REG-Capita Plc: Full Year Results 2023
06/03/2024 07:15
Capita plc
Full Year Results 2023
Stable revenue underpinned by strong contract wins, further accelerated
efficiency measures to drive growth and improve cash flow
Capita plc CEO Adolfo Hernandez said:
"Since joining Capita I have spent time with colleagues and met a significant
number of clients and other stakeholders. I have been hugely impressed with
the strength and expertise of our employees, and the breadth and depth of our
services. We have deep relationships across a compelling client list, and we
operate in growing markets where our work matters to the lives of millions of
people every day.
"I am excited about the opportunity for Capita and can already see a range of
areas where we can unlock value. Our 2023 financial results have demonstrated
some progress. However, we have yet to deliver the operational excellence that
will enable us to create the right platform for future growth or achieve our
full potential for the benefit of shareholders. Looking forward, we will focus
on precision in execution, co-creating solutions with clients and accelerating
the use of technology and leveraging our technology partnerships to drive
improvement in our operating and financial performance.
"We need to deliver a rapid reduction in our cost base and are on track to
deliver the net £60m annualised cost savings, from Q1 2024 as announced in
November. Today we are announcing further material efficiency improvements of
£100m to improve our competitive position.
"We have strong foundations and the opportunity for significant growth in the
medium and longer-term. I look forward to sharing more details on Capita’s
future strategy in June."
2023 Financial Results
* Adjusted revenue(1) growth 1.3% to £2.6bn (2022: 1.7% growth)
* Public Service marginal increase of 0.3%, Experience grew by 2.5% benefiting
from one-off commercial settlement in H1
* Adjusted profit before tax(1) £56.5m (2022: £49.8m) up 14%, reflecting
c.£20m profit benefit from commercial settlement in Experience
* Reported loss before tax of £106.6m (2022 profit: £61.4m) reflecting
business exits, cost reduction programme expenses and 2023 cyber incident
costs
* Free cash outflow(1,2), before the impact of business exits, of £115.5m
(2022 outflow: £42.4m), including £30m pension deficit contribution, £20m
cyber incident costs and £20m step up in technology investment
* Net financial debt (pre-IFRS 16)(1): EBITDA ratio 1.2x at 31 December 2023
– proforma 0.9x if sale of Fera completed at year end
Contract wins
* Total contract value won £3,036m (2022: £2,593m) driven by strong
performance in Public Service
* Book to bill ratio 1.1x (2022: 1.0x)
* Contract win rate across all opportunities improved to 62% from 57%.
Material improvement in win rate on new and expanded scopes of work from 32%
to 70%, reduced renewal rate reflecting pricing discipline across all bids
Outlook for 2024
* 2024 revenue expected to be broadly in line with 2023
* Modest improvement in operating margin
* Free cash outflow £70m to £90m after c.£50m cost of delivery of
efficiency programmes
Clear pathway to deliver positive free cash flow in medium term
* Delivery of net £60m from Q1 2024 annualised cost reduction on track
* Triennial funding agreement with Pension Trustees - £30m reduction in
deficit contributions by 2025
* Incremental £100m annualised cost reduction to be delivered over period to
June 2025 – partially reinvested in growth
Financial highlights
Reported results Adjusted(1) results
31 December 2023 31 December 2022 Reported YoY change 31 December 2023 31 December 2022 Adjusted(1) YoY change
Revenue £2,814.6m £3,014.6m (6.6)% £2,642.1m £2,609.0m 1.3%
Operating (loss)/profit £(52.0)m £(79.6)m 35% £106.5m £78.0m 37%
EBITDA £144.5m £235.7m (39)% £214.6m £204.4m 5%
(Loss)/profit before tax £(106.6)m £61.4m n/a £56.5m £49.8m 14%
Basic (loss)/earnings per share (10.60p) 4.47p n/a 1.70p 2.64p (36)%
Operating cash flow* £81.2m £156.4m (48)% £97.4m £128.4m (24)%
Cash generated from operations* £8.7m £117.8m (93)% £41.2m £98.4m (58)%
Free cash flow*(,2) £(154.9)m £(31.5)m (392)% £(115.5)m £(42.4)m (172)%
Net debt £(545.5)m £(482.4)m £(63.1)m £(545.5)m £(482.4)m £(63.1)m
Net financial debt (pre-IFRS 16) £(182.1)m £(84.9)m £(97.2)m £(182.1)m £(84.9)m £(97.2)m
* Adjusted operating cash flow, cash generated from operations and free cash
flow exclude the impact of business exits (refer to note 10).
1. Refer to the alternative performance measures (APMs) in the Appendix.
1. From 1 January 2023 free cash flow and free cash flow excluding business
exits are presented after deducting the capital element of lease payments and
receipts. Comparative amounts have been re-presented.
Investor presentation
A presentation for institutional investors and analysts hosted by Adolfo
Hernandez, CEO and Tim Weller, CFO, will be held at 65 Gresham Street, London
EC2V 7NQ at 09:00am UK time, 6 March 2024. There will also be a live webcast
(link below) which 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 the following day.
Capita will present a strategy update on 13 June. Details will be made
available nearer the time.
Participant webcast:
https://webcast.openbriefing.com/capita-fy23/
For further information:
Capita
Helen Parris, Director of Investor Relations T +44 (0) 7720 169 269
Stephanie Little, Deputy Head of Investor Relations T +44 (0) 7541 622 838
Elizabeth Lee, Group Head of External Communications T +44 (0) 7936 332 957
Capita press office T +44 (0) 2076 542 399
Brunswick
Dan Roberts & Jonathan Glass T + 44 (0) 2074 045 959
LEI no. CMIGEWPLHL4M7ZV0IZ88.
Chief Executive Officer's review
Introduction
I am delighted to have joined Capita in the middle of January 2024. Capita
plays an essential role in underpinning how millions of people's lives operate
– every single day — and I am honoured to have been appointed as the
leader of this business.
Much has been achieved in the transformation of the Group under Jon Lewis's
leadership, with improvements in client satisfaction and contract delivery,
the simplification of the business, with multiple unfocused business units
reduced to two market focused divisions, and significant debt reduction. This
has created a solid foundation to build on. We are now refocusing our
operations and strengthening our execution capabilities, defining our future
strategy and transforming into a more agile, client centric business that will
ultimately deliver profitable cash-backed growth.
Over the last few weeks, I have spent time embedding myself within the
organisation, meeting with stakeholders, the leadership team and colleagues
around the world to better understand the strengths of Capita today and where
there are opportunities to create value in the future.
It is clear that Capita is at an exciting point in its journey with attractive
offerings in many segments, client satisfaction scores we can be proud of and
a very talented and diverse workforce. Capita has a rich client base with
multifaceted and deep relationships. I'm pleased to see that we have high
quality people across the organisation who understand how to deliver complex
services and are passionate and committed to our clients and their needs.
The evolving digital landscape (automation and generative AI) pose both a
challenge and an opportunity that we intend to take advantage of in order to
deliver better, more efficient services to our clients. Through our
partnership with technology hyperscalers we will co-create and innovate
solutions that solve our clients' needs for today and the future.
As we take the company to the next stage of its evolution, we have challenges
we need to tackle. Our immediate focus is to deliver a rapid improvement in
the financial performance of the business and, in particular, to realise our
goal of sustainable positive free cash flow generation.
To win in our marketplace, we must ensure: our cost base is appropriate for
the size of our business; our clients are advocates for Capita; we deliver and
execute with precision; and, importantly, our colleagues throughout the Group
are aligned with our vision, can grow their careers with Capita and are proud
to be part of our organisation.
We need to grow our revenue by acquiring new clients and expanding our
relationships with existing clients. But this revenue growth must generate an
appropriate cash-backed financial return. Key to this is maintaining our
contract bidding discipline and ensuring we execute for our clients with
precision when it comes to delivery. We recognise that we will also need to
curtail some existing activities that do not deliver this objective. To this
end, we are conducting a review of our operations to help us identify these
particular activities and an implementation plan to ensure continuity for our
clients and their customers.
Over the next few months, I will work with the Board, my leadership team and
our colleagues across the organisation to develop a clear roadmap to:
* Define and refine Capita’s formula for winning in its markets;
* Ensure we deliver efficiently and effectively for our clients each and every
time;
* Expand our current services to capture greater economic value from our core
business;
* Identify opportunities where we can work with partners to develop and
deliver technology solutions that will create cost efficiencies and a better
customer experience;
* Enhance productivity through standardisation, replication and better use of
tools and data;
* Rally our leadership team, motivate our colleagues and evolve our culture;
and
* Embrace the changes we need to deliver on our objectives.
I am planning to set out our vision, strategy and associated medium-term
financial and non-financial targets in detail at a Capital Markets Day in June
2024.
The rest of this CEO report summarises what has been achieved across the
business in 2023. I’d like to thank my new colleagues for their hard work,
dedication and professionalism through what has been a challenging year for
many. I am very much looking forward to leading Capita on the next stage of
its journey.
Summary of achievements in 2023
As a Group, we continue to put our clients and their customers first. Our
customer net promoter score (cNPS) remains strong at +16 (+25, excluding the
pensions administration business where a number of clients were impacted by
the cyber incident in March 2023). While this is a ten-point reduction from
2022, it remains a creditable performance bearing in mind the impact of the
cyber incident.
During 2023, we focused on creating a compelling working environment and
meaningful careers for our colleagues across every geography and saw positive
improvements in employee engagement, inclusion and wellbeing scores.
Our financial performance for the year was not where it needed to be. Revenue
growth, profit margins and free cash flow remain behind our peers. We are
committed to delivering a financial performance that enables us to achieve our
goal of delivering sustainable positive free cash flow over the medium term.
Despite significant rationalisation over the past few years, our cost base is
too high. In November 2023, the Group announced that it had launched a
significant cost reduction programme expected to deliver annualised cost
savings of £60m from Q1 2024. We have identified further material efficiency
improvements which are essential to ensuring our competitive position in the
market and during the remainder of 2024 we will be taking steps to realise a
further £100m of annualised cost savings by mid 2025. A proportion of these
further savings will be reinvested in the business to develop the Group's
technology, service delivery and pricing. We expect to provide further detail
about this at our Capital Markets Day in June 2024.
During 2023, the Group significantly extended its funding maturity profile. In
June we extended our revolving credit facility to 2026 and in July we issued
£101.9m of US private placement notes with a mixture of three and five-year
maturities. We finalised our c.£500m Portfolio disposal programme with the
announcement of the sale of Fera in December, a transaction that completed in
January 2024.
The Group’s contract growth momentum across 2023 remained strong. We won
contracts with a total contract value (TCV) of £3,036m, up by £443m from
£2,593m in 2022 and saw a major improvement in the Group’s win rate for new
scopes of work and expansions of existing scopes to 70%, up from 32% in 2022.
Creating better outcomes for all key stakeholders is Capita’s purpose and is
our licence to operate. It underpins everything we do as a business.
Our people
During 2023, we focused on creating a compelling working environment and
meaningful careers for our colleagues across every geography and saw positive
employee engagement, inclusion and wellbeing scores.
In 2023, we saw a major improvement in the Group’s voluntary employee
attrition rate which on a rolling 12-month basis reduced from 30% at the start
of the year to 24% by year end. We implemented specific Group and local
measures to reduce attrition including a Capita-wide induction programme to
improve the employee onboarding process and a global line manager training
programme to ensure consistent induction experiences. At a divisional level,
we increased communications with all employees via newsletters and divisional
town hall events to improve employees’ sense of belonging.
Our hybrid, virtual-first organisation continues to be an important factor in
our ability to attract and retain talent, including in locations where we do
not have a physical office location. In our annual people survey, 88% of
respondents who work from home stated that the flexible working arrangements
are a key motivator for them to stay with Capita.
At the end of 2023, we took the difficult decision to withdraw from the UK’s
real living wage. Since 2020, the Group has increased the salaries of our
lowest earners by 22% and the 2024 real living wage increase of 10.1% was not
something we could commit to given the need for Capita to remain cost
competitive and that this is not a cost we are able to pass on to our clients.
We continue to apply global fair pay principles across all geographies to
ensure we are able to attract and retain the colleagues we need to deliver our
business commitments. In the UK, those paid a real living wage previously will
continue to be paid higher than the national minimum wage.
We have supported colleagues through the cost-of-living challenges which each
of our geographies has faced this year. In our annual salary review at the
start of 2023, we prioritised salary increases to our lower earning colleagues
with our highest earners asked to forgo a pay increase.
Diversity remains a key focus for the Group and at year end we had 40% female
senior leadership (globally) and 14% ethnic diversity. At year end our Board
was 56% female and our Executive Team at year end was 29% female, rising to
44% in early 2024. At year end, our Board and Executive Team were 22% and 14%
ethnically diverse respectively.
In October, Capita was recognised as one of the top companies for women by
Forbes, ranking 18th out of 400 global companies. This is a testament to our
commitment to diversity, inclusion and equality in our workplace.
We continued with our roll out and embedding of the career path framework
(CPF) in 2023, helping employees across every level and geography in the
organisation build a meaningful, long-lasting career with Capita. CPF provides
clarity about the skills and experience required for roles across the
organisation – and ensures salaries are benchmarked to appropriate market
rates.
We are building advocacy in Capita and are focused on ensuring that our people
are proud to work for the organisation. This was evidenced in our annual
people survey, where 84% of respondents said they can be themselves at work,
higher than the global average, while 63% stated they feel proud to work for
Capita, lower than the global average and something we are working to improve.
We continue to support community initiatives to help the most disadvantaged
and vulnerable in society. Globally, colleagues completed almost 21,000 hours
of volunteering, nearly three times the hours completed last year. We were
pleased to retain our status as a gold award employer under the Armed Forces
Covenant.
Cyber incident
In March 2023, a threat actor gained unauthorised access to certain of our
systems which caused disruption to client services in some parts of our
business. We worked closely and at speed with specialist advisers and forensic
experts to investigate and resolve the incident.
Based on the forensic work performed, we confirmed that some data had been
exfiltrated during the incident. Consequently, we took extensive steps in the
immediate period after the incident to recover and secure the exfiltrated
data. We continue to monitor the dark web and can confirm that we have seen no
evidence, subsequent to our recovery activities, that any of the exfiltrated
data is in circulation there or elsewhere in the online environment. As a
precautionary measure, we offered a 12 month subscription to Identity Plus, a
monitoring service provided by UK credit reference agency Experian. Our
investigation is now complete and all affected clients, suppliers and
employees are in the process of being contacted and we continue to support
those whose data was exfiltrated.
As a result of the incident, we incurred net costs of £25m, comprising
specialist professional fees, recovery and remediation costs and investment to
reinforce Capita’s cyber security environment.
We have accelerated our previously planned investment to improve our cyber
security maturity which has improved and is subject to external audit with
reference to the National Institute of Standards and Technology cyber security
framework.
The incident was a challenging experience for the Group, and we have taken
steps to share our experience and learnings transparently with our clients,
suppliers and other companies and plan to continue this good practice in the
future. Since the incident we have continued to see good contract growth
momentum with a 17% increase in TCV secured in 2023.
Growth
The Group’s contract growth momentum across 2023 remained strong. We won
contracts with a TCV of £3,036m, up £443m from £2,593m in 2022. There was a
particularly strong performance in Public Service, where a number of deals
previously scheduled to close in 2022 were delayed into 2023. While a number
of these contracts have now been signed, the delays affected the division’s
revenue growth in 2023.
The book to bill ratio for the Group remains above 1.0x at 1.1x, with 1.3x in
Public Service and 0.9x in Experience. As we look to build our revenue growth,
maintaining this metric above 1.0x is a priority.
We saw a major improvement in the Group’s win rate for new scopes of work
and expansions of existing scopes to 70%, up from 32% in 2022. Significant new
scopes of work in Experience include: the Civil Service Pension Scheme, which
will start in 2025; the City of London Police, which will begin later in 2024;
and the National Transport Authority of Ireland and Santander, which have now
commenced. In Public Service, the Group won material expanded scopes of work
with the Department for Work and Pensions to deliver Functional Assessment
Service (FAS) and the Department for Education delivering Disabled Students
Allowance (DSA).
Despite our strong TCV performance, revenue growth continues to be impacted by
previously announced contract losses, including the Co-operative Bank contract
in Experience and in Local Public Service. Consistent with our drive to ensure
all contracts are bid at an appropriate margin, we saw a reduction in the
Group's contract renewal rate to 52% from 96% in 2022. This decrease reflected
the loss of the administration of the Teachers’ Pension Scheme contract in
Experience and the Electronic Monitoring Service and Standards and Testing
Agency (STA) contracts in Public Service, all of which were lost on price and
which will have a dampening impact on revenue growth. Material renewals
secured in 2023 include Virgin Media O2 and the extension of the Recruiting
Partnering Project (RPP) contract with the British Army.
Reflecting the strong TCV performance across 2023 and increased rigour across
the qualification process, the unweighted pipeline for 2024 is at a lower
level than at the start of 2023, with a total unweighted pipeline of
£10,381m. Material contracts within the pipeline include opportunities with
the Department for Work and Pensions, the Ministry of Defence, and a number of
contracts within our International Markets in Experience.
In February 2024, Experience secured an extension and expansion with an
existing client in the European telecoms business worth £220m.
At 31 December 2023, the Group’s order book was £5,883m, an increase of
£77m from 31 December 2022 with £2,417m order book additions, indexation
and scope changes, offset by £2,101m revenue recognised and a £239m
reduction from business disposals and contract terminations.
Operational delivery
Throughout 2023, we continued to maintain our focus on operational delivery
for clients. By striving to deliver well for our clients and getting it right
first time, we should reduce excess cost and avoid financial penalties. While
we have made progress in this area, there is still work to do. We will be
building on what has been achieved to date through strengthening and
standardising our operational processes.
Our cNPS remains strong at +16 (+25, excluding the pensions administration
business where a number of clients were impacted by the cyber incident in
March).
Within the cNPS survey, our promoters spoke highly of our employees, citing
the knowledge and relationships with the teams they work with at Capita and
the quality of services delivered. However, we also received feedback from
some clients around project delay and delivery issues and comments suggesting
that certain teams could be more agile in service delivery. We will focus on
improving in these areas in 2024, in line with our goal of ensuring we deliver
efficiently and effectively for our clients each and every time.
Our KPI performance across 2023 remained above 90% in both divisions. Where
KPI performance was not met at any point over the year, for example in respect
of the particularly challenging 99.7% of exam scripts marked and returned in
our contract for the STA, and recruitment targets in the RPP we are
implementing specific remediation action to ensure we meet the high standards
Capita expects to deliver.
Notable achievements across the contract portfolio in 2023, included:
* Within Public Service, on our Royal Navy training contract, we met our final
milestones as set out in the original contract, concluding the transition of
multiple legacy contracts.
* On the Job Entry Target Support contract in Scotland, we completed more than
200% of the targeted number of job starts across the contract period.
* Within the Experience division, on our Virgin Media O2 contract, we
significantly increased the size of our offshore delivery team, with 1,000
full-time employees added, providing additional optionality to the client to
service customers with digital enablement.
* Within the Energy & Utilities vertical of Experience, we successfully
delivered a significant step-up in available hours around peak demand in Q4 to
ensure efficient outcomes for clients and their customers.
As we move into 2024, we are focused on delivering the complex transition and
mobilisation requirements of our new contracts with the City of London Police,
DSA and National Transport Authority Ireland.
Consistently delivering for our clients is the cornerstone of our success.
Effective, efficient client delivery and getting it right first time, reduce
excess cost and allow us to grow revenue.
Digital transformation and artificial intelligence
We are taking a measured approach to artificial intelligence (AI) and
generative AI (gen AI), working with our clients and partners to deliver
effective and efficient solutions as the technology continues to evolve. We
expect that gen AI will allow us to be more productive and offer our clients
superior solutions.
We plan to turbo charge our relationships with a number of trusted hyperscale
partners, including Microsoft, AWS, Salesforce and ServiceNow. We also plan to
partner to develop and deliver solutions across a wider span, creating a more
digital Capita, delivering an efficient and higher quality service and
experience for our clients and their customers.
We have already integrated digital and AI solutions into a range of clients.
For example in the Public Service division, we have utilised a new Metaverse
virtual reality tool for submarine qualification training within the Royal
Navy. This modernised solution improves the learning experience and enables
better trained submariners to be on the front line faster.
