan for 2021, we will look to rebase our transformation activities in line with emerging strategic requirements.                                                                                        
                                                                                                                                                                                                                                                                                                                                                                  of other programmes have been reviewed and adjusted in the light of the new financial reality.                                                                                                                                                                                                                                                                      
 11. Failure to plan for, influence and respond to potential change in the political climate                       The Government's absolute priority has been COVID-19 and will then be recovery. There may be increased volatility in government spending as a result of an improved opposition.                                                                Existing mitigations of engaging with the Government continue.                                                                  We will continue to work and engage with the Government.                                                                                                                                                                            
 12. Failure to maintain financial stability, viability and achieve financial targets / results                    COVID-19 has had a particular impact on growth plans and on some of our transactional businesses. The impact and mitigations are covered in detail in note 2 of the half year consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                   

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 4.2.7 and 4.2.8 of the Disclosure
Guidance and Transparency Rules of the United Kingdom Financial Conduct
Authority.

The names and functions of the Directors of Capita plc are listed on the Group
website, www.capita.com/about-us/about-the-board.

By order of the Board

J
Lewis                                                                           
P Butcher

Chief Executive
Officer                                              
Chief Financial Officer

17 August
2020                                                            
17 August 2020

 Half year condensed consolidated income statement For the six months ended 30 June 2020       
                                                       Notes  30 June 2020    30 June 2019 £m  
                                                                    £m                         
 Continuing operations:                                                                        
 Revenue                                                 6       1,682.7          1,852.0      
 Cost of sales                                                  (1,350.6)        (1,392.4)     
 Gross profit                                                     332.1            459.6       
 Administrative expenses                                         (366.7)          (398.8)      
 Operating (loss)/profit                                 6        (34.6)           60.8        
 Share of results in associates                                   (0.4)            (0.6)       
 Net finance costs                                       7        (35.6)          (29.0)       
 Gain on business disposal                               4         42.1              —         
 (Loss)/profit before tax                                         (28.5)           31.2        
 Income tax credit/(expense)                             8         34.3            (5.6)       
 Profit for the period from continuing operations                  5.8             25.6        
 Discontinued operations:                                                                      
 Profit for the period                                   4         9.0              3.7        
 Total profit for the period                                       14.8            29.3        
 Attributable to:                                                                              
 Owners of the Company                                             15.3            26.3        
 Non-controlling interests                                        (0.5)             3.0        
                                                                   14.8            29.3        
 Earnings per share                                      9                                     
 Continuing:                – basic                               0.38p            1.36p       
                            – diluted                             0.38p            1.35p       
 Total operations:          – basic                               0.92p            1.59p       
                            – diluted                             0.91p            1.57p       
                                                                                               
 Adjusted operating profit                               3         57.6            146.1       
 Adjusted profit before tax                              3         30.1            117.8       
 Adjusted earnings per share                             9        3.38p            5.43p       
 Adjusted and diluted earnings per share                 9        3.33p            5.38p       

Half year condensed consolidated statement of comprehensive income

 For the six months ended 30 June 2020                                                                                
                                                                              Notes  30 June 2020    30 June 2019 £m  
                                                                                           £m                         
 Total profit for the period                                                              14.8            29.3        
 Other comprehensive income/(expense)                                                                                 
 Items that will not be reclassified subsequently to the income statement                                             
 Actuarial loss on defined benefit pension schemes                                       (63.0)          (52.5)       
 Deferred tax effect on defined benefit pension schemes                                   17.0             8.9        
                                                                                                                      
 Items that will or may be reclassified subsequently to the income statement                                          
 Exchange differences on translation of foreign operations                               (4.5)             1.5        
 Gain on cash flow hedges                                                                 6.9              2.3        
 Cash flow hedges recycled to the income statement                                       (2.1)            (1.7)       
 Loss on fair value of investment                                                        (0.9)              —         
 Deferred tax effect on cash flow hedges                                                 (0.9)            (0.1)       
                                                                                                                      
 Other comprehensive expense for the period net of tax                                   (47.5)          (41.6)       
 Total comprehensive expense for the period net of tax                                   (32.7)          (12.3)       
 Attributable to:                                                                                                     
 Owners of the Company                                                                   (32.2)          (15.3)       
 Non-controlling interests                                                               (0.5)             3.0        
                                                                                         (32.7)          (12.3)       

The accompanying notes are an integral part of the condensed consolidated
financial statements.

 Half year condensed consolidated balance sheet  At 30 June 2020                             
                                                Notes  30 June  2020    31 December 2019 £m  
                                                             £m                              
 Non-current assets                                                                          
 Property, plant and equipment                              182.2              194.3         
 Intangible assets                                          339.8              354.2         
 Goodwill                                         10       1,174.4            1,177.8        
 Right-of-use assets                                        452.6              480.9         
 Investments in associates and joint ventures                5.4                3.8          
 Contract fulfilment assets                       11        288.3              275.8         
 Financial assets                                 14        119.2              82.2          
 Deferred taxation                                          223.7              181.6         
 Trade and other receivables                                22.3               26.4          
                                                           2,807.9            2,777.0        
 Current assets                                                                              
 Financial assets                                 14        11.3               25.1          
 Disposal group assets held for sale              4         17.2               12.4          
 Trade and other receivables                                649.5              748.4         
 Cash                                             14        756.2              409.1         
 Income tax receivable                                       6.1                4.5          
                                                           1,440.3            1,199.5        
 Total assets                                              4,248.2            3,976.5        
 Current liabilities                                                                         
 Trade and other payables                                   719.1              619.8         
 Deferred income                                            932.9              884.5         
 Overdrafts                                       14        396.6              286.3         
 Lease liabilities                                14        78.9               81.9          
 Disposal group liabilities held for sale         4          6.6                7.9          
 Financial liabilities                            14        159.9              351.8         
 Provisions                                       12        87.6               71.3          
                                                           2,381.6            2,303.5        
 Non-current liabilities                                                                     
 Trade and other payables                                    5.3                6.0          
 Deferred income                                            176.8              176.5         
 Lease liabilities                                14        449.8              480.7         
 Financial liabilities                            14       1,009.8             795.7         
 Deferred taxation                                           7.7               16.3          
 Provisions                                       12         4.9                9.3          
 Employee benefits                                          299.4              252.5         
                                                           1,953.7            1,737.0        
 Total liabilities                                         4,335.3            4,040.5        
 Net liabilities                                           (87.1)             (64.0)         
 Capital and reserves                                                                        
 Share capital                                    15        34.5               34.5          
 Share premium                                    15       1,143.3            1,143.3        
 Employee benefit trust and treasury shares       15       (11.2)             (11.2)         
 Capital redemption reserve                                  1.8                1.8          
 Other reserves                                               —                 0.6          
 Retained deficit                                         (1,307.2)          (1,295.8)       
 Deficit attributable to owners of the Company             (138.8)            (126.8)        
 Non-controlling interests                                  51.7               62.8          
 Total deficit                                             (87.1)             (64.0)         

The accompanying notes are an integral part of the condensed consolidated
financial statements.

 Half year condensed consolidated statement of changes in equity  For the six months ended 30 June 2020                                                                                                                                                                                                                                            
                                                                   Share capital £m   Share premium £m   Employee benefit trust and treasury shares £m   Capital redemption reserve £m   Retained deficit £m   Other reserves £m   Total attributable to the owners of the parent £m   Non- controlling interests £m   Total equity/ (deficit) £m  
 At 1 January 2019                                                       34.5             1,143.3                           (11.2)                                    1.8                     (1,135.3)               3.1                                36.2                                      67.1                          103.3             
 Impact of change in accounting standards - IFRS 16 (1)                   —                  —                                 —                                       —                       (26.8)                  —                                (26.8)                                       —                           (26.8)            
 Impact of change in accounting standards - IFRIC 23 (2)                  —                  —                                 —                                       —                         6.2                   —                                  6.2                                        —                            6.2              
 At 1 January 2019, after adoption of IFRS 16 (1)and IFRC 23 (2)         34.5             1,143.3                           (11.2)                                    1.8                     (1,155.9)               3.1                                15.6                                      67.1                           82.7             
 Profit for the period                                                    —                  —                                 —                                       —                        26.3                   —                                 26.3                                       3.0                           29.3             
 Other comprehensive expense                                              —                  —                                 —                                       —                       (43.6)                 2.0                               (41.6)                                       —                           (41.6)            
 Total comprehensive (expense)/income for the period                      —                  —                                 —                                       —                       (17.3)                 2.0                               (15.3)                                      3.0                          (12.3)            
 Share based payment net of deferred tax effect                           —                  —                                 —                                       —                         3.5                   —                                  3.5                                        —                            3.5              
 Movement in put-options held by non-controlling interests                —                  —                                 —                                       —                        (2.0)                  —                                 (2.0)                                       —                           (2.0)             
 At 30 June 2019                                                         34.5             1,143.3                           (11.2)                                    1.8                     (1,171.7)               5.1                                 1.8                                      70.1                           71.9             
                                                                                                                                                                                                                                                                                                                                                   
 At 1 January 2020                                                       34.5             1,143.3                           (11.2)                                    1.8                     (1,295.8)               0.6                               (126.8)                                    62.8                          (64.0)            
 Profit for the period                                                    —                  —                                 —                                       —                        15.3                   —                                 15.3                                      (0.5)                          14.8             
 Other comprehensive expense                                              —                  —                                 —                                       —                       (46.9)                (0.6)                              (47.5)                                       —                           (47.5)            
 Total comprehensive expense for the period                               —                  —                                 —                                       —                       (31.6)                (0.6)                              (32.2)                                     (0.5)                         (32.7)            
 Share based payment net of deferred tax effect                           —                  —                                 —                                       —                         3.7                   —                                  3.7                                        —                            3.7              
 Dividends paid (3)                                                       —                  —                                 —                                       —                          —                    —                                   —                                      (10.6)                         (10.6)            
 Movement in put-options held by non-controlling interests                —                  —                                 —                                       —                        16.5                   —                                 16.5                                        —                            16.5             
 At 30 June 2020                                                         34.5             1,143.3                           (11.2)                                    1.8                     (1,307.2)                —                                (138.8)                                    51.7                          (87.1)            

1 The Group initially applied IFRS 16 at 1 January 2019, using the modified
retrospective approach. Under this approach, comparative information is not
restated and the cumulative effect of initially applying IFRS 16 is recognised
in retained earnings at the date of initial application.

2 The Group initially applied IFRIC 23 Uncertainty over Income Tax Treatments
at 1 January 2019. The cumulative effect of initially applying IFRIC 23 has
been recognised in retained earnings at the date of initial application.

3 Dividends paid and proposed: £10.6m (30 June 2019: £nil) relates to
dividends paid to non-controlling interests.

Share capital – The balance classified as share capital is the nominal
proceeds on issue of the Company’s equity share capital, comprising 2 1/15p
ordinary shares.

Share premium – The amount paid to the Company by shareholders, in cash or
other consideration, over and above the nominal value of shares issued to them
less issuance costs.

Employee benefit trust and treasury shares – Shares that have been bought
back by the Company which are available for retirement or resale; shares held
in the employee benefit trust have no voting rights and do not have an
entitlement to dividends.

Capital redemption reserve – The Company can redeem shares by repaying the
market value to the shareholder, whereupon the shares are cancelled.
Redemption must be from distributable profits. The Capital redemption reserve
represents the nominal value of the shares redeemed.

Retained deficit – Net (losses)/profits accumulated in the Group after
dividends are paid.

Other reserves – This consists of foreign currency translation reserve
deficit of £4.7m (30 June 2019: £3.1m surplus) and cash flow hedging reserve
surplus of £4.7m (30 June 2019: £2.0m surplus).

Non-controlling interests (NCI) – This represents equity in subsidiaries
that is not attributable directly or indirectly to the Parent Company.

The accompanying notes are an integral part of the condensed consolidated
financial statements.

Half year condensed consolidated cash flow statement

For the six months ended 30 June 2020

                                                                        Notes  30 June 2020    30 June 2019 £m  
                                                                                     £m                         
 Cash generated from operations                                           13       355.7             6.9        
 Cash generated from discontinued operations                                        9.0              3.1        
 Income tax paid                                                                   (4.6)            (2.2)       
 Net interest paid                                                                 (24.1)          (26.3)       
 Net cash inflow/(outflow) from operating activities                               336.0           (18.5)       
 Cash flows from investing activities                                                                           
 Purchase of property, plant and equipment                                         (20.9)          (22.3)       
 Purchase of intangible assets                                                     (28.4)          (42.1)       
 Proceeds from sale of property, plant and equipment/intangible assets               —               0.1        
 Additions to investments in associates                                            (0.6)            (0.4)       
 Prior year disposal costs recognised in subsequent years                            —              (8.0)       
 Deferred consideration paid                                                         —              (0.3)       
 Contingent consideration paid                                            14       (4.9)            (2.4)       
 Subsidiary partnership payment                                           14       (4.7)            (4.7)       
 Net proceeds on disposal of subsidiary undertakings                      4         45.1              —         
 Net cash outflow from investing activities                                        (14.4)          (80.1)       
 Cash flows from financing activities                                                                           
 Dividends paid to non-controlling interest                                        (10.6)             —         
 Capital element of lease rental payments                                          (61.4)          (56.0)       
 Repayment of loan notes                                                          (162.7)          (11.1)       
 Proceeds from revolving credit facility                                           170.0              —         
 Repayment of term loan                                                              —             (100.0)      
 Net cash outflow from financing activities                                        (64.7)          (167.1)      
 Increase/(decrease) in cash and cash equivalents                                  256.9           (265.7)      
 Cash and cash equivalents at the beginning of the period                          119.3            642.7       
 Movement in exchange rates                                                        (6.0)            (0.1)       
 Cash and cash equivalents at 30 June                                              370.2            376.9       
 Cash and cash equivalents comprise:                                                                            
 Cash                                                                              756.2            716.5       
 Overdrafts                                                                       (396.6)          (339.6)      
 Cash included in disposal group assets held for sale                     4         10.6              —         
 Total                                                                             370.2            376.9       
                                                                                                                
 Adjusted cash generated from operations                                  13       253.7            123.0       
 Adjusted free cash flows                                                 13       176.0            30.1        

The accompanying notes are an integral part of the condensed consolidated
financial statements.

