REG-Capita Plc: Half-year Results 2024
02/08/2024 07:15
Capita plc
Half Year Results 2024
Improved margin with good progress on cost reductions underpinning unchanged
underlying full year profit expectations
Adolfo Hernandez, Chief Executive Officer, said:
“In my first six months I have been working with colleagues to identify and
action many initiatives that will make Capita a better company. Our teams are
passionate about the delivery of critical services to our clients, their
customers and to wider society. Our focus is on ensuring that the value we
create for those stakeholders is reflected in the financial performance of the
business and I am excited about the future and the progress we've made in a
short period of time.
"We are implementing changes that will make us more competitive and drive
growth, by becoming more efficient and spending less, digitising our offerings
and leveraging technology partnerships. This, together with more precision in
delivery and evolving our culture, is enabling us to accelerate execution.
"We are on track to deliver on our cost reduction programme, having taken
action to deliver £100m out of the £160m of annualised cost reductions we
expect to achieve by June 2025. This will support our planned improvement in
the adjusted operating margin of the group, which in the first half increased
from 3.1% to 4.5%.
"We have much more to do, but I am pleased that Capita is making encouraging
progress in its journey to deliver its medium-term financial targets and
create sustainable value for all its stakeholders”.
H1 2024 Financial results adjusted for business exits, including Capita One
• Adjusted revenue1 decreased by 9% to £1,201.5m (H1
2023: £1,324.4m) reflecting the non-repeat of one-off benefits in H1 2023 in
Experience and the impact of previously announced contract losses
• Adjusted operating profit1 increased 33% to £54.2m,
benefitting from the successful implementation of ongoing cost reduction
programme
• Reported profit before tax of £60.0m (H1 2023 loss:
£67.9m) boosted by £38.1m gains on the sale of businesses, including Fera
• Free cash outflow excluding business exits* of £51.9m
(H1 2023 outflow: £64.3m) reflecting costs associated with the cost reduction
programme and final pension deficit reduction contributions
• Net financial debt (pre-IFRS 16): adjusted EBITDA1 ratio
1.1x
Good momentum in delivery of positive cash flow in medium term
• Targeting £160m of annualised cost reductions, to be
delivered by June 2025
• At the half year, actions taken to deliver £100m of
these savings, with associated cash cost of £19.7m
• Operating cash flow* in H1 2024 improved by 75% to
£51.4m reflecting reduced deferred income releases
Contract wins
• Total contract value won £934.4m (2023: £1,317.0m),
reflecting a lower level of bid activity
• Book to bill ratio of 0.8x (2023: 1.0x)
• Contract win rate of 48% versus 63% last year, partially
reflecting our focus on ensuring contracts are bid at an appropriate margin in
line with the Group's medium-term operating margin target
Outlook for full year 2024
• Expect a low to mid-single digit percentage adjusted
revenue reduction, reflecting delayed operational go-live on certain contracts
and a more focused approach to bidding
• Expect modest adjusted operating margin improvement
reflecting continued benefit of cost reduction programme, pay review phasing
and H2 2023 bonus release; underpinning profit expectations
• Adjusted operating profit1 and free cash outflow
excluding business exits* outlook unchanged on an underlying basis. Pro-forma
outflow of between £90m and £110m following Capita One disposal, with £50m
cost associated with cost reduction programme
• Capita One disposal to complete in Q3 with net proceeds
of c.£180m; minimal year end net financial debt
Six months ended 30 June 2024
Financial highlights Reported 2024 Reported 2023 Reported POP change Adjusted 1 2024 Adjusted 1 2023 Adjusted 1 POP change
Revenue £1,237.3m £1,477.0m (16%) £1,201.5m £1,324.4m (9%)
Operating profit/(loss) £43.9m £(35.8)m n/a £54.2m £40.9m 33%
Operating margin 3.5% (2.4)% n/a 4.5% 3.1% 45%
EBITDA £101.7m £85.6m 19% £102.2m £97.1m 5%
Profit/(loss) before tax £60.0m £(67.9)m n/a £31.6m £18.3m 73%
Basic earnings/(loss) per share 3.14p (5.06)p n/a 2.19p 2.68p (18%)
Operating cash flow* £73.5m £34.2m 115% £51.4m £29.3m 75%
Free cash flow* £(44.6)m £(84.0)m 47% £(51.9)m £(64.3)m 19%
Net debt £(521.9)m £(544.6)m 4% £(521.9)m £(544.6)m 4%
Net financial debt (pre-IFRS 16) £(166.4)m £(166.2)m —% £(166.4)m £(166.2)m —%
1 Capita reports results on an adjusted basis to aid understanding of
business performance.
* Adjusted operating cash flow and free cash flow exclude the impact of
business exits (refer to note 9).
Investor presentation
A presentation for institutional investors and analysts hosted by Adolfo
Hernandez, CEO and Tim Weller, CFO, will be held at 09:00am UK time, Friday
2 August 2024. This will be held in the Capita offices at 65 Gresham Street,
London EC2V 7NQ. A live webcast will also be available
(www.capita.com/investors) and will subsequently be available on demand. The
presentation slides will be published on our website at 07:00am and a full
transcript will be available the next working day.
Webcast link:
https://webcast.openbriefing.com/capita-hy24/
For further information:
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
LEI no. CMIGEWPLHL4M7ZV0IZ88.
Chief Executive Officer's review
H1 2024 Summary
Since joining Capita in January this year, I have spent time embedding myself
within the organisation and working with colleagues to identify and put in
place the many initiatives which will result in a “Better Capita”. At a
time of dynamic change for the Group I continue to be impressed by the passion
that our teams have in their continued delivery of critical services to our
clients, their customers or service users and society.
However, as I said in March as part of my initial impressions, while the
business has strong foundations, the value Capita creates for its customers
has not been translated into positive financial performance and this will be a
clear area of focus going forwards. We have worked, at speed, to identify key
priorities and opportunities for future operational and financial improvement
and we’ve outlined our medium-term priorities.
The key components of being more competitive and funding our growth, as
outlined in March, are through becoming more efficient and spending less,
digitising our offerings, leveraging technology partnerships strongly, being
more precise in our delivery, improving governance and evolving our culture.
We are now accelerating the execution of actions which will deliver on these
priorities.
As we work to improve our financial performance in this transformation, our
first priority is to increase the operating margin of the Group, with
sustainable cash generation and revenue growth to follow. We were pleased to
have delivered strong progress on that front in the first half, with the
Group’s adjusted operating margin improving to 4.5% from 3.1%, predominantly
as a result of the cost reduction programme we commenced in 2023.
In June, we held a Capital Markets Event, at which we set out the Group’s
strategic themes of “Better Efficiencies, Better Technology, Better Delivery
and Better Company” and the strategic priorities for the two divisions of
Capita Public Service and Capita Experience.
We also set out the Group’s medium-term financial targets which are:
delivering low to mid-single digit revenue growth per annum; operating (EBIT)
margin of 6 – 8%; and positive free cash flow from 2025, with operating cash
conversion of 65% to 75%; net financial debt leverage of ≤1x and continued
reduction in lease liabilities from the Group’s ongoing property
rationalisation.
The Group’s transformation will be delivered in three waves: firstly quick
wins to fund the journey as we reduce our costs; secondly going back to basics
to improve our processes and infrastructure; and thirdly building for the
future as we reinvest c.£50m of the £160m of efficiencies we generate from
the cost savings programme to accelerate growth.
As we look forward, and strive to improve profitability, the Group will be
more focused and prioritise those business sectors in which we have strong
expertise, win today and where we see material opportunities in the future –
these are across our Public Service business and also the Contact Centre and
Pension Solutions businesses in Capita Experience.
We have identified some service lines which will be managed for value,
including closed book Life & Pensions, Mortgage Services, networks and
standalone software activities. The service lines identified as managed for
value represented c.25% of the Group’s revenue in 2023. We are exploring
options to derive value from these service lines such as delivery through
partners, radical transformation and, in some cases, exit of the activity or
service line.
In line with this strategy, in July, we announced the sale of the standalone
software business Capita One to MRI Software with expected net proceeds of
c.£180m. The sale is expected to complete towards the end of August, and the
proceeds will materially strengthen the Group’s financial position while
providing funding and optionality for the transformation journey.
Notwithstanding the disposal of this high margin, but non-core business unit,
we re-iterate our medium-term operating margin target of 6-8%.
Better technology - relationships with hyperscalers
We have a great opportunity to drive the Group’s transformation through
re-establishing and strengthening Capita’s relationship with technology
hyperscalers. We have been very active in the first six months of the year,
working and partnering with hyperscalers to develop AI and generative AI
solutions which will improve consumer experiences while delivering greater
efficiency across both internal and external processes. This will allow the
Group to minimise its capital expenditure, while increasing the pace of
operational performance improvement to customers.
During H1 we agreed a number of partnerships and collaborations including with
Microsoft, ServiceNow, Salesforce and Amazon Web Services (AWS). We are
jointly developing solutions which can be used across our existing contract
base, while also looking at our sales pipeline to ensure we have tailored
solutions around future opportunities. Looking forward, we expect these
partnerships to increase the breadth of services and capabilities which Capita
can deliver.
We have a number of solutions already delivering across the contract
portfolio, for example, on our Recruiting Partnering Project with the British
Army, our Capita Accelerate scanning and summary tool, which we developed last
year, has reduced applicant medical records processing time by 30%. This large
language artificial intelligence model has been approved by the UK
Government’s Ministry of Defence and we see a number of possible additional
use cases for the product across the Group’s existing contract base.
Following a successful design and pilot process this year, in June, we
launched CapitaContact with the London Borough of Barnet in the Local Public
Service vertical. This platform is a generative AI-powered contact centre
solution which provides a simplified customer experience, leveraging Amazon
Connect. We now plan to roll this out to more than 30 existing clients across
the public and private sector, which will drive further efficiencies for our
clients, and strengthen our client relationships. We will be scaling up the
use of CapitaContact significantly in the second half of the year and expect
it to be deployed as a standard solution for new contact centre opportunities
going forwards.
Within the contact centre business in Capita Experience, we have developed
Agent Suite a cutting-edge generative AI customer experience solution, which
can be used across multiple platforms, with two components, Agent Assist and
Call Sight. These solutions will allow contact centre agents to deliver
personalised, efficient and effective customer service and support. So far,
using this tool, we’ve seen a reduction in the average handling times of
calls by c.20% and improved first call resolution rates by more than 15%.
Elsewhere, we are exploring further opportunities with hyperscalers, such as
delivery of Virtual Ward capabilities with NHS Trusts and recruitment
processes which have a higher level of automation with less human
intervention, where we see a number of internal and external use cases.
Better efficiencies - transformation and cost reduction programme
At the start of this year, the Group established a programme management office
to deliver a company-wide transformation which will be spread across the three
waves; funding the journey, back to basics and building for the future.
To fund the journey, the Group is targeting £160m of annualised cost
reductions, to be delivered by June 2025. We are moving at pace in this area
and as at 30 June 2024, the Group had taken actions which will deliver
annualised savings of £100m with cash outflow associated with delivery of the
savings recognised in the first half of £20m. We have good line of sight to
the remaining savings to be delivered and are confident in our ability to
deliver them by June 2025.
The savings delivered to date across the Group have been realised across a
number of areas with the majority (£79m) from organisational simplification
and headcount reduction. Other savings were achieved from offshoring (£4m),
procurement (£11m) and further property rationalisation (£6m). We expect the
majority of the remaining savings to be delivered from further organisational
simplification.
The transformation initiatives are primarily expected to improve the cost
efficiency of Capita Public Service and Capita Experience with a smaller
impact on the corporate centre, reflecting the proportional split of the
group’s cost base. The biggest margin improvement opportunity is in the
contact centre business in Capita Experience, which delivered an operating
margin of below 1% for the year ended 31 December 2023.
The programme management office is also focused on initiatives which will
deliver performance improvement across the Group. Examples of areas being
targeted include process improvement through digitisation, automation and
increasing sales effectiveness through the simplification of our go to market
and sales processes.
As outlined at the Capital Markets Event in June, we anticipate reinvestment
over the period to the end of 2025 of c.£50m on an annualised basis of the
cost savings we generate, in driving growth through technology and ensuring
price competitiveness.
Better company - cultural transformation and our people
Creating the right environment for our people will underpin our success
throughout the transformation journey and will help improve delivery through
increased engagement and reduced attrition. Since joining, I’ve travelled to
meet colleagues across our geographies and I’ve seen first-hand the passion
our colleagues have for the work they do, throughout the organisation.
The Group has embarked on a multi-year journey to build a culture where
everyone is united in achieving Capita's goals while also nurturing their
individual career aspirations.
We have a wide-ranging colleague engagement plan including initiatives at both
a group and divisional level. To ensure we understand the existing culture
across the Group, we have conducted a company-wide culture survey so we can
take informed and decisive actions as we plan for 2025 and into the medium
term. We are also launching our leadership playbook and development programme
which will help us nurture and develop talent through all levels of the
organisation.
Staff attrition remains a key focus area. We’ve seen a continued reduction
in attrition across the Group, with 12-month voluntary attrition reducing from
24% at the end of 2023, to 22% as at 30 June 2024. Capita Experience, which
historically experienced elevated levels of attrition, has seen further
improvement following a number of local interventions, and, since January 2023
attrition has reduced c.10% to 26%. The ongoing reduction in attrition will
aid Capita Experience on its margin improvement journey.
Our people priorities for the second half of the year are completion of the
Group’s culture survey, development of our three core training academies for
Management & Leadership, Data & Technology and Sales, and continuing to
celebrate our cultural wins and role models throughout the Group, in line with
our #bebrilliantbeyou campaign.
Better delivery - operational performance
Delivering consistently and effectively for our clients is an important
cornerstone to our future success. Delivering the right service first time
reduces excess cost and avoids financial penalties which will help improve the
Group’s margin.
In the first half of 2024, we maintained our operational performance with
average KPI performance above 90% in both divisions. In areas where KPI
performance was not met during the first half of the year, we are implementing
specific remediation actions to ensure we meet the high standards Capita
expects to deliver.
Highlights from our operational delivery in the first half of the year
include:
• In Capita Public Service, on the division’s contract
to deliver Royal Navy training, we partnered with Metaverse VR, to deliver
eleven new Warship Bridge Simulators across three Royal Navy locations in the
UK, more than doubling the Navy’s simulator capacity
• Also in Capita Public Service, on the Standards and
Testing Agency contract, we printed and delivered 11 million test papers to
schools for SATs week hitting every milestone on time, including the marking
and delivery of 99.9% of scripts
• In Capita Experience, across our delivery centres we
handled over 16 million calls for clients in the UK, Ireland, Germany and
Switzerland
• To support future delivery and growth in Capita
Experience, we opened two new global delivery centres in Bulgaria and South
Africa. This expansion will enable the division to meet the increasing demand
for multi-lingual services to broaden our market opportunities
As we move into the second half of the year, we are focused on delivering the
complex transition and mobilisation requirements of our new contracts with the
Students Loans Company, to help deliver the Disabled Students Allowance, and
with the City of London Police.
Growth
In the first six months of 2024, a lower value of bid activity resulted in a
reduction of Total Contract Value (TCV) won across both divisions. In H1 2024,
the Group won contracts with TCV of £934.4m, down 29% from £1,317m in the
same period in 2023. Reflecting the reduced TCV won, the Group’s In Year
Revenue (IYR) generated from the wins in H1 was 36% lower at £391.6m. The
Group’s book to bill was 0.8x (H1 2023: 1.0x).
Significant wins in the period included the renewal of contracts in Capita
Experience with two major European telecoms providers, one with an expanded
scope, with a combined TCV of more than £250m. There was success in the
Defence, Learning, Fire and Security vertical of Capita Public Service with a
further expansion of scope on the Royal Navy training contract with a TCV of
£81m.
In order to improve the Group’s margin performance in line with the
medium-term operating margin target, we remain focused on ensuring that
contracts are bid at an appropriate margin. As such, we have seen a reduction
in total win rate to 48% from 63% in the same period last year across all
opportunities.