Within the Experience division, AI and gen AI will augment our agents, upskill
our people, provide critical information quickly, and enable our people to be
more competent and capable, which will in turn deliver better customer
experiences. AI has been implemented in the division across a number of
contracts in four key capability areas: chatbot/conversation AI; conversation
analysis; data observatory and analytics; and correspondence digitisation.
We are continuing to develop further AI and gen AI pilots across both
divisions, for example on our BBC and Transport for London contracts.
Cost efficiency
In November 2023, the Group announced it had commenced employee redundancy
programmes expected to deliver an annualised £60m of cost savings from Q1
2024. The organisational changes that we have implemented primarily affected
around 900 indirect support function and overhead roles.
We have identified further material efficiency improvements which are
essential to ensuring our competitive position in the market and during the
remainder of 2024 we will be taking steps to realise a further £100m of
annualised cost savings by mid 2025, which will be partially reinvested in
growth. We expect to provide further detail on this at our Capital Markets Day
in June 2024.
Our property footprint continues to reduce as we benefit from our virtual
first working model. We are targeting savings by managing capacity around
demand for office spaces across our geographies. We permanently closed 19
properties and consolidated a further 14 during 2023. This year we reduced the
square footage of our total property portfolio by a further 9%.
The total footprint of the Group’s property portfolio has now reduced by 31%
in the last three years. The IFRS 16 lease liability associated with our
property portfolio reduced by £30m across 2023, reflecting the continued
reduction in our leased property estate.
Financial results - revenue and results before tax
Adjusted revenue(1) growth for the year was 1.3% with adjusted revenue(1) of
£2,642.1m (2022: £2,609.0m). This reflects underlying growth in contracts
such as Personal Independence Payments, benefit from indexation and a
commercial settlement in the closed book Life & Pensions business in
Experience. This was partially offset by contract losses including the
Co-operative Bank in Experience and in our Local Public Service business in
the Public Service division.
Reported revenue declined by 7% to £2,814.6m as core business growth was more
than offset by the disposal of non-core businesses.
Adjusted profit before tax(1) improved by £6.7m to £56.5m (2022: £49.8m).
Profit benefited from revenue growth, in particular the commercial settlement
in Experience noted above and a reduction in bonuses and variable pay, offset
by increased financing costs.
The reported loss before tax was £106.6m as a result of the £38.8m loss
incurred on business exits during the year, the goodwill impairment of £42.2m
(recognised in respect of businesses in the Portfolio disposal programme), the
expense associated with the Group’s cost reduction programme with £23.3m
incurred in respect of employee consultation programmes and £31.1m of
associated property related charges, and £25.3m of cost incurred in respect
of the March 2023 cyber incident.
Financial results - free cash flow and net debt
The free cash outflow before the impact of business exits(1,2) was £115.5m
(2022 outflow: £42.4m). The 2023 outflow was driven by an increased working
capital outflow, principally reflecting a reduction in the in-period usage of
the Group’s non-recourse invoice discounting facility and the non-cash
nature of the commercial settlement in Experience. There were additional
outflows reflecting the cash cost of the cyber incident and the expected
increase in capital expenditure on technology investment across the Group.
The free cash outflow(1,2) for the Group was £154.9m (2022 outflow: £31.5m),
reflecting the in-year cash impact of businesses exited or being exited of
£23.1m and £16.3m of pension deficit contributions triggered by disposals.
We have now completed our c.£500m Portfolio non-core business disposal
programme. In 2023 we completed the disposal of our People, Software, Business
Solutions and Travel pillars realising net proceeds of £63.4m in the year. In
December 2023, we announced the sale of Fera, our joint venture with DEFRA
which completed in January 2024, realising gross proceeds of £62m (£51m net
proceeds, after cash held by Fera at completion and disposal costs).
Net financial debt (pre-IFRS 16) was £182.1m (2022: £84.9m) reflecting the
free cash outflow which more than offset the net proceeds realised on
disposals. Proforma net financial debt (pre-IFRS 16) including the Fera net
cash proceeds at 31 December 2023 would have been £132.0m, resulting in a
year-end leverage of 0.9x(1) had the sale been completed in 2023.
Net debt, including the impact of property leases accounted for under IFRS 16
was £545.5m in 2023 (2022: £482.4m), reflecting the free cash outflow across
the year. Our IFRS 16 lease liability has reduced to £363.4m from £397.5m,
as we continue to optimise our property footprint.
We significantly extended our funding maturity profile in 2023 through the
extension of the Group's revolving credit facility to 2026 and issuance of
£101.9m equivalent of US private placement notes with a mixture of three and
five-year maturities.
Outlook
Capita has a significant impact on the lives of citizens and we understand the
importance of our impact on society. While we still have work to do to
complete the turnaround of the Group, we have made good progress over the last
few years and are committed to improving our operations across the board in
2024 and beyond.
We will develop our offerings and drive operating efficiency by leveraging
technology and through the cost reduction programmes being implemented in
2024. Through rigorous project management we will be focused on delivering
complex client requirements on time and budget.
For 2024, as a whole, on an adjusted basis, we currently expect that revenue
will be broadly in line with 2023, and that operating profit margin and free
cash flow will show modest improvement year on year.
We expect the Public Service division to deliver revenue growth in 2024
reflecting the significant contracts won in 2023 moving into their operational
phase later this year whereas we expect the Experience division to show a
reduction in revenue reflecting the non-recurrence of 2023’s closed book
Life & Pensions commercial settlement coupled with ongoing revenue attrition
in the rest of the Life & Pensions business.
Notwithstanding our revenue expectations, the cost reduction programmes being
implemented in 2024 are expected to result in a modest improvement in adjusted
operating profit margins and free cash flow, albeit in the latter case, the
cash flow benefit in the year will be reduced as a result of the redundancy
and other costs required to deliver the cost reduction programmes.
We will be setting out our vision, strategy and associated medium-term targets
in detail at a Capital Markets Day in June 2024.
1. Refer to alternative performance measures (APMs) in the Appendix.
1. From 1 January 2023 free cash flow and free cash flow excluding business
exits are presented after deducting the capital element of lease payments and
receipts. Comparative amounts have been re-presented.
Divisional performance review
The following divisional financial performance is presented on an adjusted(1)
basis. The calculation of adjusted figures and our KPIs are contained in the
APMs in the Appendix to this statement.
Public Service
Public Service is the number one strategic supplier of Software and IT
Services (SITS)(2) and business process services (BPS)(2) to the UK
Government.
Markets and growth drivers
In 2024, the division changed its structure to focus on three market
verticals: Local Public Service; Central Government; and Defence, Fire,
Security & Learning with these market verticals delivering to their respective
client groups.
Our current core addressable SITS market is c.£15bn(2), growing at
approximately 4%(2) per annum. Digital BPS is a fast-growing area, while
traditional business process outsourcing (BPO) is currently shrinking,
reflecting the UK Government’s focus on digital enablement, as it looks to
ensure the delivery of high-quality, cost-effective services to its citizens.
In 2022, the UK Government published the Roadmap for Digital and Data
outlining its intention to spend up to an additional £8bn by 2025 to
accelerate digital, data and technology transformation so that it can better
respond to future macroeconomic challenges.
Public Service operates within a highly fragmented market. Across the varied
services that it delivers we operate against a number of other providers
including, but not limited to: Atos, G4S, Sopra Steria, CGI, TCS, Serco,
Accenture and Maximus.
Strategy and digital transformation
Public Service is seen as a trusted delivery partner by its clients, with a
high-quality offering and deep sector process knowledge in our chosen market
verticals.
The division is focused on working with trusted technology partners such as
Microsoft and AWS to harness digital ways of working and accelerate the
transformation of our services, leveraging AI alongside the skills and
capabilities of our people. We develop solutions around client needs and are
progressing a number of digital proof of concepts where we’ve aligned
digital transformation to future growth opportunities.
We have continued to simplify our operating model, removing organisational
layers to improve efficiency and effectiveness across the division. We
launched a second client advisory board in the Central Government sector, in
addition to the previously established Defence client advisory board, to
improve our understanding of Government bid processes and delivery priorities
to help us become an even more effective service provider.
We continue to invest in our coverage on Government frameworks, through which
companies are able to bid for Government contracts. We are included on a wide
range of frameworks representing market access of up to £9.5bn including
frameworks with the Crown Commercial Service, the Department for Work and
Pensions and the NHS.
Looking forward, there is a significant growth opportunity to be the partner
of choice – to drive efficiency, where the UK Government requires more
cost-effective and efficient delivery solutions as the Public Sector invests
more widely in digital, data and technology transformation.
Growth performance and key wins
Public Service won contracts with a TCV of £1,924m in 2023 (2022: £1,223m),
a year-on-year increase of 57%. The TCV performance was in part driven by a
small number of material contracts where award dates moved from 2022 into
2023, following a number of changes within the UK Government in 2022. The book
to bill ratio for the year was 1.3x.
At 31 December 2023, the total unweighted pipeline for the division was
£7,525m, a decrease of £333m from 2022 reflecting the anomalously high
balance at the end of 2022 resulting from the award slippages noted above. The
year end weighted pipeline was £1,266m (2022: £1,652m).
The division saw an improved win rate on new and expanded scopes at 78% from
53% in 2022. New scopes of work include City of London Police and expansions
include those with the Department for Work and Pensions to deliver Functional
Assessment Service (FAS) and the Disabled Students Allowance (DSA) contract
for the Department for Education.
The renewal rate for the division reduced to 41% in the year from 91%,
principally reflecting the loss of the Electronic Monitoring and Standards and
Testing Agency contracts as the division maintained its pricing discipline.
Material renewals in the year included with the British Army on the Recruiting
Partnering Project. Across all opportunities bid for, the win rate was 65%
(2022: 66%).
The order book at 31 December was £3,546m, an increase of £561m since
31 December 2022, reflecting the strong TCV performance in the year.
Operational excellence and cost efficiency
The division’s operational delivery across the year has been good, with an
average in-month KPI performance of 94%. The division’s standalone cNPS
decreased six points to an overall score of +27, which remains competitive.
Operational highlights across the year included:
* Delivery of the remaining service commencement dates on the Royal Navy
training contract. We have now delivered all milestones under the original
contract and continue to expand our scope on this contract;
* Completion of more than 200% of the targeted number of job starts across the
contract period on the Job Entry Target Support contract in Scotland;
* Supporting major events in London, including the King’s coronation, the
London Marathon and London Pride, as part of our Transport for London
contract; and
* In our Electranet business, over 1,000 projects were delivered across 2023,
including defence secure Wi-Fi infrastructure across 130 military sites.
Our consistent delivery performance continues to drive expansions of existing
scopes with clients such as with the Department for Work and Pensions,
Transport for London and the Royal Navy.
Financial performance
Divisional financial summary 2023 2022 % change
Adjusted revenue(1) (£m) 1,458.6 1,454.8 0.3%
Adjusted operating profit(1) (£m) 89.3 93.7 (4.7)%
Adjusted operating margin(1) (%) 6.1% 6.4%
Adjusted EBITDA(1) (£m) 133.3 131.9 1.1%
Operating cash flow excluding business exits(1) (£m) 107.1 102.3 4.7%
Order book (£m) 3,546.0 2,985.0 18.8%
Total contract value secured (£m) 1,923.8 1,222.5 57.4%
Adjusted revenue(1 )at £1,458.6m, was marginally up on 2022 reflecting price
indexation across the contract portfolio, growth on the Royal Navy training
contract and additional volumes on the Personal Independence Payments contract
offset by contract losses and hand-backs in Local Public Services, with this
vertical 14% down year on year.
Adjusted operating profit(1) decreased by 4.7% to £89.3m reflecting contract
losses in Local Public Service offset by the flow through of revenue growth
across the wider contract portfolio as noted above.
Operating cash flow excluding business exits(1) increased by 4.7% to £107.1m
reflecting the contract performance noted above and tight working capital
management.
Outlook
Reflecting the strong TCV performance in 2023, we expect low to mid-single
digit percentage revenue growth in 2024, as the division begins delivery of
the FAS and DSA contracts. This growth is despite the continued revenue
reductions in Local Public Service from previously announced contract losses.
We expect improvements in margin performance in 2024 and the medium term, as
the division captures greater economic value from its business through
economies of scale from revenue growth, curtailing low margin work and our
ongoing efficiency programmes.
1. Refer to alternative performance measures (APMs) in the Appendix.
1. TechMarketView.
Experience
Experience is one of Europe’s leading customer experience businesses. It is
the market leader in the UK(2) and ranks fourth in Germany(2) and Europe(2).
Markets and growth drivers
The division is structured around four market sectors: Financial Services;
Telecoms, Media & Technology; Energy & Utilities; and Retail (including
charities). We have strong industry expertise and presence, with clients in
the UK, Ireland, Germany and Switzerland, and services delivered across these
geographies and in India, South Africa, Poland and Bulgaria. We operate in
markets where we have a strong track record and where we see potential for
growth.
The European customer experience market is worth $33bn a year(2 )and the
market is expected to grow at approximately 4% per annum(2). The outsourced
element of the global customer experience market represents around 30% of the
overall market(2).
We are the largest provider of customer experience services in the UK and
Ireland, with a market share of around 13%. Our competitors are mostly global
and include entities such as Teleperformance, Concentrix & Webhelp, Tata
Consulting Services and Foundever.
The customer experience market is trending to self-service with increasing
levels of automation for less complex services. Increasingly clients are
looking to use omnichannel offerings in a number of languages with agents
working in onshore, nearshore and offshore locations.
Strategy and digital transformation
The Experience division is a customer experience business driven by data and
technology powered by people, delivering services through a client centric
environment. We operate as a leading regional player with global quality
standards, and an ambition to become the partner of choice for companies in
our chosen geographies.
The division’s core activity is the provision of cost-effective customer
experience contact centres, delivering services including voice and non voice;
end-to-end customer management; collections; and sales and retention. Our
services are supported by a wide range of capabilities, including
conversational AI and real time feedback and automation to ensure customers
get the best outcomes, efficiently. We equip and empower our colleagues across
all our geographies to deliver to the highest level of service for our clients
and their customers.
Within the customer experience market, as technology plays a bigger role in
delivery, we have seen an increase in volumes through our automated delivery
methods such as chat bots. We are leveraging technology to enhance the
effectiveness and efficiency of our customer facing colleagues, particularly
for complex customer experience activities such as sales as a service.
We operate in a number of geographies which offer service delivery optionality
to suit client needs. In 2023, we expanded our capability in South Africa,
India and Poland, which together enable us to offer flexible 24/7 delivery to
our clients, across their chosen delivery methods. We also expanded our
Bulgarian operations, particularly in support of the Telecoms, Media &
Technology vertical. In 2024, we will further expand our operations in
Bulgaria and Poland opening additional offices in both geographies, expanding
our multilingual capabilities and offerings to clients.
We are exploring opportunities in other nearshore international locations to
underpin our growth ambitions and expansion of our existing client base. This
allows flexibility to use onshore, nearshore or offshore delivery models when
it comes to delivering our clients' service requirements.
Growth performance and key wins
In 2023, the division won TCV of £1,112m, a decrease of £258m from 2022. The
division's book to bill ratio was 0.9x. Material wins in the year included
contracts for the Civil Service Pension Scheme, National Transport Authority
Ireland, and Santander, as well as a key renewal with Virgin Media O2.
At 31 December 2023, the division’s unweighted pipeline was £2,856m, a
decrease of £1,226m from 2022. The weighted pipeline at 31 December 2023
stood at £560m (2022: £1,114m) and, following the sales success achieved in
2023, we are devoting significant resources to growing our pipeline of
opportunities, particularly for new and expanded scopes of work.
The renewal win rate reduced to 61% from 99% in the prior year principally
reflecting the outcome of the Teachers’ Pension Scheme contract tender
process where we continued to maintain our commercial discipline. Our win rate
for the division across all opportunities was 57%, up from 51% in 2022.
At the start of 2024, the division secured an extension and expansion with an
existing client in the European telecoms business worth £220m.
The order book at year end was £2,299m, a decrease of £227m since
31 December 2022, reflecting the fact that the Virgin Media O2 contract is a
framework agreement not meeting the accounting criteria for order book
recognition.
Operational excellence and cost efficiency
Across the year, Experience has continued to deliver well operationally for
clients with an average KPI delivery of 94%, excluding the pensions
administration business. The average KPI delivery including the pensions
administration business was 82%. The division’s cNPS decreased by 11 points
to +10 with the reduction largely in the pensions administration business
which was heavily impacted by the cyber incident. Excluding the pensions
administration business, the division’s cNPS was +24, a three-point
reduction from 2022, with a strong performance in account management and
subject matter expertise.
In 2023, we focused on cost efficiency and right sizing of the business and
are continuing to drive this efficiency programme as we progress into 2024.
In the Telecoms, Media & Technology vertical, we saw success in the year
selling the services of our customers through peak sales periods. For one
client, Capita employees sold more during Black Friday trading promotions than
the telecoms provider’s own employees. Within the Energy & Utilities
vertical, we successfully delivered a significant step up in available hours
around peak demand in Q4 to ensure efficient outcomes for clients and their
customers.
Elsewhere, in the European Telecoms business we were selected as sole provider
of one of our key client’s customer experience activities reflecting our
consistently strong operational delivery.
As expected, we have seen volume attrition within our closed book Life &
Pensions business in the Financial Services vertical. We maintain our strong
operational delivery in respect of these closed book contracts, but are
actively engaged in discussions to resolve the challenges in this area with a
view to mitigating the ongoing cash cost from the business.
Financial performance
Divisional financial summary 2023 2022 % change
Adjusted revenue(1) (£m) 1,183.5 1,154.2 2.5%
Adjusted operating profit(1) (£m) 50.9 35.7 42.6%
Adjusted operating margin(1) (%) 4.3% 3.1%
Adjusted EBITDA(1) (£m) 111.3 109.9 1.3%
Operating cash flow excluding business exits(1) (£m) 32.7 36.1 (9.4)%
Order book (£m) 2,299.4 2,526.7 (9.0)%
Total contract value secured (£m) 1,112.3 1,370.6 (18.8)%
Adjusted revenue(1) grew by 2.5% to £1,183.5m, benefiting from the one-off
effect of a commercial settlement in our closed book Life & Pensions business.
There were wins within the division’s international markets which offset
contract losses and volume attrition in the Financial Services vertical,
including the previously announced loss of our contract with the Co-operative
Bank.
Adjusted operating profit(1) rose to £50.9m (2022: £35.7m). The division
benefited from the profit impact of the commercial settlement noted above and
higher interest receipts in the pensions business, which more than offset
contract losses and continued attrition in the remaining closed book Life &
Pensions business.
Operating cash flow excluding business exits(1) decreased by 9.4% to £32.7m,
reflecting the non-cash nature of the commercial settlement, partially offset
by timing of payments on the Virgin Media O2 contract.
Outlook
We expect a low to mid-single digit percentage revenue reduction in 2024
reflecting the non-repeat of the one-off revenue benefit in 2023 and ongoing
attrition in the closed book Life & Pensions business.
We expect operating margins in 2024 to be broadly flat year on year as cost
efficiencies offset the non-recurrence of the profit benefit from 2023’s
commercial settlement.
1. Refer to alternative performance measures (APMs) in the Appendix.
1. NelsonHall.
Chief Financial Officer's review
This preliminary announcement is extracted from Capita's financial statements
for the year ended 31 December 2023 and the basis of its preparation can be
found in the notes to the financial statements in this announcement.
Overview
Adjusted revenue(1) growth of 1.3% reflected underlying growth on contracts
such as the Personal Independence Payments contract in Public Service,
increases in indexation, and the one-off benefit relating to a commercial
settlement in the closed book Life & Pensions business in Experience, partly
offset by the impact of a number of contract losses.
Public Service revenue growth was underpinned by indexation, scope increases
on the Royal Navy Training contract and increased volumes on the Personal
Independence Payments contract, offset by contract hand-backs and losses in
Local Public Services and a step down in revenues in Northern Ireland, which
in 2022 benefited from the teachers' laptop contract. Experience revenue
growth was driven by improved trading in its international business,
indexation and the one-off benefit relating to a commercial settlement in the
closed book Life & Pensions business, partly offset by contract losses
including with the Co-operative Bank.
The 13.5% step-up in adjusted profit before tax(1) reflected the revenue
trends noted above, in particular the commercial settlement in Experience, and
a reduction in bonuses and variable pay, offset by increased financing costs.