Notes to the half year condensed consolidated financial statements

For the six months ended 30 June 2020

1 Corporate information

Capita plc (the 'Company' or the 'Parent Company') is a public limited
liability 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 six months ended 30 June 2020 were
authorised for issue in accordance with a resolution of the Directors on 17
August 2020.

2 Basis of preparation, judgements and estimates, and going concern

(a) Basis of preparation

These half year condensed consolidated financial statements for the six months
ended 30 June 2020 have been prepared in accordance with the Disclosure
Guidance and Transparency Rules (DTR) of the Financial Conduct Authority
('FCA') and IAS 34 Interim Financial Reporting.

These 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 2019, which have been prepared in accordance with
IFRSs as adopted by the European Union.

These half year condensed consolidated financial statements do not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006. The statutory accounts for the year ended 31 December 2019 were approved
by the Board of Directors on 4 March 2020 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.

These half year condensed consolidated financial statements for the six months
ended 30 June 2020 have been reviewed by the Group's auditors pursuant to the
Auditing Practices Board guidance on Review of Interim Financial Information.

(b) Adjusted profit

IAS 1 permits an entity to present additional information for specific items
to enable users to better assess the entity’s financial performance.

The Board has adopted a policy to separately disclose those items that it
considers are outside the underlying operating results for the particular
period under review and against which the Group’s performance is assessed.
In the Directors’ judgement, these need to be disclosed separately by virtue
of their nature, size and/or incidence for users of the financial statements
to obtain a proper understanding of the financial information and the
underlying in-period performance of the business. Accordingly, these items are
also excluded in the discussions of divisional performance. Those items which
relate to the ordinary course of the Group’s operating activities remain
within adjusted profit.

(c) Judgements and estimates

These half year condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles which require the
Directors to make judgements and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingencies at the date of the
financial statements and the reported income and expense during the presented
periods. Although these judgements and assumptions are based on the
Directors’ best knowledge of the amounts, events or actions, actual results
may differ.

The potential impact of COVID-19 on the Group has been considered in the
preparation of these half year condensed consolidated financial statements,
including management's evaluation of critical accounting estimates and
judgements. The impact on the Group has varied by business and has triggered
the need for a full goodwill impairment review as at 30 June 2020 (see note
10).

COVID-19 has introduced unprecedented economic uncertainties and has led to
increased judgement particularly in forecasting future financial performance.
There have also been direct impacts during the first six months including
revenue and costs arising from: new contracts in helping customers respond to
the pandemic; a higher holiday pay accrual due to holidays not being taken in
the first six months of the year; costs of setting up colleagues to work
remotely; the release of the 2019 bonus accruals; and the utilisation of the
Government's furlough scheme. The Board has not reported these items
separately, but where there is an impact this is captured in the Divisional
performance reviews.

The Board has continued with a policy to separately identify items such as
restructuring, where the plans have been advanced and adapted in response to
COVID-19 and these are set out in note 3. The Board has also considered the
impact on the provisions recorded as at 30 June 2020, with no significant
adjustment recorded, and the valuation of the defined benefit pension plans.

As detailed in note 5, given the level of judgement and estimation involved in
assessing the future profitability of contracts, it is reasonably possible
that outcomes within the next financial year may be different from
management’s assumptions and could require a material adjustment to the
carrying amounts of contract assets and onerous contract provisions. This risk
is increased further by the uncertainty COVID-19 brings to forecasting.

(d) Going concern

In determining the appropriate basis of preparation for the six months ended
30 June 2020, the Board is required to consider whether the Group will be able
to operate within the level of available facilities and cash for the
foreseeable future. The Board has concluded that it is appropriate to adopt
the going concern basis, having undertaken a rigorous assessment of the
financial forecasts, key uncertainties and sensitivities, including the
potential impact of COVID-19 as set out below.

Since late March 2020, the Group has faced challenges and uncertainties due to
the COVID-19 pandemic, which has slowed the progress of the transformation
programme. The Board expects revenue over the rest of the year to remain
resilient, given the client base and the long-term nature of our contracts.
Nevertheless, to enable a robust assessment of the medium term forecast
financial performance the Board commissioned an exercise in June 2020 to
revisit the outlook to the end of 2021 ahead of the normal business plan
process. The high level of uncertainty as to how the COVID-19 pandemic might
evolve over the remainder of 2020 and into 2021, including whether or not
there will be a second wave and what impact this may have on the operation of
each of the Group’s businesses, makes precise forecasting challenging. There
is a higher degree of uncertainty than would usually be the case in making the
key judgements and assumptions that underpin the Group’s financial
forecasts.

The bottom-up forecasts have been subject to review and challenge by executive
management and the Board. The forecasts include overlays for additional
financial benefits that are expected to be driven by the transformation
programme. These include sales growth together with margin improvements and
further cost out targets. The Board has approved the 2021 outlook which, on
the assumption that the overlays are successfully delivered, supports the base
case and time period assessed as part of the going concern review for these
interim statements.

In addition to the base case, the Board considered severe but plausible
downside scenarios, recognising there is execution risk associated with a
transformation programme of such magnitude that has been impacted by the
broader political and economic uncertainty introduced by COVID-19. Offsetting
these risks the Board has considered available mitigations within the direct
control of the Group, including additional restructuring and limiting variable
rewards should the transformation benefits not be realised.

Finally, the assessment has considered the Group’s existing debt levels,
committed funding and liquidity positions and covenant compliance. The
Group’s committed revolving credit facility, backstop liquidity facilities
and private placement notes are subject to compliance with covenant
requirements including maximum ratios of adjusted net debt to adjusted EBITDA.
The Group’s covenanted maximum ratio is 3.0 to 3.5 times depending on the
debt instrument in question. They are tested semi-annually.

The Group has adjusted net debt of £609.5m at 30 June 2020. The components of
adjusted net debt and adjusted EBITDA are set out in the alternative
performance measures in the appendix.

The Group’s calculation of adjusted net debt to adjusted EBITDA at 30 June
2020 was 1.5 times for the US Private Placement Loan Notes ratio and 2.1
times for other financing agreements and were compliant with the relevant
ratios.

The Group’s revolving credit facility (£452m) matures in August 2022; and
the Group’s backstop facilities (£150m) have an initial maturity in
February 2021 and are extendable at the option of the Group to a final
maturity in April 2022 (£56.5m) and August 2022 (£93.5m). There are
scheduled debt repayments totalling £265.6m over the period to 31 December
2021, with a further repayment of £67.1m due in the first half of 2022.

Financial projections across a range of severe but plausible scenarios, in
which downside risks are partially offset by appropriate mitigations, indicate
that there is potentially limited liquidity headroom and a risk of
insufficient headroom when assessing the Group’s future compliance with the
financial covenants.

In considering the potential impacts of these projections, the Board has
modelled the additional funds expected to be received from the disposal of
Education Software Solutions (‘ESS’) which is planned for 2020. It is the
Board’s expectation that these funds will provide the necessary liquidity
headroom to address any potential shortfalls arising in the downside scenarios
evaluated, albeit with very limited covenant headroom as at 30 June 2021. It
is also the Board's expectation that these funds will provide for compliance
with all covenants although in certain circumstances this headroom is
potentially limited at June 2021. The Board has confidence in the robustness
of its primary mitigation (the ESS disposal) against these downside scenarios.
The Group has several other options which are being actively pursued to
provide further resilience in the event of a downside scenario. These include
additional disposals and a refinancing of short-term maturities, which are
discussed further below.

Medium term resilience

In addition to the previously announced disposal programme for businesses that
do not align with the longer-term strategy for the Group and which will
provide funds to support the medium term resilience for the Group, the Board
is also exploring covenant relaxations and amendments from the Group's
lenders, and a refinancing of short-term debt maturities. Together these will
cover future debt repayments and support the ongoing transformation programme.
The Board announced in June 2020 the completed disposal of Eclipse Legal
Services raising net cash proceeds of £50m, and in June also announced the
planned disposal of the ESS business in line with this strategy. These
disposals, once completed, will introduce considerable funds to the Group.

An important consideration for the Board is the successful track record of
delivering planned disposals. This includes the Asset Services business in
2017 that delivered net cash proceeds of c.£865m, the disposals of ParkingEye
and Constructionline in 2018 that delivered total net proceeds of c.£390m and
the successful disposal of Eclipse Legal Services in 2020.

For that reason, the Board is confident that the Group can deliver the 2020
disposals as planned given the strength of the underlying businesses and the
value they deliver and have considered the disposal programme in maintaining
the medium-term financial resilience of the Group.

Material uncertainty

The disposal of ESS is subject to shareholder and lender approval, both of
which are outside the control of the Company. Accordingly, this gives rise to
material uncertainty, as defined in auditing and accounting standards,
relating to events and circumstances which may cast significant doubt about
the Group’s ability to continue as a going concern.

The Board is confident that the ESS disposal will be approved by shareholders
and lenders, and based on this expectation believes that, even in a plausible
but severe downside scenario, the Group will continue to have adequate
financial resources to realise its assets and discharge their liabilities as
they fall due over the period to 31 December 2021. Consequently, these interim
financial statements do not include any adjustments which would be required if
the going concern basis of preparation is inappropriate.

3 Adjusted operating profit and adjusted profit before tax

The items below are excluded from the adjusted results because the Board has
concluded that it is appropriate to do so. These amounts are (or have been)
material and require separate disclosure for users of the financial statements
to obtain a proper understanding of the financial information and the
underlying performance of the business. These items are discussed further
below:

                                                                 Operating (loss)/profit            (Loss)/profit before tax     
                                                      Notes  30 June 2020    30 June 2019 £m    30 June 2020    30 June 2019 £m  
                                                                   £m                                 £m                         
 Reported                                                        (34.6)           60.8              (28.5)           31.2        
 Amortisation and impairment of acquired intangibles              20.2            28.7               20.2            28.7        
 Litigation and claims                                            3.8              0.8               3.8              0.8        
 Net finance costs                                      7          —                —                8.5              1.3        
 Contingent consideration movements                              (0.1)              —               (0.1)              —         
 Business exit – trading                                4         1.4             (0.7)              1.4             (0.7)       
 Business exit – non-trading expenses                   4         19.9              —                19.9              —         
 Business exit – gain on disposals                      4          —                —               (42.1)             —         
 Business exit – on hold disposal costs                           7.0               —                7.0               —         
 Significant restructuring                                        40.0            56.5               40.0            56.5        
 Adjusted                                                         57.6            146.1              30.1            117.8       

1. Adjusted operating profit decreased by 60.6% (30 June 2019: 4.7%) and
adjusted profit before tax decreased by 74.4% (30 June 2019: 6.3%). Adjusted
operating profit of £57.6m (30 June 2019: £146.1m) was generated on
adjusted revenue of £1,652.2m (30 June 2019: £1,815.5m) resulting in an
adjusted operating profit margin of 3.5% (30 June 2019: 8.1%).

2. The tax impact of the operating profit/(loss) adjusting items is a £13.0m
credit (30 June 2019: £16.3m credit). The tax impact of the profit/(loss)
before tax adjusting items is a £14.6m credit (30 June 2019: £16.5m credit).

3. The adjusted operating profit and adjusted profit before tax at 30 June
2019 has been restated for the impact of IFRS16 and business exits in the
second half of 2019 and first half of 2020. This has resulted in adjusted
operating profit increasing from £142.1m to £146.1m and adjusted profit
before tax decreasing from £126.1m to £117.8m.

Amortisation and impairment of acquired intangible assets: the Group
recognised acquired intangible amortisation of £18.6m (30 June 2019:
£28.7m) and impairment of £1.6m (30 June 2019: £nil).

Litigation and claims: the Group has been notified under a supplier contract
of a potential liability relating to past services received. The Group has
made a provision of £5m for the expected cash element of the settlement and
excluded this from adjusted results since it relates to services received in
prior periods and is not reflective of current year trading. Refer to note 18
for further details. This is offset by a gain of £1.2m from net movements in
historical provisions for litigation and claims.

Net finance costs: net finance costs excluded from adjusted profits includes
movements in the mark-to-market valuation of certain financial instruments.

Business exits: the trading result of businesses exited, or in the process of
being exited, and the gain or loss on disposals, are excluded from the Group's
adjusted results. Refer to note 4 for further details.

Business exits - on hold disposal costs: the costs incurred in respect of
business exit activities where the anticipated disposal was primarily put on
hold due to the impact the COVID-19 pandemic had on the underlying businesses,
are excluded from the Group's adjusted results but disclosed separately from
other business exits given their materiality. These costs include professional
fees in respect of legal and financial due diligence, and separation planning
costs.

