Full Year Results 2023
Stable revenue underpinned by strong contract wins, further accelerated efficiency measures to drive growth and improve cash flow
"Since joining Capita I have spent time with colleagues and met a significant number of clients and other stakeholders. I have been hugely impressed with the strength and expertise of our employees, and the breadth and depth of our services. We have deep relationships across a compelling client list, and we operate in growing markets where our work matters to the lives of millions of people every day.
"I am excited about the opportunity for Capita and can already see a range of areas where we can unlock value. Our 2023 financial results have demonstrated some progress. However, we have yet to deliver the operational excellence that will enable us to create the right platform for future growth or achieve our full potential for the benefit of shareholders. Looking forward, we will focus on precision in execution, co-creating solutions with clients and accelerating the use of technology and leveraging our technology partnerships to drive improvement in our operating and financial performance.
"We need to deliver a rapid reduction in our cost base and are on track to deliver the net £60m annualised cost savings, from Q1 2024 as announced in November. Today we are announcing further material efficiency improvements of £100m to improve our competitive position.
"We have strong foundations and the opportunity for significant growth in the medium and longer-term. I look forward to sharing more details on Capita’s future strategy in June."
2023 Financial Results
-- Adjusted revenue1 growth 1.3% to £2.6bn (2022: 1.7% growth)
-- Public Service marginal increase of 0.3%, Experience grew by 2.5% benefiting from one-off commercial settlement in H1
-- Adjusted profit before tax1 £56.5m (2022: £49.8m) up 14%, reflecting c.£20m profit benefit from commercial settlement in Experience
-- Reported loss before tax of £106.6m (2022 profit: £61.4m) reflecting business exits, cost reduction programme expenses and 2023 cyber incident costs
-- Free cash outflow1,2, before the impact of business exits, of £115.5m (2022 outflow: £42.4m), including £30m pension deficit contribution, £20m cyber incident costs and £20m step up in technology investment
-- Net financial debt (pre-IFRS 16)1: EBITDA ratio 1.2x at31 December 2023 – proforma 0.9x if sale of Fera completed at year end
Contract wins
-- Total contract value won £3,036m (2022: £2,593m) driven by strong performance in Public Service
-- Book to bill ratio 1.1x (2022: 1.0x)
-- Contract win rate across all opportunities improved to 62% from 57%. Material improvement in win rate on new and expanded scopes of work from 32% to 70%, reduced renewal rate reflecting pricing discipline across all bids
Outlook for 2024
-- 2024 revenue expected to be broadly in line with 2023
-- Modest improvement in operating margin
-- Free cash outflow £70m to £90m after c.£50m cost of delivery of efficiency programmes
Clear pathway to deliver positive free cash flow in medium term
-- Delivery of net £60m from Q1 2024 annualised cost reduction on track
-- Triennial funding agreement with Pension Trustees - £30m reduction in deficit contributions by 2025
-- Incremental £100m annualised cost reduction to be delivered over period toJune 2025 – partially reinvested in growth
Financial highlights Reported results Adjusted1 results 31 31 Reported 31 31 December Adjusted1 December December YoY change December 2022 YoY change 2023 2022 2023 Revenue £2,814.6m £3,014.6m (6.6)% £2,642.1m £2,609.0m 1.3% Operating £(52.0)m £(79.6)m 35% £106.5m £78.0m 37% (loss)/profit EBITDA £144.5m £235.7m (39)% £214.6m £204.4m 5% (Loss)/profit £(106.6)m £61.4m n/a £56.5m £49.8m 14% before tax Basic (loss)/earnings (10.60p) 4.47p n/a 1.70p 2.64p (36)% per share Operating cash £81.2m £156.4m (48)% £97.4m £128.4m (24)% flow* Cash generated from £8.7m £117.8m (93)% £41.2m £98.4m (58)% operations* Free cash £(154.9)m £(31.5)m (392)% £(115.5)m £(42.4)m (172)% flow*,2 Net debt £(545.5)m £(482.4)m £(63.1)m £(545.5)m £(482.4)m £(63.1)m Net financial debt (pre-IFRS £(182.1)m £(84.9)m £(97.2)m £(182.1)m £(84.9)m £(97.2)m 16)
-- Adjusted operating cash flow, cash generated from operations and free cash flow exclude the impact of business exits (refer to note 10).
1. Refer to the alternative performance measures (APMs) in the Appendix.
1. From1 January 2023 free cash flow and free cash flow excluding business exits are presented after deducting the capital element of lease payments and receipts. Comparative amounts have been re-presented.
Investor presentation
A presentation for institutional investors and analysts hosted by
Capita will present a strategy update on 13 June. Details will be made available nearer the time.
Participant webcast:
https://webcast.openbriefing.com/capita-fy23/
For further information:
CapitaHelen Parris , Director of Investor Relations T +44 (0) 7720 169 269Stephanie Little , Deputy Head of Investor Relations T +44 (0) 7541 622 838Elizabeth Lee , Group Head of External Communications T +44 (0) 7936 332 957 Capita press office T +44 (0) 2076 542 399Brunswick Dan Roberts &Jonathan Glass T + 44 (0) 2074 045 959
LEI no. CMIGEWPLHL4M7ZV0IZ88.
Chief Executive Officer's review
Introduction
I am delighted to have joined Capita in the middle of
Much has been achieved in the transformation of the Group under
Over the last few weeks, I have spent time embedding myself within the organisation, meeting with stakeholders, the leadership team and colleagues around the world to better understand the strengths of Capita today and where there are opportunities to create value in the future.
It is clear that Capita is at an exciting point in its journey with attractive offerings in many segments, client satisfaction scores we can be proud of and a very talented and diverse workforce. Capita has a rich client base with multifaceted and deep relationships. I'm pleased to see that we have high quality people across the organisation who understand how to deliver complex services and are passionate and committed to our clients and their needs.
The evolving digital landscape (automation and generative AI) pose both a challenge and an opportunity that we intend to take advantage of in order to deliver better, more efficient services to our clients. Through our partnership with technology hyperscalers we will co-create and innovate solutions that solve our clients' needs for today and the future.
As we take the company to the next stage of its evolution, we have challenges we need to tackle. Our immediate focus is to deliver a rapid improvement in the financial performance of the business and, in particular, to realise our goal of sustainable positive free cash flow generation.
To win in our marketplace, we must ensure: our cost base is appropriate for the size of our business; our clients are advocates for Capita; we deliver and execute with precision; and, importantly, our colleagues throughout the Group are aligned with our vision, can grow their careers with Capita and are proud to be part of our organisation.
We need to grow our revenue by acquiring new clients and expanding our relationships with existing clients. But this revenue growth must generate an appropriate cash-backed financial return. Key to this is maintaining our contract bidding discipline and ensuring we execute for our clients with precision when it comes to delivery. We recognise that we will also need to curtail some existing activities that do not deliver this objective. To this end, we are conducting a review of our operations to help us identify these particular activities and an implementation plan to ensure continuity for our clients and their customers.
Over the next few months, I will work with the Board, my leadership team and our colleagues across the organisation to develop a clear roadmap to:
-- Define and refine Capita’s formula for winning in its markets;
-- Ensure we deliver efficiently and effectively for our clients each and every time;
-- Expand our current services to capture greater economic value from our core business;
-- Identify opportunities where we can work with partners to develop and deliver technology solutions that will create cost efficiencies and a better customer experience;
-- Enhance productivity through standardisation, replication and better use of tools and data;
-- Rally our leadership team, motivate our colleagues and evolve our culture; and
-- Embrace the changes we need to deliver on our objectives.
I am planning to set out our vision, strategy and associated medium-term financial and non-financial targets in detail at a Capital Markets Day in
The rest of this CEO report summarises what has been achieved across the business in 2023. I’d like to thank my new colleagues for their hard work, dedication and professionalism through what has been a challenging year for many. I am very much looking forward to leading Capita on the next stage of its journey.
Summary of achievements in 2023
As a Group, we continue to put our clients and their customers first. Our customer net promoter score (cNPS) remains strong at +16 (+25, excluding the pensions administration business where a number of clients were impacted by the cyber incident in
During 2023, we focused on creating a compelling working environment and meaningful careers for our colleagues across every geography and saw positive improvements in employee engagement, inclusion and wellbeing scores.
Our financial performance for the year was not where it needed to be. Revenue growth, profit margins and free cash flow remain behind our peers. We are committed to delivering a financial performance that enables us to achieve our goal of delivering sustainable positive free cash flow over the medium term.
Despite significant rationalisation over the past few years, our cost base is too high. In
During 2023, the Group significantly extended its funding maturity profile. In June we extended our revolving credit facility to 2026 and in July we issued £101.9m of US private placement notes with a mixture of three and five-year maturities. We finalised our c.£500m Portfolio disposal programme with the announcement of the sale of Fera in December, a transaction that completed in
The Group’s contract growth momentum across 2023 remained strong. We won contracts with a total contract value (TCV) of £3,036m, up by £443m from £2,593m in 2022 and saw a major improvement in the Group’s win rate for new scopes of work and expansions of existing scopes to 70%, up from 32% in 2022 .
Creating better outcomes for all key stakeholders is Capita’s purpose and is our licence to operate. It underpins everything we do as a business.
Our people
During 2023, we focused on creating a compelling working environment and meaningful careers for our colleagues across every geography and saw positive employee engagement, inclusion and wellbeing scores.
In 2023, we saw a major improvement in the Group’s voluntary employee attrition rate which on a rolling 12-month basis reduced from 30% at the start of the year to 24% by year end. We implemented specific Group and local measures to reduce attrition including a Capita-wide induction programme to improve the employee onboarding process and a global line manager training programme to ensure consistent induction experiences. At a divisional level, we increased communications with all employees via newsletters and divisional town hall events to improve employees’ sense of belonging.
Our hybrid, virtual-first organisation continues to be an important factor in our ability to attract and retain talent, including in locations where we do not have a physical office location. In our annual people survey, 88% of respondents who work from home stated that the flexible working arrangements are a key motivator for them to stay with Capita.
At the end of 2023, we took the difficult decision to withdraw from the UK’s real living wage. Since 2020, the Group has increased the salaries of our lowest earners by 22% and the 2024 real living wage increase of 10.1% was not something we could commit to given the need for Capita to remain cost competitive and that this is not a cost we are able to pass on to our clients. We continue to apply global fair pay principles across all geographies to ensure we are able to attract and retain the colleagues we need to deliver our business commitments. In the
We have supported colleagues through the cost-of-living challenges which each of our geographies has faced this year. In our annual salary review at the start of 2023, we prioritised salary increases to our lower earning colleagues with our highest earners asked to forgo a pay increase.
Diversity remains a key focus for the Group and at year end we had 40% female senior leadership (globally) and 14% ethnic diversity. At year end our Board was 56% female and our Executive Team at year end was 29% female, rising to 44% in early 2024. At year end, our Board and Executive Team were 22% and 14% ethnically diverse respectively.
In October, Capita was recognised as one of the top companies for women by Forbes, ranking 18th out of 400 global companies. This is a testament to our commitment to diversity, inclusion and equality in our workplace.
We continued with our roll out and embedding of the career path framework (CPF) in 2023, helping employees across every level and geography in the organisation build a meaningful, long-lasting career with Capita. CPF provides clarity about the skills and experience required for roles across the organisation – and ensures salaries are benchmarked to appropriate market rates.
We are building advocacy in Capita and are focused on ensuring that our people are proud to work for the organisation. This was evidenced in our annual people survey, where 84% of respondents said they can be themselves at work, higher than the global average, while 63% stated they feel proud to work for Capita, lower than the global average and something we are working to improve.
We continue to support community initiatives to help the most disadvantaged and vulnerable in society. Globally, colleagues completed almost 21,000 hours of volunteering, nearly three times the hours completed last year. We were pleased to retain our status as a gold award employer under the Armed Forces Covenant.
Cyber incident
In
Based on the forensic work performed, we confirmed that some data had been exfiltrated during the incident. Consequently, we took extensive steps in the immediate period after the incident to recover and secure the exfiltrated data. We continue to monitor the dark web and can confirm that we have seen no evidence, subsequent to our recovery activities, that any of the exfiltrated data is in circulation there or elsewhere in the online environment. As a precautionary measure, we offered a 12 month subscription to Identity Plus, a monitoring service provided by
As a result of the incident, we incurred net costs of £25m, comprising specialist professional fees, recovery and remediation costs and investment to reinforce Capita’s cyber security environment.
We have accelerated our previously planned investment to improve our cyber security maturity which has improved and is subject to external audit with reference to the
The incident was a challenging experience for the Group, and we have taken steps to share our experience and learnings transparently with our clients, suppliers and other companies and plan to continue this good practice in the future. Since the incident we have continued to see good contract growth momentum with a 17% increase in TCV secured in 2023.
Growth
The Group’s contract growth momentum across 2023 remained strong. We won contracts with a TCV of £3,036m, up £443m from £2,593m in 2022. There was a particularly strong performance in Public Service, where a number of deals previously scheduled to close in 2022 were delayed into 2023. While a number of these contracts have now been signed, the delays affected the division’s revenue growth in 2023.
The book to bill ratio for the Group remains above 1.0x at 1.1x, with 1.3x in Public Service and 0.9x in Experience. As we look to build our revenue growth, maintaining this metric above 1.0x is a priority.
We saw a major improvement in the Group’s win rate for new scopes of work and expansions of existing scopes to 70%, up from 32% in 2022. Significant new scopes of work in Experience include: the Civil Service Pension Scheme, which will start in 2025; the
Despite our strong TCV performance, revenue growth continues to be impacted by previously announced contract losses, including the
Reflecting the strong TCV performance across 2023 and increased rigour across the qualification process, the unweighted pipeline for 2024 is at a lower level than at the start of 2023, with a total unweighted pipeline of £10,381m. Material contracts within the pipeline include opportunities with the
In
At
Operational delivery
Throughout 2023, we continued to maintain our focus on operational delivery for clients. By striving to deliver well for our clients and getting it right first time, we should reduce excess cost and avoid financial penalties. While we have made progress in this area, there is still work to do. We will be building on what has been achieved to date through strengthening and standardising our operational processes.
Our cNPS remains strong at +16 (+25, excluding the pensions administration business where a number of clients were impacted by the cyber incident in March).
Within the cNPS survey, our promoters spoke highly of our employees, citing the knowledge and relationships with the teams they work with at Capita and the quality of services delivered. However, we also received feedback from some clients around project delay and delivery issues and comments suggesting that certain teams could be more agile in service delivery. We will focus on improving in these areas in 2024, in line with our goal of ensuring we deliver efficiently and effectively for our clients each and every time.
Our KPI performance across 2023 remained above 90% in both divisions. Where KPI performance was not met at any point over the year, for example in respect of the particularly challenging 99.7% of exam scripts marked and returned in our contract for the STA, and recruitment targets in the RPP we are implementing specific remediation action to ensure we meet the high standards Capita expects to deliver.
Notable achievements across the contract portfolio in 2023, included:
-- Within Public Service, on ourRoyal Navy training contract, we met our final milestones as set out in the original contract, concluding the transition of multiple legacy contracts.
-- On the Job Entry Target Support contract inScotland , we completed more than 200% of the targeted number of job starts across the contract period.
-- Within the Experience division, on ourVirgin Media O2 contract, we significantly increased the size of our offshore delivery team, with 1,000 full-time employees added, providing additional optionality to the client to service customers with digital enablement.
-- Within the Energy & Utilities vertical of Experience, we successfully delivered a significant step-up in available hours around peak demand in Q4 to ensure efficient outcomes for clients and their customers.
As we move into 2024, we are focused on delivering the complex transition and mobilisation requirements of our new contracts with the
Consistently delivering for our clients is the cornerstone of our success. Effective, efficient client delivery and getting it right first time, reduce excess cost and allow us to grow revenue.
Digital transformation and artificial intelligence
We are taking a measured approach to artificial intelligence (AI) and generative AI (gen AI), working with our clients and partners to deliver effective and efficient solutions as the technology continues to evolve. We expect that gen AI will allow us to be more productive and offer our clients superior solutions.
We plan to turbo charge our relationships with a number of trusted hyperscale partners, including Microsoft, AWS, Salesforce and ServiceNow. We also plan to partner to develop and deliver solutions across a wider span, creating a more digital Capita, delivering an efficient and higher quality service and experience for our clients and their customers.
We have already integrated digital and AI solutions into a range of clients. For example in the Public Service division, we have utilised a new Metaverse virtual reality tool for submarine qualification training within the
Within the Experience division, AI and gen AI will augment our agents, upskill our people, provide critical information quickly, and enable our people to be more competent and capable, which will in turn deliver better customer experiences. AI has been implemented in the division across a number of contracts in four key capability areas: chatbot/conversation AI; conversation analysis; data observatory and analytics; and correspondence digitisation.