Adjusted basic earnings per share(1) reduced to 1.70p (2022: 2.64p) as the
increase in adjusted profit before tax(1) was offset by an increase in the
adjusted current tax charge to £30.4m (2022: £6.4m). The adjusted current
tax charge in 2023 reflects an £18.1m charge mainly in respect of losses not
recognised for tax purposes which is shown in the income statement. There is
an offsetting current tax credit arising on pension deficit contributions
which is recognised in other comprehensive income rather than the income
statement. While the adjusted earnings per share are impacted by a
particularly high effective tax rate in 2023’s income statement, the
underlying rate of cash tax for the Group is much lower and we anticipate cash
tax payments in 2024 of less than £10m.
The reported loss before tax of £106.6m (2022: profit £61.4m), reflects
exceptional costs incurred in resolving the March 2023 cyber incident
(£25.3m), costs incurred to deliver the significant cost reduction programme
announced in November 2023 (£54.4m) and lower gains on the sale of businesses
(2023: loss £2.4m; 2022: gain £166.9m). These negative year-on-year impacts
were partially offset by the increase in adjusted profit before tax(1)
(£6.7m) and lower goodwill impairment (2023: £42.2m; 2022: £169.0m).
The reduction from reported basic earnings per share to a reported loss per
share reflects the reduction in reported profit before tax noted above,
compounded by the swing from a reported income tax credit to an income tax
charge. The reported income tax charge in 2023 reflects changes in the
accounting estimate of recognised deferred tax assets, unrecognised current
year tax losses and non-deductible goodwill impairment. The reported tax
credit in the prior period reflected an increase in the recognised deferred
tax asset.
Cash generated from operations excluding business exits(1) decreased, as
expected, from £98.4m to £41.2m, driven by the cash costs of the cyber
incident and higher working capital outflows partly offset by reduced outflows
in respect of provisions.
Free cash flow excluding business exits(1,2) in the year ended 31 December
2023 was an outflow of £115.5m (2022: outflow £42.4m). This reflects the
reduction in cash generated from operations and increased capital expenditure
from technology investment across the Group.
The decrease in free cash flow(1,2) reflects the above reduction in free cash
flow excluding business exits(1,2), a cash outflow from business exits, and an
increase in pension deficit contributions triggered by disposals.
As part of our drive for simplification of the business, and strengthening the
balance sheet, we have continued to dispose of non-core businesses. During
2023 we completed the disposal of the Resourcing, Security Watchdog, PageOne,
Enforcement, Software, and Travel businesses, realising total proceeds net of
disposal costs of £96.8m (including settlement of intercompany balances on
completion) with net cash proceeds of £63.4m reflecting the cash held in the
disposed entities on completion. On 4 December 2023, we announced the disposal
of the Group’s 75% shareholding in Fera Science Limited (Fera), realising
gross proceeds of £62m. The Group received net cash proceeds of £51m
reflecting the total proceeds less cash held in the entity when the disposal
completed on 17 January 2024, and disposal costs.
These disposals completed the Board-approved Portfolio c.£500m business
disposal programme. The Group is using the proceeds from this disposal
programme to repay debt, to make further deficit reduction contributions to
the Group’s defined benefit pension scheme and to invest in driving growth
in the remaining core businesses. In 2023, we repaid £112.5m of private
placement loan notes and made pension deficit contributions of £46.3m
(£30.0m regular contributions and £16.3m acceleration of agreed
contributions triggered by disposals).
We have incurred costs associated with the cyber incident detailed in the
Chief Executive Officer’s Review. These costs comprise specialist
professional fees, recovery and remediation costs and acceleration of
investment to reinforce Capita’s cyber security environment. A charge of
£25.3m has been recognised in the year ended 31 December 2023 and has been
excluded from adjusted profit. This excludes any potential insurance recovery
as this had not yet met the criteria for recognition at the year end. The cash
outflow in respect of the cyber incident in the year was £20.1m which is
included within free cash flow and cash generated from operations excluding
business exits(1).
We announced the implementation of a cost reduction programme in November 2023
which is expected to deliver annualised efficiencies of £60m from Q1 2024.
Following the announcement, we commenced employee consultation programmes, and
exited a number of leased properties. As a result, a charge of £54.4m has
been recognised in the year ended 31 December 2023. As noted in November
2023, we have continued to evaluate additional cost saving opportunities and
have identified further efficiency actions which we intend to take and which
are expected to deliver an additional £100m of annualised cost savings by mid
2025. We expect to reinvest a proportion of these further savings back into
the business to enhance the Group’s technology, service delivery and pricing
proposition.
The Group’s committed bank facilities provide liquidity for the cash
fluctuations of the business cycle and an allowance for contingencies. In June
2023, the Group’s revolving credit facility (RCF) was extended to
31 December 2026 at £284m, reducing to £250m by 1 January 2025 as a
consequence of specified transactions. As such at 31 December 2023 the RCF
commitment had been reduced to £260.7m (2022: £288.4m) and was subsequently
reduced to £250.0m on 23 January 2024 following receipt of proceeds from the
Fera disposal. The RCF was not drawn upon at 31 December 2023 (2022:
undrawn).
In July 2023 the Group issued £101.9m equivalent of US private placement loan
notes across three tranches: £50m maturing 25 July 2026, USD45m maturing
25 July 2026 and USD23m maturing 25 July 2028.
The RCF extension and private placement loan note issuance are a demonstration
of debt providers' confidence in Capita and have enabled us to extend
significantly the average maturity of our debt funding.
The Group reached agreement with the Trustees of the Group’s main pension
scheme (the Scheme), in respect of the March 2023 triennial funding review.
Given the healthy funding position of the Scheme, the 2023 agreement does not
require any further deficit contributions from the Group other than those
already committed as part of the 2020 triennial valuation. In accordance with
the 2020 agreement, we have paid £30.0m of regular deficit contributions and
£16.3m of contributions triggered by business disposals in 2023 and will pay
a further £21m of contributions in 2024, with no further deficit
contributions in 2025 and beyond.
Summary of financial performance
Financial highlights
Reported results Adjusted(1) results
31 December 2023 31 December 2022 Reported YoY change 31 December 2023 31 December 2022 Adjusted(1 )YoY change
Revenue £2,814.6m £3,014.6m (6.6)% £2,642.1m £2,609.0m 1.3%
Operating (loss)/profit £(52.0)m £(79.6)m 35% £106.5m £78.0m 37%
EBITDA £144.5m £235.7m (39)% £214.6m £204.4m 5%
(Loss)/profit before tax £(106.6)m £61.4m n/a £56.5m £49.8m 14%
Basic (loss)/earnings per share (10.60p) 4.47p n/a 1.70p 2.64p (36)%
Operating cash flow* £81.2m £156.4m (48)% £97.4m £128.4m (24)%
Cash generated from operations* £8.7m £117.8m (93)% £41.2m £98.4m (58)%
Free cash flow*(,2) £(154.9)m £(31.5)m (392)% £(115.5)m £(42.4)m (172)%
Net debt £(545.5)m £(482.4)m £(63.1)m £(545.5)m £(482.4)m £(63.1)m
Net financial debt (pre-IFRS 16) £(182.1)m £(84.9)m £(97.2)m £(182.1)m £(84.9)m £(97.2)m
* Adjusted operating cash flow, cash generated from operations and free cash
flow exclude the impact of business exits (refer to note 9).
Adjusted results
Capita reports results on an adjusted basis to aid understanding of business
performance. The Board has adopted a policy of disclosing separately 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 internally. In the directors’ judgement, these items need to be
disclosed separately by virtue of their nature, size and/or incidence for
users of the financial statements to obtain an understanding of the financial
information and the underlying in-period performance of the business. In
general, the Board believes that alternative performance measures (APMs) are
useful for investors because they provide further clarity and transparency of
the Group’s financial performance and are closely monitored by management to
evaluate the Group’s operating performance to facilitate financial,
strategic and operating decisions.
Following feedback from investors, the Board has revised its definition of
free cash flow(1) and free cash flow excluding business exits(1) alternative
performance measures. From 1 January 2023, both these metrics have been
presented after deducting the capital element of lease payments and receipts,
as this provides a more relevant and comparable measure of the cash generated
by the Group’s operations and available to fund operations, capital
expenditure, non-lease debt obligations, and potential dividends. Comparative
amounts have been re-presented.
In accordance with the above policy, the trading results of business exits,
along with the non-trading expenses (including the income statement charges in
respect of major cost reduction programmes) and gain or loss on disposals,
have been excluded from adjusted results. To enable a like-for-like comparison
of adjusted results, the 2022 comparatives have been re-presented to exclude
2023 business exits. As at 31 December 2023, the following businesses met
this threshold and were classified as business exits and therefore excluded
from adjusted results in both 2023 and 2022: AMT Sybex, Secure Solutions and
Services, the Speciality Insurance business, Trustmarque, Real Estate and
Infrastructure Consultancy, Optima Legal Services, Pay360, Capita Translation
and Interpreting, Resourcing, Security Watchdog, PageOne, Software,
Enforcement, Travel and Fera.
Reconciliations between adjusted and reported operating profit, profit before
tax and free cash flow before business exits are provided on the following
pages and in the notes to the financial statements.
Adjusted revenue
Adjusted revenue(1) bridge by division Public Service £m Experience £m Total £m
Year ended 31 December 2022 1,454.8 1,154.2 2,609.0
Net growth 3.8 29.3 33.1
Year ended 31 December 2023 1,458.6 1,183.5 2,642.1
Adjusted revenue(1) growth was 1.3% year-on-year. The adjusted revenue(1) was
impacted by the following:
* Public Service (0.3% growth): growth was underpinned by indexation, scope
increases and improved trading on a number of contracts including the Royal
Navy Training contract and the Personal Independence Payments contract. This
was offset by contract hand-backs and losses in Local Public Services and
non-recurrence of the contract to provide laptops to teachers in Northern
Ireland in 2022; and
* Experience (2.5% growth): growth was driven by improved international
trading, indexation, and the one-off benefit relating to a commercial
settlement in the closed book Life & Pensions business, partly offset by
contract losses, primarily the loss of the Co-operative Bank contract.
Order book
The Group’s consolidated order book was £5,882.6m at 31 December 2023
(2022: £5,805.2m). Additions from contract wins, scope changes and indexation
in 2023 totalled £2,417.5m. This includes in Experience new wins with the
Civil Service Pension Scheme and the National Transport Authority of Ireland,
as well as the renewal with Vattenfall. Public Service won new contracts
including the Functional Assessment Service for the Department of Work and
Pensions and a significant contract with the City of London Police, as well as
an extension to the Recruiting Partnering Project with the British Army and
expanded scope on the Transport for London contract. These additions were
offset by the reduction from revenue recognised in the year (£2,101.0m),
contract terminations (£174.7m) and business disposals (£64.4m).
The Group’s order book does not include those contracts which are framework
agreements such as the new Virgin Media O2 contract as these do not meet the
accounting criteria for order book recognition.
Adjusted profit before tax
Adjusted profit before tax(1) bridge by division Public Service £m Experience £m Capita plc £m Total £m
Year ended 31 December 2022 93.7 35.7 (79.6) 49.8
Net growth/(reduction) (4.4) 15.2 (4.1) 6.7
Year ended 31 December 2023 89.3 50.9 (83.7) 56.5
Adjusted profit before tax(1) increased in 2023. The adjusted profit before
tax(1) was driven by the following:
* Public Service: the beneficial impact of the scope increases and improved
trading on a number of contracts discussed above, offset by the impact of
contract exits in Local Public Service;
* Experience: the flow through of the revenue benefits noted above, in
particular the closed book Life & Pensions contract settlement, as well as
higher interest receipts in our pension business, partly offset by flow
through of prior year contract losses in particular the Co-operative Bank and
continued attrition in the remaining Life & Pensions business; and
* Capita plc: the impact of the reallocation of central costs previously
allocated to Capita Portfolio to Capita plc in 2022, increased financing cost
and the non-recurrence of gains on investments in 2022.
Adjusted tax charge/(credit)
The adjusted income tax charge for the year was £31.1m (2022: £4.4m)
including £30.4m of current tax (2022: £6.4m). There is a current tax credit
arising on pension deficit contributions recognised in other comprehensive
income (OCI) rather than the income statement. If the current tax that is
flowing through OCI is taken into account, the total current charge is more
closely aligned to the current tax payable in respect of the year.
Cash generated from operations and free cash flow
Adjusted operating profit to free cash flow excluding business exits(1,2) 2023 2022 £m
£m
Adjusted operating profit(1) 106.5 78.0
Add: depreciation/amortisation and impairment of property, plant and equipment, right-of-use assets and intangible assets 108.1 126.4
Adjusted EBITDA(1) 214.6 204.4
Working capital (110.7) (30.7)
Non-cash and other adjustments (6.5) (45.3)
Operating cash flow excluding business exits(1) 97.4 128.4
Adjusted operating cash conversion(1) 45% 63%
Pension deficit contributions (30.0) (30.0)
Cyber incident (20.1) —
Cost reduction programme (6.1) —
Cash generated from operations excluding business exits(1) 41.2 98.4
Net capital expenditure (58.9) (38.0)
Interest/tax paid (45.1) (47.5)
Net capital lease payments (52.7) (55.3)
Free cash flow excluding business exits(1,2) (115.5) (42.4)
Adjusted operating cash conversion(1) decreased to 45% (2022 63%), driven by:
* the reduction in working capital, which reflects the £28m benefit in 2022
of a step-up in the usage of the Group’s non-recourse facilities in 2022
whereas in 2023 there was a £9m reduction in usage, a reduction in the
accrual for management bonuses and variable pay, and the non-cash nature of
the commercial settlement in the closed book Life & Pensions business in
Experience; and
* the lower outflow related to provisions in 2023 reflected in the movement in
non-cash and other adjustments.
Cash generated from operations excluding business exits(1) reflects the above
and the direct cash flow impact of the cyber incident (£20.1m). The £30.0m
of pension deficit contributions are in line with the deficit funding
contribution schedule previously agreed with the scheme trustees as part of
the 2020 triennial valuation.
Free cash flow before business exits(1,2) for the year ended 31 December 2023
was an outflow of £115.5m (2022: outflow £42.4m). This reflects the
reduction in cash generated from operations and increased capital expenditure
on technology across the Group.
Reported results
Adjusted to reported profit
As noted above, to aid understanding of our underlying performance, adjusted
operating profit(1) and adjusted profit before tax(1) exclude a number of
specific items, including the amortisation and impairment of acquired
intangibles and goodwill, the impact of business exits, and, in 2023, the
impacts of the cyber incident and cost reduction programme.
Adjusted(1) to reported results bridge Operating (loss)/profit (Loss)/profit before tax
2023 £m 2022 £m 2023 £m 2022 £m
Adjusted(1) 106.5 78.0 56.5 49.8
Amortisation and impairment of acquired intangibles (0.2) (5.1) (0.2) (5.1)
Impairment of goodwill (42.2) (169.0) (42.2) (169.0)
Net finance costs/(income) — — (2.2) 3.4
Business exits (36.4) 16.5 (38.8) 182.3
Cyber incident (25.3) — (25.3) —
Cost reduction programme (54.4) — (54.4) —
Reported (52.0) (79.6) (106.6) 61.4
Impairment of goodwill
In preparing its half yearly condensed consolidated financial statements at 30
June 2023, and these consolidated financial statements at 31 December 2023,
the Group undertook detailed impairment reviews.
At 30 June 2023 a goodwill impairment of £42.2m was recognised. This
comprised:
* £35.3m: in respect of CGUs in the Group's Portfolio division where the
disposal processes of the businesses aligned to these CGUs were sufficiently
advanced that the Board's judgement was that for impairment testing purposes
the value in use of these CGUs should be determined based on the future cash
flows of the CGUs from continuing use, up to the estimated date of disposal,
plus an estimate of the sale proceeds less cost of disposal. The impairments
arose primarily due to the expectation of acquirers factoring in additional
investment and costs required to run the businesses outside the Group, and
general macroeconomic conditions; and
* £6.9m: in respect of a business in the Business Solutions group of CGUs in
Portfolio. The impairment arose primarily due to a negotiated exit of an end
customer, which has negatively impacted the forecast financial performance of
the business.
At 31 December 2023, no further goodwill impairment was identified.
Refer to note 11 for further details.
Business exits
Business exits include the effects of businesses that have been disposed of or
exited during the period and the results of businesses held for sale at the
balance sheet date.
In accordance with our policy, the trading results of these businesses, along
with the non-trading expenses and gains/(losses) recognised on business
disposals, were classified as business exits and therefore excluded from
adjusted results. To enable a like-for-like comparison of adjusted results,
the 2022 comparatives have been re-presented to exclude the 2023 business
exits.
At 31 December 2023 business exits primarily comprised the following business
disposals:
Business Disposal completed on
Resourcing 31 May 2023
Security Watchdog 31 May 2023
Page One 31 July 2023
Software 31 July 2023
Enforcement 31 July 2023
Travel 14 November 2023
Fera 17 January 2024
In addition to the above disposals, the Group decided to exit a small business
in Public Service in the second half of the year, and the trading result and
non-trading expenses of this business have been excluded from adjusted
results.
Cyber incident
The Group has incurred exceptional costs associated with the cyber incident,
reflecting the complexity of the forensic analysis of exfiltrated data. These
costs comprise specialist professional fees, recovery and remediation costs
and investment to reinforce Capita’s cyber security environment. A charge of
£25.3m has been recognised in the year ended 31 December 2023. This charge
excludes any potential insurance recovery, as this had not yet met the
criteria for recognition at the end of the year, and no provision has been
made for any costs in respect of potential claims or regulatory penalties in
respect of the incident as it is not possible, at this stage, to reliably
estimate their value.
Further detail of the specific items charged in arriving at reported operating
profit and profit before tax for 2023 is provided in note 5.
Cost reduction programme
We announced the implementation of a major cost reduction programme in
November 2023 which is expected to deliver annualised efficiencies of £60m
from Q1 2024. Following this announcement, we commenced employee consultation
programmes and exited a number of leased properties. The organisational
changes primarily impacted indirect support function and overhead roles.
A charge of £54.4m has been recognised in the year ended 31 December 2023,
comprising £23m of redundancy and other costs, and impairments of
right-of-use assets and property, plant and equipment and provisions of
unavoidable running costs in respect of the property exits totalling £31m.
The cash outflow in 2023 in respect of the cost reduction programme was
£6.1m, which is included within free cash flow and cash generated from
operations excluding business exits(1). The Group continues to evaluate
additional cost saving opportunities and expects to implement further cost
reduction initiatives expected to deliver annualised efficiencies of £100m by
the middle of 2025. These further cost reduction initiatives are expected to
result in a step up in cost reduction programme cash costs in 2024 from £21m
arising from the programme announced in November 2023 to an estimated £50m
for the overall programme.
Net finance costs
Net finance costs increased by £20.5m to £52.2m (2022: £31.7m), primarily
attributable to the higher interest rate environment and run-off of low-coupon
debt.
Reported tax charge/(credit)
The reported income tax charge for the year of £74.0m (2022: credit £14.6m)
reflects the changes in the accounting estimate of recognised deferred tax
assets, unrecognised current year tax losses and non-deductible goodwill
impairment. The prior period credit reflected an increase in the recognised
deferred tax asset.
Free cash flow to free cash flow excluding business exits
Free cash flow(1,2) to free cash flow excluding business exits(1) 2023 £m 2022 £m
Free cash flow(1,2) (154.9) (31.5)
Business exits 23.1 (19.5)
Pension deficit contributions triggered by disposals 16.3 8.6
Free cash flow excluding business exits(1,2) (115.5) (42.4)
Free cash flow(1,2) was lower than free cash flow excluding business
exits(1,2) reflecting free cash outflows generated by business exits, and
pension deficit contributions triggered by the disposal of Pay360 and Capita
Translation and Interpreting in the second half of 2022 and Resourcing in
2023.
Movements in net debt
Net debt at 31 December 2023 was £545.5m (2022: £482.4m). The increase in
net debt over the year ended 31 December 2023 reflects the free cash outflow
noted above offset by the continued reduction in our leased property estate.
Net financial debt (pre-IFRS 16) at 31 December 2023 was £182.1m (2022:
£84.9m).