Significant restructuring: in January 2018, the Group announced a multi-year
transformation plan. For the six months ended 30 June 2020, a charge of
£40.0m (30 June 2019: £56.5m) was recognised in relation to the cost of the
transformation plan. The costs include the following:

• Cost to realise savings and efficiencies from the transformation plan
£25.7m (30 June 2019: £35.0m): including significant reductions in
overheads, the elimination of duplicate roles and management layers, and the
Group's operational excellence programme which will improve the consistency of
the Group's operations, reduce spans and layers, increasing the use of
off-shoring and automation, adopting lean methodologies and working smarter.
These costs also include rationalisation and increased utilisation of the
Group’s property estate in metro centres and regionally. As the Group
continues to rationalise its property estate, costs associated with onerous
property commitments and dilapidation liabilities, and impairment of property
right of use assets, will be captured and presented as part of the
transformation adjustments.

• Professional fees £1.5m (30 June 2019: £11.5m): incurred to support
reigniting sales growth, increasing the proportion of centrally controlled
spend, and a refinancing which due to the impact COVID-19 had on the debt
markets in the latter part of the half year had to be aborted.

• Transformation of central Group functions £10.3m (30 June 2019: £10.0m):
investment in programmes to improve the Group’s central functions,
including: finance; sales; human resources; and information technology. All
costs associated with these programmes are recorded separately, excluding any
costs capitalised as part of the investment and the ongoing depreciation and
amortisation of such assets.

• Costs of accelerating savings to mitigate the financial impact of COVID-19
£2.5m (30 June 2019: nil): these are incremental to those planned to be
incurred as part of the transformation plan in 2020.

4 Business exits, assets held-for-sale and discontinued operations

Business exits are businesses that have been disposed of or exited during the
period or are in the process of being disposed of or exited. None of these
business exits meet the definition of ‘discontinued operations’ as
stipulated by IFRS 5, which requires disclosure and comparatives to be
restated where the relative size of a disposal or business closure is
significant, which is normally understood to mean a reported segment.

However, the trading result of these businesses, non-trading expenses, and any
gain/loss on disposal, have been excluded from adjusted results. To enable a
like-for-like comparison of adjusted results, the 30 June 2019 comparatives
have been restated to exclude businesses classified as business exits in the
second half of 2019 and the first half of 2020.

The Group classifies a non-current asset (or disposal group) as held-for-sale
if its carrying amount will be recovered principally through a sale
transaction rather than continued use. For this to be the case, the asset (or
disposal group) must be available for immediate sale in its present condition
subject only to terms that are usual and customary for sales of such assets
(or disposal groups) and its sale must be highly probable. For the sale to be
highly probable, the appropriate level of management must be committed to a
plan to sell the asset (or disposal group), and an active programme to locate
a buyer and complete the plan must have been initiated. Further, the asset (or
disposal group) must be actively marketed for sale at a price that is
reasonable in relation to its current fair value. In addition, the sale should
be expected to qualify for recognition as a completed sale within one year
from the date of classification.

Business exits at 30 June 2020 comprised:

• the Eclipse business whose disposal completed on 30 June 2020;

• two businesses in the process of being exited and which met the
held-for-sale criteria. Accordingly, these businesses were treated as disposal
groups held-for-sale at this date;

• one business in the process of being exited but which did not meet the
held-for-sale criteria at 30 June 2020; and

• the exit costs relating to further planned disposals, including
professional fees and separation planning costs.

Further disposals are planned in the second half of 2020, including ESS. Since
these disposals did not meet the definition of business exits and assets
held-for-sale at 30 June 2020, their trading results were included within
adjusted results.

                                             Non-trading disposal        30 June 2020                        Non-trading disposal        30 June 2019  
 Income statement impact    Trading    Cash  £m   Non-cash  £m   Total      Total         Trading £m   Cash £m   Non-cash £m   Total £m    Total £m    
                               £m                                  £m         £m                                                                       
 Revenue                      30.5        —            —           —         30.5            36.5         —           —           —          36.5      
 Cost of sales               (23.5)       —            —           —        (23.5)          (24.3)        —           —           —         (24.3)     
 Gross profit                  7.0        —            —           —          7.0            12.2         —           —           —          12.2      
 Administrative expenses      (8.4)     (1.1)        (18.8)      (19.9)     (28.3)          (11.5)      (0.1)        0.1          —         (11.5)     
 Operating (loss)/profit      (1.4)     (1.1)        (18.8)      (19.9)     (21.3)           0.7        (0.1)        0.1          —           0.7      
 Gain on business disposal      —        45.1        (3.0)        42.1       42.1             —           —           —           —            —       
 (Loss)/profit before tax     (1.4)      44.0        (21.8)       22.2       20.8            0.7        (0.1)        0.1          —           0.7      
 Income tax credit             0.3       0.1          2.5         2.6         2.9             —           —           —           —            —       
 Profit/(loss) after tax      (1.1)      44.1        (19.3)       24.8       23.7            0.7        (0.1)        0.1          —           0.7      

Trading revenue and costs represent the current period trading performance of
those businesses up to the point of being disposed or exited. Trading
administrative expenses primarily comprise of payroll costs of £4.3m
(30 June 2019: £6.6m) and information technology costs of £1.9m (30 June
2019: £2.5m).

Non-trading administrative expenses comprise closure costs of £1.1m (30 June
2019: £0.1m), goodwill impairment of £2.8m (30 June 2019: £nil) accruals
of £2.1m and other asset impairments of £14.7m (30 June 2019: £nil), offset
by releases of provisions of £0.8m (30 June 2019: £0.1m).

2020 disposal

In 2020 the gain arising on the disposal of the Eclipse Legal Services
business of £42.1m comprised the disposal of net assets of £6.2m for £53.2m
consideration and disposal costs of £4.9m. The net cash proceeds of £50.0m
comprised the cash purchase consideration of £53.2m less £3.2m of cash
disposed of.

                                                    30 June 2020            
 Gain on business disposal                Cash £m   Non-cash £m   Total £m  
 Property, plant and equipment               —          0.6         0.6     
 Intangible assets                           —          3.2         3.2     
 Goodwill                                    —          3.8         3.8     
 Trade and other receivables                 —          2.3         2.3     
 Trade and other payables                    —         (6.5)       (6.5)    
 Deferred income                             —         (0.4)       (0.4)    
 Cash disposed of                           3.2          —          3.2     
 Total net assets disposed of               3.2         3.0         6.2     
 Cash purchase consideration received      53.2          —          53.2    
 Costs of disposal – paid and accrued      (4.9)         —         (4.9)    
 Proceeds, less costs, on disposal         48.3          —          48.3    
 Gain on business disposal                 45.1        (3.0)        42.1    

   

 Balance Sheet – disposal group     30 June 2020  £m   31 December 2019 £m  
 Property, plant and equipment            0.3                  0.2          
 Intangibles                               —                   2.9          
 Contract fulfillment assets              0.9                   —           
 Trade and other receivables (1)          5.4                  9.3          
 Cash                                     10.6                  —           
 Assets held for sale                     17.2                12.4          
                                                                            
 Trade and other payables (2)             6.2                  4.4          
 Overdraft                                 —                   3.5          
 Provisions                               0.4                   —           
 Liabilities held for sale                6.6                  7.9          

1. Trade and other receivables includes £1.1m of income tax receivable and
deferred taxation (31 December 2019: £0.1m).

2. Trade and other payables includes £nil of income tax payable and deferred
taxation (31 December 2019: £0.4m).

Business exit cash flows

Businesses exited and being exited generated net operating cash outflows of
£1.0m (30 June 2019: cash inflows of £3.8m).

Discontinued operations

On 3 November 2017, the Group completed the disposal of its Asset Services
businesses, including Capita Financial Managers Ltd (CFM), to the Link Group.
The disposal met the definition of a discontinued operation as stipulated by
IFRS 5.

The income of £9.0m in the period ended 30 June 2020, relates to additional
payments received in connection with the sale of the Asset Services businesses
(30 June 2019: £3.7m income) arising from the return of redress payments
made to the FCA regarding the Connaught Income Series 1 Fund.

5 Contract accounting

At 30 June 2020, the Group had the following results and balance sheet items
relating to long-term contracts:

                                         Notes  30 June 2020    30 June 2019 £m   31 December 2019 £m    
                                                      £m                                                 
                                                
 Long-term contractual adjusted revenue    6       1,213.9          1,301.6                              
 Deferred income                                   1,109.7                              1,061.0          
 Contract fulfilment assets                11       288.3                                275.8           
 Onerous contract provisions               12        5.7                                  6.1            

Background

The Group operates a number of diverse businesses. The majority of the
Group’s revenue is from contracts greater than two years in duration
(long-term contractual), 73% of Group adjusted revenue at 30 June 2020 (30
June 2019: 72%).

These long-term contracts can be complex in nature because of the breadth of
solutions the Group offers and the transformational activities involved.
Typically, Capita takes a customer’s process and transforms it into a more
efficient and effective solution which is then operated for the customer. The
outcome is a high quality solution that addresses a customer’s needs and is
delivered consistently over the life of the contract.

The Group recognises revenue on long-term contracts as the value is delivered
to the customer, which is generally evenly over the contract term, regardless
of any restructuring and transformation activity. Capita will often incur
greater costs during the transformation phase with costs diminishing over time
as the target operating model is implemented and efficiencies realised. This
results in lower profits or losses in the early years of contracts and
potentially higher profits in later years as the transformation activities are
successfully completed and the target operating model fully implemented (the
business as usual, ('BAU'), phase). The inflection point is when the contract
becomes profitable.

Contract fulfilment assets are recognised for those costs qualifying for
capitalisation and the utilisation of these assets is recognised over the
contract term. The cash received from customers reflects when the costs are
incurred to transform, restructure and run the service. This results in income
being deferred and released as the Group continues to deliver against its
obligation to provide services and solutions to its customers.

Assessing contract profitability

In assessing a contract’s future lifetime profitability, management must
estimate forecast revenue and costs to both transform and run the service over
the remaining contract term. The ability to accurately forecast the outcomes
involves estimates in respect of: costs to be incurred; cost savings to be
achieved; future performance against any contract-specific KPIs that could
trigger variable consideration or service credits; and the outcome of any
commercial negotiations.

The level of uncertainty in the estimated future profitability of a contract
is directly related to the stage of the life-cycle of the contract and the
complexity of the performance obligations. Contracts in the transformation
stage and pre-inflection stages are considered to have a higher level of
uncertainty because of:

• the ability to accurately estimate the costs to deliver the transformed
process;

• the dependency on the customer to agree to the specifics of the
transformation: for example, where they are involved in signing off that the
new process or the new technical solution designed by Capita meets their
specific requirements; and

• the assumptions made to forecast expected savings in the target operating
model.

Those contracts which are post-inflection and in the BAU stage tend to have a
much lower level of uncertainty in estimating the contract's future
profitability.

Recoverability of contract fulfilment assets and completeness of onerous
contract provisions

Management first assesses whether the contract assets are impaired and then
further considers whether an onerous contract exists. The Audit and Risk
Committee specifically reviews the material judgements and estimates and the
overall approach in respect of the Group’s major contracts for each
reporting period, including comparison against previous forecasts. Major
contracts include those that are material in size or risk to the Group’s
results. Other contracts are reported to the Audit and Risk Committee as
deemed appropriate. These contracts are collectively referred to as 'major
contracts' in the remainder of this note.

The major contracts contributed £0.7billion at 30 June 2020 (30 June 2019:
£0.8billion) or 44% (30 June 2019: 42%) of the Group's adjusted revenue.
Non-current contract fulfilment assets as at 30 June 2020 were £288.3m, of
which £125.5m (31 December 2019: £80.7m) related to major contracts with
on-going transformational activities. The remainder relates to contracts post
transformation and includes non-major contracts.

The major contracts, both pre- and post-transformation, are rated according to
their financial risk profile, which is linked to the level of uncertainty over
future assumptions. For those that are in the high and medium rated risk
categories the associated non-current contract fulfilment assets in aggregate
were £63.8m at 30 June 2020 (31 December 2019: £52.4m). The recoverability
of these assets is dependent on no significant adverse change in the key
contract assumptions arising in the next financial year. The deferred income
associated with these contracts was £296.4m at 30 June 2020 (31 December
2019: £243.6m) and is forecast to be recognised as performance obligations
continue to be delivered over the life of the respective contracts.

Following these reviews, contract fulfilment asset impairment provisions of
£4.4m at 30 June 2020 (31 December 2019: £9.6m) were identified and
recognised within adjusted cost of sales, of which, at 30 June 2020, £0.7m
(31 December 2019: £2.2m) related to contract fulfilment assets added during
the period. There were no material onerous contract provisions recognised in
the period.

Given the quantum of the relevant contract assets and liabilities, and the
nature of the estimates noted above, management has concluded that it is
reasonably possible, that outcomes within the next financial year may be
different from management’s current assumptions and could require a material
adjustment to the carrying amounts of contract assets and onerous contract
provisions. However, as noted above, £125.5m of non-current contract
fulfilment assets relates to major contracts with on-going transformational
activities and £63.8m of non-contract fulfilment assets relates to the
highest and medium rated risk category. Due to the level of uncertainty,
combination of variables and timing across numerous contracts, it is not
practical to provide a quantitative analysis of the aggregated judgements that
are applied, and management do not believe that disclosing a potential range
of outcomes on a consolidated basis would provide meaningful information to a
user of the financial statements. Due to commercial sensitivities, the Group
does not specifically disclose the amounts involved in any individual
contract. Additional information, which does not form part of the financial
statements, on the results and performance of the underlying divisions
including the outlook on certain contracts is set out in the divisional
performance review.