We are continuing to develop further AI and gen AI pilots across both divisions, for example on our
Cost efficiency
In
We have identified further material efficiency improvements which are essential to ensuring our competitive position in the market and during the remainder of 2024 we will be taking steps to realise a further £100m of annualised cost savings by mid 2025, which will be partially reinvested in growth. We expect to provide further detail on this at our Capital Markets Day in
Our property footprint continues to reduce as we benefit from our virtual first working model. We are targeting savings by managing capacity around demand for office spaces across our geographies. We permanently closed 19 properties and consolidated a further 14 during 2023. This year we reduced the square footage of our total property portfolio by a further 9%.
The total footprint of the Group’s property portfolio has now reduced by 31% in the last three years. The IFRS 16 lease liability associated with our property portfolio reduced by £30m across 2023, reflecting the continued reduction in our leased property estate.
Financial results - revenue and results before tax
Adjusted revenue1 growth for the year was 1.3% with adjusted revenue1 of £2,642.1m
(2022: £2,609.0m). This reflects underlying growth in contracts such as Personal Independence Payments, benefit from indexation and a commercial settlement in the closed book Life & Pensions business in Experience. This was partially offset by contract losses including the
Reported revenue declined by 7% to £2,814.6m as core business growth was more than offset by the disposal of non-core businesses.
Adjusted profit before tax1 improved by £6.7m to £56.5m (2022: £49.8m). Profit benefited from revenue growth, in particular the commercial settlement in Experience noted above and a reduction in bonuses and variable pay, offset by increased financing costs.
The reported loss before tax was £106.6m as a result of the £38.8m loss incurred on business exits during the year, the goodwill impairment of £42.2m (recognised in respect of businesses in the Portfolio disposal programme), the expense associated with the Group’s cost reduction programme with £23.3m incurred in respect of employee consultation programmes and £31.1m of associated property related charges, and £25.3m of cost incurred in respect of the
Financial results - free cash flow and net debt
The free cash outflow before the impact of business exits1,2 was £115.5m (2022 outflow: £42.4m). The 2023 outflow was driven by an increased working capital outflow, principally reflecting a reduction in the in-period usage of the Group’s non-recourse invoice discounting facility and the non-cash nature of the commercial settlement in Experience. There were additional outflows reflecting the cash cost of the cyber incident and the expected increase in capital expenditure on technology investment across the Group.
The free cash outflow1,2 for the Group was £154.9m (2022 outflow: £31.5m), reflecting the in-year cash impact of businesses exited or being exited of £23.1m and £16.3m of pension deficit contributions triggered by disposals.
We have now completed our c.£500m Portfolio non-core business disposal programme. In 2023 we completed the disposal of our People, Software, Business Solutions and Travel pillars realising net proceeds of £63.4m in the year. In
Net financial debt (pre-IFRS 16) was £182.1m (2022: £84.9m) reflecting the free cash outflow which more than offset the net proceeds realised on disposals. Proforma net financial debt (pre-IFRS 16) including the Fera net cash proceeds at
Net debt, including the impact of property leases accounted for under IFRS 16 was £545.5m in 2023 (2022: £482.4m), reflecting the free cash outflow across the year. Our IFRS 16 lease liability has reduced to £363.4m from £397.5m, as we continue to optimise our property footprint.
We significantly extended our funding maturity profile in 2023 through the extension of the Group's revolving credit facility to 2026 and issuance of £101.9m equivalent of US private placement notes with a mixture of three and five-year maturities.
Outlook
Capita has a significant impact on the lives of citizens and we understand the importance of our impact on society. While we still have work to do to complete the turnaround of the Group, we have made good progress over the last few years and are committed to improving our operations across the board in 2024 and beyond.
We will develop our offerings and drive operating efficiency by leveraging technology and through the cost reduction programmes being implemented in 2024. Through rigorous project management we will be focused on delivering complex client requirements on time and budget.
For 2024, as a whole, on an adjusted basis, we currently expect that revenue will be broadly in line with 2023, and that operating profit margin and free cash flow will show modest improvement year on year.
We expect the Public Service division to deliver revenue growth in 2024 reflecting the significant contracts won in 2023 moving into their operational phase later this year whereas we expect the Experience division to show a reduction in revenue reflecting the non-recurrence of 2023’s closed book Life & Pensions commercial settlement coupled with ongoing revenue attrition in the rest of the Life & Pensions business.
Notwithstanding our revenue expectations, the cost reduction programmes being implemented in 2024 are expected to result in a modest improvement in adjusted operating profit margins and free cash flow, albeit in the latter case, the cash flow benefit in the year will be reduced as a result of the redundancy and other costs required to deliver the cost reduction programmes.
We will be setting out our vision, strategy and associated medium-term targets in detail at a Capital Markets Day in
1. Refer to alternative performance measures (APMs) in the Appendix.
1. From1 January 2023 free cash flow and free cash flow excluding business exits are presented after deducting the capital element of lease payments and receipts. Comparative amounts have been re-presented.
Divisional performance review
The following divisional financial performance is presented on an adjusted1 basis. The calculation of adjusted figures and our KPIs are contained in the APMs in the Appendix to this statement.
Public Service
Public Service is the number one strategic supplier of Software and IT Services (SITS)2 and business process services (BPS)2 to the
Markets and growth drivers
In 2024, the division changed its structure to focus on three market verticals: Local Public Service; Central Government; and Defence, Fire, Security & Learning with these market verticals delivering to their respective client groups.
Our current core addressable SITS market is c.£15bn2, growing at approximately 4%2 per annum. Digital BPS is a fast-growing area, while traditional business process outsourcing (BPO) is currently shrinking, reflecting the
In 2022, the
Public Service operates within a highly fragmented market. Across the varied services that it delivers we operate against a number of other providers including, but not limited to:
Strategy and digital transformation
Public Service is seen as a trusted delivery partner by its clients, with a high-quality offering and deep sector process knowledge in our chosen market verticals.
The division is focused on working with trusted technology partners such as Microsoft and AWS to harness digital ways of working and accelerate the transformation of our services, leveraging AI alongside the skills and capabilities of our people. We develop solutions around client needs and are progressing a number of digital proof of concepts where we’ve aligned digital transformation to future growth opportunities.
We have continued to simplify our operating model, removing organisational layers to improve efficiency and effectiveness across the division. We launched a second client advisory board in the Central Government sector, in addition to the previously established Defence client advisory board, to improve our understanding of Government bid processes and delivery priorities to help us become an even more effective service provider.
We continue to invest in our coverage on Government frameworks, through which companies are able to bid for Government contracts. We are included on a wide range of frameworks representing market access of up to £9.5bn including frameworks with the
Looking forward, there is a significant growth opportunity to be the partner of choice – to drive efficiency, where the
Growth performance and key wins
Public Service won contracts with a TCV of £1,924m in 2023 (2022: £1,223m), a year-on-year increase of 57%. The TCV performance was in part driven by a small number of material contracts where award dates moved from 2022 into 2023, following a number of changes within the
At
The division saw an improved win rate on new and expanded scopes at 78% from 53% in 2022. New scopes of work include
The renewal rate for the division reduced to 41% in the year from 91%, principally reflecting the loss of the Electronic Monitoring and
The order book at 31 December was £3,546m, an increase of £561m since
Operational excellence and cost efficiency
The division’s operational delivery across the year has been good, with an average in-month KPI performance of 94%. The division’s standalone cNPS decreased six points to an overall score of +27, which remains competitive.
Operational highlights across the year included:
-- Delivery of the remaining service commencement dates on theRoyal Navy training contract. We have now delivered all milestones under the original contract and continue to expand our scope on this contract;
-- Completion of more than 200% of the targeted number of job starts across the contract period on the Job Entry Target Support contract inScotland ;
-- Supporting major events inLondon , including the King’s coronation, the London Marathon and London Pride, as part of ourTransport for London contract; and
-- In ourElectranet business, over 1,000 projects were delivered across 2023, including defence secure Wi-Fi infrastructure across 130 military sites.
Our consistent delivery performance continues to drive expansions of existing scopes with clients such as with the
Financial performance
Divisional financial summary 2023 2022 % change Adjusted revenue1 (£m) 1,458.6 1,454.8 0.3% Adjusted operating profit1 (£m) 89.3 93.7 (4.7)% Adjusted operating margin1 (%) 6.1% 6.4% Adjusted EBITDA1 (£m) 133.3 131.9 1.1% Operating cash flow excluding business exits1 (£m) 107.1 102.3 4.7% Order book (£m) 3,546.0 2,985.0 18.8% Total contract value secured (£m) 1,923.8 1,222.5 57.4%
Adjusted revenue1 at £1,458.6m, was marginally up on 2022 reflecting price indexation across the contract portfolio, growth on the
Adjusted operating profit1 decreased by 4.7% to £89.3m reflecting contract losses in Local Public Service offset by the flow through of revenue growth across the wider contract portfolio as noted above.
Operating cash flow excluding business exits1 increased by 4.7% to £107.1m reflecting the contract performance noted above and tight working capital management.
Outlook
Reflecting the strong TCV performance in 2023, we expect low to mid-single digit percentage revenue growth in 2024, as the division begins delivery of the FAS and DSA contracts. This growth is despite the continued revenue reductions in Local Public Service from previously announced contract losses.
We expect improvements in margin performance in 2024 and the medium term, as the division captures greater economic value from its business through economies of scale from revenue growth, curtailing low margin work and our ongoing efficiency programmes.
1. Refer to alternative performance measures (APMs) in the Appendix.
1. TechMarketView.
Experience
Experience is one of Europe’s leading customer experience businesses. It is the market leader in the
Markets and growth drivers
The division is structured around four market sectors: Financial Services; Telecoms, Media & Technology; Energy & Utilities; and Retail (including charities). We have strong industry expertise and presence, with clients in the
The European customer experience market is worth
We are the largest provider of customer experience services in the
The customer experience market is trending to self-service with increasing levels of automation for less complex services. Increasingly clients are looking to use omnichannel offerings in a number of languages with agents working in onshore, nearshore and offshore locations.
Strategy and digital transformation
The Experience division is a customer experience business driven by data and technology powered by people, delivering services through a client centric environment. We operate as a leading regional player with global quality standards, and an ambition to become the partner of choice for companies in our chosen geographies.
The division’s core activity is the provision of cost-effective customer experience contact centres, delivering services including voice and non voice; end-to-end customer management; collections; and sales and retention. Our services are supported by a wide range of capabilities, including conversational AI and real time feedback and automation to ensure customers get the best outcomes, efficiently. We equip and empower our colleagues across all our geographies to deliver to the highest level of service for our clients and their customers.
Within the customer experience market, as technology plays a bigger role in delivery, we have seen an increase in volumes through our automated delivery methods such as chat bots. We are leveraging technology to enhance the effectiveness and efficiency of our customer facing colleagues, particularly for complex customer experience activities such as sales as a service.
We operate in a number of geographies which offer service delivery optionality to suit client needs. In 2023, we expanded our capability in
We are exploring opportunities in other nearshore international locations to underpin our growth ambitions and expansion of our existing client base. This allows flexibility to use onshore, nearshore or offshore delivery models when it comes to delivering our clients' service requirements.
Growth performance and key wins
In 2023, the division won TCV of £1,112m, a decrease of £258m from 2022. The division's book to bill ratio was 0.9x. Material wins in the year included contracts for the Civil Service Pension Scheme, National Transport Authority Ireland, and Santander, as well as a key renewal with
At
The renewal win rate reduced to 61% from 99% in the prior year principally reflecting the outcome of the Teachers’ Pension Scheme contract tender process where we continued to maintain our commercial discipline. Our win rate for the division across all opportunities was 57%, up from 51% in 2022.
At the start of 2024, the division secured an extension and expansion with an existing client in the European telecoms business worth £220m.
The order book at year end was £2,299m, a decrease of £227m since
Operational excellence and cost efficiency
Across the year, Experience has continued to deliver well operationally for clients with an average KPI delivery of 94%, excluding the pensions administration business. The average KPI delivery including the pensions administration business was 82%. The division’s cNPS decreased by 11 points to +10 with the reduction largely in the pensions administration business which was heavily impacted by the cyber incident. Excluding the pensions administration business, the division’s cNPS was +24, a three-point reduction from 2022, with a strong performance in account management and subject matter expertise.
In 2023, we focused on cost efficiency and right sizing of the business and are continuing to drive this efficiency programme as we progress into 2024.
In the Telecoms, Media & Technology vertical, we saw success in the year selling the services of our customers through peak sales periods. For one client, Capita employees sold more during Black Friday trading promotions than the telecoms provider’s own employees. Within the Energy & Utilities vertical, we successfully delivered a significant step up in available hours around peak demand in Q4 to ensure efficient outcomes for clients and their customers.
Elsewhere, in the European Telecoms business we were selected as sole provider of one of our key client’s customer experience activities reflecting our consistently strong operational delivery.
As expected, we have seen volume attrition within our closed book Life & Pensions business in the Financial Services vertical. We maintain our strong operational delivery in respect of these closed book contracts, but are actively engaged in discussions to resolve the challenges in this area with a view to mitigating the ongoing cash cost from the business.
Financial performance
Divisional financial summary 2023 2022 % change Adjusted revenue1 (£m) 1,183.5 1,154.2 2.5% Adjusted operating profit1 (£m) 50.9 35.7 42.6% Adjusted operating margin1 (%) 4.3% 3.1% Adjusted EBITDA1 (£m) 111.3 109.9 1.3% Operating cash flow excluding business exits1 (£m) 32.7 36.1 (9.4)% Order book (£m) 2,299.4 2,526.7 (9.0)% Total contract value secured (£m) 1,112.3 1,370.6 (18.8)%
Adjusted revenue1 grew by 2.5% to £1,183.5m, benefiting from the one-off effect of a commercial settlement in our closed book Life & Pensions business. There were wins within the division’s international markets which offset contract losses and volume attrition in the Financial Services vertical, including the previously announced loss of our contract with the
Adjusted operating profit1 rose to £50.9m (2022: £35.7m). The division benefited from the profit impact of the commercial settlement noted above and higher interest receipts in the pensions business, which more than offset contract losses and continued attrition in the remaining closed book Life & Pensions business.
Operating cash flow excluding business exits1 decreased by 9.4% to £32.7m, reflecting the non-cash nature of the commercial settlement, partially offset by timing of payments on the
Outlook
We expect a low to mid-single digit percentage revenue reduction in 2024 reflecting the non-repeat of the one-off revenue benefit in 2023 and ongoing attrition in the closed book Life & Pensions business.
We expect operating margins in 2024 to be broadly flat year on year as cost efficiencies offset the non-recurrence of the profit benefit from 2023’s commercial settlement.
1. Refer to alternative performance measures (APMs) in the Appendix.
1.NelsonHall .
Chief Financial Officer's review
This preliminary announcement is extracted from Capita's financial statements for the year ended
Overview
Adjusted revenue1 growth of 1.3% reflected underlying growth on contracts such as the Personal Independence Payments contract in Public Service, increases in indexation, and the one-off benefit relating to a commercial settlement in the closed book Life & Pensions business in Experience, partly offset by the impact of a number of contract losses.
Public Service revenue growth was underpinned by indexation, scope increases on the Royal Navy Training contract and increased volumes on the Personal Independence Payments contract, offset by contract hand-backs and losses in Local Public Services and a step down in revenues in
The 13.5% step-up in adjusted profit before tax1 reflected the revenue trends noted above, in particular the commercial settlement in Experience, and a reduction in bonuses and variable pay, offset by increased financing costs.
Adjusted basic earnings per share1 reduced to 1.70p (2022: 2.64p) as the increase in adjusted profit before tax1 was offset by an increase in the adjusted current tax charge to £30.4m (2022: £6.4m). The adjusted current tax charge in 2023 reflects an £18.1m charge mainly in respect of losses not recognised for tax purposes which is shown in the income statement. There is an offsetting current tax credit arising on pension deficit contributions which is recognised in other comprehensive income rather than the income statement. While the adjusted earnings per share are impacted by a particularly high effective tax rate in 2023’s income statement, the underlying rate of cash tax for the Group is much lower and we anticipate cash tax payments in 2024 of less than £10m.
The reported loss before tax of £106.6m (2022: profit £61.4m), reflects exceptional costs incurred in resolving the
The reduction from reported basic earnings per share to a reported loss per share reflects the reduction in reported profit before tax noted above, compounded by the swing from a reported income tax credit to an income tax charge. The reported income tax charge in 2023 reflects changes in the accounting estimate of recognised deferred tax assets, unrecognised current year tax losses and non-deductible goodwill impairment. The reported tax credit in the prior period reflected an increase in the recognised deferred tax asset.
Cash generated from operations excluding business exits1 decreased, as expected, from £98.4m to £41.2m, driven by the cash costs of the cyber incident and higher working capital outflows partly offset by reduced outflows in respect of provisions.
Free cash flow excluding business exits1,2 in the year ended
The decrease in free cash flow1,2 reflects the above reduction in free cash flow excluding business exits1,2, a cash outflow from business exits, and an increase in pension deficit contributions triggered by disposals.
