Capita
plc
Full Year
Results
2023
Stable revenue
underpinned by strong contract wins, further accelerated efficiency
measures to drive growth and improve cash
flow
Capita plc CEO
Adolfo Hernandez
said:
"Since joining
Capita I have spent time with colleagues and met a significant
number of clients and other stakeholders. I have been hugely
impressed with the strength and expertise of our employees, and the
breadth and depth of our services. We have deep relationships
across a compelling client list, and we operate in growing markets
where our work matters to the lives of millions of people every
day.
"I am excited
about the opportunity for Capita and can already see a range of
areas where we can unlock value. Our 2023 financial results have
demonstrated some progress. However, we have yet to deliver the
operational excellence that will enable us to create the right
platform for future growth or achieve our full potential for the
benefit of shareholders. Looking forward, we will focus on
precision in execution, co-creating solutions with clients and
accelerating the use of technology and leveraging our technology
partnerships to drive improvement in our operating and financial
performance.
"We need to
deliver a rapid reduction in our cost base and are on track to
deliver the net £60m annualised cost savings, from Q1 2024 as
announced in November. Today we are announcing further material
efficiency improvements of £100m to improve our competitive
position.
"We have strong
foundations and the opportunity for significant growth in the
medium and longer-term. I look forward to sharing more details on
Capita’s future strategy in
June."
2023
Financial
Results
-
Adjusted
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 at
31 December 2023 – proforma 0.9x if sale of Fera completed at
year
end
Contract
wins
-
Total contract
value won £3,036m (2022: £2,593m) driven by strong
performance in Public
Service
-
Book to bill
ratio 1.1x (2022:
1.0x)
-
Contract win
rate across all opportunities improved to 62% from 57%. Material
improvement in win rate on new and expanded scopes of work from 32%
to 70%, reduced renewal rate reflecting pricing discipline across
all
bids
Outlook for
2024
-
2024 revenue
expected to be broadly in line with
2023
-
Modest
improvement in operating
margin
-
Free cash
outflow £70m to £90m after c.£50m cost of delivery of efficiency
programmes
Clear pathway
to deliver positive free cash flow in medium
term
-
Delivery of net
£60m from Q1 2024 annualised cost reduction on
track
-
Triennial
funding agreement with Pension Trustees - £30m reduction in deficit
contributions by
2025
-
Incremental
£100m annualised cost reduction to be delivered over period to
June 2025 – partially reinvested in
growth
Financial
highlights |
|
|
|
|
|
|
|
Reported
results |
Adjusted1
results |
|
31 December
2023 |
31
December 2022 |
Reported
YoY
change |
31 December
2023 |
31
December 2022 |
Adjusted1 YoY
change |
Revenue |
£2,814.6m |
£3,014.6m |
(6.6)% |
£2,642.1m |
£2,609.0m |
1.3% |
Operating
(loss)/profit |
£(52.0)m |
£(79.6)m |
35% |
£106.5m |
£78.0m |
37% |
EBITDA |
£144.5m |
£235.7m |
(39)% |
£214.6m |
£204.4m |
5% |
(Loss)/profit before
tax |
£(106.6)m |
£61.4m |
n/a |
£56.5m |
£49.8m |
14% |
Basic
(loss)/earnings per
share |
(10.60p) |
4.47p |
n/a |
1.70p |
2.64p |
(36)% |
Operating cash
flow* |
£81.2m |
£156.4m |
(48)% |
£97.4m |
£128.4m |
(24)% |
Cash generated
from
operations* |
£8.7m |
£117.8m |
(93)% |
£41.2m |
£98.4m |
(58)% |
Free cash
flow*,2 |
£(154.9)m |
£(31.5)m |
(392)% |
£(115.5)m |
£(42.4)m |
(172)% |
Net
debt |
£(545.5)m |
£(482.4)m |
£(63.1)m |
£(545.5)m |
£(482.4)m |
£(63.1)m |
Net financial
debt (pre-IFRS
16) |
£(182.1)m |
£(84.9)m |
£(97.2)m |
£(182.1)m |
£(84.9)m |
£(97.2)m |
-
Adjusted
operating cash flow, cash generated from operations and free cash
flow exclude the impact of business exits (refer to note
10).
-
Refer to the
alternative performance measures (APMs) in the
Appendix.
-
From
1 January 2023 free cash flow and free cash flow excluding
business exits are presented after deducting the capital element of
lease payments and receipts. Comparative amounts have been
re-presented.
Investor
presentation
A presentation
for institutional investors and analysts hosted by Adolfo Hernandez, CEO and Tim Weller, CFO, will be held at 65 Gresham
Street, London EC2V 7NQ at
09:00am UK time, 6 March 2024. There will also be a live webcast
(link below) which will subsequently be available on demand. The
presentation slides will be published on our website at
07:00am and a full transcript will be
available the following
day.
Capita will
present a strategy update on 13 June. Details will be made
available nearer the
time.
Participant
webcast:
https://webcast.openbriefing.com/capita-fy23/
For
further
information:
Capita |
Helen Parris,
Director of Investor
Relations |
T +44 (0) 7720
169
269 |
Stephanie Little,
Deputy Head of Investor
Relations |
T +44 (0) 7541
622
838 |
Elizabeth Lee,
Group Head of External
Communications |
T +44 (0) 7936
332
957 |
Capita press
office |
T +44 (0) 2076
542
399 |
Brunswick |
Dan Roberts &
Jonathan
Glass |
T + 44 (0) 2074
045 959 |
LEI no.
CMIGEWPLHL4M7ZV0IZ88.
Chief Executive
Officer's
review
Introduction
I am delighted
to have joined Capita in the middle of January 2024. Capita plays an essential role in
underpinning how millions of people's lives operate – every single
day — and I am honoured to have been appointed as the leader of
this business.
Much has been
achieved in the transformation of the Group under Jon Lewis's leadership, with improvements in
client satisfaction and contract delivery, the simplification of
the business, with multiple unfocused business units reduced to two
market focused divisions, and significant debt reduction. This has
created a solid foundation to build on. We are now refocusing our
operations and
strengthening our execution capabilities, defining our future
strategy and transforming into a more agile, client centric
business that will ultimately deliver profitable cash-backed
growth.
Over the last
few weeks, I have spent time embedding myself within the
organisation, meeting with stakeholders, the leadership team and
colleagues around the world to better understand the strengths of
Capita today and where there are opportunities to create value in
the
future.
It is clear
that Capita is at an exciting point in its journey with attractive
offerings in many segments, client satisfaction scores we can be
proud of and a very talented and diverse workforce. Capita has a
rich client base with multifaceted and deep relationships. I'm
pleased to see that we have high quality people across the
organisation who understand how to deliver complex services and are
passionate and committed to our clients and their
needs.
The evolving
digital landscape (automation and generative AI) pose both a
challenge and an opportunity that we intend to take advantage of in
order to deliver better, more efficient services to our
clients. Through our
partnership with technology hyperscalers we will co-create and
innovate solutions that solve our clients' needs for today and the
future.
As we take the
company to the next stage of its evolution, we have challenges we
need to tackle. Our immediate focus is to deliver a rapid
improvement in the financial performance of the business and, in
particular, to realise our goal of sustainable positive free cash
flow
generation.
To win in our
marketplace, we must ensure: our cost base is appropriate for the
size of our business; our clients are advocates for Capita; we
deliver and execute with precision; and, importantly, our
colleagues throughout the Group are aligned with our vision, can
grow their careers with Capita and are proud to be part of our
organisation.
We need to grow
our revenue by acquiring new clients and expanding our
relationships with existing clients. But this revenue growth must
generate an appropriate cash-backed financial return. Key to this
is maintaining our contract bidding discipline and ensuring we
execute for our clients with precision when it comes to delivery.
We recognise that we will also need to curtail some existing
activities that do not deliver this objective. To this end, we are
conducting a review of our operations to help us identify these
particular activities and an implementation plan to ensure
continuity for our clients and their
customers.
Over the next
few months, I will work with the Board, my leadership team and our
colleagues across the organisation to develop a clear roadmap
to:
-
Define and
refine Capita’s formula for winning in its
markets;
-
Ensure we
deliver efficiently and effectively for our clients each and every
time;
-
Expand our
current services to capture greater economic value from our core
business;
-
Identify
opportunities where we can work with partners to develop and
deliver technology solutions that will create cost efficiencies and
a better customer
experience;
-
Enhance
productivity through standardisation, replication and better use of
tools and
data;
-
Rally our
leadership team, motivate our colleagues and evolve our culture;
and
-
Embrace the
changes we need to deliver on our
objectives.
I am planning
to set out our vision, strategy and associated medium-term
financial and non-financial targets in detail at a Capital Markets
Day in June
2024.
The rest of
this CEO report summarises what has been achieved across the
business in 2023. I’d like to thank my new colleagues for their
hard work, dedication and professionalism through what has been a
challenging year for many. I am very much looking forward to
leading Capita on the next stage of its
journey.
Summary of
achievements in
2023
As a Group, we
continue to put our clients and their customers first. Our customer
net promoter score (cNPS) remains strong at +16 (+25, excluding the
pensions administration business where a number of clients were
impacted by the cyber incident in March
2023). While this is a ten-point reduction from 2022, it
remains a creditable performance bearing in mind the impact of the
cyber
incident.
During 2023, we
focused on creating a compelling working environment and meaningful
careers for our colleagues across every geography and saw positive
improvements in employee engagement, inclusion and wellbeing
scores.
Our financial
performance for the year was not where it needed to be. Revenue
growth, profit margins and free cash flow remain behind our peers.
We are committed to delivering a financial performance that enables
us to achieve our goal of delivering sustainable positive free cash
flow over the medium
term.
Despite
significant rationalisation over the past few years, our cost base
is too high. In November 2023, the
Group announced that it had launched a significant cost reduction
programme expected to deliver annualised cost savings of £60m from
Q1 2024. We have identified further material efficiency
improvements which are essential to ensuring our competitive
position in the market and during the remainder of 2024 we will be
taking steps to realise a further £100m of annualised cost savings
by mid 2025. A proportion of these further savings will be
reinvested in the business to develop the Group's technology,
service delivery and pricing. We expect to provide further detail
about this at our Capital Markets Day in June
2024.
During 2023,
the Group significantly extended its funding maturity profile. In
June we extended our revolving credit facility to 2026 and in July
we issued £101.9m of US private placement notes with a mixture of
three and five-year maturities. We finalised our c.£500m Portfolio
disposal programme with the announcement of the sale of Fera in
December, a transaction that completed in January
2024.
The Group’s
contract growth momentum across 2023 remained strong. We won
contracts with a total contract value (TCV) of £3,036m, up by £443m
from £2,593m in 2022 and saw a major improvement in the Group’s win
rate for new scopes of work and expansions of existing scopes to
70%, up from 32% in
2022.
Creating better
outcomes for all key stakeholders is Capita’s purpose and is our
licence to operate. It underpins everything we do as a
business.
Our
people
During 2023, we
focused on creating a compelling working environment and meaningful
careers for our colleagues across every geography and saw positive
employee engagement, inclusion and wellbeing
scores.
In 2023, we saw
a major improvement in the Group’s voluntary employee attrition
rate which on a rolling 12-month basis reduced from 30% at the
start of the year to 24% by year end. We implemented specific Group
and local measures to reduce attrition including a Capita-wide
induction programme to improve the employee onboarding process and
a global line manager training programme to ensure consistent
induction experiences. At a divisional level, we increased
communications with all employees via newsletters and divisional
town hall events to improve employees’ sense of
belonging.
Our hybrid,
virtual-first organisation continues to be an important factor in
our ability to attract and retain talent, including in locations
where we do not have a physical office location. In our annual
people survey, 88% of respondents who work from home stated that
the flexible working arrangements are a key motivator for them to
stay with
Capita.
At the end of
2023, we took the difficult decision to withdraw from the UK’s real
living wage. Since 2020, the Group has increased the salaries of
our lowest earners by 22% and the 2024 real living wage increase of
10.1% was not something we could commit to given the need for
Capita to remain cost competitive and that this is not a cost we
are able to pass on to our clients. We continue to apply global
fair pay principles across all geographies to ensure we are able to
attract and retain the colleagues we need to deliver our business
commitments. In the UK, those paid a real living wage previously
will continue to be paid higher than the national minimum
wage.
We have
supported colleagues through the cost-of-living challenges which
each of our geographies has faced this year. In our annual salary
review at the start of 2023, we prioritised salary increases to our
lower earning colleagues with our highest earners asked to forgo a
pay
increase.
Diversity
remains a key focus for the Group and at year end we had 40% female
senior leadership (globally) and 14% ethnic diversity. At year end
our Board was 56% female and our Executive Team at year end was 29%
female, rising to 44% in early 2024. At year end, our Board and
Executive Team were 22% and 14% ethnically diverse
respectively.
In October,
Capita was recognised as one of the top companies for women by
Forbes, ranking 18th out of 400 global companies. This is a
testament to our commitment to diversity, inclusion and equality in
our
workplace.
We continued
with our roll out and embedding of the career path framework (CPF)
in 2023, helping employees across every level and geography in the
organisation build a meaningful, long-lasting career with Capita.
CPF provides clarity about the skills and experience required for
roles across the organisation – and ensures salaries are
benchmarked to appropriate market
rates.