6 Revenue and segmental information

The Group’s operations are managed separately according to the nature of the
services provided, with each segment representing a strategic business
division offering a different package of client outcomes across the markets
the Group serves.

The tables below present revenue for the Group’s business segments for the
six months ended 30 June 2020 and 2019. During 2020, there were a number of
transfers of businesses between the segments due to changes in the structure.
Comparative information has been restated accordingly. For segmental
reporting, Consulting is aggregated within the 'Group trading and central
services' segment.

Adjusted revenue, excluding results from businesses exited in both half years
(adjusting items), was £1,652.2m (30 June 2019: £1,815.5m), an organic
decline of 9.0% (30 June 2019: 8.0% decline).

 Six months to 30 June 2020                  Note Software  People Solutions  Customer Management  Government Services  Technology Solutions  Specialist Services  Group trading and central services  Total adjusted  Adjusting items  Total reported  
                                                      £m            £m                 £m                   £m                    £m                   £m                           £m                        £m              £m               £m       
 Continuing operations                                                                                                                                                                                                                                  
 Long-term contractual                              166.5         143.3              444.6                296.0                 133.4                 22.4                         7.7                     1,213.9           21.0           1,234.9     
 Short-term contractual                              4.7          38.7               116.4                 3.7                  10.5                  56.6                         2.5                      233.1            6.9             240.0      
 Transactional (point-in-time)                       2.2          63.7                0.8                  65.1                 46.6                  23.4                         3.4                      205.2            2.6             207.8      
 Total segment revenue                              173.4         245.7              561.8                364.8                 190.5                102.4                        13.6                     1,652.2           30.5           1,682.7     
                                                                                                                                                                                                                                                        
 Trading revenue                                    199.4         316.2              631.8                379.3                 308.3                107.9                        37.6                     1,980.5            —             1,980.5     
 Inter-segment revenue                             (26.0)        (70.5)              (70.0)               (14.5)               (117.8)               (5.5)                       (24.0)                    (328.3)            —             (328.3)     
 Total adjusted segment revenue                     173.4         245.7              561.8                364.8                 190.5                102.4                        13.6                     1,652.2            —             1,652.2     
 Business exits – trading               4            6.9           2.6                16.2                  —                     —                   4.8                           —                         —              30.5            30.5       
 Total segment revenue                              180.3         248.3              578.0                364.8                 190.5                107.2                        13.6                        —               —             1,682.7     

   

 Six months to 30 June 2019                        Software £m   People Solutions £m   Customer Management £m   Government Services £m   Technology Solutions £m   Specialist Services £m   Group trading and central services £m   Total adjusted £m   Adjusting items £m   Total reported £m  
 Continuing operations                                                                                                                                                                                                                                                                          
 Long-term contractual                                163.0             156.1                  445.4                    343.1                     157.7                     26.5                             9.8                         1,301.6               24.2               1,325.8       
 Short-term contractual                                4.9              39.9                   123.2                     14.3                     20.1                      71.3                             0.9                          274.6                7.7                 282.3        
 Transactional (point-in-time)                         2.8              75.6                    0.9                      66.8                     46.4                      45.4                             1.4                          239.3                4.6                 243.9        
 Total segment revenue                                170.7             271.6                  569.5                    424.2                     224.2                    143.2                            12.1                         1,815.5               36.5               1,852.0       
                                                                                                                                                                                                                                                                                                
 Trading revenue                                      197.4             360.4                  633.0                    441.0                     354.5                    154.4                            36.1                         2,176.8                —                 2,176.8       
 Inter-segment revenue                               (26.7)            (88.8)                  (63.5)                   (16.8)                   (130.3)                   (11.2)                          (24.0)                        (361.3)                —                 (361.3)       
 Total adjusted segment revenue                       170.7             271.6                  569.5                    424.2                     224.2                    143.2                            12.1                         1,815.5                —                 1,815.5       
 Business exits – trading               4              7.3               2.9                    15.7                      —                         —                       10.6                              —                             —                  36.5                36.5         
 Total segment revenue                                178.0             274.5                  585.2                    424.2                     224.2                    153.8                            12.1                            —                   —                 1,852.0       

Order book

The tables below show the order book for each division, categorised into
long-term contractual (contracts with length greater than two years) and
short-term contractual (contracts with length less than two years). The length
of the contract is calculated from the start of the service commencement date.
The figures represent the aggregate amount of the currently contracted
transaction price allocated to the performance obligations that are
unsatisfied or partially unsatisfied. The current environment has contributed
to the Group’s order book declining with contract wins not offsetting
revenue recognised in the period. Revenue expected to be recognised upon
satisfaction of these performance obligations is as follows:

 Order book              Software   People Solutions   Customer Management   Government Services   Technology Solutions   Specialist Services   Group trading and central functions    Total   
 30 June 2020                £m             £m                  £m                    £m                     £m                    £m                            £m                      £m    
 Long-term contractual     531.1          453.6               2,470.7               1,988.1                368.5                  235.4                          4.9                  6,052.3  
 Short-term contractual     28.1           1.9                 51.8                  31.0                   48.6                  51.7                           8.4                   221.5   
 Total                     559.2          455.5               2,522.5               2,019.1                417.1                  287.1                         13.3                  6,273.8  

   

 Order book 31 December 2019   Software £m   People Solutions £m   Customer Management £m   Government Services £m   Technology Solutions £m   Specialist Services £m   Group trading and central functions £m   Total £m  
 Long-term contractual            496.7             497.2                 2,734.0                  2,140.6                    344.0                    259.0                             2.9                     6,474.4   
 Short-term contractual           81.7                —                     26.5                     36.1                     45.7                      47.6                             7.6                      245.2    
 Total                            578.4             497.2                 2,760.5                  2,176.7                    389.7                    306.6                             10.5                    6,719.6   

The table below shows the expected timing of revenue to be recognised from
long-term contractual orders at 30 June 2020:

 Time bands of expected revenue recognition  from long-term contractual orders  Software   People Solutions   Customer Management   Government Services    Technology Solutions  £m  Specialist Services   Group trading and central functions    Total   
                                                                                    £m             £m                  £m                    £m                                               £m                            £m                      £m    
 Within one year                                                                  215.6          190.4                722.3                 405.0                   129.1                    36.2                           1.7                  1,700.3  
 Between one and five years                                                       276.9          254.3               1,425.9               1,147.0                  196.3                    67.7                           3.2                  3,371.3  
 More than five years                                                              38.6           8.9                 322.5                 436.1                    43.1                    131.5                           —                    980.7   
 Total                                                                            531.1          453.6               2,470.7               1,988.1                  368.5                    235.4                          4.9                  6,052.3  

The order book represents the consideration to which the Group will be
entitled to receive from the customers when the Group satisfies the remaining
performance obligations in the contracts. However, the total revenue that will
be earned by the Group will also include non-contracted volumetric revenue,
new wins, scope changes and anticipated contract extensions. These elements
have been excluded from the figures in the tables above because they are not
contracted. In addition, revenue from contract extensions is also excluded
from the order book unless they are pre-priced extensions whereby the Group
has a legally binding obligation to deliver the performance obligations during
the extension period. The total revenue related to pre-priced extensions that
has been included in the tables above amounted to £648.2m (31 December 2019:
£605.4m). The amounts presented do not include orders for which neither party
has performed, and each party has the unilateral right to terminate a wholly
unperformed contract without compensating the other party.

Of the £6.0billion (31 December 2019: £6.5billion) revenue to be earned on
long-term contractual orders, £4.0billion (31 December 2019: £4.4billion)
relates to major contracts. This amount excludes revenue that will be derived
from frameworks (transactional (point-in-time) contracts), non-contracted
volumetric revenue, non-contracted scope changes and future unforeseen volume
changes from these major contracts, which together are expected to contribute
an additional £1.9billion (31 December 2019: £1.8billion) of revenue to the
Group over the life of these contracts.

No single customer makes up more than 10% of the Group’s revenues.

Deferred income

The Group’s deferred income balances solely relate to revenue from contracts
with customers. Revenue recognised in the reporting period that was included
in the deferred income balance at the beginning of the period was £643.3m
(30 June 2019: £693.8m; 31 December 2019: £1,119.3m).

Segmental profit

The Group adopted IFRS 16 on 1 January 2019 using the modified retrospective
approach. Leases across the Group are centrally managed and controlled. As a
result, the Group's right-of-use lease assets and lease liabilities are held
in the Group trading and central services segment, and the related
depreciation included in the Group trading and central services income
statement. The IFRS 16 interest charges are included on a total group basis
only, similar to other finance costs. The divisions continue to recognise
rental costs on an IAS 17 basis because they do not control the use of the
asset, this is reversed in the Group trading and central services segment and
replaced with IFRS 16 depreciation and interest expense. Comparative
information has been restated to include the impact of IFRS16 on adjusted
results.

The table below presents profit/(loss) by segment.

 Period ended                      Notes  Software   People Solutions   Customer Management   Government Services   Technology Solutions   Specialist Services   Group trading and central services   Total adjusted   Adjusting items   Total reported   
 30 June 2020                                 £m             £m                  £m                    £m                     £m                    £m                            £m                         £m               £m                £m        
 Adjusted operating profit/(loss)    3       38.2           17.8                41.6                  14.3                   14.9                  (4.1)                        (65.1)                      57.6               —               57.6       
 Restructuring                       3      (0.6)          (4.3)                (1.4)                 (0.6)                 (1.6)                  (0.1)                        (31.4)                       —              (40.0)            (40.0)      
 Business exits – trading            4       1.9           (3.3)                 2.0                    —                     —                    (2.0)                          —                          —               (1.4)            (1.4)       
 Total trading result                        39.5           10.2                42.2                  13.7                   13.3                  (6.2)                        (96.5)                      57.6            (41.4)             16.2       
 Non-trading items:                                                                                                                                                                                                                                       
 Business exits – non-trading        4                                                                                                                                                                       —              (19.9)            (19.9)      
 Other adjusting items               3                                                                                                                                                                       —              (30.9)            (30.9)      
 Operating profit/(loss)                                                                                                                                                                                    57.6            (92.2)            (34.6)      

   

 Period ended 30 June 2019         Notes   Software £m   People Solutions £m   Customer Management £m   Government Services £m   Technology Solutions £m   Specialist Services £m   Group trading and central services £m   Total adjusted £m   Adjusting items £m   Total reported £m  
 Adjusted operating profit/(loss)    3        46.6              28.5                    53.9                     20.0                     28.7                      20.1                           (51.7)                         146.1                 —                  146.1        
 Restructuring                       3        (2.4)            (15.2)                  (1.8)                    (0.4)                     (2.7)                    (3.9)                           (30.1)                           —                 (56.5)              (56.5)        
 Business exits – trading            4         2.3              (2.7)                   2.5                       —                         —                      (1.3)                            (0.1)                           —                  0.7                  0.7         
 Total trading result                         46.5              10.6                    54.6                     19.6                     26.0                      14.9                           (81.9)                         146.1               (55.8)               90.3         
 Non-trading items:                                                                                                                                                                                                                                                                     
 Business exits – non-trading        4                                                                                                                                                                                              —                   —                    —          
 Other adjusting items               3                                                                                                                                                                                              —                 (29.5)              (29.5)        
 Operating profit/(loss)                                                                                                                                                                                                          146.1               (85.3)               60.8         

7 Net finance costs

The table below shows the composition of net finance costs, including those
excluded from adjusted profit:

                                                                         30 June 2020    30 June 2019 £m  
                                                                               £m                         
 Interest receivable                                                         (0.7)            (2.7)       
 Private Placement Loan Notes (1)                                             12.7            15.3        
 Cash flow hedges recycled to the income statement                           (2.1)            (1.7)       
 Bank loans and overdrafts                                                    2.6              2.0        
 Interest on lease liabilities                                                12.8            12.3        
 Net interest cost on defined benefit pension schemes                         1.8              2.5        
 Interest payable                                                             27.8            30.4        
 Net finance costs included in adjusted profit                                27.1            27.7        
                                                                                                          
 Discount unwind on public sector subsidiary partnership payment              0.5              0.7        
 Non-designated foreign exchange forward contracts – mark-to-market           6.5             (2.4)       
 Fair value hedge ineffectiveness (2)                                         1.5              3.0        
 Net finance costs excluded from adjusted profit                              8.5              1.3        
                                                                                                          
 Total net finance costs                                                      35.6            29.0        

1. Private Placement Loan Notes comprise US private placement loan notes, Euro
fixed rate bearer notes, and a Schuldschein loan

2. Fair value hedge ineffectiveness includes ineffectiveness from changes in
currency basis, and the movement in mark-to-market valuations on hedge
derivatives from the perceived change in the credit worthiness of the
counterparties to those instruments.

8 Income tax

The reported income tax credit for the half year of £34.3m resulted in a
reported tax rate of 119.9% (30 June 2019: reported income tax charge of
£5.6m and tax rate of 17.9%) while the adjusted income tax credit for the
half year of £19.7m resulted in an adjusted tax rate of -65.6% (30 June
2019: adjusted income tax charge of £22.1m and adjusted tax rate of 18.7%).

The income tax credits have arisen as a result of: (i) a deferred tax rate
change impact of £15.6m relating to the UK tax rate remaining at 19% (instead
of the previously announced reduction to 17%); and (ii) a one-off reduction of
£8.6m in withholding tax applicable to unremitted earnings. Both one-off
income tax credits were due to tax legislation changes enacted during the
period.

Please refer to note 3 for tax impact of adjusting items.