Renewal rates increased to 95% from the 69% seen in H1 2023 but there was a
reduction in the win rate on new logos and expansions of existing scopes to
34% from 57% in 2023. Improving the Group’s win rate on new wins and
expanded scopes is an area of focus for the second half of the year and into
2025. However, we are focusing efforts on our priority markets and service
offerings which will deliver our medium-term operating margin target, which
may limit revenue growth in the short term. We expect to see improvements in
contract win rates as our partnerships with hyperscalers are fully embedded
into our contract offerings and as our pricing becomes more competitive
through delivery of our cost reduction programme.
The order book at 30 June 2024 was £4.9bn (31 December 2023: £5.9bn) with
£0.9bn revenue recognised in the first half, £0.4bn in contract wins, scope
changes and indexation, £0.1bn in contract terminations and business exits
and we saw two contracts moved to framework agreements (£0.4bn), which do not
meet the accounting criteria for order book recognition.
The pipeline for the remainder of 2024 continues to build and there are
opportunities with a TCV of over £2bn closing in the second half the year.
While this is slightly lower than the value seen in previous years at this
point, the pipeline for 2025 remains strong, and is at the highest level seen
at the same point in recent years. In July, Capita Pension Solutions renewed
an eight year £48m TCV contract with the Royal Mail Statutory Pension Scheme.
Elsewhere across the Group, material opportunities in the second half of the
year include potential contracts with Ofgem and the Home Office within Capita
Public Service and a number of opportunities within the Energy & Utilities
vertical in the Contact Centre business of Capita Experience.
Capita is well placed to support in the delivery of the new UK Government's
priorities, including their five missions for Britain. Our capabilities
include providing 14,000 hours of planning support to over 100 local
authorities every month which can be an enabler to the Chancellors' recent
planning and housing reform announcement. Our virtual wards capacity has
potential to reduce NHS waiting lists and we are engaging in the recently
announced the Strategic Defence Review, given our strong track record in
delivering Armed Forces training and recruitment.
Financial results - revenue and profit
Adjusted revenue1 decreased 9.3% period on period to £1,201.5m (H1 2023:
£1,324.4m). Public Service reduced 2.8% to £688.5m, as the division saw
revenue reductions from the ending of contracts in Local Public Service,
Scottish Wide Area Networks and Electronic Monitoring.
As expected, revenue in Experience reduced 16.8% to £513.0m, reflecting the
non-repeat of one-off benefits in H1 23 following the transition of the Virgin
Media O2 contract and commercial settlement in the closed book Life & Pensions
business. The financial services vertical saw revenue reductions due to
previously announced contract losses which were partly offset by increased
scope and volumes in the Pension Solutions business and indexation.
Reported revenue declined 16% to £1,237.3m reflecting the core business
reductions coupled with the disposal of remaining Capita Portfolio businesses
in the prior year.
Adjusted operating profit increased 33% to £54.2m reflecting the benefit from
the ongoing cost reduction programme which more than offset the profit impact
of the revenue trends.
The adjusted operating margin for the Group was 4.5% improving from 3.1% in
the same period in 2023.
Reported profit before tax was £60.0m (H1 2023 loss: £67.9m) principally
reflecting, gains on the sale of businesses (£38.1m), compared with a loss of
£19.9m in H1 2023, the non-repeat of £42.2m goodwill impairment and £21.8m
costs associated with the Group's cyber incident in 2023.
Financial results - free cash flow and net debt
Cash generated by operations before business exits1 improved 273% to £19.0m
reflecting the improved EBITDA and a lower level of working capital outflows
reflecting the non-repeat of 2023's non-cash one-off income statement credits
and reduced deferred income releases. The cash cost associated with the
Group's cost reduction programme offset reduced pension deficit contributions
and cyber costs.
Free cash outflow excluding business exits1 improved to an outflow of £51.9m
from an outflow in 2023 of £64.3m, reflecting the improved cash generated by
operations and reduced interest and tax costs which offset an increase in
capital expenditure.
Pre-IFRS 16 net financial debt1 was £166.4m (31 December 2023: £182.1m)
reflecting the free cash outflow and additional pension deficit payments of
£14.5m triggered by prior-year Portfolio disposals, which were offset by
£49.7m of net proceeds received on the Fera disposal.
Post-IFRS 16 net debt was £521.9m (31 December 2023: £545.5m), reflecting
the free cash outflow in the first half offset by the further reduction in the
Group's lease liabilities as we continue to optimise our property footprint.
Full-year outlook
We expect the Group to show a low to mid-single digit percentage adjusted
revenue reduction for full year 2024, reflecting delayed operational go-live
on certain contracts and a lower level of in year revenue from contract wins
as we concentrate our business development activity on the Group’s focus
business segments. At a divisional level, we expect a high single to low
double digit percentage revenue reduction in Experience with Public Service
revenue expected to be broadly in line with 2023.
We continue to expect a modest full year adjusted operating margin improvement
reflecting the continued benefit of the ongoing cost reduction programme, the
phasing of the Group's annual salary review and the release of the annual
bonus accrual in H2 2023.
Our adjusted operating profit and free cash flow excluding business exits
expectations for the full year remain unchanged on an underlying basis, with
proforma free cash outflow before business exits of £90m to £110m adjusted
for the Capita One disposal. Our operating cash conversion, is expected to be
in line with our previous guidance at c.60% to c.70%.
As the Capita One disposal is expected to complete towards the end of August,
we expect minimal net financial debt at the 2024 year end.
___________________________________________
1 Refer to alternative performance measures in the appendix
Divisional performance review
The following divisional financial performance is presented on an adjusted
revenue1 and adjusted operating profit1 basis. Reported profit is not
included, because the Board assesses divisional performance on adjusted
results. The basis of preparation of the adjusted figures and KPIs is set out
in the Alternative Performance Measures (APMs) summary in the appendix to this
statement.
Public Service
Capita Public Service is the number one strategic supplier of Software and IT
Services (SITS) and business process services (BPS) to the UK Government.
The division is structured around three market verticals: Local Public
Service; Defence, Learning, Fire & Security and Central Government.
Markets and strategy
The core addressable market of Capita Public Service is £16.4bn2, growing at
approximately 4%2 per annum. Demand for our services across the public sector
continues to shift towards digitally enabled services which improve
productivity for the Government and the overall citizen user experience while
offering 24/7 delivery and more optionality for service delivery methods.
As outlined at the recent Capital Markets Event, the division has identified
four key propositions which offer substantial sales potential across the
public sector client groups in the UK, through enhanced repeatability and
cost-efficient delivery, particularly in the areas of modern,
technology-enabled Business Process Outsourcing and National Preparedness. The
four key propositions are: Digital Business Services; Citizen Experience;
Workforce Development; and Place.
Better delivery and efficiencies
Capita Public Service continues to simplify its operating and delivery model
to improve end-to-end delivery. We are working to create a sustainable
operating model which allows us to deliver services at the quality and price
clients expect.
Public Service has continued to deliver consistently for clients, with KPI
performance in the first half of the year maintained at 95%.
Operational highlights in the first half of the year include:
• Within Central Government, we have processed more than
995,000 medical records on our contract with Primary Care Support England
• Within the Defence vertical of Capita Public Service, we
managed over 1,500 fire and rescue incidents on our contract delivering the
Defence, Fire and Rescue Project
• In Local Public Service, we collected over £2.5bn
revenue for local councils and processed over £0.4bn in housing benefit and
council tax relief
Moving forwards, the division is focused on building standardised repeatable
propositions, leveraging the scale of our hyperscaler partners while using our
domain knowledge and expertise. This will in turn reduce cost to serve and
improve market impact.
In the first half of the year, we launched CapitaContact following a
successful pilot with the London Borough of Barnet. This tool, powered by
Amazon Connect, provides a single agent interface for an omni-channel
experience including voice, chatbot, SMS and conversational menu routing
allowing agents to provide faster and more accurate responses to customers
which increases first time call resolution and customer satisfaction. This
tool will be rolled out to a number of clients in the second half of the year.
Looking to our future growth ambitions, we are exploring expansion into
international markets using our existing infrastructure, to increase the
division's addressable market and accelerate growth. We have a number of
pilots for growth in this area for example into the National Preparedness
market in the Middle East.
Growth
Across the first half of 2024, Public Service won TCV of £561.6m, down 26%
from the same period last year. IYR was £318.9m, broadly similar to the same
period in the prior year. The division’s win rate across all opportunities
was 39%, down from 78% in 2023, as we saw a reduction in win rate in new and
expanded scopes of work, reflecting our focus on ensuring that contracts are
bid at an appropriate margin. The division's book to bill ratio was 0.8x.
The division saw success in Defence, Learning, Fire and Security with further
expansion on the Royal Navy training contract with a TCV of £81m. Under the
expanded scope, Capita will deliver technology enabled courses across a number
of areas including defence, diving and weapons engineering. There was also
sales success with the Health & Safety Executive and Ministry of Defence.
The unweighted pipeline for Public Service, across all close dates is £8.4bn,
from £7.5bn at the end of 2023, reflecting the timing of certain contract
tenders. There are a number of opportunities in the second half of the year,
including material opportunities with Ofgem, the Home Office and the Health &
Safety Executive. As look to 2025, the division has material opportunities
with the Ministry of Defence and with NHS England.
The divisional order book stands at £3,400m, a decrease of £146m from the
year end, reflecting the revenue recognised in the period which more than
offset wins in the period.
Divisional financial summary 2024 2023 % change
Adjusted revenue 1 (£m) 688.5 708.0 (2.8)%
Adjusted operating profit 1 (£m) 47.1 26.2 79.8%
Adjusted operating margin 1 (%) 6.8% 3.7% 83.8%
Adjusted EBITDA 1 (£m) 66.7 46.8 42.5%
Operating cash flow excluding business exits 1 (£m) 49.8 33.7 47.8%
Order book (£m) (comparative at 31 December 2023) 3,400.0 3,546.0 (4.1)%
Total contract value secured (£m) 561.6 758.1 (25.9)%
Adjusted revenue1 reduced 2.8% to £688.5m, reflecting the ending of contracts
in Local Public Services, Scottish Wide Area Network and Electronic
Monitoring, non-repeat of temporary contract activity in Royal Navy Training
offset by volume growth on our contract with Transport for London and the
benefit of indexation across the division.
Adjusted operating profit1 increased 79.8% to £47.1m, as the benefit from the
successful implementation of the cost reduction programmes was partly offset
by lower revenue.
Operating cash flow excluding business exits1 increased by 47.8% to £49.8m,
reflecting a step up in cash-backed EBITDA.
Outlook
We expect revenue growth to be delivered in the second half of the year as we
commence operational delivery on a number of contracts including Functional
Assessment Services with the Department for Work and Pensions and Disabled
Students Allowance with the Student Loans Company. For the year, we expect
revenue to be broadly flat.
The division is expected to show margin improvements across the year driven by
the benefit from the ongoing cost reduction programme.
Experience
Capita Experience comprises two focused business areas; the Contact Centre
business and Capita Pension Solutions and a selection of businesses, including
closed book Life & Pensions, which are being managed for value.
Markets and strategy
The Contact Centre business is one of Europe’s leading customer experience
businesses, operating in the UK, Ireland, Germany and Switzerland with global
delivery centres in South Africa and India. The business delivers services
across four market verticals: Telecoms, Media & Technology; Energy &
Utilities; Financial Services and Retail. The annual addressable market of the
EMEA contact centre business is £28bn3, growing at c.4%3 per annum.
The Pension Solutions business in the UK delivers services to customers in the
private and public sector in a market worth £3.0bn4, with a projected market
growth rate of c.3%4 per annum.
Better delivery and efficiencies
Experience has maintained its operational delivery with average KPI
performance in the first half of the year of 89%, 94% excluding the Pension
Solutions business.
Operational highlights from the first half of the year include:
• On a Telecoms client which is served from our global
delivery centres, we have improved total call handling time by 29% and
exceeded the contract's target level of sales as a service
• We have answered over 225,000 calls for the RSPCA in the
UK, helping to protect animals in need
The Contact Centre business is implementing a significant reorganisation and
digitisation plan to improve its operating margin, closer to peers in the
market.
The call and contact centre industry continues to evolve rapidly through
technological advancement and shifting consumer expectations. The introduction
of generative AI offers the potential to deliver lower cost solutions and
enhance human agent productivity which will improve customer experience and
operating margin.
In the first half of the year Capita Experience launched nine new customer
service bundles offering repeatable, modular and scalable solutions which can
easily be tailored to clients' needs and requirements, while providing quicker
market entry. In the next year we will launch a number of additional service
bundles targeting specific sector needs. We expect these bundles to continue
to increase our market coverage.
To improve the margin performance in the division, Experience is increasing
the use of off and nearshore service delivery options. Since the start of the
year the division has increased in offshoring use from 45% to 60% in the
operational support function which is closely aligned to peer benchmarks.
In the medium term, we are exploring options to expand the Contact Centre
contract portfolio in adjacent international markets in EMEA, using our
existing infrastructure. To drive cost efficiency we are exploring further
expansion of our multi-lingual capabilities in Eastern Europe, which will
allow us to provide strong customer satisfaction with lower costs to serve.
In the Pension Solutions business, there is growing demand for automation and
digital platforms with scheme members looking for a seamless user experience
across their chosen platforms. This year we launched the Capita Digital
Pensions platform utilising Microsoft Dynamics 365, which uses data insights
to provide a hyper personalised member experience. This is a step change in
our service offering which will help the business expand into adjacent
segments and international markets.
Growth performance and key wins
In the first six months of 2024, Experience won deals with a TCV of £372.8m
down 33% from the same period in 2023, IYR was £72.7m, down 76% from the
prior period. The book to bill for Experience was 0.7x.
Experience saw success within the Telecoms, Media & Technology vertical with
the renewal of contracts with two major European telecoms providers, one with
an expanded scope. The two contracts combined have a TCV of more than £250m.
The total unweighted pipeline for the division as at 30 June remains at
£3.0bn. Increasing the pipeline is a key focus for the division, and we are
undertaking a detailed review to understand future pipeline opportunities in
all geographies in which we operate to ensure we are well placed to drive
growth. We also anticipate growth from the launch of our service bundles and
our partnerships with hyperscalers as they increase the range of our market
offerings.
In July, the Pension Solutions business renewed a contract with the Royal Mail
Statutory Pensions Scheme with a TCV of £48m. There are a number of
opportunities expected to close in the second half of the year across the
Contact Centre business, spread across the market verticals served.
The divisional order book stands at £1,529m, a decrease of £770m from
£2,299m at year-end, reflecting the increased number of contracts won in the
division which are framework agreements, which do not meet the accounting
criteria for order book recognition, including the two contracts with European
telecoms clients which this year resulted in the de-recognition of £388m from
the order book.
Divisional financial summary 2024 2023 % change
Adjusted revenue 1 (£m) 513.0 616.4 (16.8)%
Adjusted operating profit 1 (£m) 25.1 39.1 (35.8)%
Adjusted operating margin 1 (%) 4.9% 6.3% (22.2)%
Adjusted EBITDA 1 (£m) 52.4 70.2 (25.4)%
Operating cash flow excluding business exits 1 (£m) 26.1 28.9 (9.7)%
Order book (£m) (comparative at 31 December 2023) 1,529.4 2,299.4 (33.5)%
Total contract value secured (£m) 372.8 558.9 (33.3)%
Adjusted revenue1 decreased by 16.8% to £513.0m, reflecting the non-repeat of
the one-off benefits in 2023 from the Virgin Media O2 contract transition and
a commercial settlement in the closed book Life & Pensions business and the
impact of previously announced contract losses with Financial Services. This
was partly offset by revenue growth in the Pension Solutions business and the
benefit of indexation.
Adjusted operating profit1 decreased by 35.8% to £25.1m due to the
non-recurrence of revenue one-offs, which resulted in a c.£30m profit benefit
in H1 2023 and lower revenue, partly offset by lower overheads, including
reduced property footprint.
Operating cash flow excluding business exits1 reduced by 9.7% to £26.1m with
operating cash conversion increasing from 41.2% to 49.8% reflecting the
non-cash nature of the 2023 one-offs, which were offset by the benefit from
the cost reduction programme.
Outlook
For the full year we expect a high single to low double digit revenue
percentage decline.