We are building
advocacy in Capita and are focused on ensuring that our people are
proud to work for the organisation. This was evidenced in our
annual people survey, where 84% of respondents said they can be
themselves at work, higher than the global average, while 63%
stated they feel proud to work for Capita, lower than the global
average and something we are working to
improve.
We continue to
support community initiatives to help the most disadvantaged and
vulnerable in society. Globally, colleagues completed almost 21,000
hours of volunteering, nearly three times the hours completed last
year. We were pleased to retain our status as a gold award employer
under the Armed Forces
Covenant.
Cyber
incident
In March 2023, a threat actor gained unauthorised
access to certain of our systems which caused disruption to client
services in some parts of our business. We worked closely and at
speed with specialist advisers and forensic experts to investigate
and resolve the
incident.
Based on the
forensic work performed, we confirmed that some data had been
exfiltrated during the incident. Consequently, we took extensive
steps in the immediate period after the incident to recover and
secure the exfiltrated data. We continue to monitor the dark web
and can confirm that we have seen no evidence, subsequent to our
recovery activities, that any of the exfiltrated data is in
circulation there or elsewhere in the online environment. As a
precautionary measure, we offered a 12 month subscription to
Identity Plus, a monitoring service provided by UK credit reference
agency Experian. Our investigation is now complete and all affected
clients, suppliers and employees are in the process of being
contacted and we continue to support those whose data was
exfiltrated.
As a result of
the incident, we incurred net costs of £25m, comprising specialist
professional fees, recovery and remediation costs and investment to
reinforce Capita’s cyber security
environment.
We have
accelerated our previously planned investment to improve our cyber
security maturity which has improved and is subject to external
audit with reference to the National Institute of Standards and
Technology cyber security
framework.
The incident
was a challenging experience for the Group, and we have taken steps
to share our experience and learnings transparently with our
clients, suppliers and other companies and plan to continue this
good practice in the future. Since the incident we have continued
to see good contract growth momentum with a 17% increase in TCV
secured in
2023.
Growth
The Group’s
contract growth momentum across 2023 remained strong. We won
contracts with a TCV of £3,036m, up £443m from £2,593m in 2022.
There was a particularly strong performance in Public Service,
where a number of deals previously scheduled to close in 2022 were
delayed into 2023. While a number of these contracts have now been
signed, the delays affected the division’s revenue growth in
2023.
The book to
bill ratio for the Group remains above 1.0x at 1.1x, with 1.3x in
Public Service and 0.9x in Experience. As we look to build our
revenue growth, maintaining this metric above 1.0x is a
priority.
We saw a major
improvement in the Group’s win rate for new scopes of work and
expansions of existing scopes to 70%, up from 32% in 2022.
Significant new scopes of work in Experience include: the Civil
Service Pension Scheme, which will start in 2025; the City of London Police, which will begin later
in 2024; and the National Transport Authority of Ireland and Santander, which have now
commenced. In Public Service, the Group won material expanded
scopes of work with the Department for Work and Pensions to deliver
Functional Assessment Service (FAS) and the Department for
Education delivering Disabled Students Allowance
(DSA).
Despite our
strong TCV performance, revenue growth continues to be impacted by
previously announced contract losses, including the Co-operative
Bank contract in Experience and in Local Public Service.
Consistent with our drive to
ensure all contracts are bid at an appropriate margin, we saw a
reduction in the Group's contract renewal rate to 52% from 96% in
2022. This decrease reflected the loss of the administration of the
Teachers’ Pension Scheme contract in Experience and the Electronic
Monitoring Service and Standards and Testing Agency (STA) contracts
in Public Service, all of which were lost on price and which will
have a dampening impact on revenue growth. Material renewals
secured in 2023 include Virgin Media O2 and the extension of the
Recruiting Partnering Project (RPP) contract with the British
Army.
Reflecting the
strong TCV performance across 2023 and increased rigour across the
qualification process, the unweighted pipeline for 2024 is at a
lower level than at the start of 2023, with a total unweighted
pipeline of £10,381m. Material contracts within the pipeline
include opportunities with the Department for Work and Pensions,
the Ministry of Defence, and a number of contracts within our
International Markets in
Experience.
In February 2024, Experience secured an extension
and expansion with an existing client in the European telecoms
business worth
£220m.
At
31 December 2023, the Group’s order book was £5,883m, an
increase of £77m from 31 December 2022 with £2,417m order book
additions, indexation and scope changes, offset by £2,101m revenue
recognised and a £239m reduction from business disposals and
contract
terminations.
Operational
delivery
Throughout
2023, we continued to maintain our focus on operational delivery
for clients. By striving to deliver well for our clients and
getting it right first time, we should reduce excess cost and avoid
financial penalties. While we have made progress in this area,
there is still work to do. We will be building on what has been
achieved to date through strengthening and standardising our
operational
processes.
Our cNPS
remains strong at +16 (+25,
excluding the pensions administration business where a number of
clients were impacted by the cyber incident in
March).
Within the cNPS
survey, our promoters spoke highly of our employees, citing the
knowledge and relationships with the teams they work with at Capita
and the quality of services delivered. However, we also received
feedback from some clients around project delay and delivery issues
and comments suggesting that certain teams could be more agile in
service delivery. We will focus on improving in these areas in
2024, in line with our goal of ensuring we deliver efficiently and
effectively for our clients each and every
time.
Our KPI
performance across 2023 remained above 90% in both divisions. Where
KPI performance was not met at any point over the year, for example
in respect of the particularly challenging 99.7% of exam scripts
marked and returned in our contract for the STA, and recruitment
targets in the RPP we are implementing specific remediation action
to ensure we meet the high standards Capita expects to
deliver.
Notable
achievements across the contract portfolio in 2023,
included:
-
Within Public
Service, on our Royal Navy training contract, we met our final
milestones as set out in the original contract, concluding the
transition of multiple legacy
contracts.
-
On the Job
Entry Target Support contract in Scotland, we completed more than 200% of the
targeted number of job starts across the contract
period.
-
Within the
Experience division, on our Virgin Media O2 contract, we
significantly increased the size of our offshore delivery team,
with 1,000 full-time employees added, providing additional
optionality to the client to service customers with digital
enablement.
-
Within the
Energy & Utilities vertical of Experience, we successfully
delivered a significant step-up in available hours around peak
demand in Q4 to ensure efficient outcomes for clients and their
customers.
As we move into
2024, we are focused on delivering the complex transition and
mobilisation requirements of our new contracts with the
City of London Police, DSA and
National Transport Authority
Ireland.
Consistently
delivering for our clients is the cornerstone of our success.
Effective, efficient client delivery and getting it right first
time, reduce excess cost and allow us to grow
revenue.
Digital
transformation and artificial
intelligence
We are taking a
measured approach to artificial intelligence (AI) and generative AI
(gen AI), working with our clients and partners to deliver
effective and efficient solutions as the technology continues to
evolve. We expect that gen AI will allow us to be more productive
and offer our clients superior
solutions.
We plan to
turbo charge our relationships with a number of trusted hyperscale
partners, including Microsoft, AWS, Salesforce and ServiceNow. We
also plan to partner to develop and deliver solutions across a
wider span, creating a more digital Capita, delivering an efficient
and higher quality service and experience for our clients and their
customers.
We have already
integrated digital and AI solutions into a range of clients. For
example in the Public Service division, we have utilised a new
Metaverse virtual reality tool for submarine qualification training
within the Royal Navy. This modernised solution improves the
learning experience and enables better trained submariners to be on
the front line
faster.
Within the
Experience division, AI and gen AI will augment our agents, upskill
our people, provide critical information quickly, and enable our
people to be more competent and capable, which will in turn deliver
better customer experiences. AI has been implemented in the
division across a number of contracts in four key capability areas:
chatbot/conversation AI; conversation analysis; data observatory
and analytics; and correspondence
digitisation.
We are
continuing to develop further AI and gen AI pilots across both
divisions, for example on our BBC and Transport for London
contracts.
Cost
efficiency
In November 2023, the Group announced it had
commenced employee redundancy programmes expected to deliver an
annualised £60m of cost savings from Q1 2024. The organisational
changes that we have implemented primarily affected around 900
indirect support function and overhead
roles.
We have
identified further material efficiency improvements which are
essential to ensuring our competitive position in the market and
during the remainder of 2024 we will be taking steps to realise a
further £100m of annualised cost savings by mid 2025, which will be
partially reinvested in growth. We expect to provide further detail
on this at our Capital Markets Day in June
2024.
Our property
footprint continues to reduce as we benefit from our virtual first
working model. We are targeting savings by managing capacity around
demand for office spaces across our geographies. We permanently
closed 19 properties and consolidated a further 14 during 2023.
This year we reduced the square footage of our total property
portfolio by a further
9%.
The total
footprint of the Group’s property portfolio has now reduced by 31%
in the last three years. The IFRS 16 lease liability associated
with our property portfolio reduced by £30m across 2023, reflecting
the continued reduction in our leased property
estate.
Financial
results - revenue and results before
tax
Adjusted
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 Co-operative
Bank in Experience and in our Local Public Service business in the
Public Service
division.
Reported
revenue declined by 7% to £2,814.6m as core business growth was
more than offset by the disposal of non-core
businesses.
Adjusted profit
before 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 March 2023 cyber
incident.
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 December
2023, we announced the sale of Fera, our joint venture with
DEFRA which completed in January
2024, realising gross proceeds of £62m (£51m net proceeds,
after cash held by Fera at completion and disposal
costs).
Net financial
debt (pre-IFRS 16) was £182.1m (2022: £84.9m) reflecting the free
cash outflow which more than offset the net proceeds realised on
disposals. Proforma net financial debt (pre-IFRS 16) including the
Fera net cash proceeds at 31 December
2023 would have been £132.0m, resulting in a year-end
leverage of 0.9x1 had the sale been completed in
2023.
Net debt,
including the impact of property leases accounted for under IFRS 16
was £545.5m in 2023 (2022: £482.4m), reflecting the free cash
outflow across the year. Our IFRS 16 lease liability has reduced to
£363.4m from £397.5m, as we continue to optimise our property
footprint.
We
significantly extended our funding maturity profile in 2023 through
the extension of the Group's revolving credit facility to 2026 and
issuance of £101.9m equivalent of US private placement notes with a
mixture of three and five-year
maturities.
Outlook
Capita has a
significant impact on the lives of citizens and we understand the
importance of our impact on society. While we still have work to do
to complete the turnaround of the Group, we have made good progress
over the last few years and are committed to improving our
operations across the board in 2024 and
beyond.
We will develop
our offerings and drive operating efficiency by leveraging
technology and through the cost reduction programmes being
implemented in 2024. Through rigorous project management we will be
focused on delivering complex client requirements on time and
budget.
For 2024, as a
whole, on an adjusted basis, we currently expect that revenue will
be broadly in line with 2023, and that operating profit margin and
free cash flow will show modest improvement year on
year.
We expect the
Public Service division to deliver revenue growth in 2024
reflecting the significant contracts won in 2023 moving into their
operational phase later this year whereas we expect the Experience
division to show a reduction in revenue reflecting the
non-recurrence of 2023’s closed book Life & Pensions commercial
settlement coupled with ongoing revenue attrition in the rest of
the Life & Pensions
business.
Notwithstanding
our revenue expectations, the cost reduction programmes being
implemented in 2024 are expected to result in a modest improvement
in adjusted operating profit margins and free cash flow, albeit in
the latter case, the cash flow benefit in the year will be reduced
as a result of the redundancy and other costs required to deliver
the cost reduction
programmes.
We will be
setting out our vision, strategy and associated medium-term targets
in detail at a Capital Markets Day in June
2024.
-
Refer to
alternative performance measures (APMs) in the
Appendix.
-
From
1 January 2023 free cash flow and free cash flow excluding
business exits are presented after deducting the capital element of
lease payments and receipts. Comparative amounts have been
re-presented.
Divisional
performance
review
The following
divisional financial performance is presented on an
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 UK
Government.
Markets and
growth
drivers
In 2024, the
division changed its structure to focus on three market verticals:
Local Public Service; Central Government; and Defence, Fire,
Security & Learning with these market verticals delivering to
their respective client
groups.
Our current
core addressable SITS market is c.£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 UK Government’s focus
on digital enablement, as it looks to ensure the delivery of
high-quality, cost-effective services to its
citizens.
In 2022, the UK
Government published the Roadmap for Digital and Data outlining its
intention to spend up to an additional £8bn by 2025 to accelerate
digital, data and technology transformation so that it can better
respond to future macroeconomic
challenges.
Public Service
operates within a highly fragmented market. Across the varied
services that it delivers we operate against a number of other
providers including, but not limited to: Atos, G4S, Sopra Steria,
CGI, TCS, Serco, Accenture and
Maximus.
Strategy and
digital
transformation
Public Service
is seen as a trusted delivery partner by its clients, with a
high-quality offering and deep sector process knowledge in our
chosen market
verticals.
The division is
focused on working with trusted technology partners such as
Microsoft and AWS to harness digital ways of working and accelerate
the transformation of our services, leveraging AI alongside the
skills and capabilities of our people. We develop solutions around
client needs and are progressing a number of digital proof of
concepts where we’ve aligned digital transformation to future
growth
opportunities.
We have
continued to simplify our operating model, removing organisational
layers to improve efficiency and effectiveness across the division.