The recognition of deferred tax assets is supported by the deferred tax
liabilities against which the reversal can be offset and the expected level of
future profits in the countries concerned. A forecasting exercise has been
undertaken for 2020 and 2021, factoring in what is seen to be the most likely
impact of COVID-19 on the Group as a whole (refer to Goodwill note 10 for
further details). These forecasts provide support that it is probable that
there will be sufficient future taxable profits to enable the utilisation of
the recognised deferred tax assets within five years.

Capita continues with its commitment to prompt disclosure and transparency in
all dealings with HMRC and overseas tax authorities. It does not have a
complex tax structure, nor does it pursue any aggressive tax avoidance
activities.

Further detail regarding the tax strategy can be found in the Policies and
Principles section of the Capita website
(capita.com/about-us/policies-and-principles).

9 Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the
period attributable to ordinary shareholders of the Parent Company by the
weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing the net profit
for the period attributable to ordinary shareholders of the Parent Company by
the weighted average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be issued on
the conversion of all the dilutive potential ordinary shares into ordinary
shares.

                                                          30 June 2020                                30 June 2019                 
                                           Continuing operations   Total operations   Continuing operations p  Total operations p  
                                                      p                    p                                                       
 Basic earnings per share    – adjusted             3.38                  3.38                  5.43                  5.43         
                             – reported             0.38                  0.92                  1.36                  1.59         
 Diluted earnings per share  – adjusted             3.33                  3.33                  5.38                  5.38         
                             – reported             0.38                  0.91                  1.35                  1.57         

The following tables show the earnings and share data used in the basic and
diluted earnings per share calculations:

                                                             30 June 2020                                30 June 2019                   
                                                 Continuing operations      Total       Continuing operations £m   Total operations £m  
                                                           £m             operations                                                    
                                                                              £m                                                        
 Adjusted profit for the period                           57.5               57.5                 95.3                    95.3          
 Less: Non-controlling interest                           (1.6)              (1.6)               (5.3)                    (5.3)         
 Adjusted profit attributable to shareholders             55.9               55.9                 90.0                    90.0          
                                                                                                                                        
 Reported profit for the period                            5.8               14.8                 25.6                    29.3          
 Less: Non-controlling interest                            0.5                0.5                (3.0)                    (3.0)         
 Total profit attributable to shareholders                 6.3               15.3                 22.6                    26.3          

   

                                                                                                                       30 June 2020   30 June 2019 m  
                                                                                                                             m                        
 Weighted average number of ordinary shares (excluding trust and treasury shares) for basic earnings per share            1,656.0         1,656.3     
 Dilutive potential ordinary shares:                                                                                                                  
 Employee share options                                                                                                     23.5           17.7       
 Weighted average number of ordinary shares (excluding trust and treasury shares) adjusted for the effect of dilution     1,679.5         1,674.0     

The earnings per share figures are calculated based on earnings attributable
to ordinary shareholders of the Parent Company, and therefore excludes
non-controlling interest. Earnings per share are calculated on an adjusted and
a total reported basis. Earnings per share for business exits and specific
items are bridging items between adjusted and total reported earnings per
share.

10 Goodwill

In preparing these interim condensed consolidated financial statements, the
Group undertook a review to identify indicators of impairment of goodwill. The
impact of COVID-19 on the business is deemed to be a sufficiently strong
indicator of potential impairment and a full impairment test has been
performed. This is in comparison to the approach taken at half year 2019 where
consideration was given to post-year end performance against forecasts used in
the year end impairment testing, when no indicators of potential impairment
were found.

                            £m    
 Cost                             
 At 1 January 2020       2,016.1  
 Business disposal        (8.8)   
 Exchange movement         0.4    
 At 30 June 2020         2,007.7  
                                  
 Accumulated impairment           
 At 1 January 2020        838.3   
 Business disposal        (5.0)   
 At 30 June 2020          833.3   
                                  
 Carrying amount                  
 At 1 January 2020       1,177.8  
 At 30 June 2020         1,174.4  

Cash-generating units ('CGU')

Cash-generating units reflect the way management exercises oversight and
monitors the Group’s performance. The lowest level at which goodwill is
monitored is at the divisional level for four divisions (Software, People
Solutions, Consulting, and Specialist Services (see below)), and at a
sub-divisional level for the other three divisions (Government Services,
Technology Solutions, and Customer Management (see below). Goodwill is
allocated to these CGUs or groups of CGUs. At 30 June 2020, the Group has nine
CGUs or groups of CGUs for the purpose of impairment testing.

During the first half of 2020, Capita's Regulated Services business was
transferred from Specialist Services to Customer Management. For goodwill
testing purposes the Regulated Services business will continue to be treated
as a separate group of CGUs, although as there is no goodwill attributable to
this grouping, it has been excluded from the disclosures below. The remaining
businesses in the Specialist Services division will also continue to be
treated as one group of CGUs, which now encompasses the whole division.

There has been additional internal restructuring in the six months ended 30
June 2020. This included the transfer of businesses both into Specialist
Services (from Government Services and Software) and out of Specialist
Services (to People Solutions, Government Services, and Technology Solutions).
The relevant goodwill balances were reallocated to reflect these transfers.

In accordance with the divisional strategy to further align and consolidate
management and oversight of the Technology Solutions division, for impairment
testing at 30 June 2020 the previously separate IT Services and Network
Services groups of CGUs were merged into one combined Technology Solutions
group of CGUs.

The Board will continue to assess the level at which management exercise
oversight and monitors the Group’s performance to ensure the allocation to
CGUs remains appropriate.

The carrying amount of goodwill allocated to groups of CGUs is as follows:

 CGU                      Software   People Solutions   Customer Management   Central Government    Technology Solutions £m  Specialist Services    Consulting £m   Total   
                              £m             £m                  £m                    £m                                             £m                              £m    
 1 January 2020             254.9          199.7                137.0                 8.7                    276.3                   280.5              20.7       1,177.8  
 Restructuring transfers    (19.6)          86.8               (12.6)                 9.1                     8.3                   (72.0)                —           —     
 Business disposal          (3.8)            —                    —                    —                       —                       —                  —         (3.8)   
 Exchange movement            —              —                   0.4                   —                       —                       —                  —          0.4    
 30 June 2020               231.5          286.5                124.8                 17.8                   284.6                   208.5              20.7       1,174.4  

Capita Regulated Services and Local Government CGUs are not included in the
table above because their related goodwill was fully impaired in prior
periods.

Business exits

As set out in note 4, one business within Software was fully disposed of
during the period, with goodwill relating to it written off as part of
business disposals.

Two businesses (within Specialist Services and Regulated Services) that the
Group intends to dispose of in 2020 met the criteria to be treated as
held-for-sale at 30 June 2020. The business in Specialist Services also met
the criteria to be treated as held-for-sale at 31 December 2019, at which
point the goodwill relating to it was reclassified to assets held-for-sale
(where it was subsequently impaired to business exits as at 30 June 2020).
There was no goodwill relating to the business in Regulated Services as at 30
June 2020.

The impairment test

The Group’s impairment test compares the carrying value of each CGU with its
recoverable amount. The recoverable amount of a CGU is the higher of its fair
value less costs of disposal, and its value in use. As the Group continues to
implement the Group-wide transformation plan it has been determined that for
30 June 2020, fair value less costs of disposal will generate the higher
recoverable amount. The valuation of CGUs under fair value less costs of
disposal also assumes that a third-party acquirer would undertake a similar
transformation plan to derive similar benefits in the business going forward.
Fair value less costs of disposal have been estimated using discounted cash
flows. The fair value measurement was categorised as a Level-3 fair value
based on the inputs for the valuation technique used.

In undertaking the impairment review, the Directors considered both external
and internal sources of information, and any observable indications that may
suggest that the carrying value of goodwill may be impaired.

The enterprise value of each CGU is dependent on the successful implementation
of the transformation plan. If the transformation plan fails to drive improved
returns and sustainable free cash flow in one or more of the CGU's, then this
may give rise to an impairment of goodwill in future periods.

No impairment has arisen from the impairment test performed.

The key inputs to the calculations are described below, including changes in
market conditions.

Forecast cash flows

As set out in the Annual Report 2019, the Group's annual bottom-up business
planning process was completed in early 2020 and the resulting three-year
business plan for 2020, 2021 and 2022 was approved by the Board.

As a result of the COVID-19 pandemic, an updated forecasting exercise has been
undertaken for 2020 and 2021, factoring in what is seen to be the most likely
impact of COVID-19 on the individual businesses and on the Group as a whole.

These updated forecasts were used to derive cash flows for the purpose of the
impairment test. Other than for movements in deferred income and contract
fulfilment assets, cash flows are adjusted to exclude working capital
movements because the corresponding balances are not included in the CGU
carrying amount. The cash flows include forecast capital and restructuring
expenditure, as well as an allocation of central function costs.

The Board have considered an appropriate methodology to apply when allocating
central function costs, which is a key sensitivity. In accordance with
impairment testing performed at 31 December 2019, forecast CGU EBITDA measures
for 2021 were used for this purpose because these represent a steady state
forecast for the Group, and an appropriate approximation of the attention and
focus of the Group’s central functions. As the transformation plan delivers,
and there is more certainty over the impact of COVID-19 on the Group and the
wider economy as a whole, the Board will assess any changes required to ensure
the allocation methodology continues to reflect the efforts of the central
functions.

In the absence of a Board approved business plan for 2022, cash flows for year
three (2022) are based on those of 2021, applying CGU specific growth rate
assumptions obtained from external market research reports from Nelson Hall
and TechMarketView (2019: 2022 cash flows were set out as part of the Board
approved Business Plan).

These growth rates for 2022 are set out in the table below.

               Software  People Solutions  Customer Management  Central Government  Technology Solutions  Specialist Services  Consulting  
 30 June 2020    2.3%          3.3%                3.1%                3.2%                 2.1%                  2.9%            2.9%     

The long-term growth rate is based on inflation forecasts by recognised bodies
and this has been applied to forecast cash flows for years four and five (2023
and 2024) and for the terminal period. The long-term growth rate is 1.5%
(2019: 1.6%).

Additional bottom-up re-forecasting and business plan work is expected to be
undertaken by the Group over the coming months, and the impact of this will be
factored into impairment testing to be performed at 31 December 2020.

Discount rates

Management estimates discount rates using pre-tax rates that reflect the
latest market assumptions for the risk-free rate, the equity risk premium and
the net cost of debt, which are all based on publicly available external
sources.

The table below shows the pre-tax discount rates used on the cash flows.

                   Software  People Solutions  Customer Management  Central Government  Technology Solutions  Specialist Services  Consulting  
 30 June 2020        11.8%         11.2%              11.0%                10.5%                10.2%                10.9%            10.9%    
 30 December 2019    11.5%         10.9%              10.7%                10.2%                9.9%                 10.6%            10.6%    

As set out above, discount rates used are 0.3% higher than those for 2019. The
key drivers for this increase are changes in market  assumptions for market
risk premiums and the levered beta of peer group comparators, off-set by
decreases in UK corporate bond yields and risk-free rates.

Sensitivity analysis

The impairment testing as described is reliant on the accuracy of
management’s forecasts and the assumptions that underlie them; and on the
selection of the discount and growth rates to be applied. In order to gauge
the sensitivity of the result to a change in any one, or combination of the
assumptions that underlie the model, a number of scenarios were developed to
identify the range of reasonably possible alternatives and measure which CGUs
are the most susceptible to an impairment should the assumptions used be
varied. This sensitivity analysis is only applicable to the CGUs that have
goodwill.

The table below shows how the enterprise value would be impacted (with all
other variables being equal) by: an increase in discount rate of 1%, or a
decrease of 1% in the long-term growth rate (of the terminal period) for the
Group in total and each of the CGUs; or, if the severe but plausible downsides
became applicable to the base-case projections for assessing going concern and
viability. These include trading downside risks which assume an ongoing
revenue impact from COVID-19 and that cost reductions to mitigate the impact
are not successful. The downside scenario also incorporated potential adverse
financial impacts that could arise from incidents such as data breaches,
cyber-attacks, controls failures and an assessment of the potential fines and
penalties for any non-compliance with laws and regulations, but excludes the
proposed disposal of the Education Software Solutions business in 2020.

The impact of all of the scenarios together was considered, and the impact on
impairment is disclosed in the final column.

                         1% increase in      Long-term growth rate decrease by 1%  £m   Severe but plausible downside  £m   Combination sensitivity  £m   Increase in 30 June 2020 impairment using combination scenario  £m  
                        discount rate  £m                                                                                                                                                                                     
 Software                     (66.5)                          (51.7)                                 (64.3)                           (165.1)                                             —                                   
 People Solutions             (79.1)                          (60.5)                                 (87.6)                           (203.6)                                             —                                   
 Customer Management          (65.0)                          (51.8)                                 (150.8)                          (236.1)                                             —                                   
 Central Government           (65.4)                          (53.5)                                 (97.4)                           (191.4)                                             —                                   
 Technology Solutions         (62.5)                          (49.3)                                 (66.7)                           (158.3)                                             —                                   
 Specialist Services          (26.6)                          (20.9)                                 (23.3)                           (64.1)                                            (41.9)                                
 Consulting                   (7.5)                           (5.8)                                   (3.2)                           (14.9)                                              —                                   
 Total                       (372.6)                         (293.5)                                 (493.3)                         (1,033.5)                                          (41.9)                                

Management continue to closely monitor the performance of all CGUs and
consider the impact of any changes to the key assumptions. Given the Group is
in the middle of a multi-year transformation, in addition to trading being
affected by the impact of COVID-19, there is a greater range of potential
future outcomes. A number of these downsides would give rise to an impairment.