Net debt 2023 £m 2022 £m
Opening net debt (482.4) (879.8)
Cash movement in net debt (9.0) 438.2
Non-cash movements (54.1) (40.8)
Closing net debt (545.5) (482.4)
Remove closing IFRS 16 impact 363.4 397.5
Net financial debt (pre-IFRS 16) (182.1) (84.9)
Cash and cash equivalents net of overdrafts 67.6 177.2
Financial debt net of swaps (249.7) (262.1)
Net financial debt /adjusted EBITDA(1 )(both pre-IFRS 16) 1.2x 0.5x
Net debt (post-IFRS 16)/adjusted EBITDA(1) 2.4x 2.0x
Net financial debt (pre-IFRS 16) increased by £97.2m to £182.1m at
31 December 2023, resulting in a net financial debt to adjusted EBITDA(1)
(both pre-IFRS 16) ratio of 1.2x. Over the medium term, the Group is targeting
a net financial debt to adjusted EBITDA(1) (both pre-IFRS 16) ratio of
≤1.0x. If the sale of the Group’s investment in Fera had completed at
31 December 2023, the ratio would have been 0.9x(1).
The Group was compliant with all debt covenants at 31 December 2023.
Capital and financial risk management
Liquidity remains an area of focus for the Group. Financial instruments used
to fund operations and to manage liquidity comprise US private placement loan
notes, revolving credit facility (RCF) and overdrafts.
Available liquidity(1) 2023 £m 2022 £m
Revolving credit facility (RCF) 260.7 288.4
Less: drawing on committed facilities — —
Undrawn committed facilities 260.7 288.4
Cash and cash equivalents net of overdrafts 67.6 177.2
Less: restricted cash (46.0) (60.4)
Available liquidity(1) 282.3 405.2
The Group’s committed bank facilities provide liquidity for the cash
fluctuations of the business cycle and an allowance for contingencies. In June
2023, the RCF was extended to 31 December 2026 at £284m, reducing to £250m
by 1 January 2025 as a consequence of specified transactions. As such at
31 December 2023 the RCF commitment had been reduced to £260.7m (2022:
£288.4m) and was subsequently reduced to £250.0m on 23 January 2024
following receipt of proceeds from the Fera disposal.
The RCF was not drawn upon at 31 December 2023 (2022: undrawn).
In addition, the Group has in place non-recourse trade receivable financing,
utilisation of which has become economically more favourable than drawing
under the RCF as prevailing interest rates have increased. As such, the Group
has continued its use of the facility across the year with the value of
invoices sold under the facility at 31 December 2023 of £35.2m (2022:
£44.4m).
In July 2023 the Group issued £101.9m equivalent of US private placement loan
notes across three tranches: £50m maturing 25 July 2026, USD45m maturing
25 July 2026 and USD23m maturing 25 July 2028.
In 2023, the Group repaid £112.5m of private placement loan notes, including
£30.3m of Euro private placement loan notes which were originally due in
2027, following which the next debt maturity is January 2025.
At 31 December 2023, the Group had £67.6m (2022: £177.2m) of cash and cash
equivalents net of overdrafts, and £262.5m (2022: £285.5m) of private
placement loan notes and fixed-rate bearer notes.
Going concern
The Board closely monitors the Group’s funding position throughout the year,
including compliance with covenants and available facilities to ensure it has
sufficient headroom to fund operations. In addition, to support the going
concern assumption, the Board conducts a robust assessment of the projections,
considering also the committed facilities available to the Group.
The Group and Parent Company continue to adopt the going concern basis in
preparing these consolidated financial statements as set out in note 1.2(d) of
the consolidated financial statements.
Viability assessment
The Board's assessment of viability over the Group’s three-year business
planning time horizon is summarised in the viability statement.
Pensions
The Group reached agreement with the Trustees of the Group’s main pension
scheme (the Scheme) in respect of the March 2023 triennial funding review.
Given the healthy funding position of the Scheme, the 2023 agreement does not
require any further deficit recovery contributions from the Group other than
those already committed as part of the 2020 triennial valuation.
In accordance with the 2020 agreement, the Group paid £30.0m of regular
deficit funding contributions in 2023 and will pay a further £21m of
contributions in 2024, with no further deficit contributions in 2025 and
beyond. In addition, the Group paid £16.3m of accelerated deficit reduction
contributions triggered by the disposal of certain businesses in the second
half of 2022 and in 2023.
The valuation of the Scheme liabilities (and assumptions used) for funding
purposes (the actuarial valuation) is specific to the circumstances of the
Scheme. It differs from the valuation and assumptions used for accounting
purposes, which are set out in IAS 19 and shown in these consolidated
financial statements. The main difference is in assumption principles being
used which are a result of the different regulatory requirements of the
valuations. Management estimates that at 31 December 2023 the net asset of
the Scheme on a funding basis (ie the funding assumption principles adopted
for the full actuarial valuation at 31 March 2023 updated for market
conditions at 31 December 2023) was approximately £81.0m (2022: net asset
£40.0m) on a technical provisions basis. The Trustee of the Scheme has also
agreed a secondary more prudent funding target to enable it to reduce the
reliance the Scheme has on the covenant of the Group. On this basis, at
31 December 2023, the funding level was around 99% (or a net liability of
£6m). The deficit of £6m is expected to be met by the remaining deficit
contributions.
The net defined benefit pension position of all reported defined benefit
schemes for accounting purposes decreased from a surplus of £39.6m at
31 December 2022 to a surplus of £26.8m at 31 December 2023. The main
reasons for this movement are the reduction in the discount rate applied to
the schemes’ liabilities following the fall in corporate bond yields in the
final quarter of 2023 and assets returning less than expected over the period,
partially offset by the above deficit funding contributions.
Consolidated balance sheet
At 31 December 2023 the Group’s consolidated net assets were £114.9m
(2022: net assets £352.7m).
The movement is predominantly driven by the reported loss before tax for the
year as explained above, the actuarial loss on all reported defined benefit
pension schemes, and the reduction in the amount of deferred tax assets
recognised.
1. Refer to alternative performance measures in the Appendix.
1. From 1 January 2023 free cash flow and free cash flow excluding business
exits are presented after deducting the capital element of lease payments and
receipts. Comparative amounts have been re-presented
Viability statement
In accordance with provision 31 of the UK Corporate Governance Code 2018, the
Board has assessed the viability of the Group and Parent Company over the
three-year period to 31 December 2026, aligned with the period of the
Group’s business planning process. The Board believes that a three-year
period provides sufficient clarity to consider the Group and Parent
Company’s prospects and facilitates the development of a robust base case
set of financial projections against which severe but plausible downside
scenario stress testing can be conducted.
In its assessment of the Group's viability, the Board has considered the
following:
* Adjusted revenue growth in 2023 of 1.3%.
* The cost reduction programmes being implemented during 2024.
* The completion of the Portfolio non-core business disposal programme in
January 2024.
* The repayment of £113m of financial debt in 2023, with no further
repayments scheduled in 2024.
* The renewal of the revolving credit facility in 2023 until 31 December 2026
and the issuance of £101.9m US private placement debt with a mixture of three
and five-year maturities.
* Agreement with the Trustees of the Group’s main defined benefit pension
scheme that no further deficit recovery contributions are required from the
Group in 2025 and beyond.
The foregoing elements provide the backdrop to the three-year business plan
approved by the Board in December 2023. The main assumptions underpinning the
base case financial projections in the Group’s business plan are set out
below:
* Further adjusted revenue growth beyond 2024 broadly in line with market
trends in each of the two core divisions.
* Operating profit margin expansion over the business plan period reflecting
the benefit of operating leverage coupled with ongoing efficiency delivery.
* Delivery of cost savings.
* A transition to positive free cash flow generation reflecting the above
assumptions and the cessation of pension deficit contributions with effect
from 2025.
The most material assumptions, from a viability assessment perspective, relate
to the continuation of adjusted revenue growth, operating profit margin
expansion, and delivery of cost savings.
The three-year base case financial projections were used to assess covenant
compliance and liquidity headroom under different scenarios. This analysis
included assessing the sensitivity of the financial performance of the Group
to changes in trading conditions in line with those considered in the severe
but plausible downside case for the going concern assessment and from the
crystallisation of specific risks including those set out in the principal
risks section of the 2023 Annual Report and Accounts (refer to section 1 of
the consolidated financial statements).
The risks applied have not been probability weighted but rather consider the
impact should each risk materialise by applying a ‘more likely than not’
test. These wide-ranging risks are unlikely to crystallise simultaneously and
there are mitigations under the direct control of the Group, including
reductions in capital investment, substantially reducing and (or removing in
full) bonus and incentive payments and significantly reducing discretionary
spend, that can be actioned to address a combination of risk crystallisations
that may occur under a severe but plausible downside. These have been
considered in the Board’s viability assessment.
Reflecting the Board’s expectations of improving financial performance as
set out above, and its confidence in the Group’s ability to refinance
maturing debt over the viability assessment period, the Board has a reasonable
expectation that the Group and Parent Company will be able to continue in
operation and meet their liabilities as they fall due over the period of the
viability assessment.
Forward looking statements
This full-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
and Welsh 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 or opinions, or statements concerning
risks and uncertainties, including statements with respect to Capita’s
business, financial condition and results of operations. All statements other
than historical facts included in this announcement may be forward-looking
statements. Those statements and statements which contain the words
“plan”, “target”, “aim”, “continue”, “hope”, “may”,
“will”, “would”, “could”, “should”, “anticipate”,
“believe”, “intend”, “estimate”, “expect” and words of similar
meaning, or, in each case, their negative or other various or comparable
terminology, reflect Capita’s Directors' beliefs and expectations and
involve risk and uncertainty because they relate to events and depend on
circumstances that may or may not 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, and projections are not
guarantees of future performance. 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.
Consolidated income statement
For the year ended 31 December 2023
Notes 2023£m 2022
£m
Revenue 4 2,814.6 3,014.6
Cost of sales (2,222.5) (2,298.6)
Gross profit 592.1 716.0
Administrative expenses (644.1) (795.6)
Operating loss 4 (52.0) (79.6)
Share of results in associates and investment gains — 5.8
Net finance expense 6 (52.2) (31.7)
(Loss)/gain on disposal of businesses 9 (2.4) 166.9
(Loss)/profit before tax (106.6) 61.4
Income tax (charge)/credit 7 (74.0) 14.6
Total (loss)/profit for the year (180.6) 76.0
Attributable to:
Owners of the Company (178.1) 74.8
Non-controlling interests (2.5) 1.2
(180.6) 76.0
Earnings per share 8
– basic (10.60)p 4.47p
– diluted (10.60)p 4.40p
Adjusted operating profit 5 106.5 78.0
Adjusted profit before tax 5 56.5 49.8
Adjusted basic earnings per share 8 1.70p 2.64p
Adjusted diluted earnings per share 8 1.70p 2.60p
Consolidated statement of comprehensive income
For the year ended 31 December 2023
2023 £m 2022 £m
Total (loss)/profit for the year (180.6) 76.0
Other comprehensive expense
Items that will not be reclassified subsequently to the income statement
Actuarial loss on defined benefit pension schemes (68.2) (8.9)
Tax effect on defined benefit pension schemes 15.9 2.0
(Loss)/gain on fair value of investments (0.1) 0.2
Items that will or may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations (2.9) (0.6)
Exchange differences realised on business disposals 0.2 0.3
(Loss)/gain on cash flow hedges (8.5) 11.5
Cash flow hedges recycled to the income statement (2.0) (5.1)
Tax effect on cash flow hedges 2.6 (1.6)
Other comprehensive expense for the year net of tax (63.0) (2.2)
Total comprehensive (expense)/income for the year net of tax (243.6) 73.8
Attributable to:
Owners of the Company (241.0) 72.6
Non-controlling interests (2.6) 1.2
(243.6) 73.8
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated balance sheet
At 31 December 2023
Notes 2023 £m 2022 £m
Non-current assets
Property, plant and equipment 80.0 101.1
Intangible assets 90.0 106.0
Goodwill 11 495.7 605.9
Right-of-use assets 208.5 249.5
Investments in associates 0.2 0.2
Contract fulfilment assets 257.0 263.0
Financial assets 97.2 118.2
Deferred tax assets 7 140.3 189.5
Employee benefits 32.7 42.7
Trade and other receivables 12.3 15.8
1,413.9 1,691.9
Current assets
Financial assets 28.1 23.6
Income tax receivable 11.6 9.9
Disposal group assets held for sale 9 38.1 —
Trade and other receivables 350.7 430.4
Cash 155.4 396.8
583.9 860.7
Total assets 1,997.8 2,552.6
Current liabilities
Overdrafts 95.0 219.6
Trade and other payables 425.9 492.5
Disposal group liabilities held-for-sale 9 9.7 —
Income tax payable 1.3 —
Deferred income 501.3 585.1
Lease liabilities 51.1 55.6
Financial liabilities 10.8 84.6
Provisions 12 101.6 75.7
1,196.7 1,513.1
Non-current liabilities
Trade and other payables 8.5 15.1
Deferred income 36.2 55.6
Lease liabilities 312.3 341.9
Financial liabilities 267.5 212.6
Deferred tax liabilities 7 7.2 6.9
Provisions 12 48.6 51.6
Employee benefits 5.9 3.1
686.2 686.8
Total liabilities 1,882.9 2,199.9
Net assets 114.9 352.7
Capital and reserves
Share capital 35.2 34.8
Share premium 1,145.5 1,145.5
Employee benefit trust shares (0.7) (4.2)
Capital redemption reserve 1.8 1.8
Other reserves (15.0) (4.5)
Retained deficit (1,053.8) (843.2)
Equity attributable to owners of the Company 113.0 330.2
Non-controlling interests 1.9 22.5
Total equity 114.9 352.7
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated statement of changes in equity
For the year ended 31 December 2023
Share capital £m Share premium £m Employee benefit trust 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 (deficit)/equity £m
At 31 December 2021 34.8 1,145.5 (8.0) 1.8 (890.6) (9.0) 274.5 22.0 296.5
Impact of change in accounting standards – amendments to IAS 37(1) — — — — (21.7) — (21.7) — (21.7)
At 1 January 2022 on adoption of IAS 37 34.8 1,145.5 (8.0) 1.8 (912.3) (9.0) 252.8 22.0 274.8
Profit for the year — — — — 74.8 — 74.8 1.2 76.0
Other comprehensive income/(expense) — — — — (6.7) 4.5 (2.2) — (2.2)
Total comprehensive income for the year — — — — 68.1 4.5 72.6 1.2 73.8
Share-based payment net of tax effects — — — — 5.4 — 5.4 — 5.4
Elimination of non-controlling interest on disposal (note 9) — — — — — — — (0.3) (0.3)
Exercise of share options under employee long term incentive plans — — 3.8 — (3.8) — — — —
Dividends paid(2) — — — — — — — (0.4) (0.4)
Movement in put-options held by non-controlling interests — — — — (0.6) — (0.6) — (0.6)
At 31 December 2022 34.8 1,145.5 (4.2) 1.8 (843.2) (4.5) 330.2 22.5 352.7
Loss for the year — — — — (178.1) — (178.1) (2.5) (180.6)
Other comprehensive expense — — — — (52.4) (10.5) (62.9) (0.1) (63.0)
Total comprehensive expense for the year — — — — (230.5) (10.5) (241.0) (2.6) (243.6)
Share-based payment net of tax effects — — — — 5.8 — 5.8 — 5.8
Reclassification(3) — — — — 15.9 — 15.9 (15.9) —
Purchase of non-controlling interest — — — — 1.4 — 1.4 (1.4) —
Exercise of share options under employee long term incentive plans — — 3.9 — (3.9) — — — —
Shares issued 0.4 — (0.4) — — — — — —
Dividends paid(2) — — — — — — — (0.7) (0.7)
Movement in put-options held by non-controlling interests — — — — 0.7 — 0.7 — 0.7
At 31 December 2023 35.2 1,145.5 (0.7) 1.8 (1,053.8) (15.0) 113.0 1.9 114.9
1. The Group initially applied the amendments to IAS 37 on 1 January 2022
and the cumulative effect of applying the amendments was recognised as an
opening balance adjustment to retained earnings.
1. No dividends were declared, paid or proposed in 2023 or 2022 on the Parent
Company’s ordinary shares.
1. During the current year it was identified that the non-controlling interest
(NCI) proportion of a goodwill impairment charge, which was recognised in the
year ended 31 December 2018, had not been previously allocated within the
result for that year attributable to NCI. The NCI proportion of the impairment
has been reclassified to the NCI reserve in the current year.
Share capital – The balance classified as share capital is the nominal
proceeds on issue of the Parent Company’s equity share capital, comprising
2 1/15 pence ordinary shares.
Share premium – The amount paid to the Parent 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 shares – Shares held in the employee benefit trust
have no voting rights and no entitlement to a dividend.
Capital redemption reserve – The Parent Company can redeem shares by
repaying the market value to shareholders, 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 the foreign currency translation reserve
deficit of £11.2m (2022: £8.6m deficit) and the cash flow hedging reserve
deficit of £3.8m (2022: £4.1m surplus).
Non-controlling interests (NCI) – This represents equity in subsidiaries not
attributable directly or indirectly to the Parent Company.
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated cash flow statement
For the year ended 31 December 2023
Notes 2023 £m 2022 £m
Cash generated from operations 10 8.7 117.8
Income tax paid (7.5) (7.9)
Interest received 6.2 5.0
Interest paid (47.7) (43.0)
Net cash (outflow)/inflow from operating activities (40.3) 71.9
Cash flows from investing activities
Purchase of property, plant and equipment (28.8) (20.6)
Purchase of intangible assets (32.8) (27.3)
Proceeds from sale of property, plant and equipment and intangible assets 0.1 0.5
Additions to investments held at fair value through profit and loss — (2.4)
Changes to investments at fair value through other comprehensive income (0.1) 0.2
Capital element of lease rental receipts 6.0 5.8
Deferred consideration from sale of subsidiary undertakings 1.9 —
Total proceeds received from disposal of businesses, net of disposal costs 9 96.8 463.4
Cash held by businesses when sold 9 (33.4) (75.5)
Net cash inflow from investing activities 9.7 344.1
Cash flows from financing activities
Dividends paid to non-controlling interests (0.7) (0.4)
Capital element of lease rental payments (59.1) (61.8)
Proceeds on issue of private placement loan notes 103.5 —
Cost of cross currency swaps (1.6) —
Repayment of private placement loan notes and other finance (121.5) (237.4)
Proceeds from cross-currency interest rate swaps 8.5 10.1
Repayment of credit facilities — (46.0)
Debt financing arrangement costs (5.4) (5.2)
Net cash outflow from financing activities (76.3) (340.7)
(Decrease)/increase in cash and cash equivalents (106.9) 75.3
Cash and cash equivalents at the beginning of the year 177.2 101.5
Effect of exchange rates on cash and cash equivalents (2.7) 0.4
Cash and cash equivalents at 31 December 67.6 177.2
Cash and cash equivalents comprise:
Cash 155.4 396.8
Overdrafts (95.0) (219.6)
Cash, net of overdrafts, included in disposal group assets and liabilities held for sale 7.2 —
Total 67.6 177.2
Cash generated from operations before business exits(1) 10 41.2 98.4
Free cash flow before business exits(1) 10 (115.5) (42.4)
1. From 1 January 2023 free cash flow and free cash flow excluding business
exits are presented after deducting the capital element of lease payments and
receipts. Comparative amounts have been re-presented.
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to the consolidated financial statements
For the year ended 31 December 2023
1.1 Corporate information
Capita plc is a public limited company incorporated in England and Wales
whose shares are publicly traded.
These consolidated financial statements of Capita plc for the year ended
31 December 2023 were authorised for issue in accordance with a resolution of
the directors on 5 March 2024.
1.2 Basis of preparation, judgements and estimates, and going concern
(a) Basis of preparation
These consolidated financial statements have been prepared in accordance with
UK-adopted International Financial Reporting Standards (IFRSs) and the
Disclosure and Transparency Rules of the UK's Financial Conduct Authority.
These consolidated financial statements are presented in British pounds
sterling and all values are rounded to the nearest tenth of a million (£m)
except where otherwise indicated.