We launched a second client advisory board in the Central
Government sector, in addition to the previously established
Defence client advisory board, to improve our understanding of
Government bid processes and delivery priorities to help us become
an even more effective service
provider.
We continue to
invest in our coverage on Government frameworks, through which
companies are able to bid for Government contracts. We are included
on a wide range of frameworks representing market access of up to
£9.5bn including frameworks with the Crown Commercial Service, the
Department for Work and Pensions and the
NHS.
Looking
forward, there is a significant growth opportunity to be the
partner of choice – to drive efficiency, where the UK Government
requires more cost-effective and efficient delivery solutions as
the Public Sector invests more widely in digital, data and
technology
transformation.
Growth
performance and key
wins
Public Service
won contracts with a TCV of £1,924m in 2023 (2022: £1,223m), a
year-on-year increase of 57%. The TCV performance was in part
driven by a small number of material contracts where award dates
moved from 2022 into 2023, following a number of changes within the
UK Government in 2022. The book to bill ratio for the year was
1.3x.
At 31 December 2023, the total unweighted pipeline
for the division was £7,525m, a decrease of £333m from 2022
reflecting the anomalously high balance at the end of 2022
resulting from the award slippages noted above. The year end
weighted pipeline was £1,266m (2022:
£1,652m).
The division
saw an improved win rate on new and expanded scopes at 78% from 53%
in 2022. New scopes of work include City
of London Police and expansions include those with the
Department for Work and Pensions to deliver Functional Assessment
Service (FAS) and the Disabled Students Allowance (DSA) contract
for the Department for
Education.
The renewal
rate for the division reduced to 41% in the year from 91%,
principally reflecting the loss of the Electronic Monitoring and
Standards and Testing Agency contracts as the division maintained
its pricing discipline. Material renewals in the year included with
the British Army on the Recruiting Partnering Project. Across all
opportunities bid for, the win rate was 65% (2022:
66%).
The order book
at 31 December was £3,546m, an increase of £561m since
31 December 2022, reflecting the strong TCV performance in the
year.
Operational
excellence and cost
efficiency
The division’s
operational delivery across the year has been good, with an average
in-month KPI performance of 94%. The division’s standalone cNPS
decreased six points to an overall score of +27, which remains
competitive.
Operational
highlights across the year
included:
-
Delivery of the
remaining service commencement dates on the Royal Navy training
contract. We have now delivered all milestones under the original
contract and continue to expand our scope on this
contract;
-
Completion of
more than 200% of the targeted number of job starts across the
contract period on the Job Entry Target Support contract in
Scotland;
-
Supporting
major events in London, including
the King’s coronation, the London Marathon and London Pride, as
part of our Transport for London
contract;
and
-
In our
Electranet business, over 1,000 projects were delivered across
2023, including defence secure Wi-Fi infrastructure across 130
military
sites.
Our consistent
delivery performance continues to drive expansions of existing
scopes with clients such as with the Department for Work and
Pensions, Transport for London and
the Royal
Navy.
Financial
performance
Divisional financial
summary |
2023 |
2022 |
%
change |
Adjusted
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 Royal Navy training contract and additional volumes on the
Personal Independence Payments contract offset by contract losses
and hand-backs in Local Public Services, with this vertical 14%
down year on
year.
Adjusted
operating 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.
-
Refer to
alternative performance measures (APMs) in the
Appendix.
-
TechMarketView.
Experience
Experience is
one of Europe’s leading customer experience businesses. It is the
market leader in the UK2 and ranks fourth in
Germany2 and
Europe2.
Markets and
growth
drivers
The division is
structured around four market sectors: Financial Services;
Telecoms, Media & Technology; Energy & Utilities; and
Retail (including charities). We have strong industry expertise and
presence, with clients in the UK, Ireland, Germany and Switzerland, and services delivered across
these geographies and in India,
South Africa, Poland and Bulgaria. We operate in markets where we have
a strong track record and where we see potential for
growth.
The European
customer experience market is worth $33bn a year2 and the market is
expected to grow at approximately 4% per annum2. The
outsourced element of the global customer experience market
represents around 30% of the overall
market2.
We are the
largest provider of customer experience services in the UK and
Ireland, with a market share of
around 13%. Our competitors are mostly global and include entities
such as Teleperformance, Concentrix & Webhelp, Tata Consulting
Services and
Foundever.
The customer
experience market is trending to self-service with increasing
levels of automation for less complex services. Increasingly
clients are looking to use omnichannel offerings in a number of
languages with agents working in onshore, nearshore and offshore
locations.
Strategy and
digital
transformation
The Experience
division is a customer experience business driven by data and
technology powered by people, delivering services through a client
centric environment. We operate as a leading regional player with
global quality standards, and an ambition to become the partner of
choice for companies in our chosen
geographies.
The division’s
core activity is the provision of cost-effective customer
experience contact centres, delivering services including voice and
non voice; end-to-end customer management; collections; and sales
and retention. Our services are supported by a wide range of
capabilities, including conversational AI and real time feedback
and automation to ensure customers get the best outcomes,
efficiently. We equip and empower our colleagues across all our
geographies to deliver to the highest level of service for our
clients and their
customers.
Within the
customer experience market, as technology plays a bigger role in
delivery, we have seen an increase in volumes through our automated
delivery methods such as chat bots. We are leveraging technology to
enhance the effectiveness and efficiency of our customer facing
colleagues, particularly for complex customer experience activities
such as sales as a
service.
We operate in a
number of geographies which offer service delivery optionality to
suit client needs. In 2023, we expanded our capability in
South Africa, India and Poland, which together enable us to offer
flexible 24/7 delivery to our clients, across their chosen delivery
methods. We also expanded our Bulgarian operations, particularly in
support of the Telecoms, Media & Technology vertical. In 2024,
we will further expand our operations in Bulgaria and Poland opening additional offices in both
geographies, expanding our multilingual capabilities and offerings
to clients.
We are
exploring opportunities in other nearshore international locations
to underpin our growth ambitions and expansion of our existing
client base. This allows flexibility to use onshore, nearshore or
offshore delivery models when it comes to delivering our clients'
service
requirements.
Growth
performance and key
wins
In 2023, the
division won TCV of £1,112m, a decrease of £258m from 2022. The
division's book to bill ratio was 0.9x. Material wins in the year
included contracts for the Civil Service Pension Scheme, National
Transport Authority Ireland, and Santander, as well as a key
renewal with Virgin Media
O2.
At 31 December 2023, the division’s unweighted
pipeline was £2,856m, a decrease of £1,226m from 2022. The weighted
pipeline at 31 December 2023 stood at
£560m (2022: £1,114m) and, following the sales success achieved in
2023, we are devoting significant resources to growing our pipeline
of opportunities, particularly for new and expanded scopes of
work.
The renewal win
rate reduced to 61% from 99% in the prior year principally
reflecting the outcome of the Teachers’ Pension Scheme contract
tender process where we continued to maintain our commercial
discipline. Our win rate for the division across all opportunities
was 57%, up from 51% in
2022.
At the start of
2024, the division secured an extension and expansion with an
existing client in the European telecoms business worth
£220m.
The order book
at year end was £2,299m, a decrease of £227m since 31 December
2022, reflecting the fact that the Virgin Media O2 contract is a
framework agreement not meeting the accounting criteria for order
book
recognition.
Operational
excellence and cost
efficiency
Across the
year, Experience has continued to deliver well operationally for
clients with an average KPI delivery of 94%, excluding the pensions
administration business. The average KPI delivery including the
pensions administration business was 82%. The division’s cNPS
decreased by 11 points to +10 with the reduction largely in the
pensions administration business which was heavily impacted by the
cyber incident. Excluding the pensions administration business, the
division’s cNPS was +24, a three-point reduction from 2022, with a
strong performance in account management and subject matter
expertise.
In 2023, we
focused on cost efficiency and right sizing of the business and are
continuing to drive this efficiency programme as we progress into
2024.
In the
Telecoms, Media & Technology vertical, we saw success in the
year selling the services of our customers through peak sales
periods. For one client, Capita employees sold more during Black
Friday trading promotions than the telecoms provider’s own
employees. Within the Energy & Utilities vertical, we
successfully delivered a significant step up in available hours
around peak demand in Q4 to ensure efficient outcomes for clients
and their
customers.
Elsewhere, in
the European Telecoms business we were selected as sole provider of
one of our key client’s customer experience activities reflecting
our consistently strong operational
delivery.
As expected, we
have seen volume attrition within our closed book Life &
Pensions business in the Financial Services vertical. We maintain
our strong operational delivery in respect of these closed book
contracts, but are actively engaged in discussions to resolve the
challenges in this area with a view to mitigating the ongoing cash
cost from the
business.
Financial
performance
Divisional financial
summary |
2023 |
2022 |
%
change |
Adjusted
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 Co-operative
Bank.
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 Virgin
Media O2
contract.
Outlook
We expect a low
to mid-single digit percentage revenue reduction in 2024 reflecting
the non-repeat of the one-off revenue benefit in 2023 and ongoing
attrition in the closed book Life & Pensions
business.
We expect
operating margins in 2024 to be broadly flat year on year as cost
efficiencies offset the non-recurrence of the profit benefit from
2023’s commercial
settlement.
-
Refer to
alternative performance measures (APMs) in the
Appendix.
-
NelsonHall.
Chief Financial
Officer's
review
This
preliminary announcement is extracted from Capita's financial
statements for the year ended 31 December 2023 and the basis
of its preparation can be found in the notes to the financial
statements in this
announcement.
Overview
Adjusted
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 Northern Ireland,
which in 2022 benefited from the teachers' laptop contract.
Experience revenue growth was driven by improved trading in its
international business, indexation and the one-off benefit relating
to a commercial settlement in the closed book Life & Pensions
business, partly offset by contract losses including with the
Co-operative
Bank.
The 13.5%
step-up in adjusted profit before 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 March 2023 cyber incident (£25.3m), costs
incurred to deliver the significant cost reduction programme
announced in November 2023 (£54.4m)
and lower gains on the sale of businesses (2023: loss £2.4m; 2022:
gain £166.9m). These negative year-on-year impacts were partially
offset by the increase in adjusted profit before tax1
(£6.7m) and lower goodwill impairment (2023: £42.2m; 2022:
£169.0m).
The reduction
from reported basic earnings per share to a reported loss per share
reflects the reduction in reported profit before tax noted above,
compounded by the swing from a reported income tax credit to an
income tax charge. The reported income tax charge in 2023 reflects
changes in the accounting estimate of recognised deferred tax
assets, unrecognised current year tax losses and non-deductible
goodwill impairment. The reported tax credit in the prior period
reflected an increase in the recognised deferred tax
asset.
Cash generated
from operations excluding business 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
31 December 2023 was an outflow of £115.5m (2022: outflow
£42.4m). This reflects the reduction in cash generated from
operations and increased capital expenditure from technology
investment across the
Group.
The decrease in
free cash 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, PageOne, Enforcement, Software, and Travel businesses,
realising total proceeds net of disposal costs of £96.8m (including
settlement of intercompany balances on completion) with net cash
proceeds of £63.4m reflecting the cash held in the disposed
entities on completion. On 4 December
2023, we announced the disposal of the Group’s 75%
shareholding in Fera Science Limited (Fera), realising gross
proceeds of £62m. The Group received net cash proceeds of £51m
reflecting the total proceeds less cash held in the entity when the
disposal completed on 17 January
2024, and disposal
costs.
These disposals
completed the Board-approved Portfolio c.£500m business disposal
programme. The Group is using the proceeds from this disposal
programme to repay debt, to make further deficit reduction
contributions to the Group’s defined benefit pension scheme and to
invest in driving growth in the remaining core businesses. In 2023,
we repaid £112.5m of private placement loan notes and made pension
deficit contributions of £46.3m (£30.0m regular contributions and
£16.3m acceleration of agreed contributions triggered by
disposals).
We have
incurred costs associated with the cyber incident detailed in the
Chief Executive Officer’s Review. These costs comprise specialist
professional fees, recovery and remediation costs and acceleration
of investment to reinforce Capita’s cyber security environment. A
charge of £25.3m has been recognised in the year ended
31 December 2023 and has been excluded from adjusted profit.
This excludes any potential insurance recovery as this had not yet
met the criteria for recognition at the year end. The cash outflow
in respect of the cyber incident in the year was £20.1m which is
included within free cash flow and cash generated from operations
excluding business
exits1.
We announced
the implementation of a cost reduction programme in November 2023 which is expected to deliver
annualised efficiencies of £60m from Q1 2024. Following the
announcement, we commenced employee consultation programmes, and
exited a number of leased properties. As a result, a charge of
£54.4m has been recognised in the year ended 31 December 2023.
As noted in November 2023, we have
continued to evaluate additional cost saving opportunities and have
identified further efficiency actions which we intend to take and
which are expected to deliver an additional £100m of annualised
cost savings by mid 2025. We expect to reinvest a proportion of
these further savings back into the business to enhance the Group’s
technology, service delivery and pricing
proposition.