11 Contract fulfilment assets

                                    Total £m    
                                              
 At 1 January 2020                   275.8      
 Additions                            59.2      
 Impairment                          (4.4)      
 Derecognition                       (0.3)      
 Utilised during the period          (41.6)     
 Transfer to assets held-for-sale    (0.9)      
 Exchange rate movement               0.5       
 At 30 June 2020                     288.3      

Impairment: During the period, the Group recognised an impairment of £4.4m
(30 June 2019: £9.0m; 31 December 2019: £9.6m) within adjusted cost of
sales, of which, £0.7m (30 June 2019: £3.1m; 31 December 2019: £2.2m)
relates to contract fulfilment assets added during the period.

12 Provisions

                                     Restructuring provision £m   Business exit provision £m   Claim and litigation provision £m   Property provision £m   Other £m   Total £m  
 At 1 January 2020                              6.1                          10.5                            41.2                           8.3              14.5       80.6    
 Provisions provided in the period              9.7                          1.7                             10.0                           0.6              9.6        31.6    
 Provisions released in the period             (0.6)                        (0.8)                            (1.8)                         (1.8)            (1.3)      (6.3)    
 Utilisation                                   (6.5)                        (2.0)                            (2.6)                         (0.5)            (1.4)      (13.0)   
 Transfer to assets held-for-sale                —                            —                                —                             —              (0.4)      (0.4)    
 At 30 June 2020                                8.7                          9.4                             46.8                           6.6              21.0       92.5    

The provisions above are shown as current or non-current on the balance sheet
in accordance with the Group’s expected timing of the matters in question
reaching conclusion.

Restructuring provision: The provision represents the cost of reducing role
count where communication to affected employees has crystallised a valid
expectation that the roles are at risk and is likely to unwind over a period
of one to two years. Additionally, it reflects the onerous nature of leasehold
property costs where properties are exited as a result of the transformation
plan, these provisions are likely to unwind over periods of up to 25 years.

Business exit provision: The provision relates to the cost of exiting
businesses through disposal or closure including professional fees related to
business exits and the costs of separating the businesses being disposed.
These are likely to unwind over a period of one to five years.

Claims and litigation provision: The Group is exposed to claims and litigation
proceedings arising in the ordinary course of business. These matters are
reassessed regularly and where obligations are probable and estimable,
provisions are made representing the Group’s best estimate of the
expenditure to be incurred. Due to the nature of these claims, the Group
cannot give an estimate of the period over which this provision will unwind.

Property provision: The provision relates to unavoidable running costs of
leasehold property where the space is vacant or currently not planned to be
used for ongoing operations, and for dilapidation costs. The expectation is
that this expenditure will be incurred over the remaining periods of the
leases which vary up to seven years.

Other provisions: Relate to provisions in respect of other potential exposures
arising due to the nature of some of the operations that the Group provides,
the most significant of which are in respect of claims/obligations associated
with missed milestones in contractual obligations £6.2m (30 June 2019:
£nil; 31 December 2019: £nil) and immaterial onerous contracts of £5.7m
(30 June 2019: £7.3m; 31 December 2019: £6.1m). These are likely to unwind
over periods of up to ten years.

13 Cash flow information

                                                                                    30 June 2020               30 June 2019           
                                                                          Note  Adjusted   Reported    Adjusted (1) £m   Reported £m  
                                                                                    £m         £m                                     
 Cash flows from operating activities:                                                                                                
 Operating profit/(loss)                                                    3      57.6      (34.6)         146.1           60.8      
                                                                                                                                      
 Adjustments for non-cash items:                                                                                                      
 Depreciation                                                                      72.5       73.4          80.7            82.5      
 Amortisation of intangible assets                                                 19.4       38.3          14.5            43.4      
 Share based payment expense                                                       5.1        5.1            3.5             3.5      
 Employee benefits                                                                 5.3        5.3            5.1             5.1      
 Loss on disposal of property, plant and equipment / intangible assets             2.0        2.0            0.6             0.6      
 Impairment of disposal group assets                                                —         17.9            —               —       
 Impairment of non-current assets                                                  1.3        12.2            —               —       
                                                                                                                                      
 Other adjustments:                                                                                                                   
 Movement in provisions                                                            6.8        12.1           5.0             1.0      
 Pension deficit contribution                                                       —        (14.1)           —            (57.1)     
 Other contributions into pension schemes                                         (9.8)      (9.8)          (8.9)           (8.9)     
                                                                                                                                      
 Movements in working capital:                                                                                                        
 Trade and other receivables                                                       57.0       58.6         (145.1)         (140.5)    
 Non-recourse trade receivables financing                                  14       —         32.8            —               —       
 Trade and other payables                                                         (3.4)       0.7           23.2            18.7      
 VAT deferral                                                                       —        117.3            —               —       
 Deferred income                                                                   53.3       51.9          (9.2)          (10.6)     
 Contract fulfillment assets (non-current)                                        (13.4)     (13.4)          7.5             8.4      
                                                                                                                                      
 Cash generated by operations                                                     253.7      355.7          123.0            6.9      
                                                                                                                                      
 Adjustments for free cash flows:                                                                                                     
 Income tax paid                                                                  (4.6)      (4.6)          (2.2)           (2.2)     
 Net interest paid                                                                (24.1)     (24.1)        (26.3)          (26.3)     
 Purchase of property, plant and equipment                                        (20.6)     (20.9)        (22.4)          (22.3)     
 Purchase of intangible assets                                                    (28.4)     (28.4)        (42.1)          (42.1)     
 Proceeds from sale of property, plant and equipment / intangible assets            —          —             0.1             0.1      
 Free cash flow                                                                   176.0      277.7          30.1           (85.9)     

1 The 2019 adjusted cash flow has been restated for business exits in 2020 and
also for the inclusion of IFRS 16. This has resulted in adjusted cash
generated by operations increasing from £59.9m to £123.0m and adjusted free
cash outflow increasing from £(20.2)m to £30.1m inflow.

Adjusted free cash flow and cash generated from operations

                                             Free cash flow      Cash generated from operations    
                                             2020     2019 £m        2020             2019 £m      
                                              £m                      £m                           
 Reported                                    277.7    (85.9)         355.7              6.9        
 Pension deficit contributions               14.1      57.1          14.1              57.1        
 Significant restructuring                   28.1      57.7          28.1              57.7        
 Business exits - on hold disposal costs      2.0        —            2.0                —         
 Business exits                               4.2      (0.2)          3.9              (0.1)       
 Non-recourse trade receivables financing   (32.8)       —          (32.8)               —         
 VAT deferral                               (117.3)      —          (117.3)              —         
 Other                                         —        1.4            —                1.4        
 Adjusted                                    176.0     30.1          253.7             123.0       

Pension deficit contributions: in November 2018, the Group agreed a deficit
recovery plan with the Trustees of the Capita Pension and Life Assurance
Scheme (the ‘Scheme’). The payments under the agreed deficit recovery plan
total £176.0m, of which £14.1m was paid in the period ended 30 June 2020
(2019: £57.1m). A payment of £31.7m due in June 2020 was deferred into the
second half of 2020 in agreement with the Trustees. These payments have been
excluded from adjusted cash flows because the Group treats them like debt.

Significant restructuring: in April 2018, the Group announced a multi-year
transformation plan. In the period to 30 June 2020, a cash outflow of £28.1m
(2019: £57.7m) was incurred in relation to the cost of the transformation
plan and restructuring costs relating to the Group’s previously announced
cost reduction plan.

Business exits - on hold disposal costs: these are costs incurred in respect
of business exit activities where the anticipated disposal was put on hold due
to the impact that the COVID-19 pandemic had on the underlying businesses.
They are excluded from the Group's adjusted results but disclosed separately
given their materiality.

Business exits: the cash flows of businesses exited, or in the process of
being exited, and the proceeds from disposals, are disclosed outside the
adjusted results. The 2019 results have been restated for those businesses
exited, or in the process of being exited, during the second half of 2019 and
first half of 2020 to enable comparability of the adjusted results.

Non-recourse trade receivables financing: a non-recourse receivables financing
facility was put in place to mitigate the risk of customer receipts slippage.

VAT deferral: utilisation of the Government's VAT deferral scheme. This VAT
will be paid in March 2021.

Other: includes the cash flows related to other items excluded from adjusted
profit in prior periods.

Reconciliation of net cash flow to movement in net debt

                                                    Net debt at      Cash flow   Non-cash movement (2)   Net debt at    
                                                   1 January 2020    movements             £m            30 June 2020   
                                                         £m              £m                                   £m        
 Cash, cash equivalents and overdrafts                  122.8          253.4             (6.0)               370.2      
 Other loan notes                                       (0.3)            —                 —                 (0.3)      
 Private Placement Loan Notes (1)                      (990.7)         187.2             (66.5)             (870.0)     
 Cross-currency interest rate swaps (1)                 77.3           (24.5)             49.2               102.0      
 Interest rate swaps (1)                                 1.0             —               (0.1)                0.9       
 Revolving credit facility                                —           (170.0)              —                (170.0)     
 Lease liabilities                                     (562.6)          61.4             (27.5)             (528.7)     
 Total net liabilities from financing activities      (1,475.3)         54.1             (44.9)            (1,466.1)    
 Deferred consideration                                 (0.7)            —                 —                 (0.7)      
 Net debt                                             (1,353.2)        307.5             (50.9)            (1,096.6)    

1 The sum of these items equates to the fair value of the Group’s Private
Placement Loan Note debt: £767.1m (2019: £912.4m).

2 Non-cash movement relates to: the effect of changes in foreign exchange
rates on cash; fair value changes on the swaps; amortisation of loan notes
issue costs; amortisation of the discount on the Euro debt; and additions,
terminations; and. foreign exchange rate effects on the Group's leases.

Overdrafts comprise the aggregate value of bank account debit balances within
the Group’s notional interest pooling arrangements.

At 30 June 2020, £170.0m of the Group’s £452.0m committed revolving
credit facility was drawn (31 December 2019: £nil drawn). Additionally, the
Group executed a committed backstop bank facility in February 2020 which was
undrawn at 30 June 2020. The committed value of the backstop facility at
30 June 2020 was £93.5m. Both committed facilities expire in August 2022.

                                                   Net debt at 1 January 2019 £m   Lease liability adjustment £m   Cash flow movements £m   Non-cash movement £m   Net debt at 30 June 2019 £m  
 Cash, cash equivalents and overdrafts                         642.7                             —                        (265.7)                  (0.1)                      376.9             
 Other loan notes                                              (0.3)                             —                           —                       —                        (0.3)             
 Private Placement Loan Notes                                (1,108.0)                           —                          11.1                   (19.1)                   (1,116.0)           
 Cross-currency interest rate swaps                            99.6                              —                           —                      16.7                      116.3             
 Interest rate swaps                                            1.9                              —                           —                     (0.6)                       1.3              
 Term loan                                                    (100.0)                            —                         100.0                     —                          —               
 Lease liabilities (1)                                           —                            (643.9)                       56.0                   (3.7)                     (591.6)            
 Total net liabilities from financing activities             (1,106.8)                        (643.9)                      167.1                   (6.7)                    (1,590.3)           
 Deferred consideration                                        (2.0)                             —                          0.3                      —                        (1.7)             
 Net debt                                                     (466.1)                         (643.9)                      (98.3)                  (6.8)                    (1,215.1)           

1 The Group first adopted IFRS 16 at 1 January 2019, using the modified
retrospective approach. Under this approach, comparative information is not
restated and the cumulative effect of adopting IFRS 16 is recognised in
retained earnings at the date of initial application.

14 Financial Instruments

The Group’s financial assets and liabilities are classified based on the
following fair value hierarchy:

• Level-1: quoted (unadjusted) prices in active markets for identical assets
or liabilities.

• Level-2: other techniques for which all inputs that have a significant
effect on the recorded fair value are observable, either directly or
indirectly.

   With the exception of current financial instruments (which have a short
maturity), the fair value of the Group’s level-2 financial instruments were
calculated by discounting the expected future cash flows at prevailing
interest rates. The valuation models incorporate various inputs including
foreign exchange spot and forward rates and interest rate curves. In the case
of floating rate borrowings nominal value approximates to fair value because
interest is set at floating rates where payments are reset to market values at
intervals of less than one year.

• Level-3: techniques which use inputs which have a significant effect on
the recorded fair value that are not based on observable market data.

Other financial instruments where observable market data is not available have
been held at either amortised cost or cost (undiscounted cash flows) as a
reasonable approximation of fair value.

During the period ended 30 June 2020, there were no assets or liabilities
transferred between the fair value levels.