As the division benefits from the cost reduction programme initiatives, we
expect its operating margin to improve in the second half of the year.
___________________________________________
1 Refer to alternative performance measures in the appendix
2 TechMarketView
3 Nelson Hall
4 External market research including ONS, House of Commons Library and
Pensions Policy Institute
Chief Financial Officer's review
Financial highlights Reported results Adjusted 1 results
30 June 2024 30 June 2023 POP change 30 June 2024 30 June 2023 POP change
Revenue £1,237.3m £1,477.0m (16)% £1,201.5m £1,324.4m (9)%
Operating profit/(loss) £43.9m £(35.8)m n/a £54.2m £40.9m 33%
Operating margin 3.5% (2.4)% n/a 4.5% 3.1% 45%
EBITDA £101.7m £85.6m 19% £102.2m £97.1m 5%
Profit/(loss) before tax £60.0m £(67.9)m n/a £31.6m £18.3m 73%
Basic earnings/(loss) per share 3.14p (5.06)p n/a 2.19p 2.68p (18)%
Operating cash flow* £73.5m £34.2m 115% £51.4m £29.3m 75%
Free cash flow* £(44.6)m £(84.0)m 47% £(51.9)m £(64.3)m 19%
Net debt £(521.9)m £(544.6)m 4% £(521.9)m £(544.6)m 4%
Net financial debt (pre-IFRS 16) £(166.4)m £(166.2)m —% £(166.4)m £(166.2)m —%
* Adjusted operating cash flow and free cash flow exclude the impact of business exits (refer to note 9).
Overview
Adjusted revenue1 reduction of 9% reflected previously announced contract
hand-backs and losses, and the impact of one-off benefits in the first half of
2023 in Experience.
Public Service revenue reduction reflected previously announced contracts
ending in Local Public Services, Scottish Wide Area Network and Electronic
Monitoring together with the non-repeat of temporary contract activity in
Royal Navy Training offset by increases on our contract with Transport for
London and indexation. Experience revenue reduction reflected the impact of
2023's one-off deferred income benefit from the award of a new contract with
Virgin Media O2 and a commercial settlement in the closed book Life & Pensions
business, previously announced contract losses within the Financial Services
vertical, including Co-operative Bank, and lower volumes in the UK business,
partly offset by revenue growth in the Pensions Solutions business and
indexation.
The step-up in adjusted profit before tax1 reflected the benefit from the
ongoing cost reduction programme, which delivered a reduction in indirect
support and overhead costs, more than offsetting the impact of the revenue
trends noted above.
Adjusted earnings per share1 reduced as the increase in adjusted profit before
tax1 was offset by a lower adjusted income tax credit of £5.3m (2023:
£25.3m). The reduced adjusted tax credit in the current year reflected a
lower deferred tax asset release, due to fewer material changes,
period-on-period, to the factors impacting the deferred tax asset recognition
model.
The reported profit before tax of £60.0m (2023: loss £67.9m), reflects the
improvement in adjusted profit before tax1 detailed above, lower costs
incurred in resolving the March 2023 cyber incident and higher gains on the
sale of businesses (2024: gain £38.1m; 2023: loss £6.6m) partly offset by
costs incurred in delivering the significant cost reduction programme that
commenced in the second half of 2023 (£8.2m).
The swing to reported earnings per share reflected the significant improvement
in profit before tax and the lower reported income tax charge. The reported
tax charge at 30 June 2024 reflected changes in the accounting estimate of
recognised deferred tax assets, unrecognised current year tax losses and
tax-exempt profits on disposal. The prior period reflected a decrease in the
recognised deferred tax asset, due to the impact of business disposals.
Cash generated from operations excluding business exits1 increased, as
expected, by 273% to £19.0m, driven by an improvement in operating cash flow,
reduction in pension deficit contributions and costs in relation to the cyber
incident in the first half of 2023, partly offset by a cash outflow from the
costs to deliver the cost reduction programme.
Free cash flow excluding business exits1 in the six months ended 30 June 2024
was an outflow of £51.9m (2023: outflow £64.3m), reflecting the flow through
of the increase in cash generated from operations.
The increase in reported free cash flow reflects the above increase in free
cash flow excluding business exits1, a cash inflow from business exits, and
reduction in pension deficit contributions triggered by disposals.
During the first half of 2024 we completed 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 £49.7m reflecting the total
proceeds less cash held in the entity when the disposal completed on 17
January 2024, and disposal costs. This was the final disposal of the c.£500m
Board-approved Portfolio programme which was launched in 2021.
In June 2024, we held a Capital Markets Event outlining the Group's strategic
themes and prioritised business sectors going forward. During the event, some
areas of the Group were identified as being “managed for value”, and we
outlined the options being pursued, including exploring potential exits.
Standalone software activities were identified as part of the Group's
activities that are being "managed for value", and on 9 July 2024, we
announced we had agreed the sale of Capita One, a standalone software
business. The disposal will result in the Group receiving expected gross
disposal proceeds of c.£207m upon completion (estimated net cash proceeds of
c.£180m after disposal costs and cash held in the business at the anticipated
disposal date). The net cash proceeds will provide the Group with additional
resources to strengthen its financial position and further reduce
indebtedness, as well as funding for its transformation journey. Completion is
expected towards the end of August, subject to confirmation from the Secretary
of State that no further action will be taken under the UK's National Security
and Investment Act.
In November 2023, we announced the implementation of a cost reduction
programme expected to deliver annualised efficiencies of £60m from Q1 2024.
As noted in March 2024, subsequent to the November 2023 announcement, we
identified additional cost saving opportunities expected to deliver an
additional £100m of annualised cost savings by mid 2025. We anticipate
reinvesting around £50m of these further savings back into the business to
enhance the Group’s technology, service delivery and pricing proposition.
Liquidity as at 30 June 2024 was £293.1m, made up of £250.0m of undrawn
committed revolving credit facility (RCF) and £43.1m of unrestricted cash and
cash equivalents net of overdrafts. In June 2023, we extended the maturity of
the RCF to 31 December 2026 initially at £284m, but subsequently reducing to
£250m on 23 January 2024 following receipt of proceeds from the Fera
disposal. The RCF was undrawn at 30 June 2024 (31 December 2023: undrawn).
Financial review
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 Board's 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 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 2023 comparatives have been re-presented to exclude
business exits in the second half of 2023 and the first six months of 2024. As
at 30 June 2024, the following businesses met this threshold and were
classified as business exits and therefore excluded from adjusted results in
both 2024 and 2023: Fera, Capita One, Mortgage Services and Capita Scaling
Partner.
Reconciliations between adjusted and reported operating profit, profit before
tax and free cash flow excluding 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
Six months ended 30 June 2023 708.0 616.4 1,324.4
Net reduction (19.5) (103.4) (122.9)
Six months ended 30 June 2024 688.5 513.0 1,201.5
Adjusted revenue1 reduction of 9% was impacted by the following:
• Public Service (2.8% reduction): cessation of contracts
in Local Public Services, Scottish Wide Area Network and Electronic
Monitoring, non-repeat of temporary contract activity in Royal Navy Training
offset by increases on our road user charging contract with Transport for
London and benefit of indexation; and
• Experience (16.8% reduction): reflecting previously
announced deferred income benefit from the award of a new contract with Virgin
Media O2 and a commercial settlement in the closed book Life & Pensions
business, both in the first half of 2023, previously announced contract losses
within the Financial Services vertical, including Co-operative Bank, and lower
volumes in the UK business, partly offset by revenue growth in the Pension
Solutions business and indexation increases.
Order book
The Group’s consolidated order book was £4,929.4m at 30 June 2024
(31 December 2023: £5,882.6m). Additions from contract wins, scope changes
and indexations in 2024 (£460.0m), including expanded scope on our Royal Navy
Training contract within Capita Public Service, were offset by the reduction
from revenue recognised in the period (£932.5m), contract terminations
(£55.4m) and business disposals (£37.2m). Furthermore, two European telecoms
contracts were extended in the period with the contracts being recognised as
framework contracts, this resulted in £388.1m being derecognised from the
order book. These contracts are expected to deliver combined total contract
value of over £400m during the new contract term.
Adjusted profit before tax
Adjusted profit before tax 1 bridge by division Public Service £m Experience £m Capita plc £m Total £m
Six months ended 30 June 2023 26.2 39.1 (47.0) 18.3
Net growth/(reduction) 20.9 (14.0) 6.4 13.3
Six months ended 30 June 2024 47.1 25.1 (40.6) 31.6
Adjusted profit before tax1 increased in 2024 driven by the following:
• Public Service: strong improvement in profit resulting
from lower overheads as a result of the successful implementation of the cost
reduction programme;
• Experience: reflects the non-repeat of 2023 one-offs
(c.£30m) and lower revenue, partly offset by lower overheads, including
reduced property footprint, as part of the cost reduction programme; and
• Capita plc: reflects benefits from cost reduction
programme.
Adjusted tax credit
The adjusted income tax credit for the period was £5.3m (six months ended 30
June 2023: credit of £25.3m). The lower adjusted tax credit in the current
year reflected a lower deferred tax asset release, due to fewer material
changes period-on-period to the factors impacting the deferred tax asset
recognition model, such as the future taxable profit projections and the
Group's defined benefit pension position.
Cash generated from operations and free cash flow
Adjusted operating profit to free cash flow excluding business exits 1 30 June 2024 £m 30 June 2023 £m
Adjusted operating profit 1 54.2 40.9
Add: depreciation/amortisation and impairment of property, plant and equipment and intangible assets 48.0 56.2
Adjusted EBITDA 1 102.2 97.1
Working capital (30.4) (63.9)
Non-cash and other adjustments (20.4) (3.9)
Operating cash flow excluding business exits 1 51.4 29.3
Adjusted operating cash conversion 1 50% 30%
Pension deficit contributions (6.3) (15.0)
Cyber incident (6.4) (9.2)
Cost reduction programme (19.7) —
Cash generated from operations excluding business exits 1 19.0 5.1
Net capital expenditure (21.2) (24.8)
Interest/tax paid (22.6) (17.3)
Net capital lease payments (27.1) (27.3)
Free cash flow excluding business exits 1 (51.9) (64.3)
Working capital improvement is principally driven by a lower level of deferred
income releases in the period (c.£40m reduction period-on-period). Non-cash
and other adjustments includes provision spend of around £15m, including
around £8m in respect of closed book Life & Pensions contracts, broadly in
line with 2023. Within this line in 2023 there was a benefit of around £13m
adjusting for the non-cash effect of net new provisions established through
EBITDA in that period.
Cash generated from operations excluding business exits1 reflects the above
and the direct cash flow impact of the cyber incident in the first half of
2023 (£6.4m) and the cash costs of delivering the cost reduction programme
(£19.7m). The £6.3m 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. In aggregate, including
accelerated pension deficit contributions resulting from business disposals,
the Group has made pension deficit contributions of £20.8m in the period and,
reflecting the most recent triennial funding agreement, no further deficit
contributions are expected in the second half of 2024 and beyond.
Free cash flow excluding business exits1 for the six months ended 30 June
2024 was an outflow of £51.9m (2023 outflow £64.3m), reflecting the flow
through of the increase in cash generated from operations.
Reported results
Adjusted to reported profit
As noted above, to aid understanding of our underlying performance, adjusted
operating profit1 and adjusted profit before tax1 exclude a number of specific
items, including the amortisation and impairment of acquired intangibles and
goodwill, the impact of business exits and the impact of the cyber incident
and cost reduction programme.
Adjusted 1 to reported results bridge Operating (loss)/profit (Loss)/profit before tax
30 June 2024 £m 30 June 2023 £m 30 June 2024 £m 30 June 2023 £m
Adjusted 1 54.2 40.9 31.6 18.3
Amortisation and impairment of acquired intangibles (0.1) (0.1) (0.1) (0.1)
Impairment of goodwill — (42.2) — (42.2)
Net finance costs/(income) — — (0.4) (2.2)
Business exits (2.4) (12.6) 36.7 (19.9)
Cyber incident 0.4 (21.8) 0.4 (21.8)
Cost reduction programme (8.2) — (8.2) —
Reported 43.9 (35.8) 60.0 (67.9)
Business exits
Business exits include the effects of businesses that have been sold or exited
during the period and the results of businesses held-for-sale at the reporting
date.
In accordance with our policy, the trading results of these businesses, along
with the non-trading expenses and gain on disposal, were included in business
exits and therefore excluded from adjusted results. To enable a like-for-like
comparison of adjusted results, the 2023 comparatives have been re-presented
to exclude businesses classified as business exits from 1 July 2023 to
30 June 2024.
At 30 June 2024 business exits primarily comprised:
• the disposal of the Group’s 75% shareholding in Fera
Science Limited which completed on 17 January 2024 and which completed the
Board-approved Portfolio business disposal programme; and
• the Capita One standalone software business which was
identified as a "managed for value" activity, and was in the process of being
sold and met the held-for-sale criteria.
In addition to the above disposals, the Group intends to exit the Mortgage
Services business and corporate venture business, Capita Scaling Partner, both
in Capita Experience, and the trading results and non-trading expenses of
these businesses have been excluded from adjusted results. The Capita Scaling
Partner business managed the Group’s investment in start-up and scale-up
companies. The Group sold one of the Capita Scaling Partner investments during
the first half of the year realising a gain of £0.3m. The Group will seek to
maximise value from the remaining investments, which had a carrying value of
£19.3m at 30 June 2024.
Cyber incident
The Group has continued to incur exceptional costs associated with the March
2023 cyber incident. These costs comprise specialist professional fees,
recovery and remediation costs and investment to reinforce Capita's cyber
security environment. A credit of £0.4m has been recognised in the six months
ended 30 June 2024, which reflects insurance income which met the criteria to
be recognised (30 June 2023: charge of £21.8m). The cumulative total net
costs incurred in respect of the cyber incident are £24.9m. 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, reliably to
estimate their value.
Cost reduction programme
We announced the implementation of a major cost reduction programme in
November 2023 which is now delivering annualised efficiencies of £60m from Q1
2024. As noted in March 2024, subsequent to the November 2023 announcement, we
identified further cost saving opportunities expected to deliver an additional
£100m of annualised cost savings by mid 2025. We anticipate reinvesting
around £50m of these further savings back into the business to enhance the
Group’s technology, service delivery and pricing proposition.
A charge of £8.2m has been recognised in the six months ended 30 June 2024
for the costs to deliver the cost reduction programme. This includes
redundancy and other costs of £11.0m to deliver a significant reduction in
indirect support function and overhead roles, partly offset by a credit of
£2.8m arising from the rationalisation of the Group's property estate. The
net property estate credit arises as the charge from the impairment of
right-of-use assets and property, plant and equipment, and provisions in
respect of onerous property costs, in the period, has been offset by
adjustments to impairments and provisions recognised in 2023 following lease
modifications and changes to sublet assumptions. The cash outflow in the first
half of 2024 in respect of the cost reduction programme was £19.7m, which is
included within free cash flow and cash generated from operations excluding
business exits1. As announced in March 2024, the cost reduction initiatives
are expected to result in cash costs in the whole of 2024 of an estimated
£50m.
Further detail of the specific items charged in arriving at reported operating
profit and profit before tax for 2024 is provided in note 4 to the condensed
consolidated financial statements.
Reported tax charge
The reported income tax charge for the period of £7.1m (2023: charge of
£16.8m) reflects changes in the accounting estimate of recognised deferred
tax assets and tax-exempt profits on disposal. The prior period charge is
higher reflecting a decrease in the recognised deferred tax asset, due to the
impact of business disposals.
Free cash flow1 to free cash flow excluding business exits1
30 June 2024 £m 30 June 2023 £m
Free cash flow 1 (44.6) (84.0)
Business exits (21.8) 4.1
Pension deficit contributions triggered by disposals 14.5 15.6
Free cash flow excluding business exits 1 (51.9) (64.3)
Free cash flow was higher than free cash flow excluding business exits1
reflecting free cash flows generated by business exits, partly offset by
pension deficit contributions triggered by the disposal of certain businesses.
Movements in net debt
Net debt at 30 June 2024 was £521.9m (31 December 2023: £545.5m). The
decrease in net debt over the six months ended 30 June 2024 reflects the free
cash outflow noted above offset by the net cash proceeds from the disposal of
Fera in the period, and the continued reduction in our leased property estate.