As part of our drive for simplification of the business, and strengthening the balance sheet, we have continued to dispose of non-core businesses. During 2023 we completed the disposal of the Resourcing, Security Watchdog,
These disposals completed the Board-approved Portfolio c.£500m business disposal programme. The Group is using the proceeds from this disposal programme to repay debt, to make further deficit reduction contributions to the Group’s defined benefit pension scheme and to invest in driving growth in the remaining core businesses. In 2023, we repaid £112.5m of private placement loan notes and made pension deficit contributions of £46.3m (£30.0m regular contributions and £16.3m acceleration of agreed contributions triggered by disposals).
We have incurred costs associated with the cyber incident detailed in the Chief Executive Officer’s Review. These costs comprise specialist professional fees, recovery and remediation costs and acceleration of investment to reinforce Capita’s cyber security environment. A charge of £25.3m has been recognised in the year ended
We announced the implementation of a cost reduction programme in
The Group’s committed bank facilities provide liquidity for the cash fluctuations of the business cycle and an allowance for contingencies. In
In
The RCF extension and private placement loan note issuance are a demonstration of debt providers' confidence in Capita and have enabled us to extend significantly the average maturity of our debt funding.
The Group reached agreement with the Trustees of the Group’s main pension scheme (the Scheme), in respect of the
Summary of financial performance
Financial highlights Reported results Adjusted1 results 31 31 Reported 31 31 Adjusted1YoY December December YoY change December December change 2023 2022 2023 2022 Revenue £2,814.6m £3,014.6m (6.6)% £2,642.1m £2,609.0m 1.3% Operating £(52.0)m £(79.6)m 35% £106.5m £78.0m 37% (loss)/profit EBITDA £144.5m £235.7m (39)% £214.6m £204.4m 5% (Loss)/profit £(106.6)m £61.4m n/a £56.5m £49.8m 14% before tax Basic (loss)/earnings (10.60p) 4.47p n/a 1.70p 2.64p (36)% per share Operating cash £81.2m £156.4m (48)% £97.4m £128.4m (24)% flow* Cash generated from £8.7m £117.8m (93)% £41.2m £98.4m (58)% operations* Free cash £(154.9)m £(31.5)m (392)% £(115.5)m £(42.4)m (172)% flow*,2 Net debt £(545.5)m £(482.4)m £(63.1)m £(545.5)m £(482.4)m £(63.1)m Net financial debt (pre-IFRS £(182.1)m £(84.9)m £(97.2)m £(182.1)m £(84.9)m £(97.2)m 16)
* Adjusted operating cash flow, cash generated from operations and free cash flow exclude the impact of business exits (refer to note 9).
Adjusted results
Capita reports results on an adjusted basis to aid understanding of business performance. The Board has adopted a policy of disclosing separately those items that it considers are outside the underlying operating results for the particular period under review and against which the Group’s performance is assessed internally. In the directors’ judgement, these items need to be disclosed separately by virtue of their nature, size and/or incidence for users of the financial statements to obtain an understanding of the financial information and the underlying in-period performance of the business. In general, the Board believes that alternative performance measures (APMs) are useful for investors because they provide further clarity and transparency of the Group’s financial performance and are closely monitored by management to evaluate the Group’s operating performance to facilitate financial, strategic and operating decisions.
Following feedback from investors, the Board has revised its definition of free cash flow1 and free cash flow excluding business exits
1
alternative performance measures. From
In accordance with the above policy, the trading results of business exits, along with the non-trading expenses (including the income statement charges in respect of major cost reduction programmes) and gain or loss on disposals, have been excluded from adjusted results. To enable a like-for-like comparison of adjusted results, the 2022 comparatives have been re-presented to exclude 2023 business exits. As at
Reconciliations between adjusted and reported operating profit, profit before tax and free cash flow before business exits are provided on the following pages and in the notes to the financial statements.
Adjusted revenue
Adjusted revenue1 bridge by division PublicService£m Experience£m Total£m Year ended 31 December 2022 1,454.8 1,154.2 2,609.0 Net growth 3.8 29.3 33.1 Year ended 31 December 2023 1,458.6 1,183.5 2,642.1
Adjusted revenue1 growth was 1.3% year-on-year. The adjusted revenue1 was impacted by the following:
-- Public Service (0.3% growth):growth was underpinned by indexation, scope increases and improved trading on a number of contracts including the Royal Navy Training contract and the Personal Independence Payments contract. This was offset by contract hand-backs and losses in Local Public Services and non-recurrence of the contract to provide laptops to teachers inNorthern Ireland in 2022; and
-- Experience (2.5% growth):growth was driven by improved international trading, indexation, and the one-off benefit relating to a commercial settlement in the closed book Life & Pensions business, partly offset by contract losses, primarily the loss of theCo-operative Bank contract.
Order book
The Group’s consolidated order book was £5,882.6m at
The Group’s order book does not include those contracts which are framework agreements such as the new
Adjusted profit before tax
Adjusted profit before tax1 PublicService£m Experience£m Capitaplc£m Total£m bridge by division Year ended 31 December 2022 93.7 35.7 (79.6) 49.8 Net growth/(reduction) (4.4) 15.2 (4.1) 6.7 Year ended 31 December 2023 89.3 50.9 (83.7) 56.5
Adjusted profit before tax1 increased in 2023. The adjusted profit before tax1 was driven by the following:
-- Public Service:the beneficial impact of the scope increases and improved trading on a number of contracts discussed above, offset by the impact of contract exits in Local Public Service;
-- Experience:the flow through of the revenue benefits noted above, in particular the closed book Life & Pensions contract settlement, as well as higher interest receipts in our pension business, partly offset by flow through of prior year contract losses in particular theCo-operative Bank and continued attrition in the remaining Life & Pensions business; and
--Capita plc : the impact of the reallocation of central costs previously allocated to Capita Portfolio toCapita plc in 2022, increased financing cost and the non-recurrence of gains on investments in 2022.
Adjusted tax charge/(credit)
The adjusted income tax charge for the year was £31.1m (2022: £4.4m) including £30.4m of current tax (2022: £6.4m). There is a current tax credit arising on pension deficit contributions recognised in other comprehensive income (OCI) rather than the income statement. If the current tax that is flowing through OCI is taken into account, the total current charge is more closely aligned to the current tax payable in respect of the year.
Cash generated from operations and free cash flow
Adjusted operating profit to free cash flow excluding business 2023 2022 £m exits1,2 £m Adjusted operating profit1 106.5 78.0 Add: depreciation/amortisation and impairment of property, plant 108.1 126.4 and equipment, right-of-use assets and intangible assets Adjusted EBITDA1 214.6 204.4 Working capital (110.7) (30.7) Non-cash and other adjustments (6.5) (45.3) Operating cash flow excluding business exits1 97.4 128.4 Adjusted operating cash conversion1 45% 63% Pension deficit contributions (30.0) (30.0) Cyber incident (20.1) — Cost reduction programme (6.1) — Cash generated from operations excluding business exits1 41.2 98.4 Net capital expenditure (58.9) (38.0) Interest/tax paid (45.1) (47.5) Net capital lease payments (52.7) (55.3) Free cash flow excluding business exits1,2 (115.5) (42.4)
Adjusted operating cash conversion1 decreased to 45% (2022 63%), driven by:
-- the reduction in working capital, which reflects the £28m benefit in 2022 of a step-up in the usage of the Group’s non-recourse facilities in 2022 whereas in 2023 there was a £9m reduction in usage, a reduction in the accrual for management bonuses and variable pay, and the non-cash nature of the commercial settlement in the closed book Life & Pensions business in Experience; and
-- the lower outflow related to provisions in 2023 reflected in the movement in non-cash and other adjustments.
Cash generated from operations excluding business exits1 reflects the above and the direct cash flow impact of the cyber incident (£20.1m). The £30.0m of pension deficit contributions are in line with the deficit funding contribution schedule previously agreed with the scheme trustees as part of the 2020 triennial valuation.
Free cash flow before business exits1,2 for the year ended
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, in 2023, the impacts of the cyber incident and cost reduction programme.
Adjusted1 to reported results bridge Operating (Loss)/profit (loss)/profit before tax 2023£m 2022 £m 2023£m 2022 £m Adjusted1 106.5 78.0 56.5 49.8 Amortisation and impairment of acquired (0.2) (5.1) (0.2) (5.1) intangibles Impairment of goodwill (42.2) (169.0) (42.2) (169.0) Net finance costs/(income) — — (2.2) 3.4 Business exits (36.4) 16.5 (38.8) 182.3 Cyber incident (25.3) — (25.3) — Cost reduction programme (54.4) — (54.4) — Reported (52.0) (79.6) (106.6) 61.4
Impairment of goodwill
In preparing its half yearly condensed consolidated financial statements at
At
-- £35.3m: in respect of CGUs in the Group's Portfolio division where the disposal processes of the businesses aligned to these CGUs were sufficiently advanced that the Board's judgement was that for impairment testing purposes the value in use of these CGUs should be determined based on the future cash flows of the CGUs from continuing use, up to the estimated date of disposal, plus an estimate of the sale proceeds less cost of disposal. The impairments arose primarily due to the expectation of acquirers factoring in additional investment and costs required to run the businesses outside the Group, and general macroeconomic conditions; and
-- £6.9m: in respect of a business in the Business Solutions group of CGUs in Portfolio. The impairment arose primarily due to a negotiated exit of an end customer, which has negatively impacted the forecast financial performance of the business.
At
Refer to note 11 for further details.
Business exits
Business exits include the effects of businesses that have been disposed of or exited during the period and the results of businesses held for sale at the balance sheet date.
In accordance with our policy, the trading results of these businesses, along with the non-trading expenses and gains/(losses) recognised on business disposals, were classified as business exits and therefore excluded from adjusted results. To enable a like-for-like comparison of adjusted results, the 2022 comparatives have been re-presented to exclude the 2023 business exits.
At
Business Disposal completed on Resourcing31 May 2023 Security Watchdog31 May 2023 Page One 31 July 2023 Software31 July 2023 Enforcement31 July 2023 Travel14 November 2023 Fera17 January 2024
In addition to the above disposals, the Group decided to exit a small business in Public Service in the second half of the year, and the trading result and non-trading expenses of this business have been excluded from adjusted results.
Cyber incident
The Group has incurred exceptional costs associated with the cyber incident, reflecting the complexity of the forensic analysis of exfiltrated data. These costs comprise specialist professional fees, recovery and remediation costs and investment to reinforce Capita’s cyber security environment. A charge of £25.3m has been recognised in the year ended
Further detail of the specific items charged in arriving at reported operating profit and profit before tax for 2023 is provided in note 5.
Cost reduction programme
We announced the implementation of a major cost reduction programme in
A charge of £54.4m has been recognised in the year ended
Net finance costs
Net finance costs increased by £20.5m to £52.2m (2022: £31.7m), primarily attributable to the higher interest rate environment and run-off of low-coupon debt.
Reported tax charge/(credit)
The reported income tax charge for the year of £74.0m (2022: credit £14.6m) reflects the changes in the accounting estimate of recognised deferred tax assets, unrecognised current year tax losses and non-deductible goodwill impairment. The prior period credit reflected an increase in the recognised deferred tax asset.
Free cash flow to free cash flow excluding business exits
Free cash flow1,2 to free cash flow excluding business exits1 2023£m 2022 £m Free cash flow1,2 (154.9) (31.5) Business exits 23.1 (19.5) Pension deficit contributions triggered by disposals 16.3 8.6 Free cash flow excluding business exits1,2 (115.5) (42.4)
Free cash flow1,2 was lower than free cash flow excluding business exits1,2 reflecting free cash outflows generated by business exits, and pension deficit contributions triggered by the disposal of
Movements in net debt
Net debt at
Net debt 2023£m 2022 £m Opening net debt (482.4) (879.8) Cash movement in net debt (9.0) 438.2 Non-cash movements (54.1) (40.8) Closing net debt (545.5) (482.4) Remove closing IFRS 16 impact 363.4 397.5 Net financial debt (pre-IFRS 16) (182.1) (84.9) Cash and cash equivalents net of overdrafts 67.6 177.2 Financial debt net of swaps (249.7) (262.1) Net financial debt /adjusted EBITDA1(both pre-IFRS 16) 1.2x 0.5x Net debt (post-IFRS 16)/adjusted EBITDA1 2.4x 2.0x
Net financial debt (pre-IFRS 16) increased by £97.2m to £182.1m at
The Group was compliant with all debt covenants at
Capital and financial risk management
Liquidity remains an area of focus for the Group. Financial instruments used to fund operations and to manage liquidity comprise US private placement loan notes, revolving credit facility (RCF) and overdrafts.
Available liquidity1 2023£m 2022£m Revolving credit facility (RCF) 260.7 288.4 Less: drawing on committed facilities — — Undrawn committed facilities 260.7 288.4 Cash and cash equivalents net of overdrafts 67.6 177.2 Less: restricted cash (46.0) (60.4) Available liquidity1 282.3 405.2
The Group’s committed bank facilities provide liquidity for the cash fluctuations of the business cycle and an allowance for contingencies. In
The RCF was not drawn upon at
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
In
In 2023, the Group repaid £112.5m of private placement loan notes, including £30.3m of Euro private placement loan notes which were originally due in 2027, following which the next debt maturity is
At
Going concern
The Board closely monitors the Group’s funding position throughout the year, including compliance with covenants and available facilities to ensure it has sufficient headroom to fund operations. In addition, to support the going concern assumption, the Board conducts a robust assessment of the projections, considering also the committed facilities available to the Group.
The Group and Parent Company continue to adopt the going concern basis in preparing these consolidated financial statements as set out in note 1.2(d) of the consolidated financial statements.
Viability assessment
The Board's assessment of viability over the Group’s three-year business planning time horizon is summarised in the viability statement.
Pensions
The Group reached agreement with the Trustees of the Group’s main pension scheme (the Scheme) in respect of the
In accordance with the 2020 agreement, the Group paid £30.0m of regular deficit funding contributions in 2023 and will pay a further £21m of contributions in 2024, with no further deficit contributions in 2025 and beyond. In addition, the Group paid £16.3m of accelerated deficit reduction contributions triggered by the disposal of certain businesses in the second half of 2022 and in 2023.
The valuation of the Scheme liabilities (and assumptions used) for funding purposes (the actuarial valuation) is specific to the circumstances of the Scheme. It differs from the valuation and assumptions used for accounting purposes, which are set out in IAS 19 and shown in these consolidated financial statements. The main difference is in assumption principles being used which are a result of the different regulatory requirements of the valuations. Management estimates that at
The net defined benefit pension position of all reported defined benefit schemes for accounting purposes decreased from a surplus of £39.6m at
Consolidated balance sheet
At
The movement is predominantly driven by the reported loss before tax for the year as explained above, the actuarial loss on all reported defined benefit pension schemes, and the reduction in the amount of deferred tax assets recognised.
1. Refer to alternative performance measures in the Appendix.
1. From1 January 2023 free cash flow and free cash flow excluding business exits are presented after deducting the capital element of lease payments and receipts. Comparative amounts have been re-presented
Viability statement
In accordance with provision 31 of the
In its assessment of the Group's viability, the Board has considered the following:
-- Adjusted revenue growth in 2023 of 1.3%.
-- The cost reduction programmes being implemented during 2024.
-- The completion of the Portfolio non-core business disposal programme inJanuary 2024 .
-- The repayment of £113m of financial debt in 2023, with no further repayments scheduled in 2024.
-- The renewal of the revolving credit facility in 2023 until31 December 2026 and the issuance of £101.9m US private placement debt with a mixture of three and five-year maturities.
-- Agreement with the Trustees of the Group’s main defined benefit pension scheme that no further deficit recovery contributions are required from the Group in 2025 and beyond.
The foregoing elements provide the backdrop to the three-year business plan approved by the Board in
-- Further adjusted revenue growth beyond 2024 broadly in line with market trends in each of the two core divisions.
-- Operating profit margin expansion over the business plan period reflecting the benefit of operating leverage coupled with ongoing efficiency delivery.
-- Delivery of cost savings.
-- A transition to positive free cash flow generation reflecting the above assumptions and the cessation of pension deficit contributions with effect from 2025.
The most material assumptions, from a viability assessment perspective, relate to the continuation of adjusted revenue growth, operating profit margin expansion, and delivery of cost savings.
The three-year base case financial projections were used to assess covenant compliance and liquidity headroom under different scenarios. This analysis included assessing the sensitivity of the financial performance of the Group to changes in trading conditions in line with those considered in the severe but plausible downside case for the going concern assessment and from the crystallisation of specific risks including those set out in the principal risks section of the 2023 Annual Report and Accounts (refer to section 1 of the consolidated financial statements).