These consolidated financial statements have been prepared by applying the
accounting policies and presentation that were applied in the preparation of
the company’s published consolidated financial statements for the year ended
31 December 2022.
(b) Adjusted results
IAS 1 Presentation of Financial Statements 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 disclose separately those items that it
considers are outside the underlying operating results for the particular year
under review and against which the Group’s performance is assessed
internally. In the Board’s judgement, these need to be disclosed separately
by virtue of their nature, size and/or incidence, for users of the
consolidated financial statements to obtain an understanding of the financial
information and the underlying performance of the Group. In general, the Board
believes that alternative performance measures (APMs) are useful for investors
because they provide further clarity and transparency of the Group’s
financial performance and are closely monitored by management to evaluate the
Group’s operating performance to facilitate financial, strategic and
operating decisions. Accordingly, these items are also excluded from the
discussion of divisional performance in the strategic report. This policy is
kept under review by the Board and the Audit and Risk Committee.
Those items excluded from the adjusted income statement are: business exits;
amortisation and impairment of acquired intangibles; impairment of goodwill;
certain mark-to-market valuation changes that impact net finance
expense/income; the costs associated with the cyber incident in March 2023,
and the costs associated with the cost reduction programme announced in
November 2023.
The Board considers free cash flow, and cash generated from operations
excluding business exits, to be alternative performance measures because these
metrics provide a more representative measure of the sustainable cash flow of
the Group.
Following feedback from investors the Board has revised its definition of the
free cash flow and free cash flow excluding business exits alternative
performance measures. From 1 January 2023, both these metrics have been
presented after deducting the capital element of lease payments and receipts,
since this provides a more relevant and comparable measure of the cash
generated by the Group’s operations and available to fund operations,
capital expenditure, non-lease debt obligations, and potential shareholder
distributions.
The comparatives have been re-presented.
The Board considers APMs to be helpful to the reader, but notes that APMs have
certain limitations, including the exclusion of significant recurring and
non-recurring items, and may not be directly comparable with similarly titled
measures presented by other companies.
A reconciliation between reported and adjusted operating profit and profit
before tax is provided in note 5, and a reconciliation between reported cash
generated from operations and cash generated from operations before business
exits together with the calculation of free cash flow as an APM is provided in
note 10.
(c) Judgements and estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires 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
amount, events or actions, actual results may differ.
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.
The impact of climate change has been considered in the preparation of these
consolidated financial statements across a number of areas, including our
evaluation of the critical accounting estimates and assumptions which are
consistent with the risks and opportunities set out in the strategic report in
the Annual Report. None of these risks had a material effect on the critical
accounting estimates and assumptions or on the consolidated financial
statements of the Group.
(d) Going concern
In determining the appropriate basis of preparation of the financial
statements for the year ended 31 December 2023, the Board is required to
consider whether the Group and Parent Company can continue in operational
existence 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, sensitivities, and
mitigations as set out below.
Accounting standards require that ‘the foreseeable future’ for going
concern assessment covers a period of at least twelve months from the date of
approval of these financial statements, although those standards do not
specify how far beyond twelve months a Board should consider. In its going
concern assessment, the Board has considered the period from the date of
approval of these financial statements to 30 June 2025 (‘the going concern
period’), which aligns with a period end and covenant test date for the
Group, and has also allowed the Board to assess the liquidity impact of the
borrowings that mature in January 2025 and April 2025. There are no other debt
maturities in the period to 30 June 2025.
The base case financial forecasts used in the going concern assessment are
derived from the 2024-2025 business plans as approved by the Board in December
2023.
1.2 Basis of preparation judgements and estimates, and going concern continued
(d) Going concern continued
The going concern assessment considers the Group’s sources and uses of
liquidity and covenant compliance throughout the period under review. The
value of the Group’s committed revolving credit facility (RCF) was £260.7m
at 31 December 2023 having been extended to 31 December 2026. The original
terms of the RCF are substantially unchanged. The value was subsequently
reduced to £250m on 23 January 2024 following receipt of proceeds from the
disposal of the Group’s investment in Fera Science Limited.
In July the Group issued £101.9m equivalent of new private placement loan
notes across three tranches: £50m maturing 25 July 2026, USD45m maturing
25 July 2026 and USD23m maturing 25 July 2028, with an average interest rate
of 9.45%. The notes rank pari passu with the existing indebtedness of the
Group and includes financial covenants determined on the same basis as those
under the existing private placement loan notes.
Financial position at 31 December 2023
As detailed further in the Chief Financial Officer’s review, at 31 December
2023 the Group had net debt of £545.5m (2022: £482.4m), net financial debt
(pre-IFRS 16)(1) of £182.1m (2022: £84.9m), available liquidity(1) of
£282.3m (2022: £405.2m) and was in compliance with all debt covenants.
Board assessment
Base case scenario
Under the base case scenario, the Group’s transformation programme and
completion of the Portfolio non-core business disposal programme in January
2024 has simplified and strengthened the business and facilitates further
efficiency savings enabling sustainable growth in revenue, profit and cash
flow over the medium term. When combined with available committed facilities,
this allows the Group to manage scheduled debt repayments. The most material
sensitivities to the base case are the risk of not delivering the planned
revenue growth and efficiency savings following the announcement of the
Group’s restructuring programme.
The base case projections used for going concern assessment purposes reflect
business disposals completed up to the date of approval of these financial
statements. The liquidity headroom assessment in the base case projections
reflects the Group’s existing committed financing facilities and debt
redemptions and does not reflect any potential future refinancing. The base
case financial forecasts demonstrate liquidity headroom and compliance with
all debt covenant measures throughout the going concern period to 30 June
2025.
Severe but plausible downside scenario
In considering severe but plausible downside scenarios, the Board has taken
account of the potential adverse financial impacts resulting from the
following risks:
* revenue growth falling materially short of plan;
* operating profit margin expansion not being achieved;
* targeted cost savings delayed or not delivered;
* additional inflationary cost impacts which cannot be passed on to customers;
* unforeseen operational issues leading to contract losses and cash outflows;
* volatility in interest rates;
* non-availability of the Group’s non-recourse trade receivables financing
facility; and
* unexpected financial costs linked to incidents such as data breaches and/or
cyber-attacks.
The likelihood of simultaneous crystallisation of the above risks is
considered by the directors to be low. Nevertheless in the event that
simultaneous crystallisation were to occur, the Group would need to take
action to mitigate the risk of insufficient liquidity and covenant headroom.
In its assessment of going concern, the Board has considered the mitigations,
under the direct control of the Group, that could be implemented including
reductions or delays in capital investment, and substantially reducing (or
removing in full) bonus and incentive payments. Taking these mitigations into
account, the Group’s financial forecasts, in a severe but plausible downside
scenario, demonstrate sufficient liquidity headroom and compliance with all
debt covenant measures throughout the going concern period to 30 June 2025.
Adoption of going concern basis
Reflecting the continued benefits from the transformation programme delivered
over the last few years and the Portfolio non-core business disposal programme
completed in January 2024, coupled with the Board's ability to implement
appropriate mitigations should the severe but plausible downside materialise,
the Group continues to adopt the going concern basis in preparing these
consolidated financial statements. The Board has concluded that the Group and
Parent Company will be able to continue in operation and meet their
liabilities as they fall due over the period to 30 June 2025.
2 Preliminary announcement
A duly appointed and authorised committee of the Board of Directors approved
the preliminary announcement on 5 March 2024.
The financial information set out above does not constitute the Group's
consolidated financial statements for the years ended 31 December 2023 or
2022 but is derived from those financial statements.
Statutory accounts for 2022 have been delivered to the Registrar of Companies
and those for 2023 will be delivered in due course. The auditor has reported
on those financial statements.
Their report for the accounts of 2023 was (i) unqualified, (ii) did not
include a reference of any matters to which the auditor drew attention by way
of emphasis without modifying their report and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
Their report for the accounts of 2022 was (i) unqualified, (ii) did not
include a reference of any matters to which the auditor drew attention by way
of emphasis without modifying their report and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
Copies of this announcement can be obtained from the Company's registered
office at 65 Gresham Street, London EC2V 7NQ, or on the Company's corporate
website www.capita.com/investors.
It is intended that the Annual Report and Accounts will be posted to
shareholders late March 2024. It will be available to members of the public at
the registered office and on the Company's Corporate website
https://www.capita.com/investors from that date.
1. Refer to the alternative performance measures (APMs) in the Appendix.
3 Contract accounting
At 31 December 2023, the Group had the following results and balance sheet
items related to long-term contracts:
Notes 2023 £m 2022 £m
Long-term contractual revenue 4 2,104.0 2,236.2
Deferred income 537.5 640.7
Contract fulfilment assets (non-current) 257.0 263.0
Onerous contract provisions 43.3 52.8
Background
The Group operates diverse businesses. The majority of the Group’s revenue
is from contracts greater than two years in duration (long-term contractual),
representing 75% of Group revenue in 2023 (2022: 74%).
These long-term contracts can be complex in nature given 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 required to deliver the
services to the customer. Capita will often incur greater costs during
contract transformation phases 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.
Non-current contract fulfilment assets are recognised for those costs
qualifying for capitalisation. The utilisation of these assets is recognised
over the contract term. The timing of cash receipts from customers typically
matches when the costs are incurred to transform, restructure and run the
service. This results in income being deferred and released when the Group
delivers against its obligations 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 key performance
indicators (KPIs) that could trigger variable consideration or service
credits; outcome of any commercial negotiations; and impact of inflation on
the cost base and the indexation of revenue.
The level of uncertainty in the estimated future profitability of a contract
is directly related to the stage in the life-cycle of the contract and the
complexity of the performance obligations. Contracts in the transformation
stage 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 certifying 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 in BAU tend to have a much lower level of
uncertainty in estimating future profitability.
Recoverability of non-current contract fulfilment assets and completeness of
onerous contract provisions
Management first assesses whether contract assets are impaired and then
further considers whether an onerous contract exists. For half and full year
reporting, the Audit and Risk Committee specifically reviews the material
judgements and estimates, and the overall approach to this assessment in
respect of the Group’s major contracts, including comparison against
previous forecasts. Major contracts include those that are material in size or
risk to the Group’s results. An assessment of which contracts are major
contracts is performed twice a year, and to enable comparability the prior
period amounts below are re-presented to reflect the same scope as the current
period. 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 £1.1 billion (2022: £1.1 billion) or 42%
(2022: 42%) of Group adjusted revenue. Non-current contract fulfilment assets
at 31 December 2023 were £257.0m (2022: £263.0m), of which £125.1m (2022:
£109.7m) relates to major contracts with ongoing 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 were, in
aggregate, £52.8m at 31 December 2023 (2022: £42.2m). The recoverability of
these assets is dependent on no significant adverse change in the key contract
assumptions arising during the next financial year. The balance of deferred
income associated with these contracts was £109.5m at 31 December 2023
(2022: £116.2m) and is forecast to be recognised as performance obligations
continue to be delivered over the life of the respective contracts. Onerous
contract provisions associated with these contracts were £37.3m at
31 December 2023 (2022: £42.5m).
Following these reviews, and reviews of smaller contracts across the business,
non-current contract fulfilment asset impairments of £3.4m (2022: £3.8m)
were identified and recognised within adjusted cost of sales, of which £nil
(2022: £0.5m) relates to non-current contract fulfilment assets added during
the period, and net onerous contract provisions of £7.1m (2022: £1.7m) were
identified and recognised in adjusted cost of sales.
Given the quantum of the relevant contract assets and liabilities, and the
nature of the estimates noted above, management has concluded 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, £125.1m of non-current contract fulfilment assets
relates to major contracts with ongoing transformational activities; and,
£52.8m of non-current contract fulfilment assets and £37.3m of onerous
contract provisions relate 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.
3 Contract accounting continued
Certain major transformation contracts have key milestones during the next
twelve months and an inability to meet these key milestones could lead to
reduced profitability and a risk of impairment of the associated contract
assets. These include contracts with the BBC, Transport for London, Department
for Work and Pensions and the City of London Police.
Additional information, which does not form part of these consolidated
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.
4 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 services across the markets
the Group serves. Capita plc is a reconciling item and not an operating
segment. A description of the service provision for each segment can be found
in the strategic report in the Annual Report. Inter-segmental pricing is based
on set criteria and is either charged on an arm's length basis or at cost.
The tables below present revenue for the Group’s business segments as
reported to the Chief Operating Decision Maker. The Group now comprises two
divisions - Capita Public Service and Capita Experience - following the
completion of the Group’s exit of the non-core businesses in the Capita
Portfolio division. Comparative information has been re-presented to reflect
businesses exited during 2023, and accordingly the Capita Portfolio division
is no longer disclosed as a division. Comparative information has also been
re-presented to reflect the move of businesses between segments during 2023 to
enable comparability.
Adjusted revenue, excluding results from businesses exited in both years
(adjusting items), was £2,642.1m (2022: £2,609.0m), an increase of 1.3%
(2022: increase 1.7%).
Year ended 31 December 2023 Notes Capita Public Service £m Capita Experience £m Total adjusted £m Adjusting items £m Total reported £m
Continuing operations
Long-term contractual 1,206.6 875.9 2,082.5 21.5 2,104.0
Short-term contractual 195.9 288.4 484.3 19.1 503.4
Transactional (point-in-time) 56.1 19.2 75.3 131.9 207.2
Total segment revenue 1,458.6 1,183.5 2,642.1 172.5 2,814.6
Trading revenue 1,507.9 1,221.9 2,729.8 194.4 2,924.2
Inter-segment revenue (49.3) (38.4) (87.7) (21.9) (109.6)
Total adjusted segment revenue 1,458.6 1,183.5 2,642.1 — 2,642.1
Business exits – trading 9 — — — 172.5 172.5
Total segment revenue 1,458.6 1,183.5 2,642.1 172.5 2,814.6
Year ended 31 December 2022
Continuing operations
Long-term contractual 1,166.8 987.6 2,154.4 81.8 2,236.2
Short-term contractual 236.8 150.5 387.3 107.5 494.8
Transactional (point-in-time) 51.2 16.1 67.3 216.3 283.6
Total segment revenue 1,454.8 1,154.2 2,609.0 405.6 3,014.6
Trading revenue 1,497.0 1,194.4 2,691.4 490.0 3,181.4
Inter-segment revenue (42.2) (40.2) (82.4) (84.4) (166.8)
Total adjusted segment revenue 1,454.8 1,154.2 2,609.0 — 2,609.0
Business exits – trading 9 — — — 405.6 405.6
Total segment revenue 1,454.8 1,154.2 2,609.0 405.6 3,014.6
Geographical location
The Group generates revenue largely in the UK and Europe. The table below
presents revenue by geographical location.
2023 2022
United Kingdom £m Europe £m Other £m Total £m United Kingdom £m Europe £m Other £m Total £m
Revenue 2,526.0 282.5 6.1 2,814.6 2,731.2 270.8 12.6 3,014.6
4 Revenue and segmental information continued
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 service commencement date. The figures
represent the aggregate amount of currently contracted transaction price
allocated to the performance obligations that are unsatisfied or partially
unsatisfied. Revenue expected to be recognised upon satisfaction of these
performance obligations is as follows:
Order book 31 December 2023 Capita Public Service £m Capita Experience £m Capita Portfolio £m Total £m
Long-term contractual 3,381.1 2,111.2 — 5,492.3
Short-term contractual 164.9 188.2 37.2 390.3
Total 3,546.0 2,299.4 37.2 5,882.6
Order book 31 December 2022 Capita Public Service £m Capita Experience £m Capita Portfolio £m Total £m
Long-term contractual 2,916.7 2,465.3 201.9 5,583.9
Short-term contractual 68.3 61.4 91.6 221.3
Total 2,985.0 2,526.7 293.5 5,805.2
The table below shows the expected timing of revenue to be recognised from
long-term contractual orders at 31 December 2023:
Time bands of expected revenue recognition from long-term contractual orders Capita Public Service £m Capita Experience £m Total £m
< 1 year 765.2 574.2 1,339.4
1–5 years 2,155.6 1,378.5 3,534.1
> 5 years 460.3 158.5 618.8
Total 3,381.1 2,111.2 5,492.3
Prior year comparative information is not presented for the expected timing of
revenue recognition because it is a forward looking disclosure and therefore
management does not believe that such disclosure provides meaningful
information to a user of the consolidated financial statements.
The order book represents the consideration that the Group will be entitled to
receive from customers when the Group satisfies its remaining performance
obligations under the contracts. However, the total revenue that will be
earned by the Group will also include non-contracted volumetric revenue,
future indexation linked to an external metric, new wins, scope changes, and
anticipated contract extensions. These elements have been excluded from the
above tables because they are not contracted. Additionally, revenue from
contract extensions is 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 included in the tables above amounted to £513.8m
(2022: £577.0m). 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 £5.5 billion (2022: £5.6 billion) revenue to be earned on long-term
contracts, £3.4 billion (2022: £4.2 billion) 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 anticipated to contribute an
additional £0.6 billion (2022: £0.7 billion) of revenue to the Group over
the life of these contracts.
The Group performs various services for a number of UK Government ministerial
departments and considers these individual ministerial departments to be
separate customers due to the limited economic integration between each
ministerial department. Revenues of £319.8m from one customer in the Capita
Public Service division represented more than 10% of the Group’s total
revenues (2022: no customer represented more than 10% of the Group’s total
revenues)
In February 2024, the Group extended and expanded its contract with a major
European telecoms provider. The new contract is based on expected volumes, and
therefore treated as a framework contract under IFRS 15. As a result, £365m
included in the Capita Experience order book at 31 December 2023 relating to
the previous contract has been released. The new contract is expected to be
worth up to £420m to 2030.
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 £599.0m
(2022: £744.2.m).
Movements in the deferred income balances were driven by transactions entered
into by the Group in the normal course of business during the current and
prior year, other than the accelerated revenue recognised of £9.9m which
primarily relates to an early termination of a contract in Capita Experience
(2022: nil).
4 Revenue and segmental information continued
Segmental profit
The table below presents profit by segment.
Year ended 31 December 2023 Notes Capita Public Service £m Capita Experience £m Capita plc £m Total adjusted £m Adjusting items £m Total reported £m
Adjusted operating profit 5 89.3 50.9 (33.7) 106.5 — 106.5
Cost reduction programme (7.0) (37.3) (10.1) — (54.4) (54.4)
Business exits – trading 9 — — — — (3.4) (3.4)
Total trading result 82.3 13.6 (43.8) 106.5 (57.8) 48.7
Non-trading items:
Business exits – non-trading 9 — (33.0) (33.0)
Other adjusting items 5 — (67.7) (67.7)
Operating profit/(loss) 106.5 (158.5) (52.0)
Interest income 6 8.7
Interest expense 6 (60.9)
Share of results in associates and investment gains —
Loss on business disposal 9 (2.4)
Loss before tax (106.6)
Supplementary Information
Depreciation and amortisation 42.5 57.8 3.6 103.9 4.9 108.8
Impairment of property, plant and equipment, intangible assets and right-of-use assets 1.5 2.6 0.1 4.2 23.2 27.4
Non-current contract fulfilment assets utilisation, impairment and derecognition 59.8 16.0 — 75.8 8.7 84.5
Onerous contract provisions — 7.1 — 7.1 — 7.1
Year ended31 December 2022 Notes Capita Public Service £m Capita Experience £m Capita plc £m Total adjusted £m Adjusting items £m Total reported £m
Adjusted operating profit 5 93.7 35.7 (51.4) 78.0 — 78.0
Cost reduction programme — — — — — —
Business exits – trading 9 — — — — 39.7 39.7
Total trading result 93.7 35.7 (51.4) 78.0 39.7 117.7
Non-trading items:
Business exits – non-trading 9 — (23.2) (23.2)
Other adjusting items 5 — (174.1) (174.1)
Operating profit/(loss) 78.0 (157.6) (79.6)
Interest income 6 8.9
Interest expense 6 (40.6)
Share of results in associates and investment gains 5.8
Gain on business disposal 9 166.9
Profit before tax 61.4
Supplementary Information
Depreciation and amortisation 38.2 66.5 14.6 119.3 19.1 138.4
Impairment of property, plant and equipment, intangible assets and right-of-use assets — 7.7 (0.6) 7.1 0.8 7.9
Non-current contract fulfilment assets utilisation, impairment and derecognition 67.2 16.3 — 83.5 2.2 85.7
Onerous contract provisions — 1.7 — 1.7 — 1.7
4 Revenue and segmental information continued
Geographical location
The table below presents the carrying amount of non-current assets (excluding
deferred tax, financial assets and employee benefits) by the geographical
location of those assets.