Net debt 30 June 2024 £m 31 December 2023 £m
Opening net debt (545.5) (482.4)
Cash movement in net debt 56.8 (9.0)
Non-cash movements (33.2) (54.1)
Closing net debt (521.9) (545.5)
Remove closing IFRS 16 impact 355.5 363.4
Net financial debt (pre-IFRS 16) (166.4) (182.1)
Cash and cash equivalents net of overdrafts 85.4 67.6
Financial debt net of swaps (251.8) (249.7)
Net financial debt /adjusted EBITDA 1 (both pre-IFRS 16) 1.1x 1.2x
Net debt (post-IFRS 16)/adjusted EBITDA 1 2.4x 2.4x
Net financial debt (pre-IFRS 16) reduced by £15.7m to £166.4m at 30 June
2024, resulting in a net financial debt to adjusted EBITDA (both pre-IFRS 16)
ratio of 1.1x. Over the medium term, the Group is targeting a net financial
debt to adjusted EBITDA1 (both pre-IFRS 16) ratio of ≤1.0x.
The Group was compliant with all debt covenants at 30 June 2024.
Capital and financial risk management
Financial instruments used to fund operations and to manage liquidity comprise
USD and GBP private placement loan notes, revolving credit facility (RCF),
leases and overdrafts.
Available liquidity 1 30 June 2024 £m 31 December 2023 £m
Revolving credit facility (RCF) 250.0 260.7
Less: drawing on committed facilities — —
Undrawn committed facilities 250.0 260.7
Cash and cash equivalents net of overdrafts 85.4 67.6
Less: restricted cash (42.3) (46.0)
Available liquidity 1 293.1 282.3
In June 2023, we extended the maturity of the RCF to 31 December 2026,
initially at £284m, but subsequently reducing to £250m on 23 January 2024
following receipt of proceeds from the Fera disposal. The RCF was undrawn at
30 June 2024 (31 December 2023: 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 30 June 2024 of £33.5m (31 December
2023: £35.2m).
At 30 June 2024, the Group had £85.4m (31 December 2023: £67.6m) of cash
and cash equivalents net of overdrafts, and £265.1m (31 December 2023:
£262.5m) 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 continues to adopt the going concern basis in preparing these
condensed consolidated financial statements as set out in note 1 to the
condensed consolidated financial statements.
Pensions
The latest formal valuation for the Group’s main defined benefit pension
scheme (the Scheme), was carried out as at 31 March 2023. This identified a
statutory funding surplus of £51.4m. Given the funding position of the
Scheme, the Group and the Trustee of the Scheme agreed that no further deficit
contributions from the Group would be required other than those already
committed as part of the 31 March 2020 actuarial valuation. In accordance
with the schedule of contributions put in place following the 31 March 2020
actuarial valuation, in the first half of 2024 the Group has paid £6.3m of
regular deficit contributions and £14.5m of accelerated deficit contributions
and other contributions triggered by the disposal of Trustmarque in 2022. The
Group is not expected to pay any further deficit contributions to the Scheme
in the second half of 2024 and beyond.
The valuation of scheme liabilities (and assumptions used) for funding
purposes (the actuarial valuation) are specific to the circumstances of each
scheme. It differs from the valuation and assumptions used for accounting
purposes, which are set out in IAS 19 and shown in these condensed
consolidated financial statements. The main difference is in assumption
principles being used based in the different regulatory requirements of the
valuations. Management estimates that at 30 June 2024 the net asset of the
Scheme on a funding basis (i.e. the funding assumption principles adopted for
the full actuarial valuation at 31 March 2023 updated for market conditions
at 30 June 2024) was approximately £84m (31 December 2023: net asset
£81.0m) 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
30 June 2024, the funding level was broadly fully funded.
The net defined benefit pension position of all reported defined benefit
schemes for accounting purposes increased from a surplus of £26.8m at
31 December 2023 to a surplus of £45.0m at 30 June 2024. The main reasons
for this movement are the increase in the discount rate applied to the
schemes’ liabilities following the increase in corporate bond yields (which
reduces the value placed on the liabilities), and the above deficit funding
contributions; partly offset by lower than assumed investment returns and a
small increase in expected future inflation.
Balance sheet
Consolidated net assets were £170.4m at 30 June 2024 (31 December 2023: net
assets £114.9m).
The increase predominantly reflects the decrease in net debt and increase in
the pension surplus set out above.
_____________________________________
1 Refer to alternative performance measures in the appendix
Forward looking statements
This half year results statement is prepared for and addressed only to the
Company's shareholders as a whole and to no other person. The Company, its
Directors, employees, agents and advisors accept and assume no liability to
any person in respect of this trading update except as would arise under
English law. Statements contained in this trading update are based on the
knowledge and information available to Capita’s Directors at the date it was
prepared and therefore facts stated and views expressed may change after that
date.
This document and any materials distributed in connection with it may include
forward-looking statements, beliefs, opinions or statements concerning risks
and uncertainties, including statements with respect to Capita’s business,
financial condition and results of operations. Those statements, and
statements which contain the words "anticipate", "believe", "intend",
"estimate", "expect" and words of similar meaning, reflect Capita’s
Directors' beliefs and expectations and involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the
future and which may cause results and developments to differ materially from
those expressed or implied by those statements and forecasts.
No representation is made that any of those statements or forecasts will come
to pass or that any forecast results will be achieved. You are cautioned not
to place any reliance on such statements or forecasts. Those forward-looking
and other statements speak only as at the date of this trading update. Capita
undertakes no obligation to release any update of, or revisions to, any
forward-looking statements, opinions (which are subject to change without
notice) or any other information or statement contained in this trading
update. Furthermore, past performance cannot be relied on as a guide to future
performance.
No statement in this document is intended as a profit forecast or a profit
estimate and no statement in this document should be interpreted to mean that
earnings per Capita share for the current or future financial years would
necessarily match or exceed the historical published earnings per Capita
share.
Nothing in this document is intended to constitute an invitation or inducement
to engage in investment activity. This document does not constitute or form
part of any offer for sale or subscription of, or any solicitation of any
offer to purchase or subscribe for, any securities nor shall it or any part of
it nor the fact of its distribution form the basis of, or be relied on in
connection with, any contract, commitment or investment decision in relation
thereto. This document does not constitute a recommendation regarding any
securities.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group and its approach to
internal control and risk management are set out on pages 57 to 63 of the 2023
Annual Report and Accounts which is available on the Group’s website at
www.capita.com/investors/results-reports-and-presentations.
The Executive Risk and Ethics Committee (EREC) have considered the principal
risks and uncertainties of the Group and have determined that those reported
in the 2023 Annual Report and Accounts remain materially the same for the
remaining half of the financial year.
Risk title Risk description
1 Deliver profitable growth Attract new clients and retain existing clients on appropriate commercial terms.
2 Contract performance Deliver services to clients in accordance with contractual and legal obligations.
3 Innovation Innovate and develop new customer value propositions with speed and agility.
4 People attraction and retention Attract, develop, engage and retain the right talent.
5 Financial stability Maintain financial stability and achieve financial targets.
6 Cyber security Protect our systems, networks and programs from unauthorised use and access.
7 Environment, Social and Governance (ESG) Comply with regulatory and contractual requirements to drive a purpose driven organisation with the right focus on governance.
8 Safety and Health Protect the safety and health of all Capita's employees and manage our duty of care to them, the people we work with and those affected by our activities.
9 Data Governance and Data Privacy Manage our data effectively (both clients and Capita) as a strategic asset across the organisation.
Statement of Directors’ responsibilities
The Board of directors confirms, to the best of its knowledge, that these
condensed consolidated financial statements have been prepared in accordance
with IAS 34 as adopted for use in the UK and that the Half Year Management
Report includes a fair review of the information required by Rules 4.2.7 and
4.2.8 of the Disclosure Guidance and Transparency Rules of the United Kingdom
Financial Conduct Authority.
The names and functions of the Board of directors of Capita plc are listed on
the Group website at www.capita.com/our-company/about-capita/about-board.
By order of the Board
Adolfo Hernandez Tim Weller
Chief Executive Officer Chief Financial Officer
1 August 2024 1 August 2024
Condensed consolidated income statement
For the six months ended 30 June 2024
Notes 30 June 2024 £m 30 June 2023 £m
Revenue 3 1,237.3 1,477.0
Cost of sales (973.2) (1,138.4)
Gross profit 264.1 338.6
Administrative expenses (220.2) (374.4)
Operating profit/(loss) 3 43.9 (35.8)
Share of results in associates and investment gains 1.4 —
Net finance expense 5 (23.4) (25.5)
Gain/(loss) on disposal of businesses 8 38.1 (6.6)
Profit/(loss) before tax 60.0 (67.9)
Income tax charge 6 (7.1) (16.8)
Total profit/(loss) for the period 52.9 (84.7)
Attributable to:
Owners of the Company 53.0 (84.4)
Non-controlling interests (0.1) (0.3)
52.9 (84.7)
Earnings/(loss) per share 7
– basic 3.14p (5.06)p
– diluted 3.07p (5.06)p
Adjusted operating profit 4 54.2 40.9
Adjusted profit before tax 4 31.6 18.3
Adjusted basic earnings per share 7 2.19p 2.68p
Adjusted diluted earnings per share 7 2.14p 2.68p
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2024 Notes 30 June 2024 £m 30 June 2023 £m
Total profit/(loss) for the period 52.9 (84.7)
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to the income statement
Actuarial loss on defined benefit pension schemes (3.5) (26.6)
Tax effect on defined benefit pension schemes 0.8 6.1
Loss on fair value of investments — (0.1)
Items that will or may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations 0.2 (3.4)
Gain/(loss) on cash flow hedges 4.8 (1.6)
Cash flow hedges recycled to the income statement (0.9) (1.2)
Tax effect on cash flow hedges (1.0) 0.7
Other comprehensive income/(expense) for the period net of tax 0.4 (26.1)
Total comprehensive income/(expense) for the period net of tax 53.3 (110.8)
Attributable to:
Owners of the Company 53.4 (110.2)
Non-controlling interests (0.1) (0.6)
53.3 (110.8)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed consolidated balance sheet
At 30 June 2024
30 June 2024 31 December 2023
Notes £m £m
Non-current assets
Property, plant and equipment 72.7 80.0
Intangible assets 72.2 90.0
Goodwill 448.1 495.7
Right-of-use assets 185.4 208.5
Investments in associates 0.2 0.2
Contract fulfilment assets 2 257.2 257.0
Financial assets 11 115.3 97.2
Deferred tax assets 135.0 140.3
Employee benefits 13 49.7 32.7
Trade and other receivables 10.4 12.3
1,346.2 1,413.9
Current assets
Financial assets 11 31.1 28.1
Income tax receivable 11.8 11.6
Disposal group assets held-for-sale 8 83.2 38.1
Trade and other receivables 386.8 350.7
Cash 11 148.7 155.4
661.6 583.9
Total assets 2,007.8 1,997.8
Current liabilities
Overdrafts 11 74.6 95.0
Trade and other payables 395.6 425.9
Disposal group liabilities held-for-sale 8 46.7 9.7
Income tax payable 4.0 1.3
Deferred income 515.2 501.3
Lease liabilities 11 45.8 51.1
Financial liabilities 11 88.9 10.8
Provisions 10 74.5 101.6
1,245.3 1,196.7
Non-current liabilities
Trade and other payables 5.9 8.5
Deferred income 43.5 36.2
Lease liabilities 11 309.7 312.3
Financial liabilities 11 180.6 267.5
Deferred tax liabilities 7.2 7.2
Provisions 10 40.5 48.6
Employee benefits 13 4.7 5.9
592.1 686.2
Total liabilities 1,837.4 1,882.9
Net assets 170.4 114.9
Capital and reserves
Share capital 12 35.2 35.2
Share premium 12 1,145.5 1,145.5
Employee benefit trust shares 12 (0.4) (0.7)
Capital redemption reserve 1.8 1.8
Other reserves (11.9) (15.0)
Retained deficit (992.5) (1,053.8)
Equity attributable to owners of the Company 177.7 113.0
Non-controlling interests (7.3) 1.9
Total equity 170.4 114.9
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2024
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 equity £m
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 period — — — — (84.4) — (84.4) (0.3) (84.7)
Other comprehensive expense — — — — (20.6) (5.2) (25.8) (0.3) (26.1)
Total comprehensive expense for the period — — — — (105.0) (5.2) (110.2) (0.6) (110.8)
Share-based payment net of deferred tax effect — — — — 2.7 — 2.7 — 2.7
Exercise of share options under employee long-term incentive plans — — 3.8 — (3.8) — — — —
Shares issued 0.4 — (0.4) — — — — — —
Change in put-options held by non-controlling interests — — — — 2.0 — 2.0 — 2.0
At 30 June 2023 35.2 1,145.5 (0.8) 1.8 (947.3) (9.7) 224.7 21.9 246.6
At 31 December 2023 35.2 1,145.5 (0.7) 1.8 (1,053.8) (15.0) 113.0 1.9 114.9
Profit/(loss) for the period — — — — 53.0 — 53.0 (0.1) 52.9
Other comprehensive (expense)/income — — — — (2.7) 3.1 0.4 — 0.4
Total comprehensive income/(expense) for the period — — — — 50.3 3.1 53.4 (0.1) 53.3
Share-based payment net of deferred tax effect — — — — 2.8 — 2.8 — 2.8
Elimination of non-controlling interest on disposal of businesses (note 8) — — — — — — — (9.1) (9.1)
Exercise of share options under employee long-term incentive plans (note 12) — — 0.3 — (0.3) — — — —
De-recognition of put-options held by non-controlling interests (note 11) — — — — 8.5 — 8.5 — 8.5
At 30 June 2024 35.2 1,145.5 (0.4) 1.8 (992.5) (11.9) 177.7 (7.3) 170.4
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed consolidated cash flow statement
For the six months ended 30 June 2024
Notes 30 June 2024 £m 30 June 2023 £m
Cash generated/(used by) from operations 9 26.6 (5.6)
Income tax paid (0.4) (3.2)
Interest received 4.1 3.0
Interest paid (26.3) (21.6)
Net cash inflow/(outflow) from operating activities 4.0 (27.4)
Cash flows from investing activities
Purchase of property, plant and equipment (7.2) (15.0)
Purchase of intangible assets (14.3) (14.4)
Proceeds from sale of property, plant and equipment, and intangible assets — 0.1
Proceeds from disposal of associates and joint ventures 0.3 —
Additions to originated loans receivable (0.5) —
Changes to investments at fair value through other comprehensive income — (0.1)
Capital element of lease rental receipts 2.8 3.8
Deferred consideration from sale of subsidiary undertakings 10.7 —
Total proceeds received from disposal of businesses, net of disposal costs 8 56.0 8.2
Cash held by businesses when sold 8 (6.3) (3.7)
Net cash inflow/(outflow) from investing activities 41.5 (21.1)
Cash flows from financing activities
Capital element of lease rental payments (29.9) (31.1)
Repayment of private placement loan notes — (48.7)
Proceeds from cross-currency interest rate swaps — 8.2
Repayment of other finance — (0.5)
Proceeds from credit facilities — 41.0
Debt financing arrangement costs — (1.2)
Net cash outflow from financing activities (29.9) (32.3)
Increase/(decrease) in cash and cash equivalents 15.6 (80.8)
Cash and cash equivalents at the beginning of the period 67.6 177.2
Effect of exchange rates on cash and cash equivalents 2.2 (1.5)
Cash and cash equivalents at 30 June 85.4 94.9
Cash and cash equivalents comprise:
Cash 148.7 161.3
Overdrafts (74.6) (86.8)
Cash, net of overdrafts, included in disposal group assets and liabilities held-for-sale 11.3 20.4
Total 85.4 94.9
Alternative performance measures (refer note 1.2(b))
Cash generated from operations before business exits 9 19.0 5.1
Free cash flow before business exits 9 (51.9) (64.3)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Notes to the condensed consolidated financial statements
For the six months ended 30 June 2024
1.1 Corporate information
Capita plc (the 'Company' or the 'Parent Company') is a public limited
liability company incorporated in England and Wales whose shares are publicly
traded.