The Group’s
committed bank facilities provide liquidity for the cash
fluctuations of the business cycle and an allowance for
contingencies. In June 2023, the
Group’s revolving credit facility (RCF) was extended to
31 December 2026 at £284m, reducing to £250m by 1 January
2025 as a consequence of specified transactions. As such at
31 December 2023 the RCF commitment had been reduced to
£260.7m (2022: £288.4m) and was subsequently reduced to £250.0m on
23 January 2024 following receipt of
proceeds from the Fera disposal. The RCF was not drawn upon at
31 December 2023 (2022:
undrawn).
In July 2023 the Group issued £101.9m equivalent of
US private placement loan notes across three tranches: £50m
maturing 25 July 2026, USD45m
maturing 25 July 2026 and USD23m
maturing 25 July
2028.
The RCF
extension and private placement loan note issuance are a
demonstration of debt providers' confidence in Capita and have
enabled us to extend significantly the average maturity of our debt
funding.
The Group
reached agreement with the Trustees of the Group’s main pension
scheme (the Scheme), in respect of the March
2023 triennial funding review. Given the healthy funding
position of the Scheme, the 2023 agreement does not require any
further deficit contributions from the Group other than those
already committed as part of the 2020 triennial valuation. In
accordance with the 2020 agreement, we have paid £30.0m of regular
deficit contributions and £16.3m of contributions triggered by
business disposals in 2023 and will pay a further £21m of
contributions in 2024, with no further deficit contributions in
2025 and
beyond.
Summary of
financial
performance
Financial
highlights |
|
Reported
results |
Adjusted1
results |
|
31 December
2023 |
31 December
2022 |
Reported
YoY
change |
31 December
2023 |
31 December
2022 |
Adjusted1
YoY
change |
Revenue |
£2,814.6m |
£3,014.6m |
(6.6)% |
£2,642.1m |
£2,609.0m |
1.3% |
Operating
(loss)/profit |
£(52.0)m |
£(79.6)m |
35% |
£106.5m |
£78.0m |
37% |
EBITDA |
£144.5m |
£235.7m |
(39)% |
£214.6m |
£204.4m |
5% |
(Loss)/profit before
tax |
£(106.6)m |
£61.4m |
n/a |
£56.5m |
£49.8m |
14% |
Basic
(loss)/earnings per
share |
(10.60p) |
4.47p |
n/a |
1.70p |
2.64p |
(36)% |
Operating cash
flow* |
£81.2m |
£156.4m |
(48)% |
£97.4m |
£128.4m |
(24)% |
Cash generated
from
operations* |
£8.7m |
£117.8m |
(93)% |
£41.2m |
£98.4m |
(58)% |
Free cash
flow*,2 |
£(154.9)m |
£(31.5)m |
(392)% |
£(115.5)m |
£(42.4)m |
(172)% |
Net
debt |
£(545.5)m |
£(482.4)m |
£(63.1)m |
£(545.5)m |
£(482.4)m |
£(63.1)m |
Net financial
debt (pre-IFRS
16) |
£(182.1)m |
£(84.9)m |
£(97.2)m |
£(182.1)m |
£(84.9)m |
£(97.2)m |
*
Adjusted operating cash flow, cash generated from operations and
free cash flow exclude the impact of business exits (refer to
note 9).
Adjusted
results
Capita reports
results on an adjusted basis to aid understanding of business
performance. The Board has adopted a policy of disclosing
separately those items that it considers are outside the underlying
operating results for the particular period under review and
against which the Group’s performance is assessed internally. In
the directors’ judgement, these items need to be disclosed
separately by virtue of their nature, size and/or incidence for
users of the financial statements to obtain an understanding of the
financial information and the underlying in-period performance of
the business. In general, the Board believes that alternative
performance measures (APMs) are useful for investors because they
provide further clarity and transparency of the Group’s financial
performance and are closely monitored by management to evaluate the
Group’s operating performance to facilitate financial, strategic
and operating
decisions.
Following
feedback from investors, the Board has revised its definition of
free cash flow1 and free cash flow excluding business
exits1 alternative
performance measures. From 1 January 2023, both these metrics
have been presented after deducting the capital element of lease
payments and receipts, as this provides a more relevant and
comparable measure of the cash generated by the Group’s operations
and available to fund operations, capital expenditure, non-lease
debt obligations, and potential dividends. Comparative amounts have
been
re-presented.
In accordance
with the above policy, the trading results of business exits, along
with the non-trading expenses (including the income statement
charges in respect of major cost reduction programmes) and gain or
loss on disposals, have been excluded from adjusted results. To
enable a like-for-like comparison of adjusted results, the 2022
comparatives have been re-presented to exclude 2023 business exits.
As at 31 December 2023, the following businesses met this
threshold and were classified as business exits and therefore
excluded from adjusted results in both 2023 and 2022: AMT Sybex,
Secure Solutions and Services, the Speciality Insurance business,
Trustmarque, Real Estate and Infrastructure Consultancy, Optima
Legal Services, Pay360, Capita Translation and Interpreting,
Resourcing, Security Watchdog, PageOne, Software, Enforcement,
Travel and
Fera.
Reconciliations
between adjusted and reported operating profit, profit before tax
and free cash flow before business exits are provided on the
following pages and in the notes to the financial
statements.
Adjusted
revenue
Adjusted revenue1 bridge by
division |
Public
Service
£m |
Experience
£m |
Total
£m |
Year ended
31 December
2022 |
1,454.8 |
1,154.2 |
2,609.0 |
Net
growth |
3.8 |
29.3 |
33.1 |
Year ended
31 December
2023 |
1,458.6 |
1,183.5 |
2,642.1 |
Adjusted
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 in
Northern Ireland in 2022;
and
-
Experience
(2.5% growth):
growth was
driven by improved international trading, indexation, and the
one-off benefit relating to a commercial settlement in the closed
book Life & Pensions business, partly offset by contract
losses, primarily the loss of the Co-operative Bank
contract.
Order
book
The Group’s
consolidated order book was £5,882.6m at 31 December 2023
(2022: £5,805.2m). Additions from contract wins, scope changes and
indexation in 2023 totalled £2,417.5m. This includes in Experience
new wins with the Civil Service Pension Scheme and the National
Transport Authority of Ireland, as
well as the renewal with Vattenfall. Public Service won new
contracts including the Functional Assessment Service for the
Department of Work and Pensions and a significant contract with the
City of London Police, as well as
an extension to the Recruiting Partnering Project with the British
Army and expanded scope on the Transport for London contract. These additions were offset
by the reduction from revenue recognised in the year (£2,101.0m),
contract terminations (£174.7m) and business disposals
(£64.4m).
The Group’s
order book does not include those contracts which are framework
agreements such as the new Virgin Media O2 contract as these do not
meet the accounting criteria for order book
recognition.
Adjusted profit
before
tax
Adjusted profit before tax1 bridge by
division |
Public
Service
£m |
Experience
£m |
Capita
plc
£m |
Total
£m |
Year ended
31 December
2022 |
93.7 |
35.7 |
(79.6) |
49.8 |
Net
growth/(reduction) |
(4.4) |
15.2 |
(4.1) |
6.7 |
Year ended
31 December
2023 |
89.3 |
50.9 |
(83.7) |
56.5 |
Adjusted profit
before 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 the
Co-operative Bank and continued attrition in the remaining Life
& Pensions business;
and
-
Capita
plc: the impact of
the reallocation of central costs previously allocated to Capita
Portfolio to Capita plc in 2022, increased financing cost and the
non-recurrence of gains on investments in
2022.
Adjusted tax
charge/(credit)
The adjusted
income tax charge for the year was £31.1m (2022: £4.4m) including
£30.4m of current tax (2022: £6.4m). There is a current tax credit
arising on pension deficit contributions recognised in other
comprehensive income (OCI) rather than the income statement. If the
current tax that is flowing through OCI is taken into account, the
total current charge is more closely aligned to the current tax
payable in respect of the
year.
Cash generated
from operations and free cash
flow
Adjusted operating profit to free cash flow
excluding business
exits1,2 |
2023
£m |
2022 £m |
Adjusted
operating
profit1 |
106.5 |
78.0 |
Add:
depreciation/amortisation and impairment of property, plant and
equipment, right-of-use assets and intangible
assets |
108.1 |
126.4 |
Adjusted
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
31 December 2023 was an outflow of £115.5m (2022: outflow
£42.4m). This reflects the reduction in cash generated from
operations and increased capital expenditure on technology across
the
Group.
Reported
results
Adjusted to
reported
profit
As noted above,
to aid understanding of our underlying performance, adjusted
operating 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
intangibles |
|
(0.2) |
(5.1) |
|
(0.2) |
(5.1) |
Impairment of
goodwill |
|
(42.2) |
(169.0) |
|
(42.2) |
(169.0) |
Net
finance
costs/(income) |
|
— |
— |
|
(2.2) |
3.4 |
Business
exits |
|
(36.4) |
16.5 |
|
(38.8) |
182.3 |
Cyber
incident |
|
(25.3) |
— |
|
(25.3) |
— |
Cost reduction
programme |
|
(54.4) |
— |
|
(54.4) |
— |
|
|
|
|
|
|
|
Reported |
|
(52.0) |
(79.6) |
|
(106.6) |
61.4 |
Impairment of
goodwill
In preparing
its half yearly condensed consolidated financial statements at
30 June 2023, and these consolidated
financial statements at 31 December 2023, the Group undertook
detailed impairment
reviews.
At 30 June
2023 a goodwill impairment of £42.2m was recognised. This
comprised:
-
£35.3m: in
respect of CGUs in the Group's Portfolio division where the
disposal processes of the businesses aligned to these CGUs were
sufficiently advanced that the Board's judgement was that for
impairment testing purposes the value in use of these CGUs should
be determined based on the future cash flows of the CGUs from
continuing use, up to the estimated date of disposal, plus an
estimate of the sale proceeds less cost of disposal. The
impairments arose primarily due to the expectation of acquirers
factoring in additional investment and costs required to run the
businesses outside the Group, and general macroeconomic conditions;
and
-
£6.9m: in
respect of a business in the Business Solutions group of CGUs in
Portfolio. The impairment arose primarily due to a negotiated exit
of an end customer, which has negatively impacted the forecast
financial performance of the
business.
At
31 December 2023, no further goodwill impairment was
identified.
Refer to
note 11 for further
details.
Business
exits
Business exits
include the effects of businesses that have been disposed of or
exited during the period and the results of businesses held for
sale at the balance sheet
date.
In accordance
with our policy, the trading results of these businesses, along
with the non-trading expenses and gains/(losses) recognised on
business disposals, were classified as business exits and therefore
excluded from adjusted results. To enable a like-for-like
comparison of adjusted results, the 2022 comparatives have been
re-presented to exclude the 2023 business
exits.
At
31 December 2023 business exits primarily comprised the
following business
disposals:
Business |
Disposal
completed
on |
Resourcing |
31 May
2023 |
Security
Watchdog |
31 May
2023 |
Page
One |
31 July
2023 |
Software |
31 July
2023 |
Enforcement |
31 July
2023 |
Travel |
14 November
2023 |
Fera |
17 January
2024 |
In addition to
the above disposals, the Group decided to exit a small business in
Public Service in the second half of the year, and the trading
result and non-trading expenses of this business have been excluded
from adjusted
results.
Cyber
incident
The Group has
incurred exceptional costs associated with the cyber incident,
reflecting the complexity of the forensic analysis of exfiltrated
data. These costs comprise specialist professional fees, recovery
and remediation costs and investment to reinforce Capita’s cyber
security environment. A charge of £25.3m has been recognised in the
year ended 31 December 2023. This charge excludes any
potential insurance recovery, as this had not yet met the criteria
for recognition at the end of the year, and no provision has been
made for any costs in respect of potential claims or regulatory
penalties in respect of the incident as it is not possible, at this
stage, to reliably estimate their
value.
Further detail
of the specific items charged in arriving at reported operating
profit and profit before tax for 2023 is provided in note
5.
Cost reduction
programme
We announced
the implementation of a major cost reduction programme in
November 2023 which is expected to
deliver annualised efficiencies of £60m from Q1 2024. Following
this announcement, we commenced employee consultation programmes
and exited a number of leased properties. The organisational
changes primarily impacted indirect support function and overhead
roles.
A charge of
£54.4m has been recognised in the year ended 31 December 2023,
comprising £23m of redundancy and other costs, and impairments of
right-of-use assets and property, plant and equipment and
provisions of unavoidable running costs in respect of the property
exits totalling £31m. The cash outflow in 2023 in respect of the
cost reduction programme was £6.1m, which is included within free
cash flow and cash generated from operations excluding business
exits1. The Group continues to evaluate additional cost
saving opportunities and expects to implement further cost
reduction initiatives expected to deliver annualised efficiencies
of £100m by the middle of 2025. These further cost reduction
initiatives are expected to result in a step up in cost reduction
programme cash costs in 2024 from £21m arising from the programme
announced in November 2023 to an
estimated £50m for the overall
programme.
Net finance
costs
Net finance
costs increased by £20.5m to £52.2m (2022: £31.7m), primarily
attributable to the higher interest rate environment and run-off of
low-coupon
debt.
Reported tax
charge/(credit)
The reported
income tax charge for the year of £74.0m (2022: credit £14.6m)
reflects the changes in the accounting estimate of recognised
deferred tax assets, unrecognised current year tax losses and
non-deductible goodwill impairment. The prior period credit
reflected an increase in the recognised deferred tax
asset.