2023 2022
United Kingdom £m Europe £m Other £m Total £m United Kingdom £m Europe £m Other £m Total £m
Non-current assets 1,112.6 14.1 17.0 1,143.7 1,320.9 11.7 8.9 1,341.5
5 Adjusted operating profit and adjusted profit before tax
IAS 1 Presentation of Financial Statements 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 disclose separately those items that it
considers are outside the underlying operating results for the particular year
under review and against which the Group’s performance is assessed
internally. In the Board’s judgement, these need to be disclosed separately
by virtue of their nature, size and/or incidence, for users of the
consolidated financial statements to obtain an understanding of the financial
information and the underlying performance of the Group. In general, the Board
believes that alternative performance measures (APMs) are useful for investors
because they provide further clarity and transparency of the Group’s
financial performance and are closely monitored by management to evaluate the
Group’s operating performance to facilitate financial, strategic and
operating decisions. Accordingly, these items are also excluded from the
discussion of divisional performance in the strategic report. This policy is
kept under review by the Board and the Audit and Risk Committee.
The Board considers APMs to be helpful to the reader, but notes that APMs have
certain limitations, including the exclusion of significant recurring and
non-recurring items, and may not be directly comparable with similarly titled
measures presented by other companies.
Those items excluded from the adjusted income statement are: business exits;
amortisation and impairment of acquired intangibles; impairment of goodwill;
certain mark-to-market valuation changes that impact net finance
expense/income; the costs associated with the cyber incident in March 2023,
and the costs associated with the cost reduction programme announced in
November 2023.
The items below are excluded from the adjusted results: Operating (loss)/profit (Loss)/profit before tax
Notes 2023 £m 2022 £m 2023 £m 2022 £m
Reported (52.0) (79.6) (106.6) 61.4
Amortisation and impairment of acquired intangibles 0.2 5.1 0.2 5.1
Impairment of goodwill 42.2 169.0 42.2 169.0
Net finance costs/(income) 6 — — 2.2 (3.4)
Business exits 9 36.4 (16.5) 38.8 (182.3)
Cyber incident 25.3 — 25.3 —
Cost reduction programme 54.4 — 54.4 —
Adjusted 106.5 78.0 56.5 49.8
1. Adjusted operating profit increased by 36.5% (2022: increased 232.4%) and
adjusted profit before tax increased by 13.5% (2022: increased 160.1%).
Adjusted operating profit of £106.5m (2022: profit £78.0m) was generated on
adjusted revenue of £2,642.1m (2022: £2,609.0m) resulting in an adjusted
operating margin of 4.0% (2022: 3.0%).
1. The tax charge on adjusted profit before tax is £31.1m (2022: £4.4m
charge) resulting in adjusted profit after tax of £25.4m (2022: £45.4m
profit).
1. The adjusted operating profit and adjusted profit before tax for 2022 have
been re-presented for the impact of business exits during 2023 and the change
in adjusting items. This has resulted in adjusted operating profit decreasing
from £102.9m to £78.0m and adjusted profit before tax decreasing from
£73.8m to £49.8m
Amortisation and impairment of acquired intangible assets: the Group
recognised acquired intangible amortisation of £0.2m (2022: £5.1m). These
charges are excluded from the adjusted results of the Group because they are
non-cash items generated from historical acquisition related activity. The
charge is included within administrative expenses.
Impairment of goodwill: the Group carries on its balance sheet significant
balances related to goodwill. Goodwill is subject to annual impairment testing
and any impairment charges are reported separately because they are non-cash
items generated from historical acquisition related activity. The charge is
included within administrative expenses.
Net finance costs: net finance costs excluded from adjusted profits relate to
movements in the mark-to-market value of forward foreign exchange contracts to
cover anticipated future costs and therefore have no equivalent offsetting
transaction in the accounting records, also refer to note 6.
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. Note 9 provides further detail regarding which income
statement line items are impacted by business exits.
Cyber incident: As detailed in the Chief Financial Officer's review, the Group
has incurred exceptional costs associated with the cyber incident. These costs
comprise specialist professional fees, recovery and remediation costs and
investment to reinforce Capita’s cyber security environment. A charge of
£25.3m has been recognised in the year ended 31 December 2023, which
excludes any potential insurance receipts because they had not met the
criteria for recognition. Please also refer to note 13 contingent
liabilities. The charge is included within administrative expenses.
Cost reduction programme: As detailed in the Chief Financial Officer’s
review, the Group announced the implementation of a significant cost reduction
programme in November 2023. A charge of £54.4m has been recognised in the
year ended 31 December 2023 for the costs to deliver the cost reduction
programme. This includes redundancy and other costs of £23m to deliver a
significant reduction in indirect support function and overhead roles, and
property related costs of £31m arising from the associated rationalisation of
the Group’s property estate with impairment of right-of-use assets and
property, plant & equipment, and provisions in respect of onerous property
costs. The charge is included within administrative expenses.
6 Net finance costs
The table below shows the composition of net finance costs, including those
excluded from adjusted profit:
2023 £m 2022 £m
Interest income
Interest on cash (1.9) (1.1)
Interest on finance lease assets (4.1) (4.2)
Net interest income on defined benefit pension schemes (2.7) (3.6)
Total interest income (8.7) (8.9)
Interest expense
Private placement loan notes(1) 16.3 12.0
Bank loans and overdrafts 14.1 8.4
Cost of non-recourse trade receivables financing 3.7 —
Interest on finance lease liabilities 22.3 22.5
Discount unwind on provisions 2.3 —
Total interest expense 58.7 42.9
Net finance expense included in adjusted profit 50.0 34.0
Included within business exits
Bank loans and overdrafts — 1.0
Interest on finance lease liabilities — 0.1
Other items excluded from adjusted profits
Non-designated foreign exchange forward contracts – change in mark-to-market value 3.2 (3.6)
Fair value hedge ineffectiveness(2) (1.0) 0.2
Net finance expense/(income) excluded from adjusted profit 2.2 (2.3)
Total net finance expense 52.2 31.7
1. Private placement loan notes comprise US dollar and British pound sterling
private placement loan notes, and the euro fixed rate bearer notes which were
repaid during 2023.
1. Fair value hedge ineffectiveness arises from changes in currency basis, and
the movement in a provision for counterparty risk associated with the swaps.
7 Taxation
Income tax charge
The reported income tax charge for the period is £74.0m on reported loss
before tax of £106.6m (2022: reported income tax credit of £14.6m on
reported profit of £61.4m), and an adjusted income tax charge for the period
of £31.1m on adjusted profit before tax of £56.5m (2022: adjusted tax charge
of £4.4m on adjusted profit of £49.8m). The most significant reconciling
items, explaining the difference from the standard UK weighted average
corporation tax rate of 23.5% for the period (2022: 19.0%) are changes in the
accounting estimate of recognised deferred tax assets, unrecognised current
year tax losses carried forward and non-deductible goodwill impairment.
The forecast future adjusted effective tax rates, before and assuming no
material changes to tax laws in the jurisdictions in which Capita operates,
are expected to be broadly similar to the UK corporation tax rate, with an
increase for taxable profits in higher tax rate jurisdictions.
The major components of the income tax charge/(credit) are set out below:
2023 2022
Consolidated income statement Total Included in Not included in Total Included inadjusted profit(1)£m Not included inadjusted profit(1)£m
reported adjusted profit adjusted profit reported
£m £m £m £m
Current income tax
Current income tax charge 26.2 26.4 (0.2) 14.0 7.6 6.4
Adjustment in respect of prior years 4.0 4.0 — (1.2) (1.2) —
Deferred tax
On origination and reversal of temporary differences 43.9 0.8 43.1 (36.7) (11.3) (25.4)
Effect of changes in tax rate on deferred tax balances (0.4) (0.4) — 3.0 3.0 —
Adjustment in respect of prior years 0.3 0.3 — 6.3 6.3 —
Total charge/(credit) 74.0 31.1 42.9 (14.6) 4.4 (19.0)
1. To enable a like-for-like comparison of adjusted results, the 2022
comparatives have been re-presented to exclude the businesses classified as
business exits during 2023 from adjusted profit. Refer to note 9.
Consolidated statement of comprehensive income and consolidated statement of changes in equity 2023 £m 2022 £m
Deferred tax movement on cash flow hedges (2.6) 1.6
Deferred tax movement in relation to actuarial changes on defined benefit pension schemes 3.3 5.2
Current income tax movement on defined benefit pension scheme contributions (19.2) (7.2)
Deferred tax movement in relation to share-based payments (0.1) —
Current income tax deduction on the exercise of share options (0.2) —
Total credit (18.8) (0.4)
7 Taxation continued
The reconciliation between the total tax charge/(credit) and the accounting
profit multiplied by the UK weighted average corporation tax rate is as
follows:
Total tax Current tax
2023 £m 2022 £m 2023 £m 2022 £m
(Loss)/profit before tax (106.6) 61.4 (106.6) 61.4
Notional (credit)/charge at UK weighted average corporation tax rate of 23.5% (2022: 19.0%) (25.1) 11.7 (25.1) 11.7
Adjustments in respect of current income tax of prior years a 4.0 (1.2) 4.0 (1.2)
Adjustments in respect of deferred tax of prior years b 0.3 6.3 — —
Non-deductible expenses/(non-taxable income) – adjusted 0.2 (2.3) 0.2 (2.3)
Non-deductible expenses – business exit c* 4.9 2.3 4.9 2.3
Non-deductible expenses – specific items 1.7 — 1.7 —
Loss/(profit) on disposal of businesses d* 0.6 (31.6) 0.6 (31.6)
Non-deductible goodwill impairment e* 9.9 32.0 9.9 32.0
Difference in rate recognition of temporary differences (0.4) 3.0 — —
Tax provided on unremitted earnings f 0.2 1.4 — —
Attributable to different tax rates in overseas jurisdictions g (4.3) 0.5 (2.9) 0.5
Movement in unrecognised temporary differences 82.0 (36.7) — —
Fixed asset temporary differences — — 5.7 6.8
Current tax impact on other temporary differences — — (0.4) (6.4)
Carry forward of losses in current period h — — 31.6 1.0
At the effective total tax rate of (69.4)% (2022: (23.8)%) and the effective current tax rate of (28.3)% (2022: 20.8%) i 74.0 (14.6) 30.2 12.8
Tax charge/(credit) reported in the income statement 74.0 (14.6) 30.2 12.8
* These £15.4m (2022: £2.7m) of reconciling items relate to the reported tax
charge only, with no impact on the adjusted tax charge. Further details are
given below.
a The £4.0m prior year charge adjustment includes: (i) £0.2m for additional
uncertain tax positions provided against; (ii) £0.3m credit which has a
corresponding impact within deferred tax of prior years; and (iii) a £4.1m
charge to adjust for finalisation of submitted tax returns for which there is
no opposite deferred tax credit in relation to the temporary difference
true-up because these are unrecognised.
b Adjustments in respect of deferred tax of prior years mainly relate to
£0.3m of charges which have a corresponding impact within current income tax
of prior years.
c* Business exit: relates to non-deductible closure costs associated with the
sale of entities. Refer to note 9 for further details.
d*Relates to the application of the tax exemption on accounting losses from
the sale of entities. Refer to note 9 for further details.
e*Relates to the goodwill impairments as detailed further in note 11.
f Movement on the deferred tax liability recognised on the unremitted
earnings of those subsidiaries affected by withholding taxes.
g Mainly relates to tax payable at lower rates, eg in the Isle of Man.
h Relates to the carry forward of tax losses in the current period, most of
which arise in relation to adjusting items (cost reduction programme and cyber
incident) and deductible pension contributions in the period.
i The current tax charge of £30.2m (2022: £12.8m) results in an
effective current tax rate of (28.3)%, which is different from the UK weighted
average statutory rate of tax of 23.5% predominantly due to: non-deductible
goodwill impairment; and unrecognised losses carried forward. The impact of
differing overseas tax rates is covered in footnote (g).
Deferred tax
A change to the main UK statutory corporation tax rate was substantively
enacted on 24 May 2021. The rate applicable from 1 April 2023 increased from
19% to 25%. The net UK deferred tax assets for the period to 31 December
2023, and the prior period, have been calculated based on this rate.
Deferred tax relates to the following:
7 Taxation continued
Credited/(charged) to
At 1 January £m Income OCI and Other movements(2 )£m At 31 December £m
statement changes in
£m equity
£m
Deferred tax assets
Fixed assets which qualify for tax relief 90.8 (1.2) — (2.4) 87.2
Provisions and other temporary differences 10.5 (1.5) 2.6 (0.3) 11.3
Pension schemes 5.9 (0.6) (3.3) (0.2) 1.8
Share-based payments 1.3 0.1 0.1 — 1.5
Tax losses(1) 81.4 (42.5) — (2.2) 36.7
189.9 (45.7) (0.6) (5.1) 138.5
Jurisdictional netting (0.4) 1.8
Net deferred tax assets 189.5 (45.7) (0.6) (5.1) 140.3
Deferred tax liabilities
Acquired intangibles (0.2) 0.1 — — (0.1)
Contract fulfilment assets (2.2) 2.0 — — (0.2)
Unremitted earnings (4.9) (0.2) — — (5.1)
(7.3) 1.9 — — (5.4)
Jurisdictional netting 0.4 (1.8)
Net deferred tax liabilities (6.9) 1.9 — — (7.2)
Net deferred tax 182.6 (43.8) (0.6) (5.1) 133.1
1. Mainly trading losses available to shelter future profits and deferred
interest.
2. Other movements includes business disposals.
The main movement in the net deferred tax asset is the income statement tax
charge arising on the change in the accounting estimate of deferred tax.
For the purpose of recognising deferred tax on the pension scheme surplus,
withholding tax at 35% would apply for any surplus being refunded to the Group
at the end of the life of the scheme. Corporation tax at 25% would apply for
any surplus expected to unwind over the life of the scheme. Management have
concluded that the corporation tax rate should apply to the recognition of
deferred tax on the pension scheme surplus, reflecting the Group’s intention
regarding the manner of recovery of the asset.
Deferred tax assets are recognised only to the extent that it is probable that
future taxable profits will be available against which the assets can be
utilised. The recoverability of deferred tax assets is supported by the
deferred tax liabilities against which the reversal can be offset and the
expected level of future taxable profits available to offset the assets when
they reverse.
The recognition of deferred tax assets at 31 December 2023 has been based on
the forecast accounting profits in the 2024-2026 business plans (BP) approved
by the Board. This is the same plan used to derive forecast cash flows for the
goodwill impairment test (refer to note 11). A long-term growth rate of 1.7%,
as used for impairment test purposes, has been applied to the years beyond
2026. A reducing probability factor has also been applied to future profits
for the potential decrease in reliability of forecasts extrapolated for later
years, such that profits beyond seven years of the balance sheet date have not
been considered probable for the purpose of assessing deferred tax asset
recognition.
Unused tax losses make up the majority of the temporary differences available
to be utilised in future periods. These losses mainly arose due to the
historic adoption of IFRS 15, previous Covid-19 related downward pressures on
profits and tax deductible restructuring costs, and in the current year due to
tax deductible cost reduction programme expenses, cyber costs and pension
contributions. Based on the forecast accounting profits, management have
concluded that some of the deductible temporary differences and unused tax
losses are not recognisable due to uncertainty in their recoverability.
Therefore, there is a decrease in the amounts previously recognised in respect
of deferred tax assets, along with further unrecognised temporary differences
arising during the year. The impact of this is a charge to the income
statement of £45.2m. This is included in the movement in unrecognised
temporary differences of £82.0m in the tax reconciliation table above, which
also includes unrecognised current year temporary differences (mainly losses)
of £36.8m. The reported income statement charge includes £45.5m change in
the deferred tax asset estimate due to the reduction in future taxable profits
on disposal of taxable subsidiaries, reflected in the tax arising on business
exits (see Note 9).
Deferred tax asset recognition depends on the reliability of management’s
forecasts and the assumptions that underlie them. Management have considered
the severe but plausible downsides applied to the base-case projections for
assessing going concern and viability, to gauge sensitivity and identify a
reasonable possible alternative result. This scenario identified a further
potential reduction in recognised deferred tax assets of approximately £16m.
The Group has unrecognised tax losses and other temporary differences that are
available for offset against future taxable profits of the companies in which
the losses or other temporary differences arose, but have not been recognised
because their recoverability is uncertain. The table below shows the amounts
split between UK and non-UK jurisdictions.
2023 £m Gross Amount 2022 £m Gross Amount
UK:
Tax losses 628.7 332.7
Other temporary timing differences 140.2 113.9
768.9 446.6
Non-UK:
Tax losses 67.4 60.8
Other temporary timing differences 11.2 11.6
78.6 72.4
Total 847.5 519.0
7 Taxation continued
The £328.5m increase in unrecognised tax losses and other temporary
differences reflects the decrease in the amounts previously recognised in
respect of deferred tax assets, and unrecognised temporary differences arising
during the year due to tax deductible cost reduction programme expenses, cyber
costs and pension contributions.
Assets have no time expiry, but some losses are subject to specific loss
restriction rules. £28.8m (2022: £39.9m) of the losses were incurred by
companies acquired by the Group and are not a result of the Group’s trading
performance.
Dividends received from subsidiaries are largely exempt from UK tax but may be
subject to dividend withholding taxes levied by the overseas tax jurisdictions
in which the subsidiaries operate. The gross temporary differences of those
subsidiaries affected by such potential taxes is £48.4m (2022: £58.4m). A
deferred tax liability of £5.1m (2022: £4.9m) has been recognised on the
unremitted earnings of those subsidiaries affected by such potential taxes
because the Group is able to control the timing of reversal and it is
anticipating dividends to be distributed. The earnings remitted during the
year have resulted in a reduction in the closing deferred tax liability.
8 Earnings/(loss) per share
Basic earnings/(loss) per share are calculated by dividing net profit for the
period attributable to ordinary equity holders of the Parent Company by the
weighted average number of ordinary shares outstanding during the year.
Diluted earnings/(loss) per share are calculated by dividing the net
(loss)/profit for the period attributable to ordinary equity holders of the
Parent Company by the weighted average number of ordinary shares outstanding
during the year 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.
2023 2022
pence pence
Basic earnings/(loss) per share – reported (10.60) 4.47
– adjusted 1.70 2.64
Diluted earnings/(loss) per share – reported (10.60) 4.40
– adjusted 1.70 2.60
The following tables show the earnings and share data used in the basic and
diluted earnings/(loss) per share calculations:
2023 2022
£m £m
Reported (loss)/profit before tax for the period (106.6) 61.4
Income tax (charge)/credit 7 (74.0) 14.6
Reported (loss)/profit for the period (180.6) 76.0
Less: Non-controlling interest 2.5 (1.2)
Total (loss)/profit attributable to shareholders (178.1) 74.8
Adjusted profit before tax(1) for the period 5 56.5 49.8
Income tax (charge)/credit 7 (31.1) (4.4)
Adjusted profit for the period 25.4 45.4
Less: Non-controlling interest 3.1 (1.2)
Adjusted profit attributable to shareholders 28.5 44.2
1.Definitions of the alternative performance measures and related Key
Performance Indicators (KPIs) can be found in the Appendix.
2023 2022 m
m
Weighted average number of ordinary shares (excluding Employee Benefit Trust shares) for basic earnings per share 1,680.9 1,671.7
Dilutive potential ordinary shares:
Employee share options — 30.0
Weighted average number of ordinary shares (excluding Employee Benefit Trust shares) adjusted for the effect of dilution 1,680.9 1,701.7
At 31 December 2023 35,795,731 (2022: nil) options were excluded from the
diluted weighted average number of ordinary shares calculation because their
effect would have been anti-dilutive. Under IAS 33 Earnings per Share,
potential ordinary shares are treated as dilutive when, and only when, their
conversion into ordinary shares would decrease earnings per share or increase
loss per share from continuing operations.
The earnings per share figures are calculated based on earnings attributable
to ordinary equity holders of the Parent Company, and therefore exclude
non-controlling interest. The earnings per share is calculated on a total
reported and an adjusted basis. The earnings per share for business exits and
specific items are reconciling items between total reported and adjusted basic
earnings per share.
There have been no other transactions involving ordinary shares or potential
ordinary shares between the balance sheet date and the date on which these
consolidated financial statements were authorised for issue.
9 Business exits and assets held for sale
Business exits
Business exits are businesses that have been sold, exited during the period,
or are in the process of being sold or exited in accordance with the Group's
strategy. None of these business exits meets the definition of ‘discontinued
operations’ as stipulated by IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, which requires comparative financial information 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 2022 comparatives have been
re-presented to exclude the businesses classified as business exits during
2023.