These condensed consolidated financial statements as at and for the six months
ended 30 June 2024 comprise the Company and its subsidiaries (together
referred to as 'the Group').
These condensed consolidated financial statements were authorised for issue by
the Board of directors on 1 August 2024.
These condensed 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.
1.2 Basis of preparation, judgements and estimates, and going concern
(a) Basis of preparation
These unaudited condensed consolidated financial statements have been prepared
in accordance with the Disclosure and Transparency Rules of the UK's Financial
Conduct Authority, and with IAS 34 Interim Financial Reporting under
UK-adopted International Financial Reporting Standards (IFRS).
These condensed 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 2023.
The Group has considered the impact of new, and amendments to, reporting
standards which are effective from 1 January 2024 and concluded that they
were either not applicable, or not material, to these condensed consolidated
financial statements.
The Group is in the early stages of its assessment for all other standards,
amendments and interpretations that have been issued by the International
Accounting Standards Board (IASB) but are not yet effective.
These condensed consolidated financial statements do not comprise statutory
accounts within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2023 have been delivered to
the Registrar of Companies. The auditor has reported on those accounts and
their opinion was (i) unqualified, (ii) did not include any matters to which
the auditor drew attention by way of emphasis of matter without modifying
their opinion, and (iii) did not contain a statement under section 498(2) or
(3) of the Companies Act 2006.
These condensed consolidated financial statements have been reviewed by the
Group's auditors pursuant to the Auditing Practices Board guidance on the
Review of Interim Financial Information.
(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 separately disclose those items that it
considers are outside the underlying operating results for the particular
period under review and against which the Group’s performance is assessed
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 condensed
consolidated financial statements to obtain a proper 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
about 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. Refer to the
appendix for further details of the Group’s APMs. Those items which relate
to the ordinary course of the Group’s operating activities remain within
adjusted results.
The Board has limited the items excluded from the adjusted results to:
business exits; amortisation and impairment of acquired intangibles;
impairment of goodwill; certain 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, after deducting the capital element of lease
payments and receipts, to be alternative performance measures because these
metrics provide a more representative measure of the sustainable cash flow of
the Group.
While the Board considers APMs to be helpful to the reader, it 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 4, and a reconciliation between reported and
free cash flow excluding business exits and cash generated from operations is
provided in note 9.
(c) Judgements and estimates
These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which require the
Board of 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
Board’s best knowledge of the amounts, events or actions, actual results may
differ.
The significant judgements and assumptions made by the Board in applying the
Group's accounting policies and the key sources of estimation uncertainty were
the same as those applied to the consolidated financial statements for the
year ended 31 December 2023.
Judgements
The key areas where significant accounting judgements have been made and which
have the most significant effect on the amounts recognised in the condensed
consolidated financial statements, are summarised below and set out in more
detail in the related note:
• Contract accounting (note 2) - revenue recognition;
• Capitalisation of contract fulfilment assets (note 2); and
• Adoption of the going concern basis of preparation
(note 1.2(d)).
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date, which have a significant risk of
causing material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are summarised below and set out in more
detail in the related note. The Group based its assumptions and estimates on
parameters available when the condensed consolidated financial statements were
prepared.
Existing circumstances and assumptions about future developments, however, may
change due to market changes or circumstances arising that are beyond the
control of the Group. Such changes are incorporated into the assumptions when
they occur:
• Contract accounting (note 2) - impairment of contract
fulfilment assets, and customer and onerous contract provisions;
• Deferred tax asset recognition (note 6);
• Valuation of investments (note 11); and
• Measurement of defined benefit pension obligations
(note 13).
(d) Going concern
In determining the appropriate basis of preparation of these condensed
consolidated financial statements for the six month period ended 30 June
2024, the Board is required to consider whether the Group 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 condensed consolidated 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 condensed consolidated financial statements to
31 December 2025 ('the going concern period'), which aligns with a year end
and a covenant test date for the Group.
The base case financial forecasts used in the going concern assessment are
derived from financial projections for 2024-2025 as approved by the Board in
June 2024.
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 £250.0m
at 30 June 2024 and extends to 31 December 2026.
Financial position at 30 June 2024
As detailed further in the Chief Financial Officer's review, as at 30 June
2024 the Group had net debt of £521.9m (31 December 2023: £545.5m), net
financial debt (pre-IFRS 16) of £166.4m (31 December 2023: £182.1m),
available liquidity of £293.1m (31 December 2023: £282.3m) 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 from the Group's previously announced
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 and the agreed sale of the Capita One business because the
completion of the disposal has been assessed to be highly probable. 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 31 December 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;
• unforeseen operational issues leading to contract losses and cash
outflows;
• sustained interest rates at current levels;
• 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. The Board considered the
impact of the above risks and mitigations on the Group both in the scenario
where the Capita One disposal does occur, and if it were not to occur. In the
event of the simultaneous crystallisation of risks and the Capita One disposal
does not complete, the Board also considered the ability of the Group to
refinance a portion of the 2025 maturing debt. Taking these considerations
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
31 December 2025.
Adoption of going concern basis
Reflecting the levels of liquidity and covenant headroom in the base case and
severe but plausible downside scenarios, the Group continues to adopt the
going concern basis in preparing these condensed consolidated financial
statements. The Board has concluded that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period to
31 December 2025.
2 Contract accounting
At 30 June 2024, the Group had the following results and balance sheet items
related to long-term contracts:
Note 30 June 2024 £m 30 June 2023 £m 31 December 2023 £m
Long-term contractual revenue 3 908.7 1,114.8
Deferred income 558.7 537.5
Contract fulfilment assets (non-current) 257.2 257.0
Onerous contract provisions 40.6 43.3
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 73.4% of Group revenue for the six months ended 30 June 2024
(30 June 2023: 75.5%).
Recoverability of 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.
The major contracts are rated by management according to their financial risk
profile, which is linked to the level of uncertainty over future assumptions.
From the 2024 half year, the major contracts that the Audit and Risk Committee
review for half year reporting, are those in the high or medium rated risk
categories.
At the full year, those contracts material by virtue of their size relative to
the Group, will also be reviewed by the Audit and Risk Committee if not
already identified through the above indicators.
In the following paragraphs, the amounts disclosed for the current period are
only in respect of those major contracts that the Audit and Risk Committee
have reviewed (ie at half year this is only those major contracts which are in
the high or medium risk categories). The prior period amounts in relation to
major contracts are as previously presented, and as such reflect the major
contracts reviewed by the Audit and Risk Committee for that period end. The
prior period amounts are therefore not directly comparable to the those
disclosed for the current period.
The major contracts contributed £180.2m (30 June 2023: £647.1m) or 15%
(30 June 2023: 46%) of Group adjusted revenue. Non-current contract
fulfilment assets as at 30 June 2024 were £257.2m (31 December 2023:
£257.0m), of which £59.8m (31 December 2023: £125.1m) relates to major
contracts with ongoing transformational activities. The remainder relates to
contracts post transformation and includes non-major contracts.
As noted above, the major contracts, both pre- and post-transformation, are
rated according to their financial risk profile. For those that are in the
high and medium rated risk categories the associated non-current contract
fulfilment assets were, in aggregate £61.4m at 30 June 2024 (31 December
2023: £52.8m). 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 £148.9m at 30 June 2024 (31 December 2023: £109.5m) 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 £33.7m at 30 June 2024 (31 December
2023: £37.3m).
Following these reviews, and reviews of smaller contracts across the business,
non-current contract fulfilment asset impairments of £0.2m (30 June 2023:
£nil) were identified and recognised within adjusted cost of sales of which
£nil (30 June 2023: £nil) relates to non-current contract fulfilment assets
added during the period. Additionally, net onerous contract provisions of
£4.2m (30 June 2023: £1.7m) were identified and recognised in adjusted cost
of sales with a further £0.7m excluded from adjusted cost of sales as part of
business exits.
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, £59.8m of non-current contract fulfilment assets
relates to major contracts with ongoing transformational activities; and,
£61.4m of non-current contract fulfilment assets and £33.7m 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.
Certain major contracts in transformation 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.
3 Revenue and segmental information
The Group’s operations are managed separately according to the nature of the
services provided, with each segment representing a strategic business
division offering a different package of client outcomes across the markets
the Group serves. Capita plc is a reconciling item and not an operating
segment. 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 and segmental profit 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 the second half of 2023 and the first half of
2024. Comparative information has also been re-presented to reflect the move
of businesses between segments during the period to enable comparability.
Revenue
Adjusted revenue, excluding results from businesses exited in both periods
(adjusting items), was £1,201.5m (30 June 2023: £1,324.4m), a decline of
9.3% (30 June 2023: an increase of 4.8%).
Six months ended 30 June 2024 Notes Capita Public Service £m Capita Experience £m Total adjusted £m Adjusting items £m Total reported £m
Continuing operations
Long-term contractual 570.5 309.7 880.2 28.5 908.7
Short-term contractual 80.6 190.1 270.7 2.6 273.3
Transactional (point-in-time) 37.4 13.2 50.6 4.7 55.3
Total segment revenue 688.5 513.0 1,201.5 35.8 1,237.3
Trading revenue 700.2 527.9 1,228.1 — 1,228.1
Inter-segment revenue (11.7) (14.9) (26.6) — (26.6)
Total adjusted segment revenue 688.5 513.0 1,201.5 — 1,201.5
Business exits – trading 8 — — — 35.8 35.8
Total segment revenue 688.5 513.0 1,201.5 35.8 1,237.3
Six months ended 30 June 2023 Notes Capita Public Service £m Capita Experience £m Total adjusted £m Adjusting items £m Total reported £m
Continuing operations
Long-term contractual 574.8 496.2 1,071.0 43.8 1,114.8
Short-term contractual 101.8 107.8 209.6 20.1 229.7
Transactional (point-in-time) 31.4 12.4 43.8 88.7 132.5
Total segment revenue 708.0 616.4 1,324.4 152.6 1,477.0
Trading revenue 719.7 630.8 1,350.5 — 1,350.5
Inter-segment revenue (11.7) (14.4) (26.1) — (26.1)
Total adjusted segment revenue 708.0 616.4 1,324.4 — 1,324.4
Business exits – trading 8 — — — 152.6 152.6
Total segment revenue 708.0 616.4 1,324.4 152.6 1,477.0
Order book
The tables below show the order book for each division, categorised into
long-term contractual (contracts with length greater than two years) and
short-term contractual (contracts with length less than two years). The length
of the contract is calculated from the service commencement date. The figures
present the aggregate amount of the 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 30 June 2024 Capita Public Service £m Capita Experience £m Total £m
Long-term contractual 3,297.8 1,193.0 4,490.8
Short-term contractual 102.2 336.4 438.6
Total 3,400.0 1,529.4 4,929.4
Order book 31 December 2023 Capita Portfolio £m Capita Public Service £m Capita Experience £m Total £m
Long-term contractual — 3,381.1 2,111.2 5,492.3
Short-term contractual 37.2 164.9 188.2 390.3
Total 37.2 3,546.0 2,299.4 5,882.6
The table below shows the expected timing of revenue to be recognised from
long-term contractual orders at 30 June 2024:
Time bands of expected revenue recognition from long-term contractual orders Capita Public Service £m Capita Experience £m Total £m
< 1 year 868.1 407.5 1,275.6
1–5 years 1,671.7 581.7 2,253.4
> 5 years 758.0 203.8 961.8
Total 3,297.8 1,193.0 4,490.8
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 these condensed 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
figures in the tables above because they are not contracted. Additionally,
revenue from contract extensions is also excluded from the order book unless
the extensions are pre-priced 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 £233.2m (31 December 2023: £513.8m1). 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 £4.5 billion (31 December 2023: £5.5 billion) revenue to be earned
on long-term contracts, £0.9 billion (31 December 2023: £3.4 billion1)
relates to major contracts. This amount excludes revenue that will be derived
from frameworks (transactional, ie point-in-time, contracts), non-contracted
volumetric revenue, non-contracted scope changes and future unforeseen volume
changes from these major contracts at half year, which together are
anticipated to contribute an additional £0.9 billion (31 December 2023:
£0.6 billion1) of revenue to the Group over the life of these contracts.
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 £427.1m
(30 June 2023: £504.5m; 31 December 2023: £599.0m).
Movements in the deferred income balances were driven by transactions entered
into by the Group in the normal course of business during the six months ended
30 June 2024.
___________________________________________
1 The prior period amounts in relation to major contracts are as previously
presented, and as such reflect the major contracts reviewed by the Audit and
Risk Committee for that period end (refer to note 2). The prior period
amounts are therefore not directly comparable to the those disclosed for the
current period.
Segmental profit
The tables below present profit of the Group’s business segments. For
segmental reporting, the costs of central functions have been allocated to the
segments using appropriate drivers such as adjusted revenue, adjusted profit
or headcount. Comparative information has been re-presented to reflect
businesses exited during the second half of 2023 and the first half of 2024.
Six months ended 30 June 2024 Notes Capita Public Service £m Capita Experience £m Capita plc £m Total adjusted £m Adjusting items £m Total reported £m
Adjusted operating profit 4 47.1 25.1 (18.0) 54.2 — 54.2
Cost reduction programme 4 (3.6) 0.5 (5.1) — (8.2) (8.2)
Business exits – trading 8 — — — — 8.4 8.4
Total trading result 43.5 25.6 (23.1) 54.2 0.2 54.4
Non-trading items:
Business exits – non-trading 8 — (10.8) (10.8)
Other adjusting items 4 — 0.3 0.3
Operating profit/(loss) 54.2 (10.3) 43.9
Interest income 5 4.9
Interest expense 5 (28.3)
Share of results in associates and investment gains 1.4
Gain on business disposal 38.1
Profit before tax 60.0
Supplementary information
Depreciation and amortisation 18.7 25.8 1.1 45.6 1.4 47.0
Impairment of property, plant and equipment, intangible assets and right-of-use assets 0.9 1.5 — 2.4 8.4 10.8
Non-current contract fulfilment assets utilisation, impairment and derecognition 27.6 4.8 — 32.4 1.0 33.4
Onerous contract provisions — 4.2 — 4.2 — 4.2
Six months ended 30 June 2023 Notes Capita Public Service £m Capita Experience £m Capita plc £m Total adjusted £m Adjusting items £m Total reported £m
Adjusted operating profit 4 26.2 39.1 (24.4) 40.9 — 40.9
Business exits – trading 8 — — — — 12.5 12.5
Total trading result 26.2 39.1 (24.4) 40.9 12.5 53.4
Non-trading items:
Business exits – non-trading 8 — (25.1) (25.1)
Other adjusting items 4 — (64.1) (64.1)
Operating profit/(loss) 40.9 (76.7) (35.8)
Interest income 5 4.4
Interest expense 5 (29.9)
Loss on business disposal (6.6)
Loss before tax (67.9)
Supplementary information
Depreciation and amortisation 19.6 29.1 4.2 52.9 4.9 57.8
Impairment of property, plant and equipment, intangible assets and right-of-use assets 1.0 2.0 0.3 3.3 — 3.3
Contract fulfilment assets utilisation, impairment and derecognition 30.3 7.2 — 37.5 2.7 40.2
Onerous contract provisions — 1.7 — 1.7 — 1.7
4 Adjusted operating profit and adjusted profit before tax
The Board has adopted a policy to separately disclose those items that it
considers are outside the underlying operating results for the particular
period under review and against which the Group’s performance is assessed
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 a proper 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
about 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. Those items which
relate to the ordinary course of the Group’s operating activities remain
within adjusted profit.
The items excluded from adjusted profit are discussed further below.
Operating profit/(loss) Profit/(loss) before tax
Notes 30 June 2024 £m 30 June 2023 £m 30 June 2024 £m 30 June 2023 £m
Reported 43.9 (35.8) 60.0 (67.9)
Amortisation and impairment of acquired intangibles 0.1 0.1 0.1 0.1
Impairment of goodwill — 42.2 — 42.2
Net finance expense 5 — — 0.4 2.2
Business exits 8 2.4 12.6 (36.7) 19.9
Cyber incident (0.4) 21.8 (0.4) 21.8
Cost reduction programme 8.2 — 8.2 —
Adjusted 54.2 40.9 31.6 18.3
1. Adjusted operating profit of £54.2m (30 June 2023: £40.9m) was
generated on adjusted revenue of £1,201.5m (30 June 2023: £1,324.4m)
resulting in an adjusted operating margin of 4.5% (30 June 2023: 3.1%).