The risks applied have not been probability weighted but rather consider the impact should each risk materialise by applying a ‘more likely than not’ test. These wide-ranging risks are unlikely to crystallise simultaneously and there are mitigations under the direct control of the Group, including reductions in capital investment, substantially reducing and (or removing in full) bonus and incentive payments and significantly reducing discretionary spend, that can be actioned to address a combination of risk crystallisations that may occur under a severe but plausible downside. These have been considered in the Board’s viability assessment.
Reflecting the Board’s expectations of improving financial performance as set out above, and its confidence in the Group’s ability to refinance maturing debt over the viability assessment period, the Board has a reasonable expectation that the Group and Parent Company will be able to continue in operation and meet their liabilities as they fall due over the period of the viability assessment.
Forward looking statements
This full-year results statement is prepared for and addressed only to the Company's shareholders as a whole and to no other person. The Company, its Directors, employees, agents and advisers accept and assume no liability to any person in respect of this trading update save as would arise under English and Welsh law. Statements contained in this trading update are based on the knowledge and information available to Capita’s Directors at the date it was prepared and therefore facts stated and views expressed may change after that date.
This document and any materials distributed in connection with it may include forward-looking statements, beliefs or opinions, or statements concerning risks and uncertainties, including statements with respect to Capita’s business, financial condition and results of operations. All statements other than historical facts included in this announcement may be forward-looking statements. Those statements and statements which contain the words “plan”, “target”, “aim”, “continue”, “hope”, “may”, “will”, “would”, “could”, “should”, “anticipate”, “believe”, “intend”, “estimate”, “expect” and words of similar meaning, or, in each case, their negative or other various or comparable terminology, reflect Capita’s Directors' beliefs and expectations and involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future and which may cause results and developments to differ materially from those expressed or implied by those statements and forecasts.
No representation is made that any of those statements or forecasts will come to pass or that any forecast results will be achieved, and projections are not guarantees of future performance. You are cautioned not to place any reliance on such statements or forecasts. Those forward-looking and other statements speak only as at the date of this trading update. Capita undertakes no obligation to release any update of, or revisions to, any forward-looking statements, opinions (which are subject to change without notice) or any other information or statement contained in this trading update. Furthermore, past performance cannot be relied on as a guide to future performance.
No statement in this document is intended as a profit forecast or a profit estimate and no statement in this document should be interpreted to mean that earnings per Capita share for the current or future financial years would necessarily match or exceed the historical published earnings per Capita share.
Nothing in this document is intended to constitute an invitation or inducement to engage in investment activity. This document does not constitute or form part of any offer for sale or subscription of, or any solicitation of any offer to purchase or subscribe for, any securities nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract, commitment or investment decision in relation thereto. This document does not constitute a recommendation regarding any securities.
Consolidated income statement
For the year ended
Notes 2023£m 2022 £m Revenue 4 2,814.6 3,014.6 Cost of sales (2,222.5) (2,298.6) Gross profit 592.1 716.0 Administrative expenses (644.1) (795.6) Operating loss 4 (52.0) (79.6) Share of results in associates and investment gains — 5.8 Net finance expense 6 (52.2) (31.7) (Loss)/gain on disposal of businesses 9 (2.4) 166.9 (Loss)/profit before tax (106.6) 61.4 Income tax (charge)/credit 7 (74.0) 14.6 Total (loss)/profit for the year (180.6) 76.0 Attributable to: Owners of the Company (178.1) 74.8 Non-controlling interests (2.5) 1.2 (180.6) 76.0 Earnings per share 8 – basic (10.60)p 4.47p – diluted (10.60)p 4.40p Adjusted operating profit 5 106.5 78.0 Adjusted profit before tax 5 56.5 49.8 Adjusted basic earnings per share 8 1.70p 2.64p Adjusted diluted earnings per share 8 1.70p 2.60p
Consolidated statement of comprehensive income
For the year ended
2023£m 2022 £m Total (loss)/profit for the year (180.6) 76.0 Other comprehensive expense Items that will not be reclassified subsequently to the income statement Actuarial loss on defined benefit pension schemes (68.2) (8.9) Tax effect on defined benefit pension schemes 15.9 2.0 (Loss)/gain on fair value of investments (0.1) 0.2 Items that will or may be reclassified subsequently to the income statement Exchange differences on translation of foreign operations (2.9) (0.6) Exchange differences realised on business disposals 0.2 0.3 (Loss)/gain on cash flow hedges (8.5) 11.5 Cash flow hedges recycled to the income statement (2.0) (5.1) Tax effect on cash flow hedges 2.6 (1.6) Other comprehensive expense for the year net of tax (63.0) (2.2) Total comprehensive (expense)/income for the year net of tax (243.6) 73.8 Attributable to: Owners of the Company (241.0) 72.6 Non-controlling interests (2.6) 1.2 (243.6) 73.8
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated balance sheet
At
Notes 2023£m 2022 £m Non-current assets Property, plant and equipment 80.0 101.1 Intangible assets 90.0 106.0 Goodwill 11 495.7 605.9 Right-of-use assets 208.5 249.5 Investments in associates 0.2 0.2 Contract fulfilment assets 257.0 263.0 Financial assets 97.2 118.2 Deferred tax assets 7 140.3 189.5 Employee benefits 32.7 42.7 Trade and other receivables 12.3 15.8 1,413.9 1,691.9 Current assets Financial assets 28.1 23.6 Income tax receivable 11.6 9.9 Disposal group assets held for sale 9 38.1 — Trade and other receivables 350.7 430.4 Cash 155.4 396.8 583.9 860.7 Total assets 1,997.8 2,552.6 Current liabilities Overdrafts 95.0 219.6 Trade and other payables 425.9 492.5 Disposal group liabilities held-for-sale 9 9.7 — Income tax payable 1.3 — Deferred income 501.3 585.1 Lease liabilities 51.1 55.6 Financial liabilities 10.8 84.6 Provisions 12 101.6 75.7 1,196.7 1,513.1 Non-current liabilities Trade and other payables 8.5 15.1 Deferred income 36.2 55.6 Lease liabilities 312.3 341.9 Financial liabilities 267.5 212.6 Deferred tax liabilities 7 7.2 6.9 Provisions 12 48.6 51.6 Employee benefits 5.9 3.1 686.2 686.8 Total liabilities 1,882.9 2,199.9 Net assets 114.9 352.7 Capital and reserves Share capital 35.2 34.8 Share premium 1,145.5 1,145.5 Employee benefit trust shares (0.7) (4.2) Capital redemption reserve 1.8 1.8 Other reserves (15.0) (4.5) Retained deficit (1,053.8) (843.2) Equity attributable to owners of the Company 113.0 330.2 Non-controlling interests 1.9 22.5 Total equity 114.9 352.7
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated statement of changes in equity
For the year ended
Employee Total Share Share benefit Capital Retained Other attributable Total capital premium trust redemption deficit reserves to the Non-controlling (deficit)/equity £m £m shares reserve £m £m £m owners of interests £m £m £m the parent £m At 31 December 34.8 1,145.5 (8.0) 1.8 (890.6) (9.0) 274.5 22.0 296.5 2021 Impact of change in accounting standards – — — — — (21.7) — (21.7) — (21.7) amendments to IAS 371 At 1 January 2022 on adoption of 34.8 1,145.5 (8.0) 1.8 (912.3) (9.0) 252.8 22.0 274.8 IAS 37 Profit for the — — — — 74.8 — 74.8 1.2 76.0 year Other comprehensive — — — — (6.7) 4.5 (2.2) — (2.2) income/(expense) Total comprehensive — — — — 68.1 4.5 72.6 1.2 73.8 income for the year Share-based payment net of — — — — 5.4 — 5.4 — 5.4 tax effects Elimination of non-controlling — — — — — — — (0.3) (0.3) interest on disposal (note 9) Exercise of share options under employee long — — 3.8 — (3.8) — — — — term incentive plans Dividends paid2 — — — — — — — (0.4) (0.4) Movement in put-options held by — — — — (0.6) — (0.6) — (0.6) non-controlling interests At 31 December 34.8 1,145.5 (4.2) 1.8 (843.2) (4.5) 330.2 22.5 352.7 2022 Loss for the year — — — — (178.1) — (178.1) (2.5) (180.6) Other comprehensive — — — — (52.4) (10.5) (62.9) (0.1) (63.0) expense Total comprehensive — — — — (230.5) (10.5) (241.0) (2.6) (243.6) expense for the year Share-based payment net of — — — — 5.8 — 5.8 — 5.8 tax effects Reclassification3 — — — — 15.9 — 15.9 (15.9) — Purchase of non-controlling — — — — 1.4 — 1.4 (1.4) — interest Exercise of share options under employee long — — 3.9 — (3.9) — — — — term incentive plans Shares issued 0.4 — (0.4) — — — — — — Dividends paid2 — — — — — — — (0.7) (0.7) Movement in put-options held by — — — — 0.7 — 0.7 — 0.7 non-controlling interests At 31 December 35.2 1,145.5 (0.7) 1.8 (1,053.8) (15.0) 113.0 1.9 114.9 2023
1. The Group initially applied the amendments to IAS 37 on1 January 2022 and the cumulative effect of applying the amendments was recognised as an opening balance adjustment to retained earnings.
1. No dividends were declared, paid or proposed in 2023 or 2022 on the Parent Company’s ordinary shares.
1. During the current year it was identified that the non-controlling interest (NCI) proportion of a goodwill impairment charge, which was recognised in the year ended31 December 2018 , had not been previously allocated within the result for that year attributable to NCI. The NCI proportion of the impairment has been reclassified to the NCI reserve in the current year.
Share capital – The balance classified as share capital is the nominal proceeds on issue of the Parent Company’s equity share capital, comprising 2 1/15 pence ordinary shares.
Share premium – The amount paid to the Parent Company by shareholders, in cash or other consideration, over and above the nominal value of shares issued to them less issuance costs.
Employee benefit trust shares – Shares held in the employee benefit trust have no voting rights and no entitlement to a dividend.
Capital redemption reserve –
Retained deficit – Net (losses)/profits accumulated in the Group after dividends are paid.
Other reserves – This consists of the foreign currency translation reserve deficit of £11.2m (2022: £8.6m deficit) and the cash flow hedging reserve deficit of £3.8m (2022: £4.1m surplus).
Non-controlling interests (NCI) – This represents equity in subsidiaries not attributable directly or indirectly to the Parent Company.
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated cash flow statement
For the year ended
Notes 2023£m 2022 £m Cash generated from operations 10 8.7 117.8 Income tax paid (7.5) (7.9) Interest received 6.2 5.0 Interest paid (47.7) (43.0) Net cash (outflow)/inflow from operating activities (40.3) 71.9 Cash flows from investing activities Purchase of property, plant and equipment (28.8) (20.6) Purchase of intangible assets (32.8) (27.3) Proceeds from sale of property, plant and equipment and 0.1 0.5 intangible assets Additions to investments held at fair value through profit — (2.4) and loss Changes to investments at fair value through other (0.1) 0.2 comprehensive income Capital element of lease rental receipts 6.0 5.8 Deferred consideration from sale of subsidiary 1.9 — undertakings Total proceeds received from disposal of businesses, net 9 96.8 463.4 of disposal costs Cash held by businesses when sold 9 (33.4) (75.5) Net cash inflow from investing activities 9.7 344.1 Cash flows from financing activities Dividends paid to non-controlling interests (0.7) (0.4) Capital element of lease rental payments (59.1) (61.8) Proceeds on issue of private placement loan notes 103.5 — Cost of cross currency swaps (1.6) — Repayment of private placement loan notes and other (121.5) (237.4) finance Proceeds from cross-currency interest rate swaps 8.5 10.1 Repayment of credit facilities — (46.0) Debt financing arrangement costs (5.4) (5.2) Net cash outflow from financing activities (76.3) (340.7) (Decrease)/increase in cash and cash equivalents (106.9) 75.3 Cash and cash equivalents at the beginning of the year 177.2 101.5 Effect of exchange rates on cash and cash equivalents (2.7) 0.4 Cash and cash equivalents at 31 December 67.6 177.2 Cash and cash equivalents comprise: Cash 155.4 396.8 Overdrafts (95.0) (219.6) Cash, net of overdrafts, included in disposal group assets 7.2 — and liabilities held for sale Total 67.6 177.2 Cash generated from operations before business exits1 10 41.2 98.4 Free cash flow before business exits1 10 (115.5) (42.4)
1. From1 January 2023 free cash flow and free cash flow excluding business exits are presented after deducting the capital element of lease payments and receipts. Comparative amounts have been re-presented.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the consolidated financial statements
For the year ended
1.1 Corporate information
Capita plc is a public limited company incorporated in
These consolidated financial statements of Capita plc for the year ended
1.2 Basis of preparation, judgements and estimates, and going concern
(a) Basis of preparation
These consolidated financial statements have been prepared in accordance with
These consolidated financial statements are presented in British pounds sterling and all values are rounded to the nearest tenth of a million (£m) except where otherwise indicated.
These consolidated financial statements have been prepared by applying the accounting policies and presentation that were applied in the preparation of the company’s published consolidated financial statements for the year ended
(b) Adjusted results
IAS 1 Presentation of Financial Statements permits an entity to present additional information for specific items to enable users to better assess the entity’s financial performance.
The Board has adopted a policy to disclose separately those items that it considers are outside the underlying operating results for the particular year under review and against which the Group’s performance is assessed internally. In the Board’s judgement, these need to be disclosed separately by virtue of their nature, size and/or incidence, for users of the consolidated financial statements to obtain an understanding of the financial information and the underlying performance of the Group. In general, the Board believes that alternative performance measures (APMs) are useful for investors because they provide further clarity and transparency of the Group’s financial performance and are closely monitored by management to evaluate the Group’s operating performance to facilitate financial, strategic and operating decisions. Accordingly, these items are also excluded from the discussion of divisional performance in the strategic report. This policy is kept under review by the Board and the
Those items excluded from the adjusted income statement are: business exits; amortisation and impairment of acquired intangibles; impairment of goodwill; certain mark-to-market valuation changes that impact net finance expense/income; the costs associated with the cyber incident in
The Board considers free cash flow, and cash generated from operations excluding business exits, to be alternative performance measures because these metrics provide a more representative measure of the sustainable cash flow of the Group.
Following feedback from investors the Board has revised its definition of the free cash flow and free cash flow excluding business exits alternative performance measures. From
The comparatives have been re-presented.
The Board considers APMs to be helpful to the reader, but notes that APMs have certain limitations, including the exclusion of significant recurring and non-recurring items, and may not be directly comparable with similarly titled measures presented by other companies.
A reconciliation between reported and adjusted operating profit and profit before tax is provided in note 5, and a reconciliation between reported cash generated from operations and cash generated from operations before business exits together with the calculation of free cash flow as an APM is provided in note 10.
(c) Judgements and estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires the directors to make judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported income and expense during the presented periods. Although these judgements and assumptions are based on the directors’ best knowledge of the amount, events or actions, actual results may differ.
Given the level of judgement and estimation involved in assessing the future profitability of contracts, it is reasonably possible that outcomes within the next financial year may be different from management’s assumptions and could require a material adjustment to the carrying amounts of contract assets and, onerous contract provisions.
The impact of climate change has been considered in the preparation of these consolidated financial statements across a number of areas, including our evaluation of the critical accounting estimates and assumptions which are consistent with the risks and opportunities set out in the strategic report in the Annual Report. None of these risks had a material effect on the critical accounting estimates and assumptions or on the consolidated financial statements of the Group.
(d) Going concern
In determining the appropriate basis of preparation of the financial statements for the year ended
Accounting standards require that ‘the foreseeable future’ for going concern assessment covers a period of at least twelve months from the date of approval of these financial statements, although those standards do not specify how far beyond twelve months a Board should consider. In its going concern assessment, the Board has considered the period from the date of approval of these financial statements to
The base case financial forecasts used in the going concern assessment are derived from the 2024-2025 business plans as approved by the Board in
1.2 Basis of preparation judgements and estimates, and going concern continued
(d) Going concern continued
The going concern assessment considers the Group’s sources and uses of liquidity and covenant compliance throughout the period under review. The value of the Group’s committed revolving credit facility (RCF) was £260.7m at
In July the Group issued £101.9m equivalent of new private placement loan notes across three tranches: £50m maturing
Financial position at
As detailed further in the Chief Financial Officer’s review, at
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
The base case projections used for going concern assessment purposes reflect business disposals completed up to the date of approval of these financial statements. The liquidity headroom assessment in the base case projections reflects the Group’s existing committed financing facilities and debt redemptions and does not reflect any potential future refinancing. The base case financial forecasts demonstrate liquidity headroom and compliance with all debt covenant measures throughout the going concern period to
Severe but plausible downside scenario
In considering severe but plausible downside scenarios, the Board has taken account of the potential adverse financial impacts resulting from the following risks:
-- revenue growth falling materially short of plan;
-- operating profit margin expansion not being achieved;
-- targeted cost savings delayed or not delivered;
-- additional inflationary cost impacts which cannot be passed on to customers;
-- unforeseen operational issues leading to contract losses and cash outflows;
-- volatility in interest rates;
-- non-availability of the Group’s non-recourse trade receivables financing facility; and
-- unexpected financial costs linked to incidents such as data breaches and/or cyber-attacks.