The following table analyses, by classification and category, the carrying
value of the Group’s financial instruments and identifies the level of the
fair value hierarchy for the instruments carried at fair value:

 At 30 June 2020                                     Note  Fair value hierarchy  At fair value   At fair value   Derivatives   Amortised cost    Total      Current £m  Non-current   
                                                                                    through       through OCI      used for           £m           £m                        £m       
                                                                                      P&L              £m          hedging                                                            
                                                                                       £m                             £m                                                              
 Financial assets                                                                                                                                                                     
 Lease receivables                                                Level-2               —               —              —             13.7         13.7         2.7          11.0      
 Cash flow hedges                                                 Level-2               —               —             7.7             —           7.7          4.2           3.5      
 Non-designated foreign exchange forwards and swaps               Level-2              2.4              —              —              —           2.4          2.3           0.1      
 Interest rate swaps                                   a          Level-2               —               —             0.9             —           0.9          0.9            —       
 Cross-currency interest rate swaps                    a          Level-2               —               —            102.0            —          102.0          —           102.0     
 Investments                                                      Level-3              1.5              —              —              —           1.5           —            1.5      
 Other investments                                                Level-3               —              2.3             —              —           2.3          1.2           1.1      
                                                                                       3.9             2.3           110.6           13.7        130.5         11.3         119.2     
 Other financial assets                                                                                                                                                               
 Cash                                                             Level-1               —               —              —            756.2        756.2        756.2           —       
 Total financial assets                                                                3.9             2.3           110.6          769.9        886.7        767.5         119.2     
                                                                                                                                                                                      
 At 30 June 2020                                     Note  Fair value hierarchy  At fair value   At fair value   Derivatives   Amortised cost    Total       Current    Non-current   
                                                                                    through       through OCI      used for           £m           £m           £m           £m       
                                                                                      P&L              £m          hedging                                                            
                                                                                       £m                             £m                                                              
 Financial liabilities                                                                                                                                                                
 Private Placement Loan Notes                          a          Level-2               —               —              —            870.0        870.0         55.7         814.3     
 Other loan notes                                                 Level-2               —               —              —             0.3          0.3          0.3            —       
 Revolving credit facility                             b          Level 2               —               —              —            170.0        170.0          —           170.0     
 Non-designated foreign exchange forwards and swaps               Level-2              5.2              —              —              —           5.2          2.3           2.9      
 Public sector subsidiary partnership payment          c          Level-3               —               —              —             31.3         31.3         9.4          21.9      
 Deferred consideration                                           Level-2               —               —              —             0.7          0.7           —            0.7      
 Put options of non-controlling interests              d          Level-3               —             92.2             —              —           92.2         92.2           —       
                                                                                       5.2            92.2             —           1,072.3      1,169.7       159.9        1,009.8    
 Other financial liabilities                                                                                                                                                          
 Overdrafts                                                       Level-1               —               —              —            396.6        396.6        396.6           —       
 Lease liabilities                                                Level-2               —               —              —            528.7        528.7         78.9         449.8     
 Total financial liabilities                                                           5.2            92.2             —           1,997.6      2,095.0       635.4        1,459.6    

Financial assets measured at amortised cost consist of cash, insurance assets
recoverable, lease receivables and other investments. The carrying values of
these financial assets are a reasonable approximation of their fair value due
to the short-term nature of the instruments. Included in other investments are
£2.3m (31 December 2019: £2.4m) of strategic investments in unlisted equity
securities which are not held-for-trading and the Group elected to recognise
at Fair Value through Other Comprehensive Income (FVOCI). During the period no
dividends were received from, and no disposals were made of, strategic
investments.

Financial liabilities measured at amortised cost consist of overdrafts, lease
liabilities and loan notes. With the exception of certain series within the
fixed rate Private Placement Loan Notes, the carrying value of financial
liabilities are a reasonable approximation of their fair value. This is
because either the interest payable is close to market rates or the liability
is short-term in nature. The Private Placement Loan Note series that remain
subject to fixed rate interest have an underlying carrying value of £428.1m
and a fair value of £426.1m. Lease liabilities are measured at amortised cost
using the effective interest rate method.

The Group’s key financial liabilities are set out below:

a. Private Placement Loan Notes

Private Placement Loan Notes are issued at fixed rates of interest. Some of
the series have been swapped into floating rates of interest.

To mitigate exposure to currency fluctuations the Group has entered into
currency and interest rate swaps which effectively hedge movements in the loan
notes’ fair value arising from changes in foreign exchange and interest
rates. The underlying carrying value of £768.2m (31 December 2019: £915.5m)
attributable to aggregate Private Placement Loan Notes is calculated before
considering: (i) the carrying value of currency and interest rate swaps of
£102.9m (31 December 2019: £81.9m) included in financial assets and £nil
(31 December 2019: £3.6m) included in financial liabilities; and (ii) £1.1m
(31 December 2019: £3.1m) of hedging ineffectiveness.

b. Revolving credit facility

The total drawn of under the Group’s revolving credit facility at 30 June
2020 was £170.0m (31 December 2019: £nil). The facility is available until
31 August 2022, extendable for a further year to 31 August 2023 with the
consent of the lenders by 31 August 2021.

c. Public sector subsidiary partnership payment

The public sector subsidiary partnership payment liability represents the
annual deferred payments to be made by AXELOS Ltd. Since the payment
conditions have been reached and the liability cap met, sensitivity to changes
in either the discount rate or projected cash flows have no impact.

d. Put options of non-controlling interests

The liability represents the present value of the cost to acquire
non-controlling interests in AXELOS Ltd and Fera Science Ltd. The cost to
acquire the non-controlling interest in AXELOS Ltd is based on a set multiple
of earnings before interest and tax specified in the put-option agreement. The
put-option held by the non-controlling shareholder of AXELOS Ltd is currently
exercisable, and as a consequence the liability has been classified as
current. The option held by the non-controlling shareholder of Fera Science
Ltd is exercisable from April 2021 and has been classified as current (31
December 2019: non-current).  A sensitivity analysis assuming a 10%
increase/decrease in the earnings potential of the business results in a
£9.8m increase/decrease in the valuation.

 At 31 December 2019                                 Note  Fair value hierarchy   At fair value through P&L £m   At fair value through OCI £m   Derivatives used for hedging £m   Amortised cost £m   Total £m     Current £m   Non-current £m  
 Financial assets                                                                                                                                                                                                                               
 Lease receivables                                                Level-2                      —                              —                                —                        14.9            14.9          3.6            11.3       
 Cash flow hedges                                                 Level-2                      —                              —                               3.4                         —             3.4           2.9            0.5        
 Non-designated foreign exchange forwards and swaps               Level-2                     3.2                             —                                —                          —             3.2           3.1            0.1        
 Interest rate swaps                                   a          Level-2                      —                              —                               1.0                         —             1.0            —             1.0        
 Cross-currency interest rate swaps                    a          Level-2                      —                              —                              80.9                         —             80.9          15.5           65.4       
 Investments                                                      Level-3                     1.5                             —                                —                          —             1.5            —             1.5        
 Other investments                                                Level-3                      —                             2.4                               —                          —             2.4            —             2.4        
                                                                                              4.7                            2.4                             85.3                       14.9           107.3          25.1           82.2       
 Other financial assets                                                                                                                                                                                                                         
 Cash                                                             Level-1                      —                              —                                —                        409.1          409.1         409.1            —         
 Total financial assets                                                                       4.7                            2.4                             85.3                       424.0          516.4         434.2           82.2       
                                                                                                                                                                                                                                                
 At 31 December 2019                                 Note  Fair value hierarchy   At fair value through P&L £m   At fair value through OCI £m   Derivatives used for hedging £m   Amortised cost £m   Total £m     Current £m   Non-current £m  
 Financial liabilities                                                                                                                                                                                                                          
 Private Placement Loan Notes                          a          Level-2                      —                              —                                —                        990.7          990.7         232.5          758.2       
 Other loan notes                                                 Level-2                      —                              —                                —                         0.3            0.3           0.3             —         
 Cash flow hedges                                                 Level-2                      —                              —                               0.5                         —             0.5            —             0.5        
 Non-designated foreign exchange forwards and swaps               Level-2                     2.6                             —                                —                          —             2.6           1.6            1.0        
 Cross-currency interest rate swaps                    a          Level-2                      —                              —                               3.6                         —             3.6            —             3.6        
 Public sector subsidiary partnership payment          c          Level-3                      —                              —                                —                        35.4            35.4          9.4            26.0       
 Contingent consideration                                         Level-3                     5.0                             —                                —                          —             5.0           5.0             —         
 Deferred consideration                                           Level-2                      —                              —                                —                         0.7            0.7            —             0.7        
 Put options of non-controlling interests              d          Level-3                      —                            108.7                              —                          —            108.7         103.0           5.7        
                                                                                              7.6                           108.7                             4.1                      1,027.1        1,147.5        351.8          795.7       
 Other financial liabilities                                                                                                                                                                                                                    
 Overdrafts                                                       Level-1                      —                              —                                —                        286.3          286.3         286.3            —         
 Lease liabilities                                                Level-2                      —                              —                                —                        562.6          562.6          81.9          480.7       
 Total financial liabilities                                                                  7.6                           108.7                             4.1                      1,876.0        1,996.4        720.0         1,276.4      

The following table shows the changes from the opening to closing balances for
Level-3 fair value financial instruments.

                                                                    Contingent consideration £m   Subsidiary partnership payment £m   Put options of non-controlling interests £m   Investments and other investments £m  
 At 1 January 2020                                                              5.0                             35.4                                     108.7                                      3.9                   
 Gain on final settlement recognised in the income statement                   (0.1)                              —                                        —                                         —                    
 Payments made                                                                 (4.9)                            (4.7)                                      —                                         —                    
 Change in put-options recognised in equity                                      —                                —                                     (16.5)                                       —                    
 Additions                                                                       —                                —                                        —                                        0.8                   
 Loss on fair value recognised through other comprehensive income                —                                —                                        —                                       (0.9)                  
 Discount unwind                                                                 —                               0.6                                       —                                         —                    
 At 30 June 2020                                                                 —                              31.3                                     92.2                                       3.8                   

Non-recourse sale of receivables

In June 2020 a non-recourse receivables purchase facility was executed. The
value of outstanding invoices sold under the facility as at 30 June 2020 was
£32.8m. The costs of the sale (£0.1m) were charged to the consolidated
income statement.

15 Issued share capital and share premium

                                       Share capital   Share premium    Employee benefit trust and treasury shares    
 Allotted, called up and fully paid     m        £m          £m                  m                      £m            
 Ordinary shares of 2 1/15p                                                                                           
 At 1 January 2020                   1,671.1    34.5      1,143.3              15.2                   (11.2)          
 Shares allotted in the period          —        —           —                 (0.3)                     —            
 At 30 June 2020                     1,671.1    34.5      1,143.3              14.9                   (11.2)          

In the six months to 30 June 2020, the Group did not purchase any treasury
shares and allotted and issued 276,614 (30 June 2019: 182,232) treasury
shares with an aggregate nominal value of £5,718 (30 June 2019: £3,767) to
satisfy exercises under the Group's share option and long term incentive
plans. The total consideration received in respect of these shares was £nil
(30 June 2019: £nil).

The Group will use shares held in the Employee Benefit Trust ('EBT') and
treasury shares to satisfy future requirements for shares under the Group’s
share option and long-term incentive plans. During the period, the EBT
allotted nil (30 June 2019: nil) ordinary 2 1/15p shares with an aggregate
nominal value of £nil (30 June 2019: £nil) to satisfy exercises under the
Group’s share option and long-term incentive plans. The total consideration
received in respect of these shares was £nil (30 June 2019: £nil).

The Group has an unexpired authority to repurchase up to 10% of its issued
share capital.

16 Capital commitments

At 30 June 2020, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment amounted to
£9.4m (31 December 2019: £6.7m).

17 Related-party transactions

Compensation of key management personnel

                                  30 June 2020  £m   30 June 2019 £m  
 Short-term employment benefits         3.4                4.2        
 Pension                                0.1                0.1        
 Share based payments                   1.1                1.5        
                                        4.6                5.8        

Gains on share options exercised in the period by Capita plc Executive
Directors were £0.1m (30 June 2019: £nil) and by key management personnel
£nil (30 June 2019: £0.2m).

During the period, the Group rendered administrative services to Smart DCC
Ltd, a wholly-owned subsidiary which is not consolidated. The Group received
£71.2m (30 June 2019: £42.3m) of revenue for these services. The services
are procured by Smart DCC Ltd on an arm’s length basis under the DCC
licence. The services are subject to review by Ofgem to ensure that all costs
are economically and efficiently incurred by Smart DCC Ltd.

Capita Pension and Life Assurance Scheme is a related party of the Group.

18 Contingent liabilities

Contingent liabilities represent potential future cash outflows which are
either not probable or cannot be measured reliably.

The Group has provided, through the normal course of its business, performance
bonds and bank guarantees of £54.7m (31 December 2019: £58.1m).

The Group has been notified under a supplier contract of a potential liability
relating to past services received. The quantum of the liability and method of
settlement is yet to be agreed, but the Directors' expectation, based on
discussions with the supplier, is that an element will be settled in cash, and
the remainder settled by a commitment to future purchases. This is expected to
lead to a significant commitment to future purchases over many years, but at a
level which is supported by the group’s forecast need for such products. The
future purchases are expected to be at the usual discounted price available to
the Group. Accordingly, the Group has made a provision for the expected cash
settlement, but not made any provision for the outflow of funds for future
purchases. We expect negotiations on this matter to be concluded in 2020.

The Group is in discussions with a number of its life insurance clients, the
outcomes and timings of which are uncertain, that could result in the
continuation of contracts with amended terms or the termination of contracts.
If an operation is terminated, the Group may incur associated costs,
accelerate the recognition of deferred income or the impairment of contract
assets. As the outcome of these discussions is uncertain, the Group has not
made any provision for a future outflow of funds that might result from the
eventual outcome of the discussions.

The Group completed the disposal of its Capita Asset Services businesses,
including CFM, to the Link Group on 3 November 2017. Capita plc, as part of
the sale of the Capita Asset Services businesses, provided an indemnity
against certain legacy claims.