2. The tax impact of the profit before tax adjusting items is a £12.4m
charge (30 June 2023: £42.1m charge).
Amortisation and impairment of acquired intangible assets: the Group
recognised acquired intangible amortisation of £0.1m (30 June 2023: £0.1m).
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
amounts of goodwill which are subject to annual impairment testing and when
any indicators of impairment are identified. 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 expense: net finance expense 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.
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 8 provides further detail regarding which income
statement lines are impacted by business exits.
Cyber incident: the Group has incurred exceptional costs associated with the
March 2023 cyber incident. These costs comprise specialist professional fees,
recovery and remediation costs and investment to reinforce Capita's cyber
security environment. A credit of £0.4m has been recognised in the six months
ended 30 June 2024, which includes an insurance recovery which met the
criteria to be recognised (30 June 2023: charge of £21.8m). Cumulatively the
net costs incurred total £24.9m. Refer to note 15 contingent liabilities.
The (credit)/charge is included within administrative expenses.
Cost reduction programme: As detailed in the Chief Financial Officer's review,
the Group has implemented a significant cost reduction programme. A charge of
£8.2m has been recognised in the six months ended 30 June 2024 for the costs
to deliver the cost reduction programme. This includes redundancy and other
costs of £11.0m to deliver a significant reduction in indirect support
function and overhead roles, partly offset by a credit of £2.8m arising from
the rationalisation of the Group's property estate. The net credit arises on
property as the charge arising from the impairment of right-of-use assets and
property, plant and equipment, and provisions in respect of onerous property
costs, in the period, has been offset by adjustments to impairments and
provisions recognised in 2023 following lease modifications and changes to
sublet assumptions. The cumulative cost recognised since the commencement of
the cost reduction programme in the second half of 2023 is £62.6m. The charge
is included within administrative expenses.
Refer to note 9 for the cash flow impact of the above.
5 Net finance expense
The table below shows the composition of net finance costs, including those
excluded from adjusted profit:
Notes 30 June 2024 £m 30 June 2023 £m
Interest income
Interest on cash (1.2) (0.9)
Interest on finance lease assets (2.8) (2.0)
Net interest income on defined benefit pension schemes 13 (0.9) (1.5)
Total interest income (4.9) (4.4)
Interest expense
Private placement loan notes 1 8.2 6.8
Bank loans and overdrafts 5.6 7.0
Cost of non-recourse trade receivables financing 11 2.1 1.4
Interest on finance lease liabilities 10.9 11.0
Discount unwind on provisions 10 0.7 0.8
Total interest expense 27.5 27.0
Net finance expense included in adjusted profit 22.6 22.6
Included within business exits
Bank loans and overdrafts — 0.7
Interest on finance lease liabilities 0.4 0.1
Other financial income — (0.1)
Total included within business exits 8 0.4 0.7
Other items excluded from adjusted profits
Non-designated foreign exchange forward contracts - change in mark-to-market value (0.2) 2.3
Fair value hedge ineffectiveness 2 0.6 (0.1)
Total other items excluded from adjusted profits 0.4 2.2
Net finance expense excluded from adjusted profit 0.8 2.9
Total net finance expense 23.4 25.5
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.
2. Fair value hedge ineffectiveness arises from changes in currency basis,
and the movement in a provision for counterparty risk associated with the
swaps.
6 Income tax
30 June 2024 30 June 2023
Total reported £m Included in adjusted profit £m Excluded from adjusted profit £m Total reported £m Included in adjusted profit £m Excluded from adjusted profit £m
Tax (charge)/credit (7.1) 5.3 (12.4) (16.8) 25.3 (42.1)
Excluding discrete items, the adjusted income tax charge for the six month
period is £8.6m (2023: £3.7m) and has been calculated by applying
management’s best estimate of the full-year effective tax rate of 27.3%
(estimated using full-year profit projections excluding any discrete items) to
the adjusted profit before tax for the six months to 30 June 2024. The
effective adjusted tax rate, excluding discrete items, is higher than the
standard UK rate of 25% mainly due to withholding tax on dividends, Pillar Two
income tax provisions and unrecognised tax losses arising in overseas
jurisdictions. The adjusted tax credit on discrete items for the six months is
calculated separately, and relates to the change in estimate of deferred tax
assets, £14.3m (2023: £29.4m) and a prior year adjustment, charge of £0.4m
(2023: £0.4m), resulting in the total adjusted tax credit, including discrete
items, of £5.3m (2023: credit of £25.3m), on adjusted profit before tax of
£31.6m (2023: profit of £18.3m).
Excluding discrete items, the reported tax charge of £6.5m (2023: £6.7m)
reflects the £2.1m tax credit on adjusting items. This has been calculated on
an item-by-item basis and reflects the tax exempt profit on disposal. The
reported tax charge on discrete business exit items relates to the deferred
tax relating to the change in estimate of deferred tax assets in respect of
divestments, £14.5m (2023: charge of £39.1m), resulting in the total
reported tax charge, including discrete items, of £7.1m (2023: charge of
£16.8m), on a reported profit before tax of £60.0m (2023: loss of £67.9m).
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 profits in the countries concerned. The recognition
of deferred tax assets has been based on the latest financial projections for
2024-2025, using a long-term growth rate of 1.7% and a reducing probability
factor applied to future profits, consistent with the approach in recent
years. This assessment results in a change in the accounting estimate of
deferred tax of £0.2m, which is reflected as a deferred tax charge in
adjusting items due to business disposals (£14.5m reduction), and an adjusted
tax credit in relation to an increase in taxable profits in the assessment
model (£14.3m increase).
Unrecognised temporary differences have increased by £3.4m, resulting in
total unrecognised temporary differences as at 30 June 2024 of £850.9m
(31 December 2023: £847.5m).
The estimated full year effective tax rate of 27.3% includes an income tax
expense of £0.5m (2023: not applicable) related to Pillar Two income taxes.
This charge relates to estimated Pillar Two top-up taxes on profits earned in
the Isle of Man, Switzerland and Poland.
The Group has an open and positive working relationship with HMRC, has a
designated customer compliance manager, and is committed to prompt disclosure
and transparency in dealings with HMRC and overseas tax authorities. The Group
does not have a complex tax structure, supported by legal structure
simplification from the entity rationalisation programme. The Group does not
pursue aggressive tax avoidance activities and has a low-risk rating from
HMRC. The Group has operations in a number of countries outside the UK. All
Capita operations outside the UK are trading operations and pay the
appropriate local taxes on these activities. Further detail, regarding
Capita's tax strategy can be found on the Policies and Principles area of the
Capita website
(https://www.capita.com/our-company/about-capita/policies-and-principles).
7 Earnings/(loss) per share
Basic earnings/(loss) per share are calculated by dividing the net
profit/(loss) for the period attributable to ordinary equity holders of the
Parent Company by the weighted average number of ordinary shares outstanding
during the period.
Diluted earnings/(loss) per share are calculated by dividing the net
profit/(loss) for the period attributable to ordinary equity holders of the
Parent Company by the weighted average number of ordinary shares outstanding
during the period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential ordinary
shares into ordinary shares.
30 June 2024 30 June 2023
pence pence
Basic earnings/(loss) per share – reported 3.14 (5.06)
– adjusted 2.19 2.68
Diluted earnings/(loss) per share – reported 3.07 (5.06)
– adjusted 2.14 2.68
The following tables show the earnings and share data used in the basic and
diluted earnings/(loss) per share calculations:
30 June 2024 30 June 2023
Notes £m £m
Reported profit/(loss) before tax for the period 60.0 (67.9)
Income tax (charge)/credit 6 (7.1) (16.8)
Reported profit/(loss) for the period 52.9 (84.7)
Less: Non-controlling interest 0.1 0.3
Total profit/(loss) attributable to shareholders 53.0 (84.4)
Adjusted profit before tax for the period 4 31.6 18.3
Income tax (charge)/credit 5.3 25.3
Adjusted profit for the period 36.9 43.6
Less: Non-controlling interest 0.1 1.1
Adjusted profit attributable to shareholders 37.0 44.7
30 June 2024 £m 30 June 2023 £m
Weighted average number of ordinary shares (excluding Employee Benefit Trust shares) for basic earnings per share 1,688.1 1,669.4
Dilutive potential ordinary shares:
Employee share options 41.1 34.9
Weighted average number of ordinary shares (excluding Employee Benefit Trust shares) adjusted for the effect of dilution 1,729.2 1,704.3
At 30 June 2023, 34,916,637 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 to
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
condensed consolidated financial statements were authorised for issue.
8 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 meet the definition of ‘discontinued
operations’ as stipulated by IFRS 5 Non-current assets held-for-sale and
discontinued operations, which requires disclosure and comparatives to be
restated where the relative size of a disposal or business closure is
significant, which is normally understood to mean a reported segment.
However, the trading results of these businesses, non-trading expenses, and
any gain/loss on disposal, have been excluded from adjusted results. To enable
a like-for-like comparison of adjusted results, the 30 June 2023 comparatives
have been re-presented to exclude businesses classified as business exits from
1 July 2023 to 30 June 2024.
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 instead of 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 where the disposal is seen to be
highly probable and expected to complete within the following twelve months.
At 30 June 2023, the PageOne, Software, and Enforcement business disposals
were deemed to have met this threshold. At 31 December 2023 one business (the
Group's 75% shareholding in Fera Science Limited) was deemed to have met the
threshold to be treated as held-for-sale.
2024 business exits
Business exits at 30 June 2024 comprised:
Business Disposal completed on
Fera 17 January 2024
Capita One Held-for-sale at 30 June 2024
In addition to the above disposals, as disclosed in the 2023 Annual Report,
the Group decided to exit a business in Capita Public Service during the
second half of 2023, the trading result and non-trading expenses of that
business have been excluded from adjusted results. During the first half of
2024, the Group decided to exit the Mortgage Services business and its
corporate venture business (Capita Scaling Partner), both in Capita
Experience. The trading results and non-trading expenses of these businesses
have been excluded from adjusted results. The Capita Scaling Partner business
managed the Group’s investments in start-up and scale-up companies, one of
which was sold during the first half of the year realising a gain of £0.3m.
The Group will seek to maximise value from the remaining Capita Scaling
Partner investments, which at 30 June 2024 had an aggregate carrying value of
£19.3m, including loans receivable by Capita of £1.2m. While it is the
Board’s intention to complete these disposals in the short to medium-term,
where there are presently no signed agreements in place with any counterparty,
there are a range of possible outcomes that could occur, and the actual net
proceeds received could be materially higher or lower than the investment
carrying values.
Income statement impact 30 June 2024 30 June 2023
Trading Non-trading Total Trading Non-trading Total
£m £m £m £m £m £m
Revenue 35.8 — 35.8 152.6 — 152.6
Cost of sales (27.1) — (27.1) (95.7) — (95.7)
Gross profit 8.7 — 8.7 56.9 — 56.9
Administrative expenses (0.3) (10.8) (11.1) (44.4) (25.1) (69.5)
Operating profit/(loss) 8.4 (10.8) (2.4) 12.5 (25.1) (12.6)
Share of results in associates and investment gains — 1.4 1.4 — — —
Net finance income/(expense) (0.4) — (0.4) (0.8) 0.1 (0.7)
Gain/(loss) on business disposal — 38.1 38.1 — (6.6) (6.6)
Profit/(loss) before tax 8.0 28.7 36.7 11.7 (31.6) (19.9)
Taxation (2.0) (12.2) (14.2) (3.0) (39.1) (42.1)
Profit/(loss) after tax 6.0 16.5 22.5 8.7 (70.7) (62.0)
Trading revenue and costs represent the trading performance of the above
businesses up to the point of being disposed or exited, and in the comparative
those businesses disposed of during 2023 (being: Resourcing, Security
Watchdog, PageOne, Software, Enforcement, and Travel). Trading expenses
primarily comprise payroll costs of £18.0m (30 June 2023: £108.8m) and
information technology costs of £9.5m (30 June 2023: £20.2m).
Non-trading administrative expenses comprise: asset impairments of £8.7m
(30 June 2023: £18.1m); disposal project costs of £2.5m (30 June 2023:
£5.5m); other costs including staff and redundancy costs of £nil (30 June
2023: £2.2m); and other income of £0.4m (30 June 2023: £0.7m).
Non-trading taxation in 2024 relates to a change in accounting estimate of
deferred tax assets, due to businesses being disposed or exited and deductible
intangible impairment. Refer to note 6 for further details.
2024 disposals
During the six months ended 30 June 2024, the Group disposed of the Group's
75% shareholding in Fera Science Limited. During the six months ended 30 June
2023, the Group disposed of two businesses: Resourcing and Security Watchdog.
The gain/(loss) arising was determined as follows:
30 June 2024 £m 30 June 2023 £m
Property, plant and equipment — 0.1
Intangible assets — 7.9
Goodwill — 1.7
Trade and other receivables — 21.8
Accrued income — 6.4
Prepayments — 1.4
Cash and cash equivalents — 3.7
Disposal group assets held-for-sale 69.9 —
Trade and other payables — (3.7)
Accruals — (8.1)
Other taxes and social security — (1.2)
Deferred income — (3.7)
Income tax payable and deferred tax liability — (0.4)
Capita group loan balances — (15.0)
Disposal group liabilities held-for-sale (42.4) —
Net identifiable assets sold 27.5 10.9
Non-controlling interests (9.1) —
18.4 10.9
Sales price
- received in cash 61.9 3.3
- deferred receivable — 6.7
Less: disposal costs (5.4) (5.7)
Net sales price 56.5 4.3
Gain/(loss) on business disposals 38.1 (6.6)
Net cash inflow
Proceeds received 61.9 3.3
Less disposal costs:
- income statement charge (5.4) (5.7)
- change in accrued disposal costs during the period (0.5) (4.4)
Settlement of receivables due from disposed businesses
- disposal of businesses in the period — 15.0
Total proceeds received net of disposal costs paid 56.0 8.2
Total cash held by businesses when sold
Cash held by businesses when sold — (3.7)
Cash held by businesses classified as held-for-sale (6.3) —
Total cash held by businesses when sold (6.3) (3.7)
Net cash inflow 49.7 4.5
Disposal group assets and liabilities held-for-sale
At 30 June 2024, the Capita One business was deemed to have met the threshold
to be treated as held-for-sale. At 31 December 2023, the Group's 75%
shareholding in Fera Science Limited was deemed to have met the threshold to
be treated as held-for-sale.
30 June 2024 £m 31 December 2023 £m
Property, plant and equipment — 5.1
Intangibles 10.5 —
Goodwill 47.0 15.0
Contract fulfilment assets 4.7 —
Trade and other receivables 5.4 3.3
Accrued income 0.2 6.1
Prepayments 3.0 1.4
Cash and cash equivalents 11.3 7.2
Income tax receivable and deferred tax assets 1.1 —
Disposal group assets held for sale 83.2 38.1
Trade and other payables 0.4 2.1
Other taxes and social security 0.1 1.6
Accruals 1.5 1.8
Deferred income 43.9 3.6
Income tax payable and deferred tax liabilities 0.8 0.6
Disposal group liabilities held for sale 46.7 9.7
Business exit cash flows
Businesses exited and being exited had a cash generated from operations inflow
of £22.1m (30 June 2023: cash inflow of £4.9m).