The likelihood of simultaneous crystallisation of the above risks is considered by the directors to be low. Nevertheless in the event that simultaneous crystallisation were to occur, the Group would need to take action to mitigate the risk of insufficient liquidity and covenant headroom. In its assessment of going concern, the Board has considered the mitigations, under the direct control of the Group, that could be implemented including reductions or delays in capital investment, and substantially reducing (or removing in full) bonus and incentive payments. Taking these mitigations into account, the Group’s financial forecasts, in a severe but plausible downside scenario, demonstrate sufficient liquidity headroom and compliance with all debt covenant measures throughout the going concern period to
Adoption of going concern basis
Reflecting the continued benefits from the transformation programme delivered over the last few years and the Portfolio non-core business disposal programme completed in
2 Preliminary announcement
A duly appointed and authorised committee of the Board of Directors approved the preliminary announcement on
The financial information set out above does not constitute the Group's consolidated financial statements for the years ended
Statutory accounts for 2022 have been delivered to the Registrar of Companies and those for 2023 will be delivered in due course. The auditor has reported on those financial statements.
Their report for the accounts of 2023 was (i) unqualified, (ii) did not include a reference of any matters to which the auditor drew attention by way of emphasis without modifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
Their report for the accounts of 2022 was (i) unqualified, (ii) did not include a reference of any matters to which the auditor drew attention by way of emphasis without modifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
Copies of this announcement can be obtained from the Company's registered office at
It is intended that the Annual Report and Accounts will be posted to shareholders late
1. Refer to the alternative performance measures (APMs) in the Appendix.
3 Contract accounting
At
Notes 2023£m 2022 £m Long-term contractual revenue 4 2,104.0 2,236.2 Deferred income 537.5 640.7 Contract fulfilment assets (non-current) 257.0 263.0 Onerous contract provisions 43.3 52.8
Background
The Group operates diverse businesses. The majority of the Group’s revenue is from contracts greater than two years in duration (long-term contractual), representing 75% of Group revenue in 2023 (2022: 74%).
These long-term contracts can be complex in nature given the breadth of solutions the Group offers and the transformational activities involved. Typically, Capita takes a customer’s process and transforms it into a more efficient and effective solution which is then operated for the customer. The outcome is a high quality solution that addresses a customer’s needs and is delivered consistently over the life of the contract.
The Group recognises revenue on long-term contracts as the value is delivered to the customer, which is generally evenly over the contract term, regardless of any restructuring and transformation activity required to deliver the services to the customer. Capita will often incur greater costs during contract transformation phases with costs diminishing over time as the target operating model is implemented and efficiencies realised. This results in lower profits or losses in the early years of contracts and potentially higher profits in later years as the transformation activities are successfully completed and the target operating model fully implemented (the business as usual (BAU) phase). The inflection point is when the contract becomes profitable.
Non-current contract fulfilment assets are recognised for those costs qualifying for capitalisation. The utilisation of these assets is recognised over the contract term. The timing of cash receipts from customers typically matches when the costs are incurred to transform, restructure and run the service. This results in income being deferred and released when the Group delivers against its obligations to provide services and solutions to its customers.
Assessing contract profitability
In assessing a contract’s future lifetime profitability, management must estimate forecast revenue and costs to both transform and run the service over the remaining contract term. The ability to accurately forecast the outcomes involves estimates in respect of: costs to be incurred; cost savings to be achieved; future performance against any contract-specific key performance indicators (KPIs) that could trigger variable consideration or service credits; outcome of any commercial negotiations; and impact of inflation on the cost base and the indexation of revenue.
The level of uncertainty in the estimated future profitability of a contract is directly related to the stage in the life-cycle of the contract and the complexity of the performance obligations. Contracts in the transformation stage are considered to have a higher level of uncertainty because of:
-- the ability to accurately estimate the costs to deliver the transformed process;
-- the dependency on the customer to agree to the specifics of the transformation: for example, where they are involved in certifying that the new process or, the new technical solution, designed by Capita meets their specific requirements; and
-- the assumptions made to forecast expected savings in the target operating model.
Those contracts which are in BAU tend to have a much lower level of uncertainty in estimating future profitability.
Recoverability of non-current contract fulfilment assets and completeness of onerous contract provisions
Management first assesses whether contract assets are impaired and then further considers whether an onerous contract exists. For half and full year reporting, the
The major contracts contributed £1.1 billion (2022: £1.1 billion) or 42% (2022: 42%) of Group adjusted revenue. Non-current contract fulfilment assets at
The major contracts, both pre- and post-transformation, are rated according to their financial risk profile, which is linked to the level of uncertainty over future assumptions. For those that are in the high and medium rated risk categories the associated non-current contract fulfilment assets were, in aggregate, £52.8m at
Following these reviews, and reviews of smaller contracts across the business, non-current contract fulfilment asset impairments of £3.4m (2022: £3.8m) were identified and recognised within adjusted cost of sales, of which £nil (2022: £0.5m) relates to non-current contract fulfilment assets added during the period, and net onerous contract provisions of £7.1m (2022: £1.7m) were identified and recognised in adjusted cost of sales.
Given the quantum of the relevant contract assets and liabilities, and the nature of the estimates noted above, management has concluded it is reasonably possible, that outcomes within the next financial year may be different from management’s current assumptions and could require a material adjustment to the carrying amounts of contract assets and onerous contract provisions. However, as noted above, £125.1m of non-current contract fulfilment assets relates to major contracts with ongoing transformational activities; and, £52.8m of non-current contract fulfilment assets and £37.3m of onerous contract provisions relate to the highest and medium rated risk category. Due to the level of uncertainty, combination of variables and timing across numerous contracts, it is not practical to provide a quantitative analysis of the aggregated judgements that are applied, and management do not believe that disclosing a potential range of outcomes on a consolidated basis would provide meaningful information to a user of the financial statements. Due to commercial sensitivities, the Group does not specifically disclose the amounts involved in any individual contract.
3 Contract accounting continued
Certain major transformation contracts have key milestones during the next twelve months and an inability to meet these key milestones could lead to reduced profitability and a risk of impairment of the associated contract assets. These include contracts with the
Additional information, which does not form part of these consolidated financial statements, on the results and performance of the underlying divisions including the outlook on certain contracts is set out in the divisional performance review.
4 Revenue and segmental information
The Group’s operations are managed separately according to the nature of the services provided, with each segment representing a strategic business division offering a different package of client services across the markets the Group serves.
The tables below present revenue for the Group’s business segments as reported to the Chief Operating Decision Maker. The Group now comprises two divisions - Capita Public Service and Capita Experience - following the completion of the Group’s exit of the non-core businesses in the Capita Portfolio division. Comparative information has been re-presented to reflect businesses exited during 2023, and accordingly the Capita Portfolio division is no longer disclosed as a division. Comparative information has also been re-presented to reflect the move of businesses between segments during 2023 to enable comparability.
Adjusted revenue, excluding results from businesses exited in both years (adjusting items), was £2,642.1m (2022: £2,609.0m), an increase of 1.3% (2022: increase 1.7%).
Year ended 31 Notes CapitaPublicService£m CapitaExperience£m Totaladjusted£m Adjustingitems£m Totalreported£mDecember 2023 Continuing operations Long-term 1,206.6 875.9 2,082.5 21.5 2,104.0 contractual Short-term 195.9 288.4 484.3 19.1 503.4 contractual Transactional 56.1 19.2 75.3 131.9 207.2 (point-in-time) Total segment 1,458.6 1,183.5 2,642.1 172.5 2,814.6 revenue Trading revenue 1,507.9 1,221.9 2,729.8 194.4 2,924.2 Inter-segment (49.3) (38.4) (87.7) (21.9) (109.6) revenue Total adjusted 1,458.6 1,183.5 2,642.1 — 2,642.1 segment revenue Business exits 9 — — — 172.5 172.5 – trading Total segment 1,458.6 1,183.5 2,642.1 172.5 2,814.6 revenue
Year ended31 December 2022 Continuing operations Long-term contractual 1,166.8 987.6 2,154.4 81.8 2,236.2 Short-term contractual 236.8 150.5 387.3 107.5 494.8 Transactional (point-in-time) 51.2 16.1 67.3 216.3 283.6 Total segment revenue 1,454.8 1,154.2 2,609.0 405.6 3,014.6 Trading revenue 1,497.0 1,194.4 2,691.4 490.0 3,181.4 Inter-segment revenue (42.2) (40.2) (82.4) (84.4) (166.8) Total adjusted segment revenue 1,454.8 1,154.2 2,609.0 — 2,609.0 Business exits – trading 9 — — — 405.6 405.6 Total segment revenue 1,454.8 1,154.2 2,609.0 405.6 3,014.6
Geographical location
The Group generates revenue largely in the
2023 2022 United Europe Other UnitedKingdom£m Europe£m Other£m Total£m Kingdom £m £m Total £m £m Revenue 2,526.0 282.5 6.1 2,814.6 2,731.2 270.8 12.6 3,014.6
4 Revenue and segmental information continued
Order book
The tables below show the order book for each division, categorised into long-term contractual (contracts with length greater than two years) and short-term contractual (contracts with length less than two years). The length of the contract is calculated from the service commencement date. The figures represent the aggregate amount of currently contracted transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied. Revenue expected to be recognised upon satisfaction of these performance obligations is as follows:
Order book31 CapitaPublicService£m CapitaExperience£m CapitaPortfolio£m Total£mDecember 2023 Long-term 3,381.1 2,111.2 — 5,492.3 contractual Short-term 164.9 188.2 37.2 390.3 contractual Total 3,546.0 2,299.4 37.2 5,882.6
Order book 31 Capita Public Capita Experience £m Capita Portfolio £m Total £mDecember 2022 Service £m Long-term 2,916.7 2,465.3 201.9 5,583.9 contractual Short-term 68.3 61.4 91.6 221.3 contractual Total 2,985.0 2,526.7 293.5 5,805.2
The table below shows the expected timing of revenue to be recognised from long-term contractual orders at
Time bands of expected revenue recognition from long-term CapitaPublicService£m CapitaExperience£m Total£m contractual orders < 1 year 765.2 574.2 1,339.4 1–5 years 2,155.6 1,378.5 3,534.1 > 5 years 460.3 158.5 618.8 Total 3,381.1 2,111.2 5,492.3
Prior year comparative information is not presented for the expected timing of revenue recognition because it is a forward looking disclosure and therefore management does not believe that such disclosure provides meaningful information to a user of the consolidated financial statements.
The order book represents the consideration that the Group will be entitled to receive from customers when the Group satisfies its remaining performance obligations under the contracts. However, the total revenue that will be earned by the Group will also include non-contracted volumetric revenue, future indexation linked to an external metric, new wins, scope changes, and anticipated contract extensions. These elements have been excluded from the above tables because they are not contracted. Additionally, revenue from contract extensions is excluded from the order book unless they are pre-priced extensions whereby the Group has a legally binding obligation to deliver the performance obligations during the extension period. The total revenue related to pre-priced extensions included in the tables above amounted to £513.8m (2022: £577.0m). The amounts presented do not include orders for which neither party has performed, and each party has the unilateral right to terminate a wholly unperformed contract without compensating the other party.
Of the £5.5 billion (2022: £5.6 billion) revenue to be earned on long-term contracts, £3.4 billion (2022: £4.2 billion) relates to major contracts. This amount excludes revenue that will be derived from frameworks (transactional ‘point-in-time’ contracts), non-contracted volumetric revenue, non-contracted scope changes and future unforeseen volume changes from these major contracts, which together are anticipated to contribute an additional £0.6 billion (2022: £0.7 billion) of revenue to the Group over the life of these contracts.
The Group performs various services for a number of
In
Deferred income
The Group’s deferred income balances solely relate to revenue from contracts with customers. Revenue recognised in the reporting period that was included in the deferred income balance at the beginning of the period was £599.0m (2022: £744.2.m).
Movements in the deferred income balances were driven by transactions entered into by the Group in the normal course of business during the current and prior year, other than the accelerated revenue recognised of £9.9m which primarily relates to an early termination of a contract in Capita Experience (2022: nil).
4 Revenue and segmental information continued
Segmental profit
The table below presents profit by segment.
Year ended31 Notes CapitaPublicService£m CapitaExperience£m Capitaplc£m Totaladjusted£m Adjustingitems£m Totalreported£mDecember 2023 Adjusted operating 5 89.3 50.9 (33.7) 106.5 — 106.5 profit Cost reduction (7.0) (37.3) (10.1) — (54.4) (54.4) programme Business exits – 9 — — — — (3.4) (3.4) trading Total trading 82.3 13.6 (43.8) 106.5 (57.8) 48.7 result Non-trading items: Business exits – 9 — (33.0) (33.0) non-trading Other adjusting 5 — (67.7) (67.7) items Operating 106.5 (158.5) (52.0) profit/(loss) Interest 6 8.7 income Interest 6 (60.9) expense Share of results in associates — and investment gains Loss on business 9 (2.4) disposal Loss before (106.6) tax Supplementary Information Depreciation and 42.5 57.8 3.6 103.9 4.9 108.8 amortisation Impairment of property, plant and equipment, 1.5 2.6 0.1 4.2 23.2 27.4 intangible assets and right-of-use assets Non-current contract fulfilment assets 59.8 16.0 — 75.8 8.7 84.5 utilisation, impairment and derecognition Onerous contract — 7.1 — 7.1 — 7.1 provisions
Year ended31 Capita Capita Capita plc Total Adjusting Total December 2022 Notes Public Experience £m adjusted items £m reported Service £m £m £m £m Adjusted operating 5 93.7 35.7 (51.4) 78.0 — 78.0 profit Cost reduction — — — — — — programme Business exits – 9 — — — — 39.7 39.7 trading Total trading 93.7 35.7 (51.4) 78.0 39.7 117.7 result Non-trading items: Business exits – 9 — (23.2) (23.2) non-trading Other adjusting 5 — (174.1) (174.1) items Operating 78.0 (157.6) (79.6) profit/(loss) Interest 6 8.9 income Interest 6 (40.6) expense Share of results in associates 5.8 and investment gains Gain on business 9 166.9 disposal Profit before 61.4 tax Supplementary Information Depreciation and 38.2 66.5 14.6 119.3 19.1 138.4 amortisation Impairment of property, plant and equipment, — 7.7 (0.6) 7.1 0.8 7.9 intangible assets and right-of-use assets Non-current contract fulfilment assets 67.2 16.3 — 83.5 2.2 85.7 utilisation, impairment and derecognition Onerous contract — 1.7 — 1.7 — 1.7 provisions
4 Revenue and segmental information continued
Geographical location
The table below presents the carrying amount of non-current assets (excluding deferred tax, financial assets and employee benefits) by the geographical location of those assets.
2023 2022 United United Europe Kingdom£m Europe£m Other£m Total£m Kingdom £m Other £m Total £m £m Non-current 1,112.6 14.1 17.0 1,143.7 1,320.9 11.7 8.9 1,341.5 assets
5 Adjusted operating profit and adjusted profit before tax
IAS 1 Presentation of Financial Statements permits an entity to present additional information for specific items to enable users to better assess the entity’s financial performance.
The Board has adopted a policy to disclose separately those items that it considers are outside the underlying operating results for the particular year under review and against which the Group’s performance is assessed internally. In the Board’s judgement, these need to be disclosed separately by virtue of their nature, size and/or incidence, for users of the consolidated financial statements to obtain an understanding of the financial information and the underlying performance of the Group. In general, the Board believes that alternative performance measures (APMs) are useful for investors because they provide further clarity and transparency of the Group’s financial performance and are closely monitored by management to evaluate the Group’s operating performance to facilitate financial, strategic and operating decisions. Accordingly, these items are also excluded from the discussion of divisional performance in the strategic report. This policy is kept under review by the Board and the
The Board considers APMs to be helpful to the reader, but notes that APMs have certain limitations, including the exclusion of significant recurring and non-recurring items, and may not be directly comparable with similarly titled measures presented by other companies.
Those items excluded from the adjusted income statement are: business exits; amortisation and impairment of acquired intangibles; impairment of goodwill; certain mark-to-market valuation changes that impact net finance expense/income; the costs associated with the cyber incident in
The items below are Operating (Loss)/profit before excluded from the (loss)/profit tax adjusted results: Notes 2023£m 2022 £m 2023£m 2022 £m Reported (52.0) (79.6) (106.6) 61.4 Amortisation and impairment of acquired 0.2 5.1 0.2 5.1 intangibles Impairment of goodwill 42.2 169.0 42.2 169.0 Net finance costs/ 6 — — 2.2 (3.4) (income) Business exits 9 36.4 (16.5) 38.8 (182.3) Cyber incident 25.3 — 25.3 — Cost reduction 54.4 — 54.4 — programme Adjusted 106.5 78.0 56.5 49.8
1. Adjusted operating profit increased by 36.5% (2022: increased 232.4%) and adjusted profit before tax increased by 13.5% (2022: increased 160.1%). Adjusted operating profit of £106.5m (2022: profit £78.0m) was generated on adjusted revenue of £2,642.1m (2022: £2,609.0m) resulting in an adjusted operating margin of 4.0% (2022: 3.0%).