The Group's entities are parties to legal actions and claims which arise in
the normal course of business. The Group needs to apply judgement in
determining the merit of litigation against it and the chances of a claim
successfully being made. It needs to determine the likelihood of an outflow of
economic benefits occurring and whether there is a need to disclose a
contingent liability or whether a provision might be required due to the
probability assessment.

At any time there are a number of claims or notifications that need to be
assessed across the Group. The disparate nature of the Group's entities
heightens the risk that not all potential claims are known at any point in
time. Under the transformation plan, the central support functions including
commercial and legal have been strengthened and a Chief General Counsel has
been appointed. This enhances the processes to assess the likelihood of
historical claims arising.

19 Post balance sheet events

There are no post balance sheet events that have an adjusting effect on the
financial statements.

INDEPENDENT REVIEW REPORT TO CAPITA PLC

Conclusion

We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2020 which comprises the condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed
consolidated balance sheet, condensed consolidated statement of changes in
equity, condensed consolidated cash flow statement and the related explanatory
notes.

Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2020 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU and the Disclosure Guidance and Transparency Rules (“the
DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”).

Material uncertainty related to going concern

We draw attention to note 2(d) to the condensed set of financial statements
which indicates that under a severe but plausible downside scenario the group
may require completion of the disposal programme, which requires shareholder
approval and approval from the Company’s lenders. These agreements with
third parties represent material uncertainties which may cast significant
doubt about the group’s ability to continue as a going concern. Note 2(d)
sets out the Board’s considerations.

Our conclusion is not modified in respect of this matter.

Scope of review

We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.

A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.

Directors’ responsibilities

The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2(a), the annual financial statements of the group are
prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the condensed
set of financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.

Robert J Brent

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

17 August 2020

Appendix - alternative performance measures

The Group presents various alternative performance measures (APMs) because the
Directors believe that these are useful for users of the financial statements
by providing a balanced view of, and relevant information on, the Group’s
financial performance, position and cash flows. This includes key performance
indicators (KPIs) such as the return on capital employed, interest cover and
gearing ratios by which the Directors monitor performance.

                                               30 June  2020  30 June 2019  Source                                      
 Revenue – continuing operations                                                                                        
 Reported revenue                                £1,682.7m      £1,852.0m   Line item in income statement               
 Deduct: business exit                             £30.5m        £36.5m     Line item in note 6                         
 1. Adjusted revenue                             £1,652.2m      £1,815.5m                                               
                                                                                                                        
 Operating profit – continuing operations                                                                               
 Reported operating (loss)/profit                 (£34.6m)       £60.8m     Line item in income statement               
 Adjusting items in note 3                         £92.2m        £85.3m                                                 
 2. Adjusted operating profit (1)                  £57.6m        £146.1m                                                
 Adjusted operating profit margin                   3.5%          8.0%      Adjusted operating profit/adjusted revenue  

1   Adjusted operating profit excludes items that are separately disclosed
and considered to be outside the underlying operating results for the
particular period under review and against which the Group’s performance is
assessed.

                                                               Post IFRS 16 (2)                          Pre IFRS 16                                                                                                                                         
                                                       30 June  2020  31 December 2019  30 June  2020  31 December 2019  30 June 2019  Source                                                                                                                
 ROCE                                                                                                                                                                                                                                                        
 Adjusted operating profit (1)                 a          £220.2m          £308.6m         £207.6m          £296.9m         £312.0m    Adjusted operating profit (rolling 12-months)                                                                         
 Adjusted tax rate (3)                         b           14.4%            15.5%           14.7%            15.8%           13.7%                                                                                                                           
 Tax                                       c = a * b       £31.7m          £47.8m           £30.5m          £46.9m          £42.7m     Adjusted operating profit multiplied by tax rate                                                                      
 Adjusted operating profit after tax       d = a – c      £188.5m          £260.8m         £177.1m          £250.0m         £269.3m    Adjusted operating profit less tax                                                                                    
                                                                                                                                                                                                                                                             
 Current period net assets/(liabilities)       e          (£87.1m)        (£64.0m)         (£50.0m)        (£23.2m)         £104.6m    Line information in balance sheet                                                                                     
 Current period net debt                       f         £1,095.9m        £1,352.5m        £567.2m          £789.9m         £621.8m    Line item in note 13: net debt excluding the impact of deferred consideration                                         
 Adjustments to capital employed               g         £1,410.7m        £1,262.0m       £1,406.1m        £1,262.0m       £1,274.9m   Includes post-tax impact of accumulated acquired intangible amortisation, fixed rate swaps, put options and pensions  
 Current period capital employed           h = e+f+g     £2,419.5m        £2,550.5m       £1,923.3m        £2,028.7m       £2,001.3m   Used as current period capital employed balance in average capital employed 'm'                                       
                                                                                                                                                                                                                                                             
 Prior period net assets/(liabilities)         i           £71.9m          £76.5m          £104.6m          £103.3m        (£128.6m)   Line information in balance sheet                                                                                     
 Prior period adjusted net debt                j         £1,213.4m        £1,108.0m        £621.8m          £464.1m         £727.5m    Line item in note 13: net debt excluding the impact of deferred consideration                                         
 Comparative prior period adjustments          k         £1,274.9m        £1,276.5m       £1,274.9m        £1,276.5m       £1,298.5m   Includes post-tax impact of accumulated acquired intangible amortisation, fixed rate swaps, put options and pensions  
 Prior period capital employed             l = i+j+k     £2,560.2m        £2,461.0m       £2,001.3m        £1,843.9m       £1,897.4m   Used as prior period capital employed balance in average capital employed 'm'                                         
                                                                                                                                                                                                                                                             
 Average capital employed                  m=(h+l)/2     £2,489.9m        £2,505.8m       £1,962.3m        £1,936.3m       £1,949.4m                                                                                                                         
                                                                                                                                                                                                                                                             
 3. ROCE  KPI                               q = d/m         7.6%            10.4%            9.0%            12.9%           13.8%                                                                                                                           

1   Adjusted operating profit excludes items that are separately disclosed
and considered to be outside the underlying operating results for the
particular period under review and against which the Group’s performance is
assessed.

2   The Group applied IFRS 16 at 1 January 2019, using the modified
retrospective approach. Under this approach, comparative information is not
restated and the cumulative effect of initially applying IFRS 16 is recognised
in retained earnings at the date of initial application. Accordingly, no post
IFRS 16 values for 30 June 2019 are presented.

3   The effective tax rate for 30 June 2020 has been calculated after
excluding the one-off gains described in note 8 that resulted in a 65.6%
overall effective tax benefit on adjusted profits for the period.

                                                                                                 Post IFRS 16                            Pre IFRS 16                                             
                                                                                       30 June  2020  31 December 2019  30 June  2020  31 December 2019  30 June 2019                            
 Headline gearing (based on rolling 12-months)                                                                                                                                                   
 Adjusted profit before tax (1)                                                           £164.1m          £251.8m         £177.7m          £265.8m         £270.6m                              
 Add back: adjusted net finance costs                                                      £55.7m          £56.1m           £29.4m          £30.5m          £41.1m                               
 Add back: adjusted depreciation and impairment on property, plant and equipment           £55.2m          £58.1m           £55.2m          £58.1m          £66.6m                               
 Add back: depreciation on right of use assets                                             £93.0m          £99.2m            £—m              £—m             £—m                                
 Add back: adjusted amortisation                                                           £35.6m          £30.9m           £35.6m          £30.9m          £29.7m                               
 Adjusted EBITDA                                                                   a      £403.6m          £496.1m         £297.9m          £385.3m         £408.0m                              
                                                                                                                                                                                                 
 Headline net debt                                                                       £1,096.6m        £1,353.2m       £1,096.6m        £1,353.2m       £1,215.1m                             
 Remove IFRS 16 impact                                                                      £—m              £—m          (£528.7m)        (£562.6m)       (£591.6m)                             
 Net debt                                                                          b     £1,096.6m        £1,353.2m        £567.9m          £790.6m         £623.5m                              
                                                                                                                                                                                                 
 4. Headline net debt to adjusted EBITDA ratio  KPI                               b/a       2.7x            2.7x             1.9x            2.1x            1.5x      Net debt/adjusted EBITDA  

1   Adjusted operating profit excludes items that are separately disclosed
and considered to be outside the underlying operating results for the
particular period under review and against which the Group’s performance is
assessed.

                                                                                           30 June  2020  31 December 2019  30 June 2019  Source                                                                                                                                        
 Covenants (based on rolling 12 months)                                                                                                                                                                                                                                                 
 Adjusted operating profit (1)                                                                £207.6m          £306.1m         £319.0m                                                                                                                                                  
 Add: business exit – trading                                                                 (£9.4m)         (£16.7m)          £4.6m                                                                                                                                                   
 Add: share of earnings in associates                                                         (£0.4m)          (£0.6m)         (£0.6m)    Line information in income statement                                                                                                          
 Deduct: non-controlling interest ('NCI')                                                     (£14.7m)        (£18.1m)        (£10.2m)    Adjusted EBIT attributable to NCI                                                                                                             
 Add back: share-based payment charge                                                          £4.6m            £3.0m           £2.9m                                                                                                                                                   
 Add back: non-current service pension charge                                                  £3.9m            £4.2m           £9.7m                                                                                                                                                   
 Add back: amortisation and impairment on purchased intangibles                                £36.2m          £31.1m          £29.6m                                                                                                                                                   
 Adjusted EBITA                                                                       a1      £227.8m          £309.0m         £355.0m                                                                                                                                                  
 Add: IFRS 16 impact                                                                           £12.6m          £11.7m           £6.4m                                                                                                                                                   
 Adjusted EBITA (including IFRS 16)                                                   a2      £240.4m          £320.7m         £361.4m                                                                                                                                                  
                                                                                                                                                                                                                                                                                        
 Adjusted EBITA                                                                               £227.8m          £309.0m         £355.0m    Line item above                                                                                                                               
 Deduct business exit – trading sold                                                          (£3.4m)            £—m          (£17.8m)    Trading profit for businesses sold                                                                                                            
 Add back: depreciation and impairment on property, plant and equipment                        £72.1m          £75.0m          £65.6m                                                                                                                                                   
 Covenant calculation – adjusted EBITDA                                               b1      £296.5m          £384.0m         £402.8m                                                                                                                                                  
 Add: IFRS 16 impact                                                                          £105.6m          £110.9m         £59.0m                                                                                                                                                   
 Covenant calculation – adjusted EBITDA (including IFRS 16)                           b2      £402.1m          £494.9m         £461.8m                                                                                                                                                  
                                                                                                                                                                                                                                                                                        
 Adjusted interest charge                                                                     (£30.5m)        (£30.5m)        (£41.0m)                                                                                                                                                  
 Interest cost attributable to pensions                                                        £3.7m            £4.4m           £7.1m                                                                                                                                                   
 Cash flow hedges recycled to the income statement                                            (£3.0m)          (£2.6m)         (£4.2m)                                                                                                                                                  
 Borrowing costs                                                                      c1      (£29.8m)        (£28.7m)        (£38.1m)                                                                                                                                                  
 Add: IFRS 16 impact (2)                                                                        £—m              £—m          (£12.3m)                                                                                                                                                  
 Borrowing costs (including IFRS 16)                                                  c2      (£29.8m)        (£28.7m)        (£50.4m)                                                                                                                                                  
                                                                                                                                                                                                                                                                                        
 5.1 Interest cover (US PP covenant)                                                a2/c2       8.1x            11.2x           7.2x      Adjusted EBITA/Borrowing cost including the impact of IFRS 16                                                                                 
 5.2 Interest cover (other financing agreements)                                    a1/c1       7.6x            10.8x           9.3x      Adjusted EBITA/Borrowing costs with both variables excluding IFRS 16                                                                          
                                                                                                                                                                                                                                                                                        
 Net debt                                                                                    £1,096.6m        £1,353.2m       £1,215.1m                                                                                                                                                 
 Restricted cash (3)                                                                           £41.6m          £42.1m          £42.5m     Cash that may not be applied against net debt for covenant calculation purposes                                                               
 Remove IFRS 16 impact                                                                       (£528.7m)        (£562.6m)       (£591.6m)                                                                                                                                                 
 Adjusted net debt (excluding IFRS 16)                                                d1      £609.5m          £832.7m         £666.0m                                                                                                                                                  
                                                                                                                                                                                                                                                                                        
 6.1 Adjusted net debt to post IFRS 16 adjusted EBITDA ratio (US PP covenant)       d1/b2       1.5x            1.7x            1.4x      Adjusted net debt/adjusted EBITDA with adjusted net debt excluding the impact of IFRS 16 and adjusted EBITDA including the impact of IFRS 16  
 6.2 Adjusted net debt to adjusted EBITDA ratio  KPI  (other financing agreements)  d1/b1       2.1x            2.2x            1.7x      Adjusted net debt/adjusted EBITDA with both variables excluding IFRS 16                                                                       

1 Adjusted operating profit excludes items that are separately disclosed and
considered to be outside the underlying operating results for the particular
period under review and against which the Group’s performance is assessed.
Since the comparatives have not been restated adjusted operating profit
continues to exclude IFRS16 for the covenant calculation purpose.

2 A review of the covenant provision was conducted in the second half of 2019
resulting in the impact of IFRS16 no longer being included in borrowing costs.
The June 2019 result has not been restated for this.

3 Restricted cash includes cash required to be held under FCA regulations,
cash held in foreign bank accounts and cash represented by non-controlling
interests and joint ventures.

4 To enable the user of the financial statements to understand the covenant
information submitted to the Group's external lenders, the 31 December 2019
and 30 June 2019 comparatives have not been restated.



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