9 Cash flow information
30 June 2024 30 June 2023
Note Reported Excluding business exits 1 £m Reported £m Excluding business exits 1 £m
£m
Cash flows from operating activities:
Reported operating profit/(loss) 4 43.9 43.9 (35.8) (35.8)
Add back: business exit operating loss 8 — 2.4 — 12.6
Total operating profit/(loss) 43.9 46.3 (35.8) (23.2)
Adjustments for non-cash items:
Depreciation 34.9 34.9 41.0 39.9
Amortisation of intangible assets 12.1 10.8 16.8 13.1
Share-based payment expense 2.8 2.8 2.7 2.7
Employee benefits 13 4.2 4.2 3.9 3.9
Loss on sale of property, plant and equipment and intangible assets 0.1 0.1 0.1 0.1
Amendments and early terminations of leases (8.4) (8.4) 1.2 1.2
Impairment of non-current assets 10.8 2.1 63.6 45.5
Other adjustments:
Movement in provisions (35.4) (30.6) (5.8) (7.3)
Pension deficit contributions (20.8) (6.3) (30.6) (15.0)
Other contributions into pension schemes (4.1) (4.1) (4.5) (4.5)
Movements in working capital:
Trade and other receivables (46.7) (43.1) (106.4) (71.7)
Non-recourse trade receivables financing (1.7) (1.7) (4.1) (4.1)
Trade and other payables (25.8) (28.1) 27.6 21.6
Deferred income 65.7 45.3 25.5 2.3
Contract fulfilment assets (non-current) (5.0) (5.2) (0.8) 0.6
Cash generated/(used by) from operations 26.6 19.0 (5.6) 5.1
Adjustments for free cash flows:
Income tax paid (0.4) (0.4) (3.2) 0.6
Interest received 4.1 4.1 3.0 3.0
Interest paid (26.3) (26.3) (21.6) (20.9)
Net cash inflow/(outflow) from operating activities 4.0 (3.6) (27.4) (12.2)
Purchase of property, plant and equipment (7.2) (6.9) (15.0) (10.5)
Purchase of intangible assets (14.3) (14.3) (14.4) (14.4)
Proceeds from sale of property, plant and equipment and intangible assets — — 0.1 0.1
Capital element of lease rental receipts 2.8 2.8 3.8 3.8
Capital element of lease rental payments (29.9) (29.9) (31.1) (31.1)
Free cash flow 1 (44.6) (51.9) (84.0) (64.3)
1. Definitions of the alternative performance measures and related KPIs can
be found in the appendix.
Cyber incident: In relation to the exceptional cyber incident costs referred
to in note 4, the cash outflow during the period ended 30 June 2024 was
£6.4m (30 June 2023: £9.2m) and is included within free cash flow excluding
business exits, and cash generated from operations excluding business exits.
The cumulative cash outflow since the incident in the first half of 2023 is
£26.5m.
Cost reduction programme: In relation to the implementation of the cost
reduction programme detailed in note 4, the cash outflow during the period
ended 30 June 2024 was £19.7m and is included within free cash flow
excluding business exits, and cash generated from operations excluding
business exits. The cumulative cash outflow since the commencement of the cost
reduction programme in the second half of 2023 is £25.8m. As announced in
March 2024, the cost reduction initiatives are expected to result in cash
costs in the whole of 2024 of an estimated £50m.
Free cash flow and cash generated from operations
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.
These measures are analysed below:
Free cash flow Cash generated/(used) by operations
2024 £m 2023 £m 2024 £m 2023 £m
Reported (including business exits) (44.6) (84.0) 26.6 (5.6)
Business exits (21.8) 4.1 (22.1) (4.9)
Pension deficit contributions triggered by disposals 14.5 15.6 14.5 15.6
Excluding business exits (51.9) (64.3) 19.0 5.1
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 30 June 2023 results have been re-presented for those
businesses exited, or in the process of being exited, during the period from
1 July 2023 to 30 June 2024 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 Trustmarque in March 2022 resulted in
accelerated deficit contributions totalling £14.5m being paid into the Scheme
in the first half of 2024. The disposal of Pay360 and Capita Translation and
Interpreting in the second half of 2022 resulted in accelerated deficit
contributions totalling £15.6m in the first half of 2023.
Reconciliation of net cash flow to movement in net debt
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 30 June 2024, Group’s £250.0m committed revolving credit facility was
undrawn (31 December 2023: undrawn).
Six months ended 30 June 2024 Net debt at Cash flow Non-cash movement 1 £m Net debt at
1 January movements 30 June
£m £m £m
Cash, cash equivalents and overdrafts 67.6 15.6 2.2 85.4
Private placement loan notes (267.0) — (1.5) (268.5)
Unamortised transaction costs on debt issuance 4.5 — (1.1) 3.4
Carrying value of private placement loan notes (262.5) — (2.6) (265.1)
Cross-currency interest rate swaps 13.6 — 0.5 14.1
Fair value of private placement loan notes (248.9) — (2.1) (251.0)
Other finance (0.1) — — (0.1)
Lease liabilities (363.4) 41.2 (33.3) (355.5)
Total net liabilities from financing activities (612.4) 41.2 (35.4) (606.6)
Deferred consideration payable (0.7) — — (0.7)
Net debt (545.5) 56.8 (33.2) (521.9)
1. The non-cash movement relates to: the effect of changes in foreign
exchange rates on cash; fair value changes on the swaps; amortisation of loan
notes issue costs; amortisation of the discount on the euro debt; and
additions, terminations and foreign exchange rate effects on the Group's
leases.
Six months ended 30 June 2023 Net debt at 1 January £m Cash flow movements £m Non-cash movement 1 £m Net debt at 30 June £m
Cash, cash equivalents and overdrafts 177.2 (80.8) (1.5) 94.9
Private placement loan notes (289.5) 48.7 6.8 (234.0)
Unamortised discount on debt issuance 1.6 — (0.7) 0.9
Unamortised transaction costs on debt issuance 2.4 1.2 (1.0) 2.6
Carrying value of private placement loan notes (285.5) 49.9 5.1 (230.5)
Cross-currency interest rate swaps 24.8 (8.2) (5.4) 11.2
Fair value of private placement loan notes (260.7) 41.7 (0.3) (219.3)
Other finance (0.7) 0.5 0.1 (0.1)
Credit facilities — (41.0) — (41.0)
Lease liabilities (397.5) 42.2 (23.1) (378.4)
Total net liabilities from financing activities (658.9) 43.4 (23.3) (638.8)
Deferred consideration payable (0.7) — — (0.7)
Net debt (482.4) (37.4) (24.8) (544.6)
10 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 29.5 7.8 41.4 7.8 58.5 5.2 150.2
Provisions in the period 8.0 4.0 4.5 1.5 7.2 2.8 28.0
Releases in the period (3.9) (1.2) (7.4) 0.3 (7.0) (3.0) (22.2)
Utilisation (19.7) (5.2) (6.4) (1.8) (7.4) (1.2) (41.7)
Discount unwind on provisions — — — — 0.7 — 0.7
At 30 June 13.9 5.4 32.1 7.8 52.0 3.8 115.0
30 June 2024 £m 31 December 2023 £m
Current 74.5 101.6
Non-current 40.5 48.6
115.0 150.2
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.
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 representing the Group’s best estimate of the
expenditure to be incurred. Due to the nature of these claims, the Group
cannot give an estimate of the period over which this provision will unwind.
Property provision: The provision relates to unavoidable running costs, 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 (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 22 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)
exceed 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 lifetime 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 £46.4m (31 December 2023: £53.3m)
in respect of closed book Life and 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 30 June 2024, the provision was
increased to provide cover for contracts to extend out to June 2029 (ie a five
year rolling period).
Other provisions: Relates to provisions in respect of other exposures arising
as a result of the nature of some of the operations that the Group provides,
including supplier audit and regulatory provisions, and for which an outflow
of economic benefits is deemed probable. These are likely to unwind over
periods of up to five years.
11 Financial instruments
The Group’s financial assets and liabilities are classified based on the
following fair value hierarchy:
• Level-1: quoted (unadjusted) prices in active markets for identical
assets or liabilities.
• Level-2: other techniques for which inputs that have a significant effect
on the recorded fair value are based on observable (directly or indirectly)
market data. With the exception of current financial instruments (which have a
short maturity), the fair value of the Group’s level-2 financial instruments
was calculated by discounting the expected future cash flows at prevailing
interest rates. The valuation models incorporate various inputs including
foreign exchange spot and forward rates and interest rate curves. In the case
of floating rate borrowings the nominal value approximates to fair value
because interest is set at floating rates where payments are reset to market
values at intervals of less than one year.
• Level-3: other techniques for which inputs that have a significant effect
on the recorded fair value are not based on observable market data.
Other financial instruments, where observable market data is not available,
are carried at either amortised cost or cost (undiscounted cash flows) as a
reasonable approximation of fair value. During the six months ended 30 June
2024, there were no assets or liabilities transferred between the fair value
levels.
The following table analyses, by classification and category, the carrying
value of the Group’s financial instruments and identifies the level of the
fair value hierarchy for the instruments carried at fair value:
At 30 June 2024 Note Fair value hierarchy FVPL £m FVOCI £m Derivatives used for hedging £m Amortised cost £m Total £m Current £m Non- current £m
Financial assets
Lease receivables n/a — — — 98.8 98.8 5.6 93.2
Cash flow hedges - foreign exchange contracts Level-2 — — 2.3 — 2.3 1.4 0.9
Cash flow hedges - interest rate swaps a Level-2 — — 0.4 — 0.4 0.2 0.2
Non-designated foreign exchange forwards and swaps Level-2 0.4 — — — 0.4 0.4 —
Cross-currency interest rate swaps a Level-2 — — 15.4 — 15.4 11.7 3.7
Originated loans receivable n/a — — — 1.2 1.2 — 1.2
Financial assets at fair value through P&L Level-3 17.9 — — — 17.9 2.5 15.4
Financial assets at fair value through OCI Level-3 — 0.7 — — 0.7 — 0.7
Deferred consideration receivable n/a — — — 9.3 9.3 9.3 —
Cash n/a — — — 148.7 148.7 148.7 —
Cash included within disposal group assets held-for-sale 8 n/a — — — 11.3 11.3 11.3 —
Total financial assets 18.3 0.7 18.1 269.3 306.4 191.1 115.3
At 30 June 2024 Note Fair value hierarchy FVPL FVOCI Derivatives Amortised Total Current £m Non- current £m
£m £m used for cost £m
hedging £m
£m
Financial liabilities
Private placement loan notes a n/a — — — 265.1 265.1 87.4 177.7
Other finance n/a — — — 0.1 0.1 0.1 —
Cash flow hedges - foreign exchange contracts Level-2 — — 1.4 — 1.4 0.5 0.9
Cash flow hedges - interest rate swaps Level-2 — — 0.5 — 0.5 0.5 —
Non-designated foreign exchange forwards and swaps Level-2 0.4 — — — 0.4 0.4 —
Cross-currency interest rate swaps a Level-2 — — 1.3 — 1.3 — 1.3
Deferred consideration payable n/a — — — 0.7 0.7 — 0.7
Overdrafts n/a — — — 74.6 74.6 74.6 —
Lease liabilities n/a — — — 355.5 355.5 45.8 309.7
Total financial liabilities 0.4 — 3.2 696.0 699.6 209.3 490.3
Financial assets measured at amortised cost consist of cash, lease
receivables, originated loans and deferred consideration receivable. The
carrying value of cash is a reasonable approximation of its fair value due to
the short-term nature of the instruments. Lease receivables, originated loans
and deferred consideration receivable are measured at amortised cost using the
effective interest rate method. Included in other investments are £0.7m
(31 December 2023: £0.7m) of strategic investments in unlisted equity
securities which are not held-for-trading and the Group elected to recognise
at Fair Value through Other Comprehensive Income (FVOCI). During the period no
dividends were received from, and no disposals were made of, strategic
investments.
The financial assets at Fair Value through Profit and Loss (FVPL) relate to
the Group’s minority shareholding in companies as part of Capita Scaling
Partner. The assets are revalued when reliable information on fair value
becomes available, which is normally at each funding round. As set out in note
8, during the first half of 2024 the Group decided to exit the Capita Scaling
Partner business, and the Group will seek to maximise value from the remaining
investments. Where the disposal process for an investment is deemed to be
sufficiently advanced at 30 June 2024, such that the disposal is expected to
complete within 12 months of the balance sheet date, the related asset has
been disclosed as current, rather than non-current. While it is the Board’s
intention to complete these disposals in the short to medium-term, where there
are presently no signed agreements in place with any counterparty, there are a
range of possible outcomes that could occur, and the actual net proceeds
received could be materially higher or lower than the carried forward
investment carrying values.
Financial liabilities measured at amortised cost consist of loan notes,
overdrafts, lease liabilities, credit facilities and deferred consideration
payable. With the exception of certain series within the fixed rate private
placement loan notes, the carrying value of financial liabilities are a
reasonable approximation of their fair value. This is because either the
interest payable is close to market rates or the liability is short-term in
nature. The private placement loan note series that remain subject to a fixed
rate of interest have an underlying carrying value of £174.1m (31 December
2023: £173.9m) and a fair value of £166.1m (31 December 2023: £166.3m).
The carrying value of overdrafts is a reasonable approximation of fair value
reflecting the short-term nature of the instruments. Lease liabilities and
deferred consideration payable are measured at amortised cost using the
effective interest rate method.
The Group’s key financial liabilities are set out below:
a. Private placement loan notes
The private placement loan notes were issued in USD and GBP. The Group manages
its exposure to foreign exchange and interest rate movements through
cross-currency interest rate swaps, interest rate swaps, and cross currency
swaps.
b. Bank facilities
The Group's revolving credit facility (RCF) was undrawn at 30 June 2024
(31 December 2023 undrawn). The Chief Financial Officer's review and going
concern basis of preparation in note 1.2(d) includes further details of the
RCF.
c. Put options of non-controlling interests
The option held by the non-controlling shareholder of Fera Science Limited
expired without being exercised on completion of the sale of the Group's
shareholding in Fera Science Limited on 17 January 2024 (refer to note 8) and
the related liability was de-recognised.
At 31 December 2023 Note Fair value hierarchy FVPL £m FVOCI £m Derivatives used for hedging £m Amortised cost £m Total £m Current £m Non- current £m
Financial assets
Lease receivables n/a — — — 70.3 70.3 6.3 64.0
Cash flow hedges - foreign exchange contracts Level-2 — — 1.8 — 1.8 1.4 0.4
Cash flow hedges - interest rate swaps Level-2 — — 0.1 — 0.1 0.1 —
Non-designated foreign exchange forwards and swaps Level-2 0.3 — — — 0.3 0.3 —
Cross-currency interest rate swaps a Level-2 — — 14.5 — 14.5 — 14.5
Originated loans receivable n/a — — — 0.7 0.7 — 0.7
Financial assets at fair value through P&L Level-3 16.9 — — — 16.9 — 16.9
Financial assets at fair value through OCI Level-3 — 0.7 — — 0.7 — 0.7
Deferred consideration receivable n/a — — — 20.0 20.0 20.0 —
Cash and cash equivalents n/a — — — 155.4 155.4 155.4 —
Cash and cash equivalents included within disposal group assets held-for-sale 4 n/a — — — 7.2 7.2 7.2 —
Total financial assets 17.2 0.7 16.4 253.6 287.9 190.7 97.2
At 31 December 2023 Note Fair value hierarchy FVPL £m FVOCI £m Derivatives Amortised cost £m Total Current Non-
used for £m £m current
hedging £m
£m
Financial liabilities
Private placement loan notes a n/a — — — 262.5 262.5 — 262.5
Other loan notes n/a — — — 0.1 0.1 0.1 —
Cash flow hedges - foreign exchange contracts Level-2 — — 3.6 — 3.6 1.5 2.1
Cash flow hedges - currency swaps Level-2 — — 1.2 — 1.2 — 1.2
Cash flow hedges - interest rate swaps Level-2 — — 0.6 — 0.6 0.6 —
Non-designated foreign exchange forwards and swaps Level-2 0.2 — — — 0.2 0.1 0.1
Cross-currency interest rate swaps a Level-2 — — 0.9 — 0.9 — 0.9
Deferred consideration payable n/a — — — 0.7 0.7 — 0.7
Put options of non-controlling interests c Level-3 — 8.5 — — 8.5 8.5 —
Overdrafts n/a — — — 95.0 95.0 95.0 —
Lease liabilities n/a — — — 363.4 363.4 51.1 312.3
Total financial liabilities 0.2 8.5 6.3 721.7 736.7 156.9 579.8
The following table shows the changes from the opening balances to the closing
balances for Level-3 fair values.