Free cash flow
to free cash flow excluding business
exits
Free cash 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 Pay360 and Capita Translation and Interpreting in the
second half of 2022 and Resourcing in
2023.
Movements in
net
debt
Net debt at
31 December 2023 was £545.5m (2022: £482.4m). The increase in
net debt over the year ended 31 December 2023 reflects the
free cash outflow noted above offset by the continued reduction in
our leased property estate. Net financial debt (pre-IFRS 16) at
31 December 2023 was £182.1m (2022:
£84.9m).
Net
debt |
2023
£m |
2022
£m |
Opening
net
debt |
(482.4) |
(879.8) |
Cash
movement in net
debt |
(9.0) |
438.2 |
Non-cash
movements |
(54.1) |
(40.8) |
Closing net
debt |
(545.5) |
(482.4) |
Remove
closing IFRS 16
impact |
363.4 |
397.5 |
Net
financial debt (pre-IFRS
16) |
(182.1) |
(84.9) |
Cash and
cash equivalents net of
overdrafts |
67.6 |
177.2 |
Financial
debt net of
swaps |
(249.7) |
(262.1) |
Net
financial debt /adjusted 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
31 December 2023, resulting in a net financial debt to
adjusted EBITDA1 (both pre-IFRS 16) ratio of 1.2x. Over
the medium term, the Group is targeting a net financial debt to
adjusted EBITDA1 (both pre-IFRS 16) ratio of ≤1.0x. If
the sale of the Group’s investment in Fera had completed at
31 December 2023, the ratio would have been
0.9x1.
The Group was
compliant with all debt covenants at 31 December
2023.
Capital and
financial risk
management
Liquidity
remains an area of focus for the Group. Financial instruments used
to fund operations and to manage liquidity comprise US private
placement loan notes, revolving credit facility (RCF) and
overdrafts.
Available
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 June 2023, the RCF
was extended to 31 December 2026 at £284m, reducing to £250m
by 1 January 2025 as a consequence of specified transactions.
As such at 31 December 2023 the RCF commitment had been
reduced to £260.7m (2022: £288.4m) and was subsequently reduced to
£250.0m on 23 January 2024 following
receipt of proceeds from the Fera
disposal.
The RCF was not
drawn upon at 31 December 2023 (2022:
undrawn).
In addition,
the Group has in place non-recourse trade receivable financing,
utilisation of which has become economically more favourable than
drawing under the RCF as prevailing interest rates have increased.
As such, the Group has continued its use of the facility across the
year with the value of invoices sold under the facility at
31 December 2023 of £35.2m (2022:
£44.4m).
In July 2023 the Group issued £101.9m equivalent of
US private placement loan notes across three tranches: £50m
maturing 25 July 2026, USD45m
maturing 25 July 2026 and USD23m
maturing 25 July
2028.
In 2023, the
Group repaid £112.5m of private placement loan notes, including
£30.3m of Euro private placement loan notes which were originally
due in 2027, following which the next debt maturity is January
2025.
At
31 December 2023, the Group had £67.6m (2022: £177.2m) of cash
and cash equivalents net of overdrafts, and £262.5m (2022: £285.5m)
of private placement loan notes and fixed-rate bearer
notes.
Going
concern
The Board
closely monitors the Group’s funding position throughout the year,
including compliance with covenants and available facilities to
ensure it has sufficient headroom to fund operations. In addition,
to support the going concern assumption, the Board conducts a
robust assessment of the projections, considering also the
committed facilities available to the
Group.
The Group and
Parent Company continue to adopt the going concern basis in
preparing these consolidated financial statements as set out in
note 1.2(d) of the consolidated financial
statements.
Viability
assessment
The Board's
assessment of viability over the Group’s three-year business
planning time horizon is summarised in the viability
statement.
Pensions
The Group
reached agreement with the Trustees of the Group’s main pension
scheme (the Scheme) in respect of the March
2023 triennial funding review. Given the healthy funding
position of the Scheme, the 2023 agreement does not require any
further deficit recovery contributions from the Group other than
those already committed as part of the 2020 triennial
valuation.
In accordance
with the 2020 agreement, the Group paid £30.0m of regular deficit
funding contributions in 2023 and will pay a further £21m of
contributions in 2024, with no further deficit contributions in
2025 and beyond. In addition, the Group paid £16.3m of accelerated
deficit reduction contributions triggered by the disposal of
certain businesses in the second half of 2022 and in
2023.
The valuation
of the Scheme liabilities (and assumptions used) for funding
purposes (the actuarial valuation) is specific to the circumstances
of the Scheme. It differs from the valuation and assumptions used
for accounting purposes, which are set out in IAS 19 and shown
in these consolidated financial statements. The main difference is
in assumption principles being used which are a result of the
different regulatory requirements of the valuations. Management
estimates that at 31 December 2023 the net asset of the Scheme
on a funding basis (ie the funding assumption principles adopted
for the full actuarial valuation at 31 March
2023 updated for market conditions at 31 December 2023)
was approximately £81.0m (2022: net asset £40.0m) on a technical
provisions basis. The Trustee of the Scheme has also agreed a
secondary more prudent funding target to enable it to reduce the
reliance the Scheme has on the covenant of the Group. On this
basis, at 31 December 2023, the funding level was around 99%
(or a net liability of £6m). The deficit of £6m is expected to be
met by the remaining deficit
contributions.
The net defined
benefit pension position of all reported defined benefit schemes
for accounting purposes decreased from a surplus of £39.6m at
31 December 2022 to a surplus of £26.8m at 31 December
2023. The main reasons for this movement are the reduction in the
discount rate applied to the schemes’ liabilities following the
fall in corporate bond yields in the final quarter of 2023 and
assets returning less than expected over the period, partially
offset by the above deficit funding
contributions.
Consolidated
balance
sheet
At
31 December 2023 the Group’s consolidated net assets were
£114.9m (2022: net assets
£352.7m).
The movement is
predominantly driven by the reported loss before tax for the year
as explained above, the actuarial loss on all reported defined
benefit pension schemes, and the reduction in the amount of
deferred tax assets
recognised.
-
Refer to
alternative performance measures in the
Appendix.
-
From
1 January 2023 free cash flow and free cash flow excluding
business exits are presented after deducting the capital element of
lease payments and receipts. Comparative amounts have been
re-presented
Viability
statement
In accordance
with provision 31 of the UK Corporate Governance Code 2018, the
Board has assessed the viability of the Group and Parent Company
over the three-year period to 31 December
2026, aligned with the period of the Group’s business
planning process. The Board believes that a three-year period
provides sufficient clarity to consider the Group and Parent
Company’s prospects and facilitates the development of a robust
base case set of financial projections against which severe but
plausible downside scenario stress testing can be
conducted.
In its
assessment of the Group's viability, the Board has considered the
following:
-
Adjusted
revenue growth in 2023 of
1.3%.
-
The cost
reduction programmes being implemented during
2024.
-
The completion
of the Portfolio non-core business disposal programme in
January
2024.
-
The repayment
of £113m of financial debt in 2023, with no further repayments
scheduled in
2024.
-
The renewal of
the revolving credit facility in 2023 until 31 December 2026 and the issuance of £101.9m US
private placement debt with a mixture of three and five-year
maturities.
-
Agreement with
the Trustees of the Group’s main defined benefit pension scheme
that no further deficit recovery contributions are required from
the Group in 2025 and
beyond.
The foregoing
elements provide the backdrop to the three-year business plan
approved by the Board in December
2023. The main assumptions underpinning the base case
financial projections in the Group’s business plan are set out
below:
-
Further
adjusted revenue growth beyond 2024 broadly in line with market
trends in each of the two core
divisions.
-
Operating
profit margin expansion over the business plan period reflecting
the benefit of operating leverage coupled with ongoing efficiency
delivery.
-
Delivery of
cost
savings.
-
A transition to
positive free cash flow generation reflecting the above assumptions
and the cessation of pension deficit contributions with effect from
2025.
The most
material assumptions, from a viability assessment perspective,
relate to the continuation of adjusted revenue growth, operating
profit margin expansion, and delivery of cost
savings.
The three-year
base case financial projections were used to assess covenant
compliance and liquidity headroom under different scenarios. This
analysis included assessing the sensitivity of the financial
performance of the Group to changes in trading conditions in line
with those considered in the severe but plausible downside case for
the going concern assessment and from the crystallisation of
specific risks including those set out in the principal risks
section of the 2023 Annual Report and Accounts (refer to section 1
of the consolidated financial
statements).
The risks
applied have not been probability weighted but rather consider the
impact should each risk materialise by applying a ‘more likely than
not’ test. These wide-ranging risks are unlikely to crystallise
simultaneously and there are mitigations under the direct control
of the Group, including reductions in capital investment,
substantially reducing and (or removing in full) bonus and
incentive payments and significantly reducing discretionary spend,
that can be actioned to address a combination of risk
crystallisations that may occur under a severe but plausible
downside. These have been considered in the Board’s viability
assessment.
Reflecting the
Board’s expectations of improving financial performance as set out
above, and its confidence in the Group’s ability to refinance
maturing debt over the viability assessment period, the Board has a
reasonable expectation that the Group and Parent Company will be
able to continue in operation and meet their liabilities as they
fall due over the period of the viability
assessment.
Forward looking
statements
This full-year
results statement is prepared for and addressed only to the
Company's shareholders as a whole and to no other person. The
Company, its Directors, employees, agents and advisers accept and
assume no liability to any person in respect of this trading update
save as would arise under English and Welsh law. Statements
contained in this trading update are based on the knowledge and
information available to Capita’s Directors at the date it was
prepared and therefore facts stated and views expressed may change
after that
date.
This document
and any materials distributed in connection with it may include
forward-looking statements, beliefs or opinions, or statements
concerning risks and uncertainties, including statements with
respect to Capita’s business, financial condition and results of
operations. All statements other than historical facts included in
this announcement may be forward-looking statements. Those
statements and statements which contain the words “plan”, “target”,
“aim”, “continue”, “hope”, “may”, “will”, “would”, “could”,
“should”, “anticipate”, “believe”, “intend”, “estimate”, “expect”
and words of similar meaning, or, in each case, their negative or
other various or comparable terminology, reflect Capita’s
Directors' beliefs and expectations and involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future and which may
cause results and developments to differ materially from those
expressed or implied by those statements and
forecasts.
No
representation is made that any of those statements or forecasts
will come to pass or that any forecast results will be achieved,
and projections are not guarantees of future performance. You are
cautioned not to place any reliance on such statements or
forecasts. Those forward-looking and other statements speak only as
at the date of this trading update. Capita undertakes no obligation
to release any update of, or revisions to, any forward-looking
statements, opinions (which are subject to change without notice)
or any other information or statement contained in this trading
update. Furthermore, past performance cannot be relied on as a
guide to future
performance.
No statement in
this document is intended as a profit forecast or a profit estimate
and no statement in this document should be interpreted to mean
that earnings per Capita share for the current or future financial
years would necessarily match or exceed the historical published
earnings per Capita
share.
Nothing in this
document is intended to constitute an invitation or inducement to
engage in investment activity. This document does not constitute or
form part of any offer for sale or subscription of, or any
solicitation of any offer to purchase or subscribe for, any
securities nor shall it or any part of it nor the fact of its
distribution form the basis of, or be relied on in connection with,
any contract, commitment or investment decision in relation
thereto. This document does not constitute a recommendation
regarding any
securities.
Consolidated
income
statement
For the year
ended 31 December
2023
|
Notes |
2023£m |
2022
£m |
|
|
|
|
Revenue |
4 |
2,814.6 |
3,014.6 |
Cost of
sales |
|
(2,222.5) |
(2,298.6) |
Gross
profit |
|
592.1 |
716.0 |
Administrative
expenses |
|
(644.1) |
(795.6) |
Operating
loss |
4 |
(52.0) |
(79.6) |
Share of results
in associates and investment
gains |
|
— |
5.8 |
Net
finance
expense |
6 |
(52.2) |
(31.7) |
(Loss)/gain on disposal of
businesses |
9 |
(2.4) |
166.9 |
(Loss)/profit before
tax |
|
(106.6) |
61.4 |
Income
tax
(charge)/credit |
7 |
(74.0) |
14.6 |
Total
(loss)/profit for the
year |
|
(180.6) |
76.0 |
Attributable
to: |
|
|
|
Owners of
the Company |
|
(178.1) |
74.8 |
Non-controlling
interests |
|
(2.5) |
1.2 |
|
|
(180.6) |
76.0 |
Earnings
per
share |
8 |
|
|
–
basic |
|
|
(10.60)p |
4.47p |
–
diluted |
|
|
(10.60)p |
4.40p |
|
|
|
|
Adjusted
operating
profit |
5 |
106.5 |
78.0 |
Adjusted
profit before
tax |
5 |
56.5 |
49.8 |
Adjusted
basic earnings per
share |
8 |
1.70p |
2.64p |
Adjusted
diluted earnings per
share |
8 |
1.70p |
2.60p |
Consolidated
statement of comprehensive
income
For the year
ended 31 December
2023
|
|
2023
£m |
2022 £m |
Total
(loss)/profit for the
year |
|
(180.6) |
76.0 |
Other
comprehensive
expense |
|
|
|
Items that will
not be reclassified subsequently to the income
statement |
|
|
|
Actuarial loss on
defined benefit pension
schemes |
|
(68.2) |
(8.9) |
Tax effect on
defined benefit pension
schemes |
|
15.9 |
2.0 |
(Loss)/gain on
fair value of
investments |
|
(0.1) |
0.2 |
|
|
|
|
Items that will
or may be reclassified subsequently to the income
statement |
|
|
|
Exchange
differences on translation of foreign
operations |
|
(2.9) |
(0.6) |
Exchange
differences realised on business
disposals |
|
0.2 |
0.3 |
(Loss)/gain on
cash flow
hedges |
|
(8.5) |
11.5 |
Cash flow hedges
recycled to the income
statement |
|
(2.0) |
(5.1) |
Tax effect on
cash flow
hedges |
|
2.6 |
(1.6) |
|
|
|
|
Other
comprehensive expense for the year net of
tax |
|
(63.0) |
(2.2) |
Total
comprehensive (expense)/income for the year net of
tax |
|
(243.6) |
73.8 |
Attributable
to: |
|
|
|
Owners of the
Company |
|
(241.0) |
72.6 |
Non-controlling
interests |
|
(2.6) |
1.2 |
|
|
(243.6) |
73.8 |
The
accompanying notes are an integral part of these consolidated
financial
statements.