1. The tax charge on adjusted profit before tax is £31.1m (2022: £4.4m charge) resulting in adjusted profit after tax of £25.4m (2022: £45.4m profit).
1. The adjusted operating profit and adjusted profit before tax for 2022 have been re-presented for the impact of business exits during 2023 and the change in adjusting items. This has resulted in adjusted operating profit decreasing from £102.9m to £78.0m and adjusted profit before tax decreasing from £73.8m to £49.8m
Amortisation and impairment of acquired intangible assets: the Group recognised acquired intangible amortisation of £0.2m (2022: £5.1m). These charges are excluded from the adjusted results of the Group because they are non-cash items generated from historical acquisition related activity. The charge is included within administrative expenses.
Impairment of goodwill:
the Group carries on its balance sheet significant balances related to goodwill.
Net finance costs: net finance costs excluded from adjusted profits relate to movements in the mark-to-market value of forward foreign exchange contracts to cover anticipated future costs and therefore have no equivalent offsetting transaction in the accounting records, also refer to note 6.
Business exits: the trading result of businesses exited, or in the process of being exited, and the gain or loss on disposals are excluded from the Group's adjusted results. Note 9 provides further detail regarding which income statement line items are impacted by business exits.
Cyber incident:
As detailed in the Chief Financial Officer's review, the Group has incurred exceptional costs associated with the cyber incident. These costs comprise specialist professional fees, recovery and remediation costs and investment to reinforce Capita’s cyber security environment. A charge of £25.3m has been recognised in the year ended
Cost reduction programme:
As detailed in the Chief Financial Officer’s review, the Group announced the implementation of a significant cost reduction programme in
6 Net finance costs
The table below shows the composition of net finance costs, including those excluded from adjusted profit:
2023£m 2022 £m Interest income Interest on cash (1.9) (1.1) Interest on finance lease assets (4.1) (4.2) Net interest income on defined benefit pension schemes (2.7) (3.6) Total interest income (8.7) (8.9) Interest expense Private placement loan notes1 16.3 12.0 Bank loans and overdrafts 14.1 8.4 Cost of non-recourse trade receivables financing 3.7 — Interest on finance lease liabilities 22.3 22.5 Discount unwind on provisions 2.3 — Total interest expense 58.7 42.9 Net finance expense included in adjusted profit 50.0 34.0 Included within business exits Bank loans and overdrafts — 1.0 Interest on finance lease liabilities — 0.1 Other items excluded from adjusted profits Non-designated foreign exchange forward contracts – change in 3.2 (3.6) mark-to-market value Fair value hedge ineffectiveness2 (1.0) 0.2 Net finance expense/(income) excluded from adjusted profit 2.2 (2.3) Total net finance expense 52.2 31.7
1. Private placement loan notes comprise US dollar and British pound sterling private placement loan notes, and the euro fixed rate bearer notes which were repaid during 2023.
1. Fair value hedge ineffectiveness arises from changes in currency basis, and the movement in a provision for counterparty risk associated with the swaps.
7 Taxation
Income tax charge
The reported income tax charge for the period is £74.0m on reported loss before tax of £106.6m (2022: reported income tax credit of £14.6m on reported profit of £61.4m), and an adjusted income tax charge for the period of £31.1m on adjusted profit before tax of £56.5m (2022: adjusted tax charge of £4.4m on adjusted profit of £49.8m). The most significant reconciling items, explaining the difference from the standard
The forecast future adjusted effective tax rates, before and assuming no material changes to tax laws in the jurisdictions in which Capita operates, are expected to be broadly similar to the
The major components of the income tax charge/(credit) are set out below:
2023 2022 Included in Not included Consolidated Total adjusted in Total Included Not included income reported profit adjusted reported inadjusted inadjusted statement £m £m profit £m profit1£m profit1£m £m Current income tax Current income tax 26.2 26.4 (0.2) 14.0 7.6 6.4 charge Adjustment in respect of 4.0 4.0 — (1.2) (1.2) — prior years Deferred tax On origination and reversal 43.9 0.8 43.1 (36.7) (11.3) (25.4) of temporary differences Effect of changes in tax rate on (0.4) (0.4) — 3.0 3.0 — deferred tax balances Adjustment in respect of 0.3 0.3 — 6.3 6.3 — prior years Total charge/ 74.0 31.1 42.9 (14.6) 4.4 (19.0) (credit)
1. To enable a like-for-like comparison of adjusted results, the 2022 comparatives have been re-presented to exclude the businesses classified as business exits during 2023 from adjusted profit. Refer to note 9.
Consolidated statement of comprehensive income and consolidated 2023£m 2022 £m statement of changes in equity Deferred tax movement on cash flow hedges (2.6) 1.6 Deferred tax movement in relation to actuarial changes on defined 3.3 5.2 benefit pension schemes Current income tax movement on defined benefit pension scheme (19.2) (7.2) contributions Deferred tax movement in relation to share-based payments (0.1) — Current income tax deduction on the exercise of share options (0.2) — Total credit (18.8) (0.4)
7 Taxation continued
The reconciliation between the total tax charge/(credit) and the accounting profit multiplied by the
Total tax Current tax 2023£m 2022 £m 2023£m 2022 £m (Loss)/profit before tax (106.6) 61.4 (106.6) 61.4 Notional (credit)/charge atUK weighted average corporation tax rate of 23.5% (2022: (25.1) 11.7 (25.1) 11.7 19.0%) Adjustments in respect of current income tax a 4.0 (1.2) 4.0 (1.2) of prior years Adjustments in respect of deferred tax of b 0.3 6.3 — — prior years Non-deductible expenses/(non-taxable income) 0.2 (2.3) 0.2 (2.3) – adjusted Non-deductible expenses – business exit c* 4.9 2.3 4.9 2.3 Non-deductible expenses – specific items 1.7 — 1.7 — Loss/(profit) on disposal of businesses d* 0.6 (31.6) 0.6 (31.6) Non-deductible goodwill impairment e* 9.9 32.0 9.9 32.0 Difference in rate recognition of temporary (0.4) 3.0 — — differences Tax provided on unremitted earnings f 0.2 1.4 — — Attributable to different tax rates in g (4.3) 0.5 (2.9) 0.5 overseas jurisdictions Movement in unrecognised temporary 82.0 (36.7) — — differences Fixed asset temporary differences — — 5.7 6.8 Current tax impact on other temporary — — (0.4) (6.4) differences Carry forward of losses in current period h — — 31.6 1.0 At the effective total tax rate of (69.4)% (2022: (23.8)%) and the effective current i 74.0 (14.6) 30.2 12.8 tax rate of (28.3)% (2022: 20.8%) Tax charge/(credit) reported in the income 74.0 (14.6) 30.2 12.8 statement
* These £15.4m (2022: £2.7m) of reconciling items relate to the reported tax charge only, with no impact on the adjusted tax charge. Further details are given below.
a The £4.0m prior year charge adjustment includes: (i) £0.2m for additional uncertain tax positions provided against; (ii) £0.3m credit which has a corresponding impact within deferred tax of prior years; and (iii) a £4.1m charge to adjust for finalisation of submitted tax returns for which there is no opposite deferred tax credit in relation to the temporary difference true-up because these are unrecognised.
b Adjustments in respect of deferred tax of prior years mainly relate to £0.3m of charges which have a corresponding impact within current income tax of prior years.
c* Business exit: relates to non-deductible closure costs associated with the sale of entities. Refer to note 9 for further details.
d*Relates to the application of the tax exemption on accounting losses from the sale of entities. Refer to note 9 for further details.
e*Relates to the goodwill impairments as detailed further in note 11.
f Movement on the deferred tax liability recognised on the unremitted earnings of those subsidiaries affected by withholding taxes.
g Mainly relates to tax payable at lower rates, eg in the
h Relates to the carry forward of tax losses in the current period, most of which arise in relation to adjusting items (cost reduction programme and cyber incident) and deductible pension contributions in the period.
i The current tax charge of £30.2m (2022: £12.8m) results in an effective current tax rate of (28.3)%, which is different from the
Deferred tax
A change to the main
Deferred tax relates to the following:
7 Taxation continued
Credited/(charged) to Income OCI and At 1 January statement changes in Othermovements2£m At31 £m £m equity December£m £m Deferred tax assets Fixed assets which qualify 90.8 (1.2) — (2.4) 87.2 for tax relief Provisions and other 10.5 (1.5) 2.6 (0.3) 11.3 temporary differences Pension 5.9 (0.6) (3.3) (0.2) 1.8 schemes Share-based 1.3 0.1 0.1 — 1.5 payments Tax losses1 81.4 (42.5) — (2.2) 36.7 189.9 (45.7) (0.6) (5.1) 138.5 Jurisdictional (0.4) 1.8 netting Net deferred 189.5 (45.7) (0.6) (5.1) 140.3 tax assets Deferred tax liabilities Acquired (0.2) 0.1 — — (0.1) intangibles Contract fulfilment (2.2) 2.0 — — (0.2) assets Unremitted (4.9) (0.2) — — (5.1) earnings (7.3) 1.9 — — (5.4) Jurisdictional 0.4 (1.8) netting Net deferred tax (6.9) 1.9 — — (7.2) liabilities Net deferred 182.6 (43.8) (0.6) (5.1) 133.1 tax
1. Mainly trading losses available to shelter future profits and deferred interest.
2. Other movements includes business disposals.
The main movement in the net deferred tax asset is the income statement tax charge arising on the change in the accounting estimate of deferred tax.
For the purpose of recognising deferred tax on the pension scheme surplus, withholding tax at 35% would apply for any surplus being refunded to the Group at the end of the life of the scheme. Corporation tax at 25% would apply for any surplus expected to unwind over the life of the scheme. Management have concluded that the corporation tax rate should apply to the recognition of deferred tax on the pension scheme surplus, reflecting the Group’s intention regarding the manner of recovery of the asset.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. The recoverability of deferred tax assets is supported by the deferred tax liabilities against which the reversal can be offset and the expected level of future taxable profits available to offset the assets when they reverse.
The recognition of deferred tax assets at
Unused tax losses make up the majority of the temporary differences available to be utilised in future periods. These losses mainly arose due to the historic adoption of IFRS 15, previous Covid-19 related downward pressures on profits and tax deductible restructuring costs, and in the current year due to tax deductible cost reduction programme expenses, cyber costs and pension contributions. Based on the forecast accounting profits, management have concluded that some of the deductible temporary differences and unused tax losses are not recognisable due to uncertainty in their recoverability. Therefore, there is a decrease in the amounts previously recognised in respect of deferred tax assets, along with further unrecognised temporary differences arising during the year. The impact of this is a charge to the income statement of £45.2m. This is included in the movement in unrecognised temporary differences of £82.0m in the tax reconciliation table above, which also includes unrecognised current year temporary differences (mainly losses) of £36.8m. The reported income statement charge includes £45.5m change in the deferred tax asset estimate due to the reduction in future taxable profits on disposal of taxable subsidiaries, reflected in the tax arising on business exits (see Note 9).
Deferred tax asset recognition depends on the reliability of management’s forecasts and the assumptions that underlie them. Management have considered the severe but plausible downsides applied to the base-case projections for assessing going concern and viability, to gauge sensitivity and identify a reasonable possible alternative result. This scenario identified a further potential reduction in recognised deferred tax assets of approximately £16m.
The Group has unrecognised tax losses and other temporary differences that are available for offset against future taxable profits of the companies in which the losses or other temporary differences arose, but have not been recognised because their recoverability is uncertain. The table below shows the amounts split between
2023£mGross Amount 2022 £m Gross Amount UK: Tax losses 628.7 332.7 Other temporary timing differences 140.2 113.9 768.9 446.6 Non-UK: Tax losses 67.4 60.8 Other temporary timing differences 11.2 11.6 78.6 72.4 Total 847.5 519.0
7 Taxation continued
The £328.5m increase in unrecognised tax losses and other temporary differences reflects the decrease in the amounts previously recognised in respect of deferred tax assets, and unrecognised temporary differences arising during the year due to tax deductible cost reduction programme expenses, cyber costs and pension contributions.
Assets have no time expiry, but some losses are subject to specific loss restriction rules. £28.8m (2022: £39.9m) of the losses were incurred by companies acquired by the Group and are not a result of the Group’s trading performance.
Dividends received from subsidiaries are largely exempt from
8 Earnings/(loss) per share
Basic earnings/(loss) per share are calculated by dividing net profit for the period attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings/(loss) per share are calculated by dividing the net (loss)/profit for the period attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
2023 2022 pence pence Basic earnings/(loss) per share – reported (10.60) 4.47 – adjusted 1.70 2.64 Diluted earnings/(loss) per share – reported (10.60) 4.40 – adjusted 1.70 2.60
The following tables show the earnings and share data used in the basic and diluted earnings/(loss) per share calculations:
2023 2022 £m £m Reported (loss)/profit before tax for the period (106.6) 61.4 Income tax (charge)/credit 7 (74.0) 14.6 Reported (loss)/profit for the period (180.6) 76.0 Less: Non-controlling interest 2.5 (1.2) Total (loss)/profit attributable to shareholders (178.1) 74.8 Adjusted profit before tax1 for the period 5 56.5 49.8 Income tax (charge)/credit 7 (31.1) (4.4) Adjusted profit for the period 25.4 45.4 Less: Non-controlling interest 3.1 (1.2) Adjusted profit attributable to shareholders 28.5 44.2
1.Definitions of the alternative performance measures and related Key Performance Indicators (KPIs) can be found in the Appendix.
2023 2022 m m Weighted average number of ordinary shares (excluding Employee 1,680.9 1,671.7Benefit Trust shares) for basic earnings per share Dilutive potential ordinary shares: Employee share options — 30.0 Weighted average number of ordinary shares (excluding Employee 1,680.9 1,701.7Benefit Trust shares) adjusted for the effect of dilution
At
The earnings per share figures are calculated based on earnings attributable to ordinary equity holders of the Parent Company, and therefore exclude non-controlling interest. The earnings per share is calculated on a total reported and an adjusted basis. The earnings per share for business exits and specific items are reconciling items between total reported and adjusted basic earnings per share.
There have been no other transactions involving ordinary shares or potential ordinary shares between the balance sheet date and the date on which these consolidated financial statements were authorised for issue.
9 Business exits and assets held for sale
Business exits
Business exits are businesses that have been sold, exited during the period, or are in the process of being sold or exited in accordance with the Group's strategy. None of these business exits meets the definition of ‘discontinued operations’ as stipulated by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which requires comparative financial information to be restated where the relative size of a disposal or business closure is significant, which is normally understood to mean a reported segment.
However, the trading result of these businesses, non-trading expenses, and any gain/loss on disposal, have been excluded from adjusted results. To enable a like-for-like comparison of adjusted results, the 2022 comparatives have been re-presented to exclude the businesses classified as business exits during 2023.
Assets held for sale
The Group classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continued use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value, and, the sale should be expected to be completed within one year from the date of classification.
Based on the above requirements, individual businesses will only reach the criteria to be treated as held for sale when their disposal is seen to be highly probable, and expected to complete within the following twelve months. At
2023 business exits
Business exits at
Business Disposal completed on Resourcing31 May 2023 Security Watchdog31 May 2023 PageOne 31 July 2023 Software31 July 2023 Enforcement31 July 2023 Travel14 November 2023 Fera17 January 2024
In addition to the above disposals, the Group decided to exit a business in Capita Public Service in the second half of the year, and the trading result and non-trading expenses of this business have been excluded from adjusted results.
2023 2022 (Re-presented)1 Income statement impact Trading Non-trading Total Trading Non-trading Total £m £m £m £m £m £m Revenue 172.5 — 172.5 405.6 — 405.6 Cost of sales (110.7) — (110.7) (284.6) — (284.6) Gross profit 61.8 — 61.8 121.0 — 121.0 Administrative expenses (65.2) (33.0) (98.2) (81.3) (23.2) (104.5) Operating (loss)/profit (3.4) (33.0) (36.4) 39.7 (23.2) 16.5 Net finance costs — — — (1.1) — (1.1) (Loss)/gain on business — (2.4) (2.4) — 166.9 166.9 disposal (Loss)/profit before (3.4) (35.4) (38.8) 38.6 143.7 182.3 tax Taxation 0.3 (43.9) (43.6) (7.3) 26.0 18.7 (Loss)/profit after tax (3.1) (79.3) (82.4) 31.3 169.7 201.0
1. To enable a like-for-like comparison of adjusted results, the 2022 comparatives have been re-presented to include the businesses classified as business exits during 2023.