Assets held for sale
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, and, the sale should be
expected to be completed within one year from the date of classification.
Based on the above requirements, individual businesses will only reach the
criteria to be treated as held for sale when their disposal is seen to be
highly probable, and expected to complete within the following twelve months.
At 31 December 2023 one business (the Group’s 75% shareholding in Fera
Science Limited (Fera)) was deemed to have met this threshold. At 31 December
2022 no disposals were deemed to have met this threshold.
2023 business exits
Business exits at 31 December 2023 primarily comprised the following business
disposals:
Business Disposal completed on
Resourcing 31 May 2023
Security Watchdog 31 May 2023
PageOne 31 July 2023
Software 31 July 2023
Enforcement 31 July 2023
Travel 14 November 2023
Fera 17 January 2024
In addition to the above disposals, the Group decided to exit a business in
Capita Public Service in the second half of the year, and the trading result
and non-trading expenses of this business have been excluded from adjusted
results.
2023 2022 (Re-presented)(1)
Income statement impact Trading Non-trading Total Trading Non-trading Total
£m £m £m £m £m £m
Revenue 172.5 — 172.5 405.6 — 405.6
Cost of sales (110.7) — (110.7) (284.6) — (284.6)
Gross profit 61.8 — 61.8 121.0 — 121.0
Administrative expenses (65.2) (33.0) (98.2) (81.3) (23.2) (104.5)
Operating (loss)/profit (3.4) (33.0) (36.4) 39.7 (23.2) 16.5
Net finance costs — — — (1.1) — (1.1)
(Loss)/gain on business disposal — (2.4) (2.4) — 166.9 166.9
(Loss)/profit before tax (3.4) (35.4) (38.8) 38.6 143.7 182.3
Taxation 0.3 (43.9) (43.6) (7.3) 26.0 18.7
(Loss)/profit after tax (3.1) (79.3) (82.4) 31.3 169.7 201.0
1. To enable a like-for-like comparison of adjusted results, the 2022
comparatives have been re-presented to include the businesses classified as
business exits during 2023.
Trading revenue and costs represent the current period trading performance of
the above businesses up to the point of being disposed or exited, and in the
comparative period those businesses disposed of during 2022 (AMT Sybex, Secure
Solutions and Services, Trustmarque, Speciality Insurance, Real estate and
infrastructure consultancy, Optima Legal Services, Pay360, and Capita
Translation and Interpreting).
Trading expenses primarily comprise payroll costs of £121.0m (2022:
£307.2m), information technology costs of £18.5m (2022: £50.0m), and the
de-recognition of non-current contract fulfilment assets on the early
termination of a customer contract within the business being exited in Capita
Public Service of £8.2m (2022: £nil).
Non-trading administrative expenses include: asset impairments of £25.4m
(2022: £nil); disposal project costs of £5.6m (2022: £14.4m); other costs
including staff and redundancy costs of £2.6m (2022: £8.7m); and, other
income of £0.6m (2022: £nil). The asset impairments arising in 2023 include
goodwill within assets held for sale of £18.1m, property, plant and equipment
of £7.1m and right-of-use-assets of £0.2m.
9 Business exits and assets held for sale continued
2023 disposals
During 2023 the Group disposed of six businesses: Resourcing, Security
Watchdog, PageOne, Software, Enforcement and Travel. During 2022 the Group
disposed of eight businesses: AMT Sybex, Secure Solutions and Services,
Trustmarque, Speciality Insurance, Real estate and infrastructure consultancy,
Optima Legal Services, Pay360 and Capita Translation and Interpreting.
The (loss)/gain arising was determined as follows:
2023 £m 2022 £m
Property, plant and equipment 0.3 0.2
Intangible assets 8.6 20.4
Goodwill 3.2 178.3
Right-of-use assets 0.2 0.2
Income tax recoverable and deferred tax assets 0.8 7.6
Contract fulfilment assets — 2.8
Trade and other receivables 78.6 136.6
Cash and cash equivalents 14.6 55.9
Disposal group assets held for sale(1) 78.2 143.0
Trade and other payables (36.6) (127.0)
Deferred income (3.9) (38.6)
Lease liabilities (0.2) (0.3)
Capita group loan balances (42.7) (102.3)
Income tax payable and deferred tax liabilities (1.1) (0.7)
Provisions — (0.4)
Disposal group liabilities held for sale(1) (33.5) (135.4)
Net identifiable assets sold 66.5 140.3
Non-controlling interests — (0.3)
66.5 140.0
Sales price:
received in cash 68.4 330.0
deferred receivable 11.4 10.5
Less: disposal costs (15.5) (33.3)
Net sales price 64.3 307.2
Realisation of cumulative currency translation difference (0.2) (0.3)
(Loss)/gain on disposal of businesses (2.4) 166.9
Net cash inflow
Proceeds received 68.4 330.0
Less disposal costs:
income statement charge (15.5) (33.3)
change in accrued disposal costs during the year (8.1) 9.9
Settlement of receivables due from disposed businesses:
disposal of businesses in the period 52.0 102.3
disposal of businesses classified as held for sale — 54.5
Total proceeds received net of disposal costs paid 96.8 463.4
Total cash held by businesses when sold
Cash held by businesses when sold (33.4) (55.9)
Cash held by businesses classified as held for sale — (19.6)
Total cash held by businesses when sold (33.4) (75.5)
Net cash inflow 63.4 387.9
1. 2023 balances in respect of disposal group assets and liabilities held for
sale relate to three businesses (PageOne, Software and Enforcement) that were
transferred to held for sale on 30 June 2023, and were subsequently sold on 31
July 2023. 2022 balances relate to three businesses (AMT Sybex software,
Secure Solutions and Services (SSS), and Speciality Insurance) that were held
for sale at 31 December 2021, and were subsequently sold during 2022.
Disposal costs of £11.0m, relating to businesses disposed of in the year,
were recognised in prior years and are excluded from the above loss on
disposal of businesses.
9 Business exits and assets held for sale continued
Disposal group assets and liabilities held for sale
At 31 December 2023, the Fera business was deemed to have met the threshold
to be treated as held for sale (2022: no disposals were deemed to have met the
held for sale threshold).
2023 £m 2022 £m
Property, plant and equipment 5.1 —
Goodwill 15.0 —
Trade and other receivables 3.3 —
Accrued income 6.1 —
Prepayments 1.4 —
Cash and cash equivalents 7.2 —
Disposal group assets held for sale 38.1 —
Trade and other payables 2.1 —
Other taxes and social security 1.6 —
Accruals 1.8 —
Deferred income 3.6 —
Income tax payable and deferred tax liabilities 0.6 —
Disposal group liabilities held for sale 9.7 —
Business exit cash flows
Businesses exited and being exited had a cash generated from operations
outflow of £16.2m (2022: cash inflow of £28.0m).
10 Cash flow information
Additional cash flow information
2023 2022
Notes Reported Excluding business exits(2 )£m Reported £m Excluding business exits(2 )£m
£m
Cash flows from operating activities:
Reported operating loss 5 (52.0) (52.0) (79.6) (79.6)
Less: business exit operating loss/(profit) 9 — 36.4 — (16.5)
Total operating loss (52.0) (15.6) (79.6) (96.1)
Adjustments for non-cash items:
Depreciation 79.5 78.1 96.9 93.8
Amortisation of intangible assets 29.3 26.0 41.5 30.6
Share-based payment expense 5.5 5.5 5.4 5.4
Employee benefits 7.7 7.7 9.0 9.0
Loss on sale of property, plant and equipment and intangible assets 0.7 0.7 3.5 3.5
Amendments and early terminations of leases 3.0 3.0 (4.7) (4.7)
Impairment of assets held for sale 18.1 — — —
Impairment of non-current assets 69.6 62.3 176.9 176.1
Other adjustments:
Movement in provisions 23.0 15.3 (42.1) (48.5)
Pension deficit contributions (46.3) (30.0) (38.6) (30.0)
Other contributions into pension schemes (9.2) (9.2) (10.0) (10.0)
Movements in working capital:
Trade and other receivables (30.1) (5.6) (41.0) 37.0
Non-recourse trade receivables financing (9.2) (9.2) 28.0 28.0
Trade and other payables (8.5) (6.0) 84.8 20.9
VAT deferral — — (14.9) (14.9)
Deferred income (77.4) (81.8) (116.0) (122.0)
Contract fulfilment assets (non-current) 5.0 — 18.7 20.3
Cash generated from operations 8.7 41.2 117.8 98.4
Adjustments for free cash flows:
Income tax paid (7.5) (3.6) (7.9) (10.9)
Interest received 6.2 6.2 5.0 5.0
Interest paid (47.7) (47.7) (43.0) (41.6)
Net cash (outflow)/inflow from operating activities (40.3) (3.9) 71.9 50.9
Purchase of property, plant and equipment (28.8) (27.4) (20.6) (11.2)
Purchase of intangible assets (32.8) (31.6) (27.3) (27.3)
Proceeds from sale of property, plant and equipment and intangible assets 0.1 0.1 0.5 0.5
Capital element of lease rental receipts 6.0 6.0 5.8 5.8
Capital element of lease rental payments (59.1) (58.7) (61.8) (61.1)
Free cash flow(2) (154.9) (115.5) (31.5) (42.4)
1. Definitions of the alternative performance measures and related Key
Performance Indicators (KPIs) can be found in the Appendix.
1. From 1 January 2023 free cash flow and free cash flow excluding business
exits are presented after deducting the capital element of lease payments and
receipts. Comparative amounts have been re-presented.
Cyber incident: In relation to the exceptional cyber incident costs referred
to in note 5, the cash outflow during the year ended 31 December 2023 was
£20.1m and is included within free cash flow excluding business exits, and
cash generated from operations excluding business exits.
Cost reduction programme: In relation to the implementation of the cost
reduction programme detailed in note 5, the cash outflow during the year ended
31 December 2023 was £6.1m and is included within free cash flow excluding
business exits, and cash generated from operations excluding business exits. A
further outflow of approximately £21m associated with the programme announced
in November 2023 is expected in 2024.
10 Cash flow information continued
Free cash flow and cash generated from operations (alternative performance
measures - refer to Appendix)
The Board considers free cash flow, and cash generated from operations
excluding business exits, to be alternative performance measures because these
metrics provide a more representative measure of the sustainable cash flow of
the Group.
Following feedback from investors the Board has revised its definition of the
free cash flow and free cash flow excluding business exits alternative
performance measures. From 1 January 2023, both these metrics have been
presented after deducting the capital element of lease payments and receipts,
since this provides a more relevant and comparable measure of the cash
generated by the Group’s operations and available to fund operations,
capital expenditure, non-lease debt obligations, and potential shareholder
distributions. Comparative amounts have been re-presented.
These measures are analysed below:
Free cash flow Cash generated/(used) by operations
2023 £m 2022 £m 2023 £m 2022 £m
Reported (including business exits) (154.9) (31.5) 8.7 117.8
Business exits 23.1 (19.5) 16.2 (28.0)
Pension deficit contributions triggered by disposals 16.3 8.6 16.3 8.6
Excluding business exits (115.5) (42.4) 41.2 98.4
A reconciliation of net cash flow to movement in net debt is included below.
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 2022 results have been re-presented for those businesses
exited, or in the process of being exited, during 2023 to enable comparability
of the adjusted results.
Pension deficit contributions triggered by disposals: the Trustee of the
Group’s main defined benefit pension scheme has agreed with the Group to
accelerate the payment of future agreed deficit contributions on a pound for
pound basis in the event of disposal proceeds being used to fund mandatory
prepayments of debt. The disposal of Pay360 and Capita Translation and
Interpreting in the second half of 2022 and Resourcing in 2023 resulted in
accelerated deficit contributions totalling £16.3m being paid into the Scheme
during 2023. Additionally, as a result of the Trustmarque disposal in March
2022, a further £14.5m of accelerated deficit contributions is required by
March 2024 (2022: Pension deficit contributions of £8.6m triggered by: the
disposal of the Trustmarque business which led to accelerated deficit
contributions of £5.9m; and the disposal of the Axelos business in 2021 which
led to accelerated deficit contributions of £2.7m).
Reconciliation of net cash flow to movement in net debt
Year ended 31 December 2023 Net debt at 1 January £m Cash flow Total Non-cash movement £m Net debt at 31 December £m
movements
£m
Cash, cash equivalents and overdrafts 177.2 (106.9) (2.7) 67.6
Private placement loan notes (289.5) 17.5 5.0 (267.0)
Unamortised transaction costs on debt issuance 4.0 5.4 (4.9) 4.5
Carrying value of private placement loan notes (285.5) 22.9 0.1 (262.5)
Cross-currency interest rate swaps 24.8 (6.9) (4.3) 13.6
Fair value of private placement loan notes (260.7) 16.0 (4.2) (248.9)
Other finance (0.7) 0.5 0.1 (0.1)
Lease liabilities (397.5) 81.4 (47.3) (363.4)
Total net liabilities from financing activities (658.9) 97.9 (51.4) (612.4)
Deferred consideration payable (0.7) — — (0.7)
Net debt (482.4) (9.0) (54.1) (545.5)
Year ended 31 December 2022 Net debt at 1 January £m Cash flow movements £m Total Non-cash movement £m Net debt at 31 December £m
Cash, cash equivalents and overdrafts 101.5 75.3 0.4 177.2
Private placement loan notes (513.4) 236.8 (12.9) (289.5)
Unamortised discount on debt issuance (2.1) — 2.1 —
Unamortised transaction costs on debt issuance 2.6 5.2 (3.8) 4.0
Carrying value of private placement loan notes (512.9) 242.0 (14.6) (285.5)
Cross-currency interest rate swaps 28.0 (10.1) 6.9 24.8
Fair value of private placement loan notes (484.9) 231.9 (7.7) (260.7)
Other finance (1.3) 0.6 — (0.7)
Credit facilities (46.0) 46.0 — —
Lease liabilities (448.4) 84.4 (33.5) (397.5)
Total net liabilities from financing activities (980.6) 362.9 (41.2) (658.9)
Deferred consideration payable (0.7) — — (0.7)
Net debt (879.8) 438.2 (40.8) (482.4)
Overdrafts comprise the aggregate value of overdrawn bank account balances
within the Group’s notional interest pooling arrangements. These aggregate
overdrawn amounts are fully offset by surplus balances within the same
notional pooling arrangements.
At 31 December 2023, the Group’s £260.7m committed revolving credit
facility was undrawn (31 December 2022: undrawn).
11 Goodwill
2023 £m 2022 £m
Cost
At 1 January 1,423.3 1,676.8
Disposal of businesses (199.6) (255.0)
Transfer to disposal group assets held for sale(1) (149.0) —
Exchange movement (0.5) 1.5
At 31 December 1,074.2 1,423.3
Accumulated impairment
At 1 January 817.4 725.1
Disposal of businesses (196.4) (76.7)
Transfer to disposal group assets held for sale(1) (84.7) —
Impairment – excluded from adjusted profit 42.2 169.0
At 31 December 578.5 817.4
Net book value
At 1 January 605.9 951.7
At 31 December 495.7 605.9
1. Transfers to disposal group assets held for sale in the year ended
31 December 2023 includes £49.3m that was transferred at 30 June 2023 and
subsequently sold during the second half of the year.
Cash-generating units
Reflecting 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 Capita Public Service and Capita Experience, and at a
sub-divisional level for Capita Portfolio. At 31 December 2023, following the
disposal, transfer to assets held for sale or transfer to another division of
all the businesses that were under Capita Portfolio, the Group has two
remaining CGUs or groups of CGUs for the purpose of impairment testing of
goodwill.
Carrying amount of goodwill allocated to groups of CGUs:
Capita Portfolio
CGU Capita Public Service £m Capita Experience £m People £m Software £m Business Solutions £m Travel £m Fera £m Total £m
At 1 January 284.6 209.8 1.7 36.3 21.7 36.8 15.0 605.9
Reclassifications 1.8 — — — (1.8) — — —
Disposal of businesses — — (1.7) — — (1.5) — (3.2)
Transfer to assets held for sale(1) — — — (36.3) (13.0) — (15.0) (64.3)
Impairment – excluded from adjusted profit — — — — (6.9) (35.3) — (42.2)
Exchange movement — (0.5) — — — — — (0.5)
At 31 December 286.4 209.3 — — — — — 495.7
1. Transfers to disposal group assets held for sale in the year ended
31 December 2023 includes £49.3m that was transferred at 30 June 2023 and
subsequently sold during the second half of the year.
Business exits
As set out in note 9, six businesses were fully disposed of during the year.
Goodwill relating to all of these businesses is included within the Group’s
brought forward goodwill balances at 1 January 2023, and has either been
impaired during the course of the year, or derecognised as part of business
disposals.
The Group’s shareholding in Fera Science Limited was deemed to have met the
threshold to be treated as held for sale at 31 December 2023, with goodwill
relating to this business (Fera) reclassified to disposal group assets held
for sale.
One business within the Capita Public Service division met the criteria to be
treated as a business exit at 31 December 2023, however there is no goodwill
attributable to this business.
The impairment test
In undertaking the annual impairment review, the directors considered both
internal and external sources of information, and any observable indications
that may suggest that the carrying value of goodwill may be impaired. This
included a comparison with the Group’s share price and market
capitalisation.
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 fair
value less cost of disposal, and its value in use. As the Group implements the
Group-wide cost reduction programme announced in November 2023 and referred to
in note 5, and continues to be committed to evaluating additional cost
savings opportunities, it has been determined that at 31 December 2023, fair
value less costs of disposal will generate the higher recoverable amount.
The valuation of CGUs under fair value less costs of disposal assumes that a
third-party acquirer will undertake a similar plan to derive similar benefits
in the business going forward. The enterprise value of each CGU is dependent
on the successful implementation of the cost reduction programme.
Fair value less costs of disposal for each CGU has been estimated using
discounted cash flows. The fair value measurement was categorised as a Level-3
fair value based on the inputs in the valuation technique used. The costs of
disposal have been estimated based on the Groups’ significant disposals in
recent years.
At 30 June 2023, a goodwill impairment of £35.3m was recognised in respect
of the Travel CGU. This impairment arose primarily due to the expectation of
acquirers factoring in additional investment and costs required to run the
businesses outside of the Group, and general macroeconomic conditions. The
Travel CGU was disposed of in the second half of 2023.
11 Goodwill continued
In addition, an impairment of £6.9m was recognised at 30 June 2023 in
respect of a business in the Business Solutions group of CGUs in Capita
Portfolio. Since the disposal process for this business was less far advanced,
the recoverable amount of the CGU, being its value-in-use, was calculated
based on operating the business into perpetuity. The goodwill impairment arose
primarily due to a negotiated exit of an end customer, which negatively
impacted the forecast financial performance of the business. In the second
half of 2023 this business was moved into the Capita Public Service division
and CGU.
At 31 December 2023, the estimated recoverable amount of each remaining Group
of CGUs exceeded its respective carrying value. The key inputs to the
calculations are described below, including changes in market conditions.
Forecast cash flows
The cash flow projections prepared for the impairment test are derived from
the 2024-2026 business plans (BP) approved by the Board, which are prepared on
a nominal basis. Key assumptions in the BP include the delivery of planned
revenue growth and the benefits that the cost reduction programme is
anticipated to deliver, in particular in the Capita Experience CGU given
recent past performance.
The going concern severe but plausible downside scenarios have taken account
of the potential adverse financial impacts resulting from the following risks,
which include the key assumptions noted above:
* revenue growth falling materially short of plan;
* operating profit margin expansion not being achieved;
* targeted cost savings delayed or not delivered;
* additional inflationary cost impacts which cannot be passed on to customers;
* unforeseen operational issues leading to contract losses and cash outflows;
and
* unexpected financial costs linked to incidents such as data breaches and/or
cyber-attacks.
As such, the below sensitivity analysis includes assessing the impact of these
crystallising on the impairment test performed.
Other than for movements in deferred income and contract fulfilment assets,
cash flows are adjusted to exclude working capital movements since the
corresponding balances are not included in the CGU carrying amount.
Allocation of central function costs
The Board has considered an appropriate methodology to apply when allocating
central function costs. The methodology applied for the 2023 impairment test
was aligned to that applied in reporting segmental performance (refer to note
4). The remaining Group related costs of Capita plc, which have not been
allocated as part of segmental reporting, are allocated to CGUs for impairment
testing purposes based on 2024 forecast Earnings before Interest, Tax,
Depreciation and Amortisation (EBITDA).