Consolidated
balance
sheet
At
31 December
2023
|
Notes |
2023
£m |
2022 £m |
Non-current
assets |
|
|
|
Property,
plant and
equipment |
|
80.0 |
101.1 |
Intangible
assets |
|
90.0 |
106.0 |
Goodwill |
11 |
495.7 |
605.9 |
Right-of-use
assets |
|
208.5 |
249.5 |
Investments in
associates |
|
0.2 |
0.2 |
Contract
fulfilment
assets |
|
257.0 |
263.0 |
Financial
assets |
|
97.2 |
118.2 |
Deferred tax
assets |
7 |
140.3 |
189.5 |
Employee
benefits |
|
32.7 |
42.7 |
Trade and
other
receivables |
|
12.3 |
15.8 |
|
|
1,413.9 |
1,691.9 |
Current
assets |
|
|
|
Financial
assets |
|
28.1 |
23.6 |
Income tax
receivable |
|
11.6 |
9.9 |
Disposal group
assets held for
sale |
9 |
38.1 |
— |
Trade and other
receivables |
|
350.7 |
430.4 |
Cash |
|
155.4 |
396.8 |
|
|
583.9 |
860.7 |
Total
assets |
|
1,997.8 |
2,552.6 |
Current
liabilities |
|
|
|
Overdrafts |
|
95.0 |
219.6 |
Trade and other
payables |
|
425.9 |
492.5 |
Disposal
group liabilities
held-for-sale |
9 |
9.7 |
— |
Income tax
payable |
|
1.3 |
— |
Deferred
income |
|
501.3 |
585.1 |
Lease
liabilities |
|
51.1 |
55.6 |
Financial
liabilities |
|
10.8 |
84.6 |
Provisions |
12 |
101.6 |
75.7 |
|
|
1,196.7 |
1,513.1 |
Non-current
liabilities |
|
|
|
Trade and
other
payables |
|
8.5 |
15.1 |
Deferred
income |
|
36.2 |
55.6 |
Lease
liabilities |
|
312.3 |
341.9 |
Financial
liabilities |
|
267.5 |
212.6 |
Deferred
tax
liabilities |
7 |
7.2 |
6.9 |
Provisions |
12 |
48.6 |
51.6 |
Employee
benefits |
|
5.9 |
3.1 |
|
|
686.2 |
686.8 |
Total
liabilities |
|
1,882.9 |
2,199.9 |
Net
assets |
|
114.9 |
352.7 |
Capital
and
reserves |
|
|
|
Share
capital |
|
35.2 |
34.8 |
Share
premium |
|
1,145.5 |
1,145.5 |
Employee benefit
trust
shares |
|
(0.7) |
(4.2) |
Capital
redemption
reserve |
|
1.8 |
1.8 |
Other
reserves |
|
(15.0) |
(4.5) |
Retained
deficit |
|
(1,053.8) |
(843.2) |
Equity
attributable to owners of the
Company |
|
113.0 |
330.2 |
Non-controlling
interests |
|
1.9 |
22.5 |
Total
equity |
|
114.9 |
352.7 |
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
Consolidated
statement of changes in
equity
For the year
ended 31 December
2023
|
Share capital £m |
Share premium £m |
Employee benefit
trust shares £m |
Capital redemption reserve £m |
Retained deficit £m |
Other reserves £m |
Total attributable
to
the owners of the
parent £m |
Non-controlling interests £m |
Total (deficit)/equity £m |
At
31 December
2021 |
34.8 |
1,145.5 |
(8.0) |
1.8 |
(890.6) |
(9.0) |
274.5 |
22.0 |
296.5 |
|
|
|
|
|
|
|
|
|
|
Impact of
change in accounting standards – amendments to
IAS 371 |
— |
— |
— |
— |
(21.7) |
— |
(21.7) |
— |
(21.7) |
|
|
|
|
|
|
|
|
|
|
At 1 January
2022 on adoption of
IAS 37 |
34.8 |
1,145.5 |
(8.0) |
1.8 |
(912.3) |
(9.0) |
252.8 |
22.0 |
274.8 |
|
|
|
|
|
|
|
|
|
|
Profit for the
year |
— |
— |
— |
— |
74.8 |
— |
74.8 |
1.2 |
76.0 |
Other
comprehensive
income/(expense) |
— |
— |
— |
— |
(6.7) |
4.5 |
(2.2) |
— |
(2.2) |
Total
comprehensive income for the
year |
— |
— |
— |
— |
68.1 |
4.5 |
72.6 |
1.2 |
73.8 |
|
|
|
|
|
|
|
|
|
|
Share-based
payment net of tax
effects |
— |
— |
— |
— |
5.4 |
— |
5.4 |
— |
5.4 |
Elimination of
non-controlling interest on disposal (note
9) |
— |
— |
— |
— |
— |
— |
— |
(0.3) |
(0.3) |
Exercise
of share options under employee long term incentive
plans |
— |
— |
3.8 |
— |
(3.8) |
— |
— |
— |
— |
Dividends
paid2 |
— |
— |
— |
— |
— |
— |
— |
(0.4) |
(0.4) |
Movement in
put-options held by non-controlling
interests |
— |
— |
— |
— |
(0.6) |
— |
(0.6) |
— |
(0.6) |
|
|
|
|
|
|
|
|
|
|
At
31 December
2022 |
34.8 |
1,145.5 |
(4.2) |
1.8 |
(843.2) |
(4.5) |
330.2 |
22.5 |
352.7 |
|
|
|
|
|
|
|
|
|
|
Loss for the
year |
— |
— |
— |
— |
(178.1) |
— |
(178.1) |
(2.5) |
(180.6) |
Other
comprehensive
expense |
— |
— |
— |
— |
(52.4) |
(10.5) |
(62.9) |
(0.1) |
(63.0) |
Total
comprehensive expense for the
year |
— |
— |
— |
— |
(230.5) |
(10.5) |
(241.0) |
(2.6) |
(243.6) |
|
|
|
|
|
|
|
|
|
|
Share-based
payment net of tax
effects |
— |
— |
— |
— |
5.8 |
— |
5.8 |
— |
5.8 |
Reclassification3 |
— |
— |
— |
— |
15.9 |
— |
15.9 |
(15.9) |
— |
Purchase of
non-controlling
interest |
— |
— |
— |
— |
1.4 |
— |
1.4 |
(1.4) |
— |
Exercise
of share options under employee long term incentive
plans |
— |
— |
3.9 |
— |
(3.9) |
— |
— |
— |
— |
Shares
issued |
0.4 |
— |
(0.4) |
— |
— |
— |
— |
— |
— |
Dividends
paid2 |
— |
— |
— |
— |
— |
— |
— |
(0.7) |
(0.7) |
Movement in
put-options held by non-controlling
interests |
— |
— |
— |
— |
0.7 |
— |
0.7 |
— |
0.7 |
|
|
|
|
|
|
|
|
|
|
At
31 December
2023 |
35.2 |
1,145.5 |
(0.7) |
1.8 |
(1,053.8) |
(15.0) |
113.0 |
1.9 |
114.9 |
-
The Group
initially applied the amendments to IAS 37 on 1 January
2022 and the cumulative effect of applying the amendments was
recognised as an opening balance adjustment to retained
earnings.
-
No dividends
were declared, paid or proposed in 2023 or 2022 on the Parent
Company’s ordinary
shares.
-
During the
current year it was identified that the non-controlling interest
(NCI) proportion of a goodwill impairment charge, which was
recognised in the year ended 31 December 2018, had not been
previously allocated within the result for that year attributable
to NCI. The NCI proportion of the impairment has been reclassified
to the NCI reserve in the current
year.
Share
capital – The balance
classified as share capital is the nominal proceeds on issue of the
Parent Company’s equity share capital, comprising 2 1/15 pence
ordinary
shares.
Share premium
– The amount paid
to the Parent Company by shareholders, in cash or other
consideration, over and above the nominal value of shares issued to
them less issuance
costs.
Employee
benefit trust shares –
Shares held in
the employee benefit trust have no voting rights and no entitlement
to a
dividend.
Capital
redemption reserve –
The Parent
Company can redeem shares by repaying the market value to
shareholders, whereupon the shares are cancelled. Redemption must
be from distributable profits. The Capital redemption reserve
represents the nominal value of the shares
redeemed.
Retained
deficit – Net
(losses)/profits accumulated in the Group after dividends are
paid.
Other reserves
– This consists
of the foreign currency translation reserve deficit of £11.2m
(2022: £8.6m deficit) and the cash flow hedging reserve deficit of
£3.8m (2022: £4.1m
surplus).
Non-controlling
interests (NCI) – This represents
equity in subsidiaries not attributable directly or indirectly to
the Parent Company.
The
accompanying notes are an integral part of these consolidated
financial
statements.
Consolidated
cash flow
statement
For the year
ended 31 December
2023
|
Notes |
2023
£m |
2022 £m |
Cash generated
from
operations |
10 |
8.7 |
117.8 |
Income
tax paid |
|
(7.5) |
(7.9) |
Interest
received |
|
6.2 |
5.0 |
Interest
paid |
|
(47.7) |
(43.0) |
|
|
|
|
Net cash
(outflow)/inflow from operating
activities |
|
(40.3) |
71.9 |
|
|
|
|
Cash
flows from investing
activities |
|
|
|
Purchase of
property, plant and
equipment |
|
(28.8) |
(20.6) |
Purchase
of intangible
assets |
|
(32.8) |
(27.3) |
Proceeds
from sale of property, plant and equipment and intangible
assets |
|
0.1 |
0.5 |
Additions to
investments held at fair value through profit and
loss |
|
— |
(2.4) |
Changes to
investments at fair value through other comprehensive
income |
|
(0.1) |
0.2 |
Capital
element of lease rental
receipts |
|
6.0 |
5.8 |
Deferred
consideration from sale of subsidiary
undertakings |
|
1.9 |
— |
Total proceeds
received from disposal of businesses, net of disposal
costs |
9 |
96.8 |
463.4 |
Cash held by
businesses when
sold |
9 |
(33.4) |
(75.5) |
Net cash
inflow from investing
activities |
|
9.7 |
344.1 |
|
|
|
|
Cash
flows from financing
activities |
|
|
|
Dividends
paid to non-controlling
interests |
|
(0.7) |
(0.4) |
Capital element
of lease rental
payments |
|
(59.1) |
(61.8) |
Proceeds on issue
of private placement loan
notes |
|
103.5 |
— |
Cost of cross
currency
swaps |
|
(1.6) |
— |
Repayment of
private placement loan notes and other
finance |
|
(121.5) |
(237.4) |
Proceeds
from cross-currency interest rate
swaps |
|
8.5 |
10.1 |
Repayment of
credit
facilities |
|
— |
(46.0) |
Debt financing
arrangement
costs |
|
(5.4) |
(5.2) |
|
|
|
|
Net cash
outflow from financing
activities |
|
(76.3) |
(340.7) |
|
|
|
|
(Decrease)/increase in cash and cash
equivalents |
|
(106.9) |
75.3 |
Cash and cash
equivalents at the beginning of the
year |
|
177.2 |
101.5 |
Effect of
exchange rates on cash and cash
equivalents |
|
(2.7) |
0.4 |
|
|
|
|
Cash and
cash equivalents at 31
December |
|
67.6 |
177.2 |
|
|
|
|
Cash and
cash equivalents
comprise: |
|
|
|
Cash |
|
155.4 |
396.8 |
Overdrafts |
|
(95.0) |
(219.6) |
Cash, net of
overdrafts, included in disposal group assets and liabilities held
for
sale |
|
7.2 |
— |
|
|
|
|
Total |
|
67.6 |
177.2 |
|
|
|
|
Cash
generated from operations before business
exits1 |
10 |
41.2 |
98.4 |
Free cash
flow before business
exits1 |
10 |
(115.5) |
(42.4) |
-
From
1 January 2023 free cash flow and free cash flow excluding
business exits are presented after deducting the capital element of
lease payments and receipts. Comparative amounts have been
re-presented.
The
accompanying notes are an integral part of these consolidated
financial
statements.