Trading revenue and costs represent the current period trading performance of the above businesses up to the point of being disposed or exited, and in the comparative period those businesses disposed of during 2022 (AMT Sybex, Secure Solutions and Services, Trustmarque,
Trading expenses primarily comprise payroll costs of £121.0m (2022: £307.2m), information technology costs of £18.5m (2022: £50.0m), and the de-recognition of non-current contract fulfilment assets on the early termination of a customer contract within the business being exited in Capita Public Service of £8.2m (2022: £nil).
Non-trading administrative expenses include: asset impairments of £25.4m (2022: £nil); disposal project costs of £5.6m (2022: £14.4m); other costs including staff and redundancy costs of £2.6m (2022: £8.7m); and, other income of £0.6m (2022: £nil). The asset impairments arising in 2023 include goodwill within assets held for sale of £18.1m, property, plant and equipment of £7.1m and right-of-use-assets of £0.2m.
9 Business exits and assets held for sale continued
2023 disposals
During 2023 the Group disposed of six businesses: Resourcing, Security Watchdog,
The (loss)/gain arising was determined as follows:
2023£m 2022 £m Property, plant and equipment 0.3 0.2 Intangible assets 8.6 20.4 Goodwill 3.2 178.3 Right-of-use assets 0.2 0.2 Income tax recoverable and deferred tax assets 0.8 7.6 Contract fulfilment assets — 2.8 Trade and other receivables 78.6 136.6 Cash and cash equivalents 14.6 55.9 Disposal group assets held for sale1 78.2 143.0 Trade and other payables (36.6) (127.0) Deferred income (3.9) (38.6) Lease liabilities (0.2) (0.3) Capita group loan balances (42.7) (102.3) Income tax payable and deferred tax liabilities (1.1) (0.7) Provisions — (0.4) Disposal group liabilities held for sale1 (33.5) (135.4) Net identifiable assets sold 66.5 140.3 Non-controlling interests — (0.3) 66.5 140.0 Sales price: received in cash 68.4 330.0 deferred receivable 11.4 10.5 Less: disposal costs (15.5) (33.3) Net sales price 64.3 307.2 Realisation of cumulative currency translation difference (0.2) (0.3) (Loss)/gain on disposal of businesses (2.4) 166.9 Net cash inflow Proceeds received 68.4 330.0 Less disposal costs: income statement charge (15.5) (33.3) change in accrued disposal costs during the year (8.1) 9.9 Settlement of receivables due from disposed businesses: disposal of businesses in the period 52.0 102.3 disposal of businesses classified as held for sale — 54.5 Total proceeds received net of disposal costs paid 96.8 463.4 Total cash held by businesses when sold Cash held by businesses when sold (33.4) (55.9) Cash held by businesses classified as held for sale — (19.6) Total cash held by businesses when sold (33.4) (75.5) Net cash inflow 63.4 387.9
1. 2023 balances in respect of disposal group assets and liabilities held for sale relate to three businesses (PageOne , Software and Enforcement) that were transferred to held for sale on30 June 2023 , and were subsequently sold on31 July 2023 . 2022 balances relate to three businesses (AMT Sybex software, Secure Solutions and Services (SSS), andSpeciality Insurance ) that were held for sale at31 December 2021 , and were subsequently sold during 2022.
Disposal costs of £11.0m, relating to businesses disposed of in the year, were recognised in prior years and are excluded from the above loss on disposal of businesses.
9 Business exits and assets held for sale continued
Disposal group assets and liabilities held for sale
At
2023£m 2022 £m Property, plant and equipment 5.1 — Goodwill 15.0 — Trade and other receivables 3.3 — Accrued income 6.1 — Prepayments 1.4 — Cash and cash equivalents 7.2 — Disposal group assets held for sale 38.1 — Trade and other payables 2.1 — Other taxes and social security 1.6 — Accruals 1.8 — Deferred income 3.6 — Income tax payable and deferred tax liabilities 0.6 — Disposal group liabilities held for sale 9.7 —
Business exit cash flows
Businesses exited and being exited had a cash generated from operations outflow of £16.2m (2022: cash inflow of £28.0m).
10 Cash flow information
Additional cash flow information
2023 2022 Reported Excluding Notes £m Excludingbusinessexits2£m Reported £m business exits2£m Cash flows from operating activities: Reported 5 (52.0) (52.0) (79.6) (79.6) operating loss Less: business exit operating 9 — 36.4 — (16.5) loss/(profit) Total operating (52.0) (15.6) (79.6) (96.1) loss Adjustments for non-cash items: Depreciation 79.5 78.1 96.9 93.8 Amortisation of intangible 29.3 26.0 41.5 30.6 assets Share-based 5.5 5.5 5.4 5.4 payment expense Employee 7.7 7.7 9.0 9.0 benefits Loss on sale of property, plant and equipment 0.7 0.7 3.5 3.5 and intangible assets Amendments and early 3.0 3.0 (4.7) (4.7) terminations of leases Impairment of assets held for 18.1 — — — sale Impairment of non-current 69.6 62.3 176.9 176.1 assets Other adjustments: Movement in 23.0 15.3 (42.1) (48.5) provisions Pension deficit (46.3) (30.0) (38.6) (30.0) contributions Other contributions (9.2) (9.2) (10.0) (10.0) into pension schemes Movements in working capital: Trade and other (30.1) (5.6) (41.0) 37.0 receivables Non-recourse trade (9.2) (9.2) 28.0 28.0 receivables financing Trade and other (8.5) (6.0) 84.8 20.9 payables VAT deferral — — (14.9) (14.9) Deferred income (77.4) (81.8) (116.0) (122.0) Contract fulfilment 5.0 — 18.7 20.3 assets (non-current) Cash generated 8.7 41.2 117.8 98.4 from operations Adjustments for free cash flows: Income tax paid (7.5) (3.6) (7.9) (10.9) Interest 6.2 6.2 5.0 5.0 received Interest paid (47.7) (47.7) (43.0) (41.6) Net cash (outflow)/inflow (40.3) (3.9) 71.9 50.9 from operating activities Purchase of property, plant (28.8) (27.4) (20.6) (11.2) and equipment Purchase of intangible (32.8) (31.6) (27.3) (27.3) assets Proceeds from sale of property, plant 0.1 0.1 0.5 0.5 and equipment and intangible assets Capital element of lease rental 6.0 6.0 5.8 5.8 receipts Capital element of lease rental (59.1) (58.7) (61.8) (61.1) payments Free cash flow2 (154.9) (115.5) (31.5) (42.4)
1. Definitions of the alternative performance measures and related Key Performance Indicators (KPIs) can be found in the Appendix.
1. From1 January 2023 free cash flow and free cash flow excluding business exits are presented after deducting the capital element of lease payments and receipts. Comparative amounts have been re-presented.
Cyber incident:
In relation to the exceptional cyber incident costs referred to in note 5, the cash outflow during the year ended
Cost reduction programme:
In relation to the implementation of the cost reduction programme detailed in note 5, the cash outflow during the year ended
10 Cash flow information continued
Free cash flow and cash generated from operations (alternative performance measures - refer to Appendix)
The Board considers free cash flow, and cash generated from operations excluding business exits, to be alternative performance measures because these metrics provide a more representative measure of the sustainable cash flow of the Group.
Following feedback from investors the Board has revised its definition of the free cash flow and free cash flow excluding business exits alternative performance measures. From
These measures are analysed below:
Cash Free cash flow generated/ (used) by operations 2023£m 2022 £m 2023£m 2022 £m Reported (including business exits) (154.9) (31.5) 8.7 117.8 Business exits 23.1 (19.5) 16.2 (28.0) Pension deficit contributions triggered by 16.3 8.6 16.3 8.6 disposals Excluding business exits (115.5) (42.4) 41.2 98.4
A reconciliation of net cash flow to movement in net debt is included below.
Business exits: the cash flows of businesses exited, or in the process of being exited, and the proceeds from disposals, are disclosed outside the adjusted results. The 2022 results have been re-presented for those businesses exited, or in the process of being exited, during 2023 to enable comparability of the adjusted results.
Pension deficit contributions triggered by disposals:
the Trustee of the Group’s main defined benefit pension scheme has agreed with the Group to accelerate the payment of future agreed deficit contributions on a pound for pound basis in the event of disposal proceeds being used to fund mandatory prepayments of debt. The disposal of
Reconciliation of net cash flow to movement in net debt
Year ended 31 Net debt at1 Cash flow Net debt at31 December 2023 January£m movements TotalNon-cashmovement£m December£m £m Cash, cash equivalents and 177.2 (106.9) (2.7) 67.6 overdrafts Private placement (289.5) 17.5 5.0 (267.0) loan notes Unamortised transaction costs 4.0 5.4 (4.9) 4.5 on debt issuance Carrying value of private placement (285.5) 22.9 0.1 (262.5) loan notes Cross-currency 24.8 (6.9) (4.3) 13.6 interest rate swaps Fair value of private placement (260.7) 16.0 (4.2) (248.9) loan notes Other finance (0.7) 0.5 0.1 (0.1) Lease liabilities (397.5) 81.4 (47.3) (363.4) Total net liabilities from (658.9) 97.9 (51.4) (612.4) financing activities Deferred consideration (0.7) — — (0.7) payable Net debt (482.4) (9.0) (54.1) (545.5)
Year ended 31 Net debt at 1 Cash flow Total Non-cash Net debt at 31 December 2022 January £m movements £m movement £m December £m Cash, cash equivalents and 101.5 75.3 0.4 177.2 overdrafts Private placement (513.4) 236.8 (12.9) (289.5) loan notes Unamortised discount on debt (2.1) — 2.1 — issuance Unamortised transaction costs 2.6 5.2 (3.8) 4.0 on debt issuance Carrying value of private placement (512.9) 242.0 (14.6) (285.5) loan notes Cross-currency interest rate 28.0 (10.1) 6.9 24.8 swaps Fair value of private placement (484.9) 231.9 (7.7) (260.7) loan notes Other finance (1.3) 0.6 — (0.7) Credit facilities (46.0) 46.0 — — Lease liabilities (448.4) 84.4 (33.5) (397.5) Total net liabilities from (980.6) 362.9 (41.2) (658.9) financing activities Deferred consideration (0.7) — — (0.7) payable Net debt (879.8) 438.2 (40.8) (482.4)
Overdrafts comprise the aggregate value of overdrawn bank account balances within the Group’s notional interest pooling arrangements. These aggregate overdrawn amounts are fully offset by surplus balances within the same notional pooling arrangements.
At
11
2023£m 2022 £m Cost At 1 January 1,423.3 1,676.8 Disposal of businesses (199.6) (255.0) Transfer to disposal group assets held for sale1 (149.0) — Exchange movement (0.5) 1.5 At 31 December 1,074.2 1,423.3 Accumulated impairment At 1 January 817.4 725.1 Disposal of businesses (196.4) (76.7) Transfer to disposal group assets held for sale1 (84.7) — Impairment – excluded from adjusted profit 42.2 169.0 At 31 December 578.5 817.4 Net book value At 1 January 605.9 951.7 At 31 December 495.7 605.9
1. Transfers to disposal group assets held for sale in the year ended 31December 2023 includes £49.3m that was transferred at30 June 2023 and subsequently sold during the second half of the year.
Cash-generating units
Reflecting the way management exercises oversight and monitors the Group’s performance, the lowest level at which goodwill is monitored is at the divisional level for Capita Public Service and Capita Experience, and at a sub-divisional level for Capita Portfolio. At
Carrying amount of goodwill allocated to groups of CGUs:
Capita Portfolio CGU Capita Capita People£m Software£m Business Travel£m Fera£m Total£m PublicService£m Experience£m Solutions£m At 1 January 284.6 209.8 1.7 36.3 21.7 36.8 15.0 605.9 Reclassifications 1.8 — — — (1.8) — — — Disposal of — — (1.7) — — (1.5) — (3.2) businesses Transfer to assets held for — — — (36.3) (13.0) — (15.0) (64.3) sale1 Impairment – excluded from — — — — (6.9) (35.3) — (42.2) adjusted profit Exchange movement — (0.5) — — — — — (0.5) At 31 December 286.4 209.3 — — — — — 495.7
1. Transfers to disposal group assets held for sale in the year ended 31December 2023 includes £49.3m that was transferred at30 June 2023 and subsequently sold during the second half of the year.
Business exits
As set out in note 9, six businesses were fully disposed of during the year.
The Group’s shareholding in
One business within the Capita Public Service division met the criteria to be treated as a business exit at
The impairment test
In undertaking the annual impairment review, the directors considered both internal and external sources of information, and any observable indications that may suggest that the carrying value of goodwill may be impaired. This included a comparison with the Group’s share price and market capitalisation.
The Group’s impairment test compares the carrying value of each CGU with its recoverable amount. The recoverable amount of a CGU is the higher of fair value less cost of disposal, and its value in use. As the Group implements the Group-wide cost reduction programme announced in
The valuation of CGUs under fair value less costs of disposal assumes that a third-party acquirer will undertake a similar plan to derive similar benefits in the business going forward. The enterprise value of each CGU is dependent on the successful implementation of the cost reduction programme.
Fair value less costs of disposal for each CGU has been estimated using discounted cash flows. The fair value measurement was categorised as a Level-3 fair value based on the inputs in the valuation technique used. The costs of disposal have been estimated based on the Groups’ significant disposals in recent years.
At
11
In addition, an impairment of £6.9m was recognised at
At
Forecast cash flows
The cash flow projections prepared for the impairment test are derived from the 2024-2026 business plans (BP) approved by the Board, which are prepared on a nominal basis. Key assumptions in the BP include the delivery of planned revenue growth and the benefits that the cost reduction programme is anticipated to deliver, in particular in the Capita Experience CGU given recent past performance.
The going concern severe but plausible downside scenarios have taken account of the potential adverse financial impacts resulting from the following risks, which include the key assumptions noted above:
-- revenue growth falling materially short of plan;
-- operating profit margin expansion not being achieved;
-- targeted cost savings delayed or not delivered;
-- additional inflationary cost impacts which cannot be passed on to customers;
-- unforeseen operational issues leading to contract losses and cash outflows; and
-- unexpected financial costs linked to incidents such as data breaches and/or cyber-attacks.
As such, the below sensitivity analysis includes assessing the impact of these crystallising on the impairment test performed.
Other than for movements in deferred income and contract fulfilment assets, cash flows are adjusted to exclude working capital movements since the corresponding balances are not included in the CGU carrying amount.
Allocation of central function costs
The Board has considered an appropriate methodology to apply when allocating central function costs. The methodology applied for the 2023 impairment test was aligned to that applied in reporting segmental performance (refer to note 4). The remaining Group related costs of
Long-term growth rate
The long-term growth rate is based on economic growth forecasts by recognised bodies and this has been applied to forecast cash flows for years four and five (2027 and 2028) and for the terminal period. The 2023 long-term growth rate is 1.7% (2022: 2.2%).
Discount rates
Management estimates discount rates using nominal pre-tax rates of comparator companies for each CGU or group of CGUs. The discount rates reflect the latest market assumptions for the risk-free rate, the equity risk premium and the net cost of debt, and which are all based on publicly available external sources.
The table below presents the pre-tax discount rates applied to the cash flows for 2023 and 2022.
Capita Public Service Capita Experience 2023 11.0% 9.2% 2022 11.8% 10.4%
Sensitivity analysis
The impairment testing as described is reliant on the reliability of management’s forecasts and the assumptions that underlie them; and on the selection of the discount and growth rates to be applied. To gauge the sensitivity of the result to a change in any one, or combination of the assumptions that underlie the model, a number of scenarios were developed to identify the range of reasonably possible alternatives and measure which CGUs are the most susceptible to an impairment should the assumptions used be varied.
The sensitivity scenarios applied estimate potential impairments required (with all other variables being equal) through: an increase in discount rate of 1%, or a decrease of 1% in the long-term growth rate (for the terminal period) for the Group in total and each of the CGUs; or, through the severe but plausible downsides applied to the base-case projections for assessing going concern and viability, without mitigations, for 2024 to 2026, and the long-term growth rate (1.7%) applied to the 2026 downside cash flows to generate projected cash flows for 2027, 2028, and the terminal period. We have also considered the impact of all of the scenarios together, which is also a reasonable possible alternative.
No potential impairments have been identified under any of these sensitivity scenarios, including the combination sensitivity scenario.
Comparison to share price and market capitalisation
The company’s market capitalisation indicates an enterprise value that continues to be significantly less than the Group’s sum-of-the-parts CGU valuation based upon the model prepared for impairment testing purposes at
The factors considered included: the differing basis of valuations (including that third parties value the services sector on income statement multiples versus long-term view using a discounted cash flow for the basis of impairment testing under accounting standards), sum-of-the-parts view and the multiples achieved on recent disposals, general market assumptions of the sector which can ignore the liquidity profile and specific risks of an entity, and other specific items impacting the market’s view of the Group at the moment.