Long-term growth rate
The long-term growth rate is based on economic growth forecasts by recognised
bodies and this has been applied to forecast cash flows for years four and
five (2027 and 2028) and for the terminal period. The 2023 long-term growth
rate is 1.7% (2022: 2.2%).
Discount rates
Management estimates discount rates using nominal pre-tax rates of comparator
companies for each CGU or group of CGUs. The discount rates reflect the latest
market assumptions for the risk-free rate, the equity risk premium and the net
cost of debt, and which are all based on publicly available external sources.
The table below presents the pre-tax discount rates applied to the cash flows
for 2023 and 2022.
Capita Public Service Capita Experience
2023 11.0% 9.2%
2022 11.8% 10.4%
Sensitivity analysis
The impairment testing as described is reliant on the reliability of
management’s forecasts and the assumptions that underlie them; and on the
selection of the discount and growth rates to be applied. 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.
The sensitivity scenarios applied estimate potential impairments required
(with all other variables being equal) through: an increase in discount rate
of 1%, or a decrease of 1% in the long-term growth rate (for the terminal
period) for the Group in total and each of the CGUs; or, through the severe
but plausible downsides applied to the base-case projections for assessing
going concern and viability, without mitigations, for 2024 to 2026, and the
long-term growth rate (1.7%) applied to the 2026 downside cash flows to
generate projected cash flows for 2027, 2028, and the terminal period. We have
also considered the impact of all of the scenarios together, which is also a
reasonable possible alternative.
No potential impairments have been identified under any of these sensitivity
scenarios, including the combination sensitivity scenario.
Comparison to share price and market capitalisation
The company’s market capitalisation indicates an enterprise value that
continues to be significantly less than the Group’s sum-of-the-parts CGU
valuation based upon the model prepared for impairment testing purposes at
31 December 2023. The directors gave consideration as to why this might be
the case and the reasonableness of the assumptions used within the impairment
model, and whether these points could indicate additional indicators of
impairment in respect of the Group’s goodwill balances.
The factors considered included: the differing basis of valuations (including
that third parties value the services sector on income statement multiples
versus long-term view using a discounted cash flow for the basis of impairment
testing under accounting standards), sum-of-the-parts view and the multiples
achieved on recent disposals, general market assumptions of the sector which
can ignore the liquidity profile and specific risks of an entity, and other
specific items impacting the market’s view of the Group at the moment.
Taking these points into consideration, the Board are comfortable that there
is no impairment in respect of goodwill to be recognised at 31 December 2023,
despite the continuing low market capitalisation of the Group.
12 Provisions
Cost reduction provision £m Business exit provision £m Claims and litigation provision £m Property provision £m Customer contract provision £m Other provisions £m Total £m
At 1 January — 10.7 17.0 18.7 73.5 7.4 127.3
Provisions in the year 35.6 10.6 29.9 3.9 16.5 7.5 104.0
Releases in the year — (3.3) (3.5) (6.3) (12.3) (2.7) (28.1)
Utilisation (6.1) (10.2) (2.8) (7.4) (21.4) (6.9) (54.8)
Discount unwind on provisions — — — — 2.3 — 2.3
Transfer to disposal group liabilities held for sale(1) — — — (0.5) — — (0.5)
Reclassification between categories — — 0.8 (0.6) (0.1) (0.1) —
At 31 December 29.5 7.8 41.4 7.8 58.5 5.2 150.2
31 December 2023 £m 31 December 2022 £m
Current 101.6 75.7
Non-current 48.6 51.6
150.2 127.3
1. Transfers to disposal group assets held for sale in the year ended
31 December 2023 includes £0.5m that was transferred at 30 June 2023 and
subsequently sold during the second half of the year.
Cost reduction provision: The provision represents the cost of reducing
headcount where communication to affected employees has crystallised a valid
expectation that roles are at risk and it is likely to unwind over the next
twelve months. Additionally, it relates to unavoidable running costs of
leasehold properties, such as insurance and security, and dilapidation
provisions, where properties are exited as a result of the cost reduction
programme. These provisions are likely to unwind over periods of up to four
years. Refer to note 5 for further details on the cost reduction programme.
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 four 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 based on 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, such
as insurance and security, of leasehold property where the space is vacant or
currently not planned to be used, and dilapidation costs, for ongoing
operations, and not the cost reduction programme detailed in note 5 (where
such costs are included in the cost reduction provision). The expectation is
that this expenditure will be incurred over the remaining periods of the
leases which vary up to 23 years.
Customer contract provision: The provision includes onerous contract
provisions in respect of customer contracts where the costs of fulfilling a
contract (both incremental and costs directly related to contract activities)
exceeds the economic benefits expected to be received under the contract,
claims/obligations associated with missed milestones in contractual
obligations, and other potential exposures related to contracts with
customers. Customer contract life-time reviews are used to determine the value
of an onerous contract provision. The life-time contract review reflects the
forecast of the best estimate of external revenues and costs over the
remaining contract term. These provisions are forecast to unwind over periods
of up to six years.
The customer contract provision includes £53.3m (2022: £59.7m) in respect of
closed book Life & Pensions contracts in Capita Experience. The closed books
and contractual dynamics have led to onerous conditions to service certain of
these contracts. Management has been required to assess the likely length of
these contracts, given the pattern and experience of contract terminations
while also recognising the evergreen clauses (which potentially allow the
customer to extend the contracts indefinitely until the run-off of the
underlying life and pension books is complete). Accordingly, the Group has, in
prior years, provided for the onerous contract conditions based on the best
estimate of the remaining contract terms and the period and likely costs to
support the final handover of services. At 31 December 2023, the provision
was increased to provide cover for contracts to extend out to December 2028
(ie a five year rolling period).
Other provisions: Relates to provisions in respect of other potential
exposures arising as a result of the nature of some of the operations that the
Group provides, including supplier audit and regulatory provisions. These are
likely to unwind over periods of up to five years.
13 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 £22.5m (2022: £34.0m). At 31 December 2023
there was an additional guarantee of £15m in relation to the disposed Travel
businesses, which has since reduced to £9.5m in January 2024. Capita plc’s
exposure is counter-indemnified by Clarity Travel Limited.
The Group is reviewing its position in respect of a number of its closed book
Life & Pensions contracts. The outcomes and timing of this review, which are
uncertain, could result in no change to the current position, 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.
Following the cyber incident in March 2023 detailed in the Chief Executive
Officer’s Review, Capita has been working closely with all appropriate
regulatory authorities and with customers, suppliers and employees to notify
those affected and take any remaining necessary steps to address the incident.
At the date of approval of these consolidated financial statements, we remain
in dialogue with the Information Commissioner’s Office (ICO) and are
responding to their information requests. While we anticipate that there will
be further additional requests as part of ICO’s review, no formal action has
been taken by the ICO in connection with the cyber incident and there have
been no preliminary findings regarding fault that could lead to any potential
regulatory penalty. The Group has received notification of potential claims
for damages by or on behalf of individuals whose data may have been
exfiltrated as part of the incident. At the date of approval of these
consolidated financial statements, the Group has received no substantive
claims in relation to the cyber incident. Whether any such claims will be
received is uncertain, but the Group will vigorously defend any such claims
and, at the date of approval of these financial statements, it is not possible
to reliably estimate the potential value of any potential future claim or
penalty against the Group.
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.
14 Post balance sheet events
The following events occurred after 31 December 2023, and before the approval
of these consolidated financial statements, but have not resulted in
adjustment to the 2023 financial results:
Disposal of Fera
The disposal of the Group’s 75% shareholding in Fera Science Limited (Fera)
to a fund managed by Bridgepoint Development Capital completed on 17 January
2024.
Cash proceeds of £62m were received on completion, which included the
settlement of intercompany balances owed by Fera to the Group of £0.1m. Net
assets of c.£28m were disposed of on completion, alongside the derecognition
of non-controlling interests of c.£9m. Total costs of disposal are estimated
to be c.£9m, of which £3.5m were recognised in 2022 and 2023.
Contract with major European telecoms provider
In February 2024, the Group extended and expanded its contract with a major
European telecoms provider. The new contract is based on expected volumes, and
therefore treated as a framework contract under IFRS 15. As a result, £365m
included in the Capita Experience order book at 31 December 2023 relating to
the previous contract has been released. The new contract is expected to be
worth up to £420m to 2030.
Appendix - Alternative performance measures
The Group presents various alternative performance measures (APMs) because
internally the performance of the Group is reported and measured on this
basis. This includes Key Performance Indicators (KPIs) such as adjusted
revenue, adjusted profit before tax, adjusted basic/diluted earnings per
share, free cash flow excluding business exits, and gearing ratios. In
general, the Board believes that the APMs are useful for investors because
they provide further clarity and transparency of the Group’s financial
performance and are closely monitored by management to evaluate the Group’s
operating performance to facilitate financial, strategic and operating
decisions.
These APMs should not be viewed as a complete picture of the Group’s
financial performance which is presented in the reported results. The
exclusion of certain items may result in a more favourable view when costs
such as acquired intangible amortisation, costs relating to the cyber incident
in March 2023, expenses associated with the cost reduction programme announced
in November 2023 and impairments of goodwill are excluded. These measures may
not be comparable when reviewing similar measures reported by other companies.
APM Closest equivalent IFRS measure Definition, Purpose and Reconciliation
Income statement
Adjusted revenue Revenue Calculated as revenue less any revenue relating to businesses that have been sold, or exited during the year or prior year; or, are in the process of being sold, or exited.
This measure of revenue is used internally in respect of the Group’s continuing business (being the Group’s continuing activities, which exclude business exits) and the Board believes it is a good indication of ongoing performance.
The table below shows a reconciliation between reported and adjusted revenue, as well as adjusted revenue growth:
2023 2022
Reported revenue per the income statement £2,814.6m £3,014.6m
Deduct: business exits (note 9) £(172.5)m £(405.6)m
Adjusted revenue £2,642.1m £2,609.0m
Adjusted revenue growth 1.3% 1.7%
Adjusted operating profit Operating profit Calculated as reported operating profit excluding items determined by the Board to be outside underlying operations. These items are detailed in note 5.
A reconciliation of reported to adjusted operating profit is provided in note 5.
Adjusted operating profit margin Operating profit margin Calculated as the adjusted operating profit divided by adjusted revenue.
This
measu
re is
an
indic
ator
of
the
Group
’s
opera
ting
effic
iency
.
The
table
below
shows
the
compo
nents
, and
calcu
latio
n, of
adjus
ted
opera
ting
profi
t
margi
n:
2023 2022
Adjusted revenue a £2,642.1m £2,609.0m
Adjusted operating profit (note 5) b £106.5m £78.0m
Adjusted operating profit margin b/a 4.0% 3.0%
Adjusted EBITDA No direct equivalent Calculated as adjusted operating profit for the last twelve months before: depreciation, amortisation and impairment of property, plant and equipment, intangible assets and right-of-use assets; net finance costs; and the share of results in associates and investment gains (other than those already excluded from adjusted operating profit).
The directors believe that adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) is a useful measure for investors because it is closely monitored by management to evaluate Group and divisional operating performance.
This measure has been calculated pre and post the impact of IFRS 16 to enable investors to understand the impact of the Group’s lease portfolio on adjusted EBITDA.
The table below shows the calculation of adjusted EBITDA:
Post IFRS 16 Pre IFRS 16
2023 2022 2023 2022
Adjusted profit before tax £56.5m £49.8m £57.0m £55.0m
Add back: adjusted net finance costs (note 6) £50.0m £34.0m £31.8m £15.7m
Add back: adjusted depreciation and impairment of property, plant and equipment £30.7m £43.1m £30.7m £43.1m
Add back: depreciation and impairment of right-of-use assets £50.7m £52.7m £—m £—m
Add back: adjusted amortisation and impairment of intangibles £26.7m £30.6m £26.7m £30.6m
Remove: Share of results in associates and investment gains (income statement) £—m £(5.8)m £—m £(5.8)m
Adjusted EBITDA £214.6m £204.4m £146.2m £138.6m
Adjusted EBITDA margin 8.1% 7.8% 5.5% 5.3%
Alternative performance measures continued
APM Closest equivalent IFRS measure Definition, Purpose and Reconciliation
Income statement continued
Adjusted profit before tax Profit before tax Calculated as profit or loss before tax excluding the items detailed in note 5, which includes: business exits (trading results, non-trading expenses, and any gain/(loss) on business disposal); acquired intangible amortisation; impairment of goodwill and acquired intangibles; costs of the cyber incident in March 2023; and expenses associated with the cost reduction programme announced in November 2023.
A reconciliation of reported to adjusted profit before tax is provided in note 5.
Adjusted profit after tax Profit/(loss) after tax Calculated as the above adjusted profit or loss before tax, less the tax credit or expense on adjusted profit or loss.
The table below shows a reconciliation:
2023 2022
Adjusted profit before tax (note 5) £56.5m £49.8m
Tax on adjusted profit (note 7) £(31.1)m £(4.4)m
Adjusted profit after tax £25.4m £45.4m
Adjusted basic earnings per share Basic earnings per share Calculated as the adjusted profit or loss for the year after tax less non-controlling interests divided by the weighted average number of ordinary shares outstanding during the year.
The Board believes that this provides an indication of basic earnings per share of the Group on adjusted profit after tax.
For the calculation of adjusted basic earnings per share refer to note 8.
Adjusted diluted earnings per share Diluted earnings per share Calculated as the adjusted profit or loss for the year after tax less non-controlling interests divided by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would have been issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
The Board believes that this provides an indication of diluted earnings per share of the Group on adjusted profit after tax.
For the calculation of adjusted diluted earnings per share refer to note 8.
Cash flows and net debt
Cash flows generated/(used) by operations excluding business exits Cash generated/(used) by operations Calculated as the cash flows generated from operations excluding the items detailed in note 10 which includes: business exits (trading results, non-trading expenses) and pension deficit contributions which have been triggered by disposals.
A reconciliation of reported to cash generated/(used) by operations excluding business exits is provided in note 10.
Free cash flow and free cash flow excluding business exits Net cash flows from operating activities Free cash flow is calculated as cash generated from operations after: capital expenditure; income tax and interest; and, the proceeds from the sale of property, plant and equipment and intangible assets; and the capital element of lease payments and receipts. Free cash flow excluding business exits has the same calculation but is excluding the impact of business exits.
Free
cash
flow
and
free
cash
flow
exclu
ding
busin
ess
exits
are
measu
res
used
to
show
how
effec
tive
the
Group
is at
gener
ating
cash
and
the
Board
belie
ves
they
are
usefu
l for
inves
tors
and
manag
ement
to
measu
re
wheth
er
the
Group
is
gener
ating
suffi
cient
cash
flow
to
fund
opera
tions
,
capit
al
expen
ditur
e,
non
-leas
e
debt
oblig
ation
s,
and
divid
ends.
A reconciliation of net cash flows from operating activities to free cash flow and free cash flow excluding business exits and a reconciliation of free cash flow to free cash flow excluding business exits are provided in note 10.
Alternative performance measures continued
APM Closest equivalent IFRS measure Definition, Purpose and Reconciliation
Cash flows and net debt continued
Operating cash flow and operating cash conversion No direct equivalent Calculated as operating cash flow excluding business exits divided by adjusted EBITDA.
The
Board
believ
es
that
this
measur
e is
useful
for
invest
ors
becaus
e it
is
closel
y
monito
red by
manage
ment
to
evalua
te the
Group’
s
operat
ing
perfor
mance
and to
make
financ
ial,
strate
gic
and
operat
ing
decisi
ons
Reported Excluding business exits
2023 2022 2023 2022
EBITDA a £144.5m £235.7m £214.6m £204.4m
Add back: EBITDA element of cyber incident and cost reduction programme £63.8m £—m £—m £—m
Working capital (note 10) £(120.2)m £(40.4)m £(102.6)m £(30.7)m
Add back: Working capital element of cyber incident and cost reduction programme £(8.1)m £—m £(8.1)m £—m
Non-cash and other adjustments (note 10) £30.7m £(38.9)m £23.0m £(45.3)m
Add back: Non-cash element of cyber attack and cost reduction programme (note 12) £(29.5)m £—m £(29.5)m £—m
Operating cash flow b £81.2m £156.4m £97.4m £128.4m
Operating cash conversion b/a 56.2% 66.4% 45.4% 62.8%
Available liquidity No direct equivalent Calculated as the sum of any undrawn committed facilities and the net cash, cash equivalents net of overdrafts, less any restricted cash. Restricted cash is defined as any cash required to be held under FCA regulations, cash held in foreign bank accounts, and cash represented by non-controlling interests.
2023 2022
Revolving credit facility (RCF) £260.7m £288.4m
Less: drawing on committed facilities £—m £—m
Undrawn committed facilities £260.7m £288.4m
Cash and cash equivalents net of overdrafts £67.6m £177.2m
Less: restricted cash £(46.0)m £(60.4)m
Available liquidity £282.3m £405.2m
Net debt Borrowings, cash, derivatives, lease liabilities and deferred consideration Calculated as the net of the Group’s: cash, cash equivalents and overdrafts; private placement loan notes; other finance; currency and interest rate swaps; lease liabilities; and deferred consideration.
The
Board
believ
es
that
net
debt
enable
s
invest
ors to
see
the
econom
ic
effect
of
debt,
relate
d
hedges
and
cash
and
cash
equiva
lents
in
total
and
shows
the
indebt
edness
of the
Group.
The calculation of net debt is provided in note 10.
Net financial debt (pre-IFRS 16) No direct equivalent Calculated as the sum of the Group’s: cash, cash equivalents and overdrafts; the fair value of the Group’s private placement loan notes; other finance; and deferred consideration.
The Board believes that this measure of net debt allows investors to see the Group's net debt position excluding its IFRS 16 lease liabilities.
2023 2022
Net debt £545.5m £482.4m
Remove: IFRS16 impact £(363.4)m £(397.5)m
Net financial debt (pre-IFRS 16) £182.1m £84.9m
Alternative performance measures continued
APM Closest equivalent IFRS measure Definition, Purpose and Reconciliation
Cash flows and net debt continued
Gearing: net debt to adjusted EBITDA ratio No direct equivalent This ratio is calculated as net financial debt (pre-IFRS 16) divided by adjusted EBITDA over a rolling twelve month period including business exits not yet completed at the balance sheet date.
The
Board
belie
ves
that
this
ratio
is
usefu
l
becau
se it
shows
how
signi
fican
t net
debt
is
relat
ive
to
adjus
ted
EBITD
A.
This measure has been calculated including and excluding the impact of IFRS 16 on EBITDA and net debt because the Board believes this provides useful information to enable investors to understand the impact of the Group’s lease portfolio on its gearing ratio.
The table below shows the components, and calculation, of the net debt / net financial debt (pre-IFRS 16) to adjusted EBITDA ratio:
Post IFRS 16 Pre IFRS 16
2023 2022 (1) 2023 2022 (1)
Adjusted EBITDA £214.6m £238.8m £146.2m £172.3m
EBITDA in respect of business exits not yet completed £8.2m £1.3m £8.2m £1.3m
Adjusted EBITDA (including business exits not yet completed) £222.8m £240.1m £154.4m £173.6m
Net debt / net financial debt (pre-IFRS 16) £545.5m £482.4m £182.1m £84.9m
Net debt / net financial debt (pre-IFRS 16) to adjusted EBITDA ratio 2.4x 2.0x 1.2x 0.5x
Gearing including Fera proceeds: net debt to adjusted EBITDA ratio No direct equivalent This ratio is calculated in the same way gearing above but includes the net proceeds received from the disposal of the Fera business in January 2024.
The Board believes that this ratio is useful because it shows that the gearing ratio would have been below the medium term aim of 1.0x had the proceeds from the disposal of the Fera business been received in December 2023 when the sale was agreed.
Pre IFRS 16
2023
Adjusted EBITDA a £146.2m
Net financial debt b £182.1m
Cash proceeds received in January on disposal of Fera (note 14) £61.9m
Cash held by Fera at 31 December 23 (note 9) £(7.2)m
Cash disposal costs expected in 2024 related to Fera disposal £(4.6)m
Net proceeds received from Fera disposal in January 2024 c £50.1m
Net financial debt including net proceeds received in January 2024 d = b-c £132.0m
Net financial debt including net proceeds received to adjusted EBITDA ratio d/a 0.9x
1.To ensure consistent presentation of the ratios between years, the 2022
comparatives have not been restated.
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