Notes to the
consolidated financial
statements
For the year
ended 31 December
2023
1.1 Corporate
information
Capita plc
is a public limited company incorporated in England and Wales whose shares are publicly
traded.
These
consolidated financial statements of Capita plc for the year
ended 31 December 2023 were authorised for issue in accordance
with a resolution of the directors on 5 March
2024.
1.2 Basis of
preparation, judgements and estimates, and going
concern
(a) Basis of
preparation
These
consolidated financial statements have been prepared in accordance
with UK-adopted International Financial Reporting Standards (IFRSs)
and the Disclosure and Transparency Rules of the UK's Financial
Conduct
Authority.
These
consolidated financial statements are presented in British pounds
sterling and all values are rounded to the nearest tenth of a
million (£m) except where otherwise
indicated.
These
consolidated financial statements have been prepared by applying
the accounting policies and presentation that were applied in the
preparation of the company’s published consolidated financial
statements for the year ended 31 December
2022.
(b) Adjusted
results
IAS 1
Presentation of Financial Statements permits an entity to present
additional information for specific items to enable users to better
assess the entity’s financial
performance.
The Board has
adopted a policy to disclose separately those items that it
considers are outside the underlying operating results for the
particular year under review and against which the Group’s
performance is assessed internally. In the Board’s judgement, these
need to be disclosed separately by virtue of their nature, size
and/or incidence, for users of the consolidated financial
statements to obtain an understanding of the financial information
and the underlying performance of the Group. In general, the Board
believes that alternative performance measures (APMs) are useful
for investors because they provide further clarity and transparency
of the Group’s financial performance and are closely monitored by
management to evaluate the Group’s operating performance to
facilitate financial, strategic and operating decisions.
Accordingly, these items are also excluded from the discussion of
divisional performance in the strategic report. This policy is kept
under review by the Board and the Audit and Risk
Committee.
Those items
excluded from the adjusted income statement are: business exits;
amortisation and impairment of acquired intangibles; impairment of
goodwill; certain mark-to-market valuation changes that impact net
finance expense/income; the costs associated with the cyber
incident in March 2023, and the costs
associated with the cost reduction programme announced in
November
2023.
The Board
considers free cash flow, and cash generated from operations
excluding business exits, to be alternative performance measures
because these metrics provide a more representative measure of the
sustainable cash flow of the
Group.
Following
feedback from investors the Board has revised its definition of the
free cash flow and free cash flow excluding business exits
alternative performance measures. From 1 January 2023, both
these metrics have been presented after deducting the capital
element of lease payments and receipts, since this provides a more
relevant and comparable measure of the cash generated by the
Group’s operations and available to fund operations, capital
expenditure, non-lease debt obligations, and potential shareholder
distributions.
The
comparatives have been
re-presented.
The Board
considers APMs to be helpful to the reader, but notes that APMs
have certain limitations, including the exclusion of significant
recurring and non-recurring items, and may not be directly
comparable with similarly titled measures presented by other
companies.
A
reconciliation between reported and adjusted operating profit and
profit before tax is provided in note 5, and a reconciliation
between reported cash generated from operations and cash generated
from operations before business exits together with the calculation
of free cash flow as an APM is provided in
note 10.
(c) Judgements
and
estimates
The preparation
of financial statements in accordance with generally accepted
accounting principles requires the directors to make judgements and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the date of the
financial statements and the reported income and expense during the
presented periods. Although these judgements and assumptions are
based on the directors’ best knowledge of the amount, events or
actions, actual results may
differ.
Given the level
of judgement and estimation involved in assessing the future
profitability of contracts, it is reasonably possible that outcomes
within the next financial year may be different from management’s
assumptions and could require a material adjustment to the carrying
amounts of contract assets and, onerous contract
provisions.
The impact of
climate change has been considered in the preparation of these
consolidated financial statements across a number of areas,
including our evaluation of the critical accounting estimates and
assumptions which are consistent with the risks and opportunities
set out in the strategic report in the Annual Report. None of these
risks had a material effect on the critical accounting estimates
and assumptions or on the consolidated financial statements of the
Group.
(d) Going
concern
In determining
the appropriate basis of preparation of the financial statements
for the year ended 31 December 2023, the Board is required to
consider whether the Group and Parent Company can continue in
operational existence for the foreseeable future. The Board has
concluded that it is appropriate to adopt the going concern basis,
having undertaken a rigorous assessment of the financial forecasts,
key uncertainties, sensitivities, and mitigations as set out
below.
Accounting
standards require that ‘the foreseeable future’ for going concern
assessment covers a period of at least twelve months from the date
of approval of these financial statements, although those standards
do not specify how far beyond twelve months a Board should
consider. In its going concern assessment, the Board has considered
the period from the date of approval of these financial statements
to 30 June 2025 (‘the going concern period’), which aligns
with a period end and covenant test date for the Group, and has
also allowed the Board to assess the liquidity impact of the
borrowings that mature in January 2025 and April 2025. There are no
other debt maturities in the period to 30 June
2025.
The base case
financial forecasts used in the going concern assessment are
derived from the 2024-2025 business plans as approved by the Board
in December
2023.
1.2 Basis of
preparation judgements and estimates, and going concern
continued
(d) Going
concern
continued
The going
concern assessment considers the Group’s sources and uses of
liquidity and covenant compliance throughout the period under
review. The value of the Group’s committed revolving credit
facility (RCF) was £260.7m at 31 December 2023 having been
extended to 31 December 2026. The original terms of the RCF
are substantially unchanged. The value was subsequently reduced to
£250m on 23 January 2024 following receipt of proceeds from
the disposal of the Group’s investment in Fera Science
Limited.
In July the
Group issued £101.9m equivalent of new private placement loan notes
across three tranches: £50m maturing 25 July 2026, USD45m
maturing 25 July 2026 and USD23m maturing 25 July 2028,
with an average interest rate of 9.45%. The notes rank pari passu
with the existing indebtedness of the Group and includes financial
covenants determined on the same basis as those under the existing
private placement loan
notes.
Financial
position at 31 December
2023
As detailed
further in the Chief Financial Officer’s review, at
31 December 2023 the Group had net debt of £545.5m (2022:
£482.4m), net financial debt (pre-IFRS 16)1 of £182.1m
(2022: £84.9m), available liquidity1 of £282.3m (2022:
£405.2m) and was in compliance with all debt
covenants.
Board
assessment
Base case
scenario
Under the base
case scenario, the Group’s transformation programme and completion
of the Portfolio non-core business disposal programme in January
2024 has simplified and strengthened the business and facilitates
further efficiency savings enabling sustainable growth in revenue,
profit and cash flow over the medium term. When combined with
available committed facilities, this allows the Group to manage
scheduled debt repayments. The most material sensitivities to the
base case are the risk of not delivering the planned revenue growth
and efficiency savings following the announcement of the Group’s
restructuring
programme.
The base case
projections used for going concern assessment purposes reflect
business disposals completed up to the date of approval of these
financial statements. The liquidity headroom assessment in the base
case projections reflects the Group’s existing committed financing
facilities and debt redemptions and does not reflect any potential
future refinancing. The base case financial forecasts demonstrate
liquidity headroom and compliance with all debt covenant measures
throughout the going concern period to 30 June
2025.
Severe but
plausible downside
scenario
In considering
severe but plausible downside scenarios, the Board has taken
account of the potential adverse financial impacts resulting from
the following
risks:
-
revenue growth
falling materially short of
plan;
-
operating
profit margin expansion not being
achieved;
-
targeted cost
savings delayed or not
delivered;
-
additional
inflationary cost impacts which cannot be passed on to
customers;
-
unforeseen
operational issues leading to contract losses and cash
outflows;
-
volatility in
interest
rates;
-
non-availability of the Group’s non-recourse trade
receivables financing facility;
and
-
unexpected
financial costs linked to incidents such as data breaches and/or
cyber-attacks.
The likelihood
of simultaneous crystallisation of the above risks is considered by
the directors to be low. Nevertheless in the event that
simultaneous crystallisation were to occur, the Group would need to
take action to mitigate the risk of insufficient liquidity and
covenant headroom. In its assessment of going concern, the Board
has considered the mitigations, under the direct control of the
Group, that could be implemented including reductions or delays in
capital investment, and substantially reducing (or removing in
full) bonus and incentive payments. Taking these mitigations into
account, the Group’s financial forecasts, in a severe but plausible
downside scenario, demonstrate sufficient liquidity headroom and
compliance with all debt covenant measures throughout the going
concern period to 30 June
2025.
Adoption of
going concern
basis
Reflecting the
continued benefits from the transformation programme delivered over
the last few years and the Portfolio non-core business disposal
programme completed in January 2024, coupled with the Board's
ability to implement appropriate mitigations should the severe but
plausible downside materialise, the Group continues to adopt the
going concern basis in preparing these consolidated financial
statements. The Board has concluded that the Group and Parent
Company will be able to continue in operation and meet their
liabilities as they fall due over the period to 30 June
2025.
2 Preliminary
announcement
A duly
appointed and authorised committee of the Board of Directors
approved the preliminary announcement on 5 March
2024.
The financial
information set out above does not constitute the Group's
consolidated financial statements for the years ended
31 December 2023 or 2022 but is derived from those financial
statements.
Statutory
accounts for 2022 have been delivered to the Registrar of Companies
and those for 2023 will be delivered in due course. The auditor has
reported on those financial
statements.
Their report
for the accounts of 2023 was (i) unqualified, (ii) did not include
a reference of any matters to which the auditor drew attention by
way of emphasis without modifying their report and (iii) did not
contain a statement under section 498(2) or (3) of the Companies
Act 2006.
Their report
for the accounts of 2022 was (i) unqualified, (ii) did not include
a reference of any matters to which the auditor drew attention by
way of emphasis without modifying their report and (iii) did not
contain a statement under section 498(2) or (3) of the Companies
Act 2006.
Copies of this
announcement can be obtained from the Company's registered office
at 65 Gresham Street, London EC2V 7NQ, or on the Company's
corporate website
www.capita.com/investors.
It is intended
that the Annual Report and Accounts will be posted to shareholders
late March 2024. It will be available to members of the public at
the registered office and on the Company's Corporate website
https://www.capita.com/investors from that
date.
-
Refer to the
alternative performance measures (APMs) in the
Appendix.
3 Contract
accounting
At
31 December 2023, the Group had the following results and
balance sheet items related to long-term
contracts:
|
Notes |
2023
£m |
2022
£m |
|
|
Long-term
contractual
revenue |
4 |
2,104.0 |
2,236.2 |
|
Deferred
income |
|
537.5 |
640.7 |
|
Contract
fulfilment assets
(non-current) |
|
257.0 |
263.0 |
|
Onerous contract
provisions |
|
43.3 |
52.8 |
|
Background
The Group
operates diverse businesses. The majority of the Group’s revenue is
from contracts greater than two years in duration (long-term
contractual), representing 75% of Group revenue in 2023 (2022:
74%).
These long-term
contracts can be complex in nature given the breadth of solutions
the Group offers and the transformational activities involved.
Typically, Capita takes a customer’s process and transforms it into
a more efficient and effective solution which is then operated for
the customer. The outcome is a high quality solution that addresses
a customer’s needs and is delivered consistently over the life of
the contract.
The Group
recognises revenue on long-term contracts as the value is delivered
to the customer, which is generally evenly over the contract term,
regardless of any restructuring and transformation activity
required to deliver the services to the customer. Capita will often
incur greater costs during contract transformation phases with
costs diminishing over time as the target operating model is
implemented and efficiencies realised. This results in lower
profits or losses in the early years of contracts and potentially
higher profits in later years as the transformation activities are
successfully completed and the target operating model fully
implemented (the business as usual (BAU) phase). The inflection
point is when the contract becomes
profitable.
Non-current
contract fulfilment assets are recognised for those costs
qualifying for capitalisation. The utilisation of these assets is
recognised over the contract term. The timing of cash receipts from
customers typically matches when the costs are incurred to
transform, restructure and run the service. This results in income
being deferred and released when the Group delivers against its
obligations to provide services and solutions to its
customers.
Assessing
contract
profitability
In assessing a
contract’s future lifetime profitability, management must estimate
forecast revenue and costs to both transform and run the service
over the remaining contract term. The ability to accurately
forecast the outcomes involves estimates in respect of: costs to be
incurred; cost savings to be achieved; future performance against
any contract-specific key performance indicators (KPIs) that could
trigger variable consideration or service credits; outcome of any
commercial negotiations; and impact of inflation on the cost base
and the indexation of
revenue.
The level of
uncertainty in the estimated future profitability of a contract is
directly related to the stage in the life-cycle of the contract and
the complexity of the performance obligations. Contracts in the
transformation stage are considered to have a higher level of
uncertainty because
of:
-
the ability to
accurately estimate the costs to deliver the transformed
process;
-
the dependency
on the customer to agree to the specifics of the transformation:
for example, where they are involved in certifying that the new
process or, the new technical solution, designed by Capita meets
their specific requirements;
and
-
the assumptions
made to forecast expected savings in the target operating
model.
Those contracts
which are in BAU tend to have a much lower level of uncertainty in
estimating future
profitability.