Taking these points into consideration, the Board are comfortable that there is no impairment in respect of goodwill to be recognised at
12 Provisions
Cost Business Claims and Property Customer Other reduction exit litigation provision contract provisions Total provision provision provision £m provision £m £m £m £m £m £m At 1 January — 10.7 17.0 18.7 73.5 7.4 127.3 Provisions in 35.6 10.6 29.9 3.9 16.5 7.5 104.0 the year Releases in the — (3.3) (3.5) (6.3) (12.3) (2.7) (28.1) year Utilisation (6.1) (10.2) (2.8) (7.4) (21.4) (6.9) (54.8) Discount unwind — — — — 2.3 — 2.3 on provisions Transfer to disposal group — — — (0.5) — — (0.5) liabilities held for sale1 Reclassification between — — 0.8 (0.6) (0.1) (0.1) — categories At 31 December 29.5 7.8 41.4 7.8 58.5 5.2 150.2 31 December 2023£m 31 December 2022 £m Current 101.6 75.7 Non-current 48.6 51.6 150.2 127.3
1. Transfers to disposal group assets held for sale in the year ended 31December 2023 includes £0.5m that was transferred at30 June 2023 and subsequently sold during the second half of the year.
Cost reduction provision: The provision represents the cost of reducing headcount where communication to affected employees has crystallised a valid expectation that roles are at risk and it is likely to unwind over the next twelve months. Additionally, it relates to unavoidable running costs of leasehold properties, such as insurance and security, and dilapidation provisions, where properties are exited as a result of the cost reduction programme. These provisions are likely to unwind over periods of up to four years. Refer to note 5 for further details on the cost reduction programme.
Business exit provision: The provision relates to the cost of exiting businesses through disposal or closure including professional fees related to business exits and the costs of separating the businesses being disposed. These are likely to unwind over a period of one to four years.
Claims and litigation provision: The Group is exposed to claims and litigation proceedings arising in the ordinary course of business. These matters are reassessed regularly and where obligations are probable and estimable, provisions are made based on the Group’s best estimate of the expenditure to be incurred. Due to the nature of these claims, the Group cannot give an estimate of the period over which this provision will unwind.
Property provision: The provision relates to unavoidable running costs, such as insurance and security, of leasehold property where the space is vacant or currently not planned to be used, and dilapidation costs, for ongoing operations, and not the cost reduction programme detailed in note 5 (where such costs are included in the cost reduction provision). The expectation is that this expenditure will be incurred over the remaining periods of the leases which vary up to 23 years.
Customer contract provision: The provision includes onerous contract provisions in respect of customer contracts where the costs of fulfilling a contract (both incremental and costs directly related to contract activities) exceeds the economic benefits expected to be received under the contract, claims/obligations associated with missed milestones in contractual obligations, and other potential exposures related to contracts with customers. Customer contract life-time reviews are used to determine the value of an onerous contract provision. The life-time contract review reflects the forecast of the best estimate of external revenues and costs over the remaining contract term. These provisions are forecast to unwind over periods of up to six years.
The customer contract provision includes £53.3m (2022: £59.7m) in respect of closed book Life & Pensions contracts in Capita Experience. The closed books and contractual dynamics have led to onerous conditions to service certain of these contracts. Management has been required to assess the likely length of these contracts, given the pattern and experience of contract terminations while also recognising the evergreen clauses (which potentially allow the customer to extend the contracts indefinitely until the run-off of the underlying life and pension books is complete). Accordingly, the Group has, in prior years, provided for the onerous contract conditions based on the best estimate of the remaining contract terms and the period and likely costs to support the final handover of services. At
Other provisions: Relates to provisions in respect of other potential exposures arising as a result of the nature of some of the operations that the Group provides, including supplier audit and regulatory provisions. These are likely to unwind over periods of up to five years.
13 Contingent liabilities
Contingent liabilities represent potential future cash outflows which are either not probable or cannot be measured reliably.
The Group has provided, through the normal course of its business, performance bonds and bank guarantees of £22.5m (2022: £34.0m). At
The Group is reviewing its position in respect of a number of its closed book Life & Pensions contracts. The outcomes and timing of this review, which are uncertain, could result in no change to the current position, the continuation of contracts with amended terms or the termination of contracts. If an operation is terminated, the Group may incur associated costs, accelerate the recognition of deferred income or the impairment of contract assets.
Following the cyber incident in
The Group’s entities are parties to legal actions and claims which arise in the normal course of business. The Group needs to apply judgement in determining the merit of litigation against it and the chances of a claim successfully being made. It needs to determine the likelihood of an outflow of economic benefits occurring and whether there is a need to disclose a contingent liability or whether a provision might be required due to the probability assessment.
At any time there are a number of claims or notifications that need to be assessed across the Group. The disparate nature of the Group’s entities heightens the risk that not all potential claims are known at any point in time.
14 Post balance sheet events
The following events occurred after 31 December 2023, and before the approval of these consolidated financial statements, but have not resulted in adjustment to the 2023 financial results:
Disposal of Fera
The disposal of the Group’s 75% shareholding in
Cash proceeds of £62m were received on completion, which included the settlement of intercompany balances owed by Fera to the Group of £0.1m. Net assets of c.£28m were disposed of on completion, alongside the derecognition of non-controlling interests of c.£9m. Total costs of disposal are estimated to be c.£9m, of which £3.5m were recognised in 2022 and 2023.
Contract with major European telecoms provider
In February 2024, the Group extended and expanded its contract with a major European telecoms provider. The new contract is based on expected volumes, and therefore treated as a framework contract under IFRS 15. As a result, £365m included in the Capita Experience order book at 31 December 2023 relating to the previous contract has been released. The new contract is expected to be worth up to £420m to 2030.
Appendix - Alternative performance measures
The Group presents various alternative performance measures (APMs) because internally the performance of the Group is reported and measured on this basis. This includes Key Performance Indicators (KPIs) such as adjusted revenue, adjusted profit before tax, adjusted basic/diluted earnings per share, free cash flow excluding business exits, and gearing ratios. In general, the Board believes that the APMs are useful for investors because they provide further clarity and transparency of the Group’s financial performance and are closely monitored by management to evaluate the Group’s operating performance to facilitate financial, strategic and operating decisions.
These APMs should not be viewed as a complete picture of the Group’s financial performance which is presented in the reported results. The exclusion of certain items may result in a more favourable view when costs such as acquired intangible amortisation, costs relating to the cyber incident in March 2023, expenses associated with the cost reduction programme announced in November 2023 and impairments of goodwill are excluded. These measures may not be comparable when reviewing similar measures reported by other companies.
Closest Definition, APM equivalent Purpose and IFRS measure Reconciliation Income statement Calculated as revenue less any revenue relating to Revenue businesses that have been sold, or exited during the year or prior year; or, are in the process of being sold, or exited. Adjusted revenue This measure of revenue is used internally in respect of the Group’s continuing business (being the Group’s continuing activities, which exclude business exits) and the Board believes it is a good indication of ongoing performance. The table below shows a reconciliation between reported and adjusted revenue, as well as adjusted revenue growth: 2023 2022 Reported revenue per the £2,814.6m £3,014.6m income statement Deduct: business exits £(172.5)m £(405.6)m (note 9) Adjusted £2,642.1m £2,609.0m revenue Adjusted 1.3% 1.7% revenue growth Calculated as reported operating profit excluding Operating items determined by the Board to be outside Adjusted profit underlying operations. These items are detailed in operating note 5. profit A reconciliation of reported to adjusted operating profit is provided in note 5. Calculated as the adjusted operating profit divided by adjusted revenue. Adjusted Operating This measure is an indicator of the Group’s operating profit margin operating efficiency. profit margin The table below shows the components, and calculation, of adjusted operating profit margin: 2023 2022 Adjusted revenue a £2,642.1m £2,609.0m Adjusted operating b £106.5m £78.0m profit (note 5) Adjusted operating b/a 4.0% 3.0% profit margin Calculated as adjusted operating profit for the last twelve months before: depreciation, amortisation and impairment of property, plant and Adjusted No direct equipment, intangible assets and right-of-use EBITDA equivalent assets; net finance costs; and the share of results in associates and investment gains (other than those already excluded from adjusted operating profit). The directors believe that adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) is a useful measure for investors because it is closely monitored by management to evaluate Group and divisional operating performance. This measure has been calculated pre and post the impact of IFRS 16 to enable investors to understand the impact of the Group’s lease portfolio on adjusted EBITDA. The table below shows the calculation of adjusted EBITDA: Post IFRS 16 Pre IFRS 16 2023 2022 2023 2022 Adjusted profit £56.5m £49.8m £57.0m £55.0m before tax Add back: adjusted net £50.0m £34.0m £31.8m £15.7m finance costs (note 6) Add back: adjusted depreciation and impairment £30.7m £43.1m £30.7m £43.1m of property, plant and equipment Add back: depreciation and impairment £50.7m £52.7m £—m £—m of right-of-use assets Add back: adjusted amortisation £26.7m £30.6m £26.7m £30.6m and impairment of intangibles Remove: Share of results in associates and £—m £(5.8)m £—m £(5.8)m investment gains (income statement) Adjusted EBITDA £214.6m £204.4m £146.2m £138.6m Adjusted EBITDA 8.1% 7.8% 5.5% 5.3% margin
Alternative performance measures continued
APM Closest equivalent Definition, Purpose IFRS measure and Reconciliation Income statement continued Calculated as profit or loss before tax excluding the items detailed in note 5, which includes: business exits (trading results, non-trading expenses, and any gain/(loss) on Adjusted profit Profit before tax business disposal); acquired before tax intangible amortisation; impairment of goodwill and acquired intangibles; costs of the cyber incident in March 2023; and expenses associated with the cost reduction programme announced in November 2023. A reconciliation of reported to adjusted profit before tax is provided in note 5. Calculated as the above adjusted Profit/(loss) after profit or loss before tax, less the tax tax credit or expense on adjusted Adjusted profit profit or loss. after tax The table below shows a reconciliation: 2023 2022 Adjusted profit £56.5m £49.8m before tax (note 5) Tax on adjusted £(31.1)m £(4.4)m profit (note 7) Adjusted profit £25.4m £45.4m after tax Calculated as the adjusted profit or loss for the year after tax less Basic earnings per non-controlling interests divided by share the weighted average number of Adjusted basic ordinary shares outstanding during the earnings per share year. The Board believes that this provides an indication of basic earnings per share of the Group on adjusted profit after tax. For the calculation of adjusted basic earnings per share refer to note 8. Calculated as the adjusted profit or loss for the year after tax less non-controlling interests divided by the weighted average number of Diluted earnings per ordinary shares outstanding during the share period plus the weighted average Adjusted diluted number of ordinary shares that would earnings per share have been issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The Board believes that this provides an indication of diluted earnings per share of the Group on adjusted profit after tax. For the calculation of adjusted diluted earnings per share refer to note 8. Cash flows and net debt Calculated as the cash flows generated from operations excluding the items Cash generated/ detailed in note 10 which includes: (used) by operations business exits (trading results, Cash flows non-trading expenses) and pension generated/(used) by deficit contributions which have been operations excluding triggered by disposals. business exits A reconciliation of reported to cash generated/(used) by operations excluding business exits is provided in note 10. 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 Net cash flows from impact of business exits. operating activities Free cash flow and free cash flow Free cash flow and excluding business exits are measures free cash flow used to show how effective the Group excluding business is at generating cash and the Board exits believes they are useful for investors and management to measure whether the Group is generating sufficient cash flow to fund operations, capital expenditure, non-lease debt obligations, and dividends. A reconciliation of net cash flows from operating activities to free cash flow and free cash flow excluding business exits and a reconciliation of free cash flow to free cash flow excluding business exits are provided in note 10.
Alternative performance measures continued
Closest Definition, APM equivalent Purpose and IFRS measure Reconciliation Cash flows and net debt continued Calculated as operating cash flow excluding business exits divided by adjusted EBITDA. No direct equivalent The Board believes that this measure is useful for investors because it is closely monitored by management to evaluate the Group’s operating performance and to make financial, strategic and operating decisions Operating cash flow Reported Excluding business and exits operating cash 2023 2022 2023 2022 conversion EBITDA a £144.5m £235.7m £214.6m £204.4m Add back: EBITDA element of cyber £63.8m £—m £—m £—m incident and cost reduction programme Working £ £ capital (note (120.2)m £(40.4)m (102.6)m £(30.7)m 10) Add back: Working capital element of £(8.1)m £—m £(8.1)m £—m cyber incident and cost reduction programme Non-cash and other £30.7m £(38.9)m £23.0m £(45.3)m adjustments (note 10) Add back: Non-cash element of cyber attack £(29.5)m £—m £(29.5)m £—m and cost reduction programme (note 12) Operating cash b £81.2m £156.4m £97.4m £128.4m flow Operating cash b/a 56.2% 66.4% 45.4% 62.8% conversion Calculated as the sum of any undrawn committed facilities and the net cash, cash equivalents net of Available No direct overdrafts, less any restricted cash. Restricted cash liquidity equivalent is defined as any cash required to be held under FCA regulations, cash held in foreign bank accounts, and cash represented by non-controlling interests. 2023 2022 Revolving credit £260.7m £288.4m facility (RCF) Less: drawing on committed £—m £—m facilities Undrawn committed £260.7m £288.4m facilities Cash and cash equivalents £67.6m £177.2m net of overdrafts Less: restricted £(46.0)m £(60.4)m cash Available £282.3m £405.2m liquidity Calculated as the net of the Group’s: cash, cash equivalents and overdrafts; private placement loan Borrowings, notes; other finance; currency and interest rate swaps; cash, lease liabilities; and deferred consideration. Net debt derivatives, lease The Board believes that net debt enables investors to liabilities see the economic effect of debt, related hedges and and deferred cash and cash equivalents in total and shows the consideration indebtedness of the Group. The calculation of net debt is provided in note 10. Calculated as the sum of the Group’s: cash, cash Net No direct equivalents and overdrafts; the fair value of the financial equivalent Group’s private placement loan notes; other finance; debt and deferred consideration. (pre-IFRS 16) The Board believes that this measure of net debt allows investors to see the Group's net debt position excluding its IFRS 16 lease liabilities. 2023 2022 Net debt £545.5m £482.4m Remove: IFRS16 £ £(397.5)m impact (363.4)m Net financial debt (pre-IFRS £182.1m £84.9m 16)
Alternative performance measures continued
Closest Definition, APM equivalent Purpose and IFRS measure Reconciliation Cash flows and net debt continued This ratio is calculated as net financial debt (pre-IFRS 16) divided by adjusted EBITDA over a rolling twelve month period including business No direct exits not yet completed at the balance sheet date. equivalent Gearing: net The Board believes that this ratio is useful debt to because it shows how significant net debt is adjusted relative to adjusted EBITDA. EBITDA ratio This measure has been calculated including and excluding the impact of IFRS 16 on EBITDA and net debt because the Board believes this provides useful information to enable investors to understand the impact of the Group’s lease portfolio on its gearing ratio. The table below shows the components, and calculation, of the net debt / net financial debt (pre-IFRS 16) to adjusted EBITDA ratio: Post IFRS 16 Pre IFRS 16 2023 2022 1 2023 2022 1 Adjusted EBITDA £214.6m £238.8m £146.2m £172.3m EBITDA in respect of business exits £8.2m £1.3m £8.2m £1.3m not yet completed Adjusted EBITDA (including business exits £222.8m £240.1m £154.4m £173.6m not yet completed) Net debt / net financial debt £545.5m £482.4m £182.1m £84.9m (pre-IFRS 16) Net debt / net financial debt (pre-IFRS 16) 2.4x 2.0x 1.2x 0.5x to adjusted EBITDA ratio No direct This ratio is calculated in the same way gearing equivalent above but includes the net proceeds received from the disposal of the Fera business in January 2024. The Board believes that this ratio is useful because it shows that the gearing ratio would have been below the medium term aim of 1.0x had the proceeds from the disposal of the Fera business been received in December 2023 when the sale was Gearing agreed. including Fera proceeds: net Pre IFRS 16 debt to adjusted 2023 EBITDA ratio Adjusted EBITDA a £146.2m Net financial b £182.1m debt Cash proceeds received in January on £61.9m disposal of Fera (note 14) Cash held by Fera at 31 £(7.2)m December 23 (note 9) Cash disposal costs expected in 2024 related £(4.6)m to Fera disposal Net proceeds received from c £50.1m Fera disposal in January 2024 Net financial debt including net proceeds d = b-c £132.0m received in January 2024 Net financial debt including net proceeds d/a 0.9x received to adjusted EBITDA ratio
1.To ensure consistent presentation of the ratios between years, the 2022 comparatives have not been restated.