Put options of non- controlling interests £m Investments FVPL and FVOCI £m
At 1 January 8.5 17.6
Change in put-options recognised in retained earnings (8.5) —
Gain in fair value recognised in income statement — 1.0
At 30 June — 18.6
Non-recourse trade receivables financing
In the UK, to provide working capital at economically favourable rate versus
the RCF, the Group uses a non-recourse trade receivables financing facility.
The value of invoices sold under this arrangement at 30 June 2024 was £22.8m
(31 December 2023: £23.7m). Additionally, in Germany the Group uses a
non-recourse trade receivable financing arrangement for two specific customer
contracts, the value of invoices sold under that arrangement at 30 June 2024
was £10.7m (31 December 2023: £11.5m). The costs of selling such invoices
of £2.1m (30 June 2023: £1.4m) are included in net finance expense in the
condensed consolidated income statement.
12 Issued share capital and share premium
Share capital Share premium Employee benefit trust shares
Allotted, called up and fully paid No.m £m £m No.m £m
Ordinary shares of 2 1/15p
At 1 January 1,701.1 35.2 1,145.5 16.8 (0.7)
Issued on exercise of share options — — — (7.7) 0.3
At 30 June 1,701.1 35.2 1,145.5 9.1 (0.4)
The Group uses shares held in the Employee Benefit Trust (EBT) to satisfy
future requirements for shares under the Group’s share option and long-term
incentive plans.
During the six months to 30 June 2024, 7,745,618 (30 June 2023: 8,413,744)
shares with a value of £0.3m (30 June 2023: £3.8m) were transferred out of
the EBT to satisfy exercises under the Group's share option and long term
incentive plans. The total consideration received in respect of these shares
was £nil (30 June 2023: £nil).
The Group has an unexpired authority to repurchase up to 10.0% of its issued
share capital.
13 Employee benefits
The total net defined benefit pension position for accounting purposes as at
30 June 2024 is calculated on a year-to-date basis, using the accounting
valuations as at 31 December 2023.
The principal financial assumptions for the accounting valuation as at
30 June 2024 for the UK based schemes (which represents around 98% total
assets of the defined benefit pension schemes in which the Group participates)
were as follows:
30 June 2024 31 December 2023
Discount rate 5.15% pa 4.55% pa
Rate of price inflation – RPI 3.15% pa 3.05% pa
Rate of price inflation – CPI 2.60% pa 2.45% pa
There were no changes in demographic assumptions since 31 December 2023.
Movements in the total net defined benefit pension position recognised in the
balance sheet were as follows:
30 June 2024 £m 30 June 2023 £m
At 1 January 26.8 39.6
Current service and administration costs (4.2) (3.7)
Termination benefits — (0.2)
Interest income 0.9 1.5
Actuarial gain recognised in OCI 1 81.1 50.7
Return on plan assets, excluding interest, recognised in OCI (84.6) (77.3)
Employer contributions 24.9 40.0
Exchange movement 0.1 —
At 30 June 45.0 50.6
Schemes in a net surplus 49.7 54.2
Schemes in a net deficit (4.7) (3.6)
At 30 June 45.0 50.6
1. The increase in long-dated corporate bond yields, and hence the discount
rate, (by around 0.6% pa) reduced the value placed on the liabilities. This
was partially offset by the impact of actual inflation over the period being
greater than expected and future expected inflation being slightly higher.
The latest formal valuation for the Group’s main defined benefit pension
scheme ('HPS', which represents around 96% of the total assets of the defined
benefit pension schemes in which the Group participates), was carried out as
at 31 March 2023. This identified a statutory funding surplus of £51.4m.
Given the funding position of the HPS, the Group and the Trustee of the HPS
agreed that no further deficit contributions from the Group would be required
other than those already committed2 as part of the 31 March 2020 actuarial
valuation. In accordance with the schedule of contributions put in place
following the 31 March 2020 actuarial valuation, in the first half of 2024
the Group has paid £6.3m of regular deficit contributions and £14.5m of
accelerated deficit contributions triggered by the disposal of Trustmarque in
March 2022. The Group is not expected to pay any further deficit contributions
to the HPS in the second half of 2024 and beyond.
The estimated updated funding positions as at 30 June 2024 show that the HPS
continued to meet its statutory funding target, and had met its secondary
funding target.
The next full actuarial valuation for the HPS is due to be carried out with an
effective date of 31 March 2026.
2. These include additional, non-statutory, contributions to meet a secondary
funding target with the objective of having sufficient assets to invest in a
portfolio of low-risk assets with a low dependency covenant that will generate
income to pay members' benefits as they fall due.
14 Related-party transactions
Compensation of key management personnel
30 June 2024 £m 30 June 2023 £m
Short-term employment benefits 2.9 3.4
Share-based payments 0.9 0.8
3.8 4.2
Gains on share options exercised in the period by Capita plc Executive
Directors were £nil (30 June 2023: £nil) and by key management personnel
£0.1m (30 June 2023: £0.3m).
During the period, the Group rendered administrative services to Smart DCC
Limited (DCC), a wholly-owned subsidiary which is not consolidated. The Group
received £62.6m (30 June 2023: £61.3m) of revenue for these services and at
the balance sheet date had receivables of £11.1m (31 December 2023: £9.0m)
from DCC. The services are procured by DCC on an arm’s length basis under
the DCC licence. The services are subject to review by Ofgem to ensure that
all costs are economically and efficiently incurred by DCC.
HPS (Capita's main defined benefit pension scheme) is a related party of the
Group.
15 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 £23.8m (31 December 2023: £22.5m). At 30 June
2024 there was an additional guarantee of £9.5m in relation to the disposed
Travel businesses, which has since expired as of the 25 July 2024.
The Group is reviewing its position in respect of a number of its closed book
Life and 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, 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 the ICO's information requests. While we
anticipate that there will be further additional requests as part of the
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. The Group has
received only one substantive claim in relation to the cyber incident, which
was issued by Barings Law on 4 April 2024. The Group intends to vigorously
defend itself against this and any other claims which may be issued. At the
date of approval of these financial statements, it is not possible to reliably
estimate the value of any existing, potential or future claim or penalty
against the Group and consequently no provision has been recorded.
The Group's entities are otherwise party 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
being successfully 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.
16 Post balance sheet events
There have been no material events arising after the reporting date.
Independent review report to Capita plc
Conclusion
We have been engaged by Capita PLC (“the Company”) to review the condensed
set of financial statements in the half-yearly financial report for the six
months ended 30 June 2024 which comprises the condensed consolidated income
statement, condensed consolidated statement of comprehensive income, condensed
consolidated balance sheet, condensed consolidated statement of changes in
equity, condensed consolidated cash flow statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2024 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK and the Disclosure Guidance and Transparency Rules
(“the DTR”) of the UK’s Financial Conduct Authority (“the UK
FCA”).
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity (“ISRE (UK) 2410”) issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the half-yearly financial report and consider whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1.2, the annual financial statements of the Group are
prepared in accordance with UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Ian Griffiths
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
1 August 2024
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 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/(decline):
30 June 2024 30 June 2023
Reported revenue per the income statement £1,237.3m £1,477.0m
Deduct: business exits (note 3) (£35.8m) (£152.6m)
Adjusted revenue £1,201.5m £1,324.4m
Adjusted revenue (decline)/growth (9.3)% 4.8%
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 4.
A reconciliation of reported to adjusted operating profit is provided in note 4.
Adjusted operating profit margin Operating profit margin Calculated as the adjusted operating profit divided by adjusted revenue.
This measure is an indicator of the Group’s operating efficiency.
The table below shows the components, and calculation, of adjusted operating profit margin:
30 June 2024 30 June 2023
Adjusted revenue a £1,201.5m £1,324.4m
Adjusted operating profit (note 4) b £54.2m £40.9m
Adjusted operating profit margin b/a 4.5% 3.1%
Adjusted EBITDA No direct equivalent Calculated as adjusted operating profit for the six month period 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 Amortisation (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
30 June 2024 30 June 2023 30 June 2024 30 June 2023
Adjusted profit before tax £31.6m £18.3m £32.4m £19.2m
Add back: adjusted net finance costs (note 5) £22.6m £22.6m £14.5m £13.6m
Add back: adjusted depreciation and impairment of property, plant and equipment £12.9m £16.4m £12.9m £16.4m
Add back: depreciation and impairment of right-of-use assets £22.3m £26.5m £—m £—m
Add back: adjusted amortisation and impairment of intangibles £12.8m £13.3m £12.8m £13.3m
Adjusted EBITDA £102.2m £97.1m £72.6m £62.5m
Adjusted EBITDA margin 8.5% 7.3% 6.0% 4.7%
Alternative performance measures continued
APM Closest equivalent IFRS measure Definition, Purpose and Reconciliation
Income statement continued
Adjusted profit/(loss) before tax Profit/(loss) before tax Calculated as profit or loss before tax excluding the items detailed in note 4 which include: 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.
A reconciliation of reported to adjusted profit before tax is provided in note 4.
Adjusted profit/(loss) 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:
30 June 2024 30 June 2023
Adjusted profit before tax (note 4) £31.6m £18.3m
Tax on adjusted profit (note 6) £5.3m £25.3m
Adjusted profit after tax £36.9m £43.6m
Adjusted basic earnings per share Basic earnings per share Calculated as the adjusted profit or loss for the period after tax less non-controlling interests divided by the weighted average number of ordinary shares outstanding during the period.
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 7.
Adjusted diluted earnings per share Diluted earnings per share Calculated as the adjusted profit or loss for the period 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 7.
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 9 which includes: business exits (trading results, non-trading expenses) and pension deficit contributions which have been triggered by disposals.
A
reconc
iliati
on of
report
ed to
cash
genera
ted/(u
sed)
by
operat
ions
exclud
ing
busine
ss
exits
is
provid
ed in
note
9.
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
exclud
ing
busine
ss
exits
are
measur
es
used
to
show
how
effect
ive
the
Group
is at
genera
ting
cash
and
the
Board
believ
es
they
are
useful
for
invest
ors
and
manage
ment
to
measur
e
whethe
r the
Group
is
genera
ting
suffic
ient
cash
flow
to
fund
operat
ions,
capita
l
expend
iture,
non
-lease
debt
obliga
tions,
and
divide
nds.
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 9.
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
30 June 2024 30 June 2023 30 June 2024 30 June 2023
EBITDA a £101.7m £85.6m £102.2m £97.1m
Add back: EBITDA element of cyber incident and cost reduction programme £8.1m £21.8m £—m £—m
Working capital (note 9) (£13.5m) (£58.2m) (£32.8m) (£51.3m)
Add back: Working capital element of cyber incident and cost reduction programme £2.4m (£12.6m) £2.4m (£12.6m)
Non-cash and other adjustments (note 9) (£40.8m) (£2.4m) (£36.0m) (£3.9m)
Add back: Non-cash element of cyber incident and cost reduction programme (note 10) £15.6m £—m £15.6m £—m
Operating cash flow b £73.5m £34.2m £51.4m £29.3m
Operating cash conversion b/a 72.3% 40.0% 50.3% 30.2%
Alternative performance measures continued
APM Closest equivalent IFRS measure Definition, Purpose and Reconciliation
Cash flows and net debt continued
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 held that is not capable of being applied against consolidated total borrowings (inclusive of cash required to be held under FCA regulations and cash represented by non-controlling interests).
30 June 2024 31 December 2023
Revolving credit facility (RCF) £250.0m £260.7m
Less: drawing on committed facilities (note 11) £—m £—m
Undrawn committed facilities £250.0m £260.7m
Cash and cash equivalents net of overdrafts (note 9) £85.4m £67.6m
Less: restricted cash (£42.3m) (£46.0m)
Available liquidity £293.1m £282.3m
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 9.
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 loan notes; 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.
30 June 2024 31 December 2023
Net debt (note 9) £521.9m £545.5m
Remove: IFRS16 impact (note 9) (£355.5m) (£363.4m)
Net financial debt (pre-IFRS 16) £166.4m £182.1m
Gearing: net debt to adjusted EBITDA ratio No direct equivalent This ratio is calculated as net debt divided by adjusted EBITDA over a rolling twelve month period including business exits not yet completed at the balance sheet date.
The
Board
believ
es
that
this
ratio
is
useful
becaus
e it
shows
how
signif
icant
net
debt
is
relati
ve to
adjust
ed
EBITDA
.
This measure has been calculated including and excluding the impact of IFRS 16 leases 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 (post and pre IFRS 16) to adjusted EBITDA ratio:
Post IFRS 16 Pre IFRS 16
Rolling twelve month period 30 June 2024 31 December 2023 1 30 June 2024 31 December 2023 1
Adjusted EBITDA £200.7m £214.6m £137.5m £146.2m
EBITDA in respect of business exits not yet completed £20.7m £8.2m £20.7m £8.2m
Adjusted EBITDA (including business exits not yet completed) £221.4m £222.8m £158.2m £154.4m
Net debt / net financial debt £521.9m £545.5m £166.4m £182.1m
Net debt / net financial debt to adjusted EBITDA ratio 2.4x 2.4x 1.1x 1.2x
1. To ensure the consistent presentation of the ratios between periods, the
2023 comparatives have not been restated.
Comparatives re-presented
Alternative performance measures continued
The below measures are submitted to the Group’s lenders and the Board
believes these measures provide a useful insight to investors. The
31 December 2023 comparatives have not been restated because they are not
required to be restated for covenant purposes.
Source
Covenants (based on rolling twelve months) 30 June 2024 31 December 2023
Adjusted operating profit 1 £103.0m £106.5m
Add back: covenant adjustments 2 £77.5m £64.1m
Adjusted EBITA a1 £180.5m £170.6m
Adjusted EBITA £180.5m £170.6m
Add back: covenant adjustments 3 £64.5m £70.9m
Covenant calculation – adjusted EBITDA b1 £245.0m £241.5m
Adjusted EBITA (US PP covenants) a2 £172.3m £162.4m Adjusted for difference in exceptional items treatment
Adjusted EBITDA (US PP covenants) b2 £236.8m £233.3m Adjusted for difference in exceptional items treatment
Adjusted interest charge (£50.0m) (£50.0m)
Add back: covenant adjustments £4.4m £3.8m
Borrowing costs c1 (£45.6m) (£46.2m)
Less: IFRS 16 impact £17.3m £18.2m
Borrowing costs (excluding IFRS 16) c2 (£28.3m) (£28.0m)
5.1 Interest cover (US PP covenant) a2/c2 6.1x 5.8x Adjusted EBITA/Borrowing costs with adjusted EBITA including the impact of IFRS 16 and the borrowing costs excluding the impact of IFRS 16. Minimum permitted value of 4.0
5.2 Interest cover (other financing agreements) a1/c2 6.4x 6.1x Adjusted EBITA/Borrowing costs with adjusted EBITA including the impact of IFRS 16 and the borrowing costs excluding the impact of IFRS 16. Minimum permitted value of 4.0
Net debt £521.9m £545.5m Line information in note 9
Add back: covenant adjustments 4 £53.6m £53.2m
Less: IFRS 16 impact (£355.5m) (£363.4m) Line information in note 9
Covenant calculation - adjusted net debt (excluding IFRS 16) d1 £220.0m £235.3m
6.1 Adjusted net debt to post IFRS 16 adjusted EBITDA ratio (US PP covenant) d1/b2 0.9x 1.0x Adjusted net debt/adjusted EBITDA with adjusted net debt excluding the impact of IFRS 16 and adjusted EBITDA including the impact of IFRS 16. Maximum permitted value of 3.0
6.2 Adjusted net debt to adjusted EBITDA ratio (other financing agreements) d1/b1 0.9x 1.0x Adjusted net debt/adjusted EBITDA with adjusted net debt excluding the impact of IFRS 16 and adjusted EBITDA including the impact of IFRS 16. Maximum permitted value of 3.5
1. Adjusted operating profit excludes items that are separately disclosed and
considered to be outside the underlying operating results for the particular
period under review and against which the Group’s performance is assessed.
2. Covenant adjustments include adjustments for business exits, exceptional
costs, share-based payment and pension adjustments, and removal of profits
owned by minority interests.
3. Covenant adjustments include adjustments for depreciation and earnings
related to disposed entities.
4. Covenant adjustments include adjustments relating to restricted cash and
cash in businesses held-for-sale.
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