Recoverability
of non-current contract fulfilment assets and completeness of
onerous contract
provisions
Management
first assesses whether contract assets are impaired and then
further considers whether an onerous contract exists. For half and
full year reporting, the Audit and Risk Committee specifically
reviews the material judgements and estimates, and the overall
approach to this assessment in respect of the Group’s major
contracts, including comparison against previous forecasts. Major
contracts include those that are material in size or risk to the
Group’s results. An assessment of which contracts are major
contracts is performed twice a year, and to enable comparability
the prior period amounts below are re-presented to reflect the same
scope as the current period. Other contracts are reported to the
Audit and Risk Committee as deemed appropriate. These contracts are
collectively referred to as ‘major contracts’ in the remainder of
this note.
The major
contracts contributed £1.1 billion (2022: £1.1 billion) or 42%
(2022: 42%) of Group adjusted revenue. Non-current contract
fulfilment assets at 31 December 2023 were £257.0m (2022:
£263.0m), of which £125.1m (2022: £109.7m) relates to major
contracts with ongoing transformational activities. The remainder
relates to contracts post transformation and includes non-major
contracts.
The major
contracts, both pre- and post-transformation, are rated according
to their financial risk profile, which is linked to the level of
uncertainty over future assumptions. For those that are in the high
and medium rated risk categories the associated non-current
contract fulfilment assets were, in aggregate, £52.8m at
31 December 2023 (2022: £42.2m). The recoverability of these
assets is dependent on no significant adverse change in the key
contract assumptions arising during the next financial year. The
balance of deferred income associated with these contracts was
£109.5m at 31 December 2023 (2022: £116.2m) and is forecast to
be recognised as performance obligations continue to be delivered
over the life of the respective contracts. Onerous contract
provisions associated with these contracts were £37.3m at
31 December 2023 (2022:
£42.5m).
Following these
reviews, and reviews of smaller contracts across the business,
non-current contract fulfilment asset impairments of £3.4m (2022:
£3.8m) were identified and recognised within adjusted cost of
sales, of which £nil (2022: £0.5m) relates to non-current contract
fulfilment assets added during the period, and net onerous contract
provisions of £7.1m (2022: £1.7m) were identified and recognised in
adjusted cost of
sales.
Given the
quantum of the relevant contract assets and liabilities, and the
nature of the estimates noted above, management has concluded it is
reasonably possible, that outcomes within the next financial year
may be different from management’s current assumptions and could
require a material adjustment to the carrying amounts of contract
assets and onerous contract provisions. However, as noted above,
£125.1m of non-current contract fulfilment assets relates to major
contracts with ongoing transformational activities; and, £52.8m of
non-current contract fulfilment assets and £37.3m of onerous
contract provisions relate to the highest and medium rated risk
category. Due to the level of uncertainty, combination of variables
and timing across numerous contracts, it is not practical to
provide a quantitative analysis of the aggregated judgements that
are applied, and management do not believe that disclosing a
potential range of outcomes on a consolidated basis would provide
meaningful information to a user of the financial statements. Due
to commercial sensitivities, the Group does not specifically
disclose the amounts involved in any individual
contract.
3 Contract
accounting
continued
Certain major
transformation contracts have key milestones during the next twelve
months and an inability to meet these key milestones could lead to
reduced profitability and a risk of impairment of the associated
contract assets. These include contracts with the BBC, Transport
for London, Department for Work and Pensions and the City of London
Police.
Additional
information, which does not form part of these consolidated
financial statements, on the results and performance of the
underlying divisions including the outlook on certain contracts is
set out in the divisional performance
review.
4 Revenue and
segmental
information
The Group’s
operations are managed separately according to the nature of the
services provided, with each segment representing a strategic
business division offering a different package of client services
across the markets the Group serves. Capita plc is a reconciling
item and not an operating segment. A description of the service
provision for each segment can be found in the strategic report in
the Annual Report. Inter-segmental pricing is based on set criteria
and is either charged on an arm's length basis or at
cost.
The tables
below present revenue for the Group’s business segments as reported
to the Chief Operating Decision Maker. The Group now comprises two
divisions - Capita Public Service and Capita Experience - following
the completion of the Group’s exit of the non-core businesses in
the Capita Portfolio division. Comparative information has been
re-presented to reflect businesses exited during 2023, and
accordingly the Capita Portfolio division is no longer disclosed as
a division. Comparative information has also been re-presented to
reflect the move of businesses between segments during 2023 to
enable
comparability.
Adjusted
revenue, excluding results from businesses exited in both years
(adjusting items), was £2,642.1m (2022: £2,609.0m), an increase of
1.3% (2022: increase
1.7%).
Year
ended 31 December
2023 |
Notes |
Capita
Public
Service
£m |
Capita
Experience
£m |
Total
adjusted
£m |
Adjusting
items
£m |
Total
reported
£m |
Continuing
operations |
|
|
|
|
|
|
Long-term
contractual |
|
1,206.6 |
875.9 |
2,082.5 |
21.5 |
2,104.0 |
Short-term
contractual |
|
195.9 |
288.4 |
484.3 |
19.1 |
503.4 |
Transactional
(point-in-time) |
|
56.1 |
19.2 |
75.3 |
131.9 |
207.2 |
Total segment
revenue |
|
1,458.6 |
1,183.5 |
2,642.1 |
172.5 |
2,814.6 |
|
|
|
|
|
|
|
Trading
revenue |
|
1,507.9 |
1,221.9 |
2,729.8 |
194.4 |
2,924.2 |
Inter-segment
revenue |
|
(49.3) |
(38.4) |
(87.7) |
(21.9) |
(109.6) |
Total adjusted
segment
revenue |
|
1,458.6 |
1,183.5 |
2,642.1 |
— |
2,642.1 |
Business exits –
trading |
9 |
— |
— |
— |
172.5 |
172.5 |
Total segment
revenue |
|
1,458.6 |
1,183.5 |
2,642.1 |
172.5 |
2,814.6 |
Year
ended 31 December
2022 |
|
|
|
|
|
|
Continuing
operations |
|
|
|
|
|
|
Long-term
contractual |
|
1,166.8 |
987.6 |
2,154.4 |
81.8 |
2,236.2 |
Short-term
contractual |
|
236.8 |
150.5 |
387.3 |
107.5 |
494.8 |
Transactional
(point-in-time) |
|
51.2 |
16.1 |
67.3 |
216.3 |
283.6 |
Total segment
revenue |
|
1,454.8 |
1,154.2 |
2,609.0 |
405.6 |
3,014.6 |
|
|
|
|
|
|
|
Trading
revenue |
|
1,497.0 |
1,194.4 |
2,691.4 |
490.0 |
3,181.4 |
Inter-segment
revenue |
|
(42.2) |
(40.2) |
(82.4) |
(84.4) |
(166.8) |
Total adjusted
segment
revenue |
|
1,454.8 |
1,154.2 |
2,609.0 |
— |
2,609.0 |
Business exits –
trading |
9 |
— |
— |
— |
405.6 |
405.6 |
Total segment
revenue |
|
1,454.8 |
1,154.2 |
2,609.0 |
405.6 |
3,014.6 |
Geographical
location
The Group
generates revenue largely in the UK and Europe. The table below
presents revenue by geographical
location.
|
2023 |
|
2022 |
|
United
Kingdom
£m |
Europe
£m |
Other
£m |
Total
£m |
|
United Kingdom £m |
Europe £m |
Other £m |
Total £m |
Revenue |
2,526.0 |
282.5 |
6.1 |
2,814.6 |
|
2,731.2 |
270.8 |
12.6 |
3,014.6 |
4 Revenue and
segmental information
continued
Order
book
The tables
below show the order book for each division, categorised into
long-term contractual (contracts with length greater than two
years) and short-term contractual (contracts with length
less than two years). The
length of the contract is calculated from the service commencement
date. The figures represent the aggregate amount of currently
contracted transaction price allocated to the performance
obligations that are unsatisfied or partially unsatisfied.
Revenue expected to be recognised upon satisfaction of these
performance obligations is as
follows:
Order book
31 December
2023 |
Capita
Public
Service
£m |
Capita
Experience
£m |
Capita
Portfolio
£m |
Total
£m |
Long-term
contractual |
3,381.1 |
2,111.2 |
— |
5,492.3 |
Short-term
contractual |
164.9 |
188.2 |
37.2 |
390.3 |
Total |
3,546.0 |
2,299.4 |
37.2 |
5,882.6 |
Order
book 31 December
2022 |
Capita Public Service £m |
Capita Experience £m |
Capita Portfolio £m |
Total £m |
Long-term
contractual |
2,916.7 |
2,465.3 |
201.9 |
5,583.9 |
Short-term
contractual |
68.3 |
61.4 |
91.6 |
221.3 |
Total |
2,985.0 |
2,526.7 |
293.5 |
5,805.2 |
The table below
shows the expected timing of revenue to be recognised from
long-term contractual orders at 31 December
2023:
Time bands of expected revenue recognition from
long-term contractual
orders |
Capita
Public
Service
£m |
Capita
Experience
£m |
Total
£m |
< 1
year |
765.2 |
574.2 |
1,339.4 |
1–5
years |
2,155.6 |
1,378.5 |
3,534.1 |
> 5
years |
460.3 |
158.5 |
618.8 |
Total |
3,381.1 |
2,111.2 |
5,492.3 |
Prior year
comparative information is not presented for the expected timing of
revenue recognition because it is a forward looking disclosure and
therefore management does not believe that such disclosure provides
meaningful information to a user of the consolidated financial
statements.
The order book
represents the consideration that the Group will be entitled to
receive from customers when the Group satisfies its remaining
performance obligations under the contracts. However, the total
revenue that will be earned by the Group will also include
non-contracted volumetric revenue, future indexation linked to an
external metric, new wins, scope changes, and anticipated contract
extensions. These elements have been excluded from the above tables
because they are not contracted. Additionally, revenue from
contract extensions is excluded from the order book unless they are
pre-priced extensions whereby the Group has a legally binding
obligation to deliver the performance obligations during the
extension period. The total revenue related to pre-priced
extensions included in the tables above amounted to £513.8m (2022:
£577.0m). The amounts presented do not include orders for which
neither party has performed, and each party has the unilateral
right to terminate a wholly unperformed contract without
compensating the other
party.
Of the £5.5
billion (2022: £5.6 billion) revenue to be earned on long-term
contracts, £3.4 billion (2022: £4.2 billion) relates to major
contracts. This amount excludes revenue that will be derived from
frameworks (transactional ‘point-in-time’ contracts),
non-contracted volumetric revenue, non-contracted scope changes and
future unforeseen volume changes from these major contracts, which
together are anticipated to contribute an additional £0.6 billion
(2022: £0.7 billion) of revenue to the Group over the life of these
contracts.
The Group
performs various services for a number of UK Government ministerial
departments and considers these individual ministerial departments
to be separate customers due to the limited economic integration
between each ministerial department. Revenues of £319.8m from one
customer in the Capita Public Service division represented more
than 10% of the Group’s total revenues (2022: no customer
represented more than 10% of the Group’s total
revenues)
In February
2024, the Group extended and expanded its contract with a major
European telecoms provider. The new contract is based on expected
volumes, and therefore treated as a framework contract under IFRS
15. As a result, £365m included in the Capita Experience order book
at 31 December 2023 relating to the previous contract has been
released. The new contract is expected to be worth up to £420m to
2030.
Deferred
income
The Group’s
deferred income balances solely relate to revenue from contracts
with customers. Revenue recognised in the reporting period that was
included in the deferred income balance at the beginning of the
period was £599.0m (2022:
£744.2.m).
Movements in
the deferred income balances were driven by transactions entered
into by the Group in the normal course of business during the
current and prior year, other than the accelerated revenue
recognised of £9.9m which primarily relates to an early termination
of a contract in Capita Experience (2022:
nil).
4 Revenue and
segmental information
continued
Segmental
profit
The table below
presents profit by
segment.
Year ended
31 December
2023 |
Notes |
Capita
Public
Service
£m |
Capita
Experience
£m |
Capita
plc
£m |
Total
adjusted
£m |
Adjusting
items
£m |
Total
reported
£m |
Adjusted
operating
profit |
5 |
89.3 |
50.9 |
(33.7) |
106.5 |
— |
106.5 |
Cost reduction
programme |
|
(7.0) |
(37.3) |
(10.1) |
— |
(54.4) |
(54.4) |
Business exits –
trading |
9 |
— |
— |
— |
— |
(3.4) |
(3.4) |
Total trading
result |
|
82.3 |
13.6 |
(43.8) |
106.5 |
(57.8) |
48.7 |
|
|
|
|
|
|
|
|
Non-trading
items: |
|
|
|
|
|
|
|
Business exits –
non-trading |
9 |
|
|
|
— |
(33.0) |
(33.0) |
Other adjusting
items |
5 |
|
|
|
— |
(67.7) |
(67.7) |
Operating
profit/(loss) |
|
|
|
|
106.5 |
(158.5) |
(52.0) |
|
|
|
|
|
|
|
|
Interest
income |
6 |
|
|
|
|
|
8.7 |
Interest
expense |
6 |
|
|
|
|
|
(60.9) |
Share of results
in associates and investment
gains |
|
|
|
|
|
|
— |
Loss on business
disposal |
9 |
|
|
|
|
|
(2.4) |
Loss before
tax |
|
|
|
|
|
|
(106.6) |
|
|
|
|
|
|
|
|
Supplementary
Information |
|
|
|
|
|
|
|
Depreciation and
amortisation |
|
42.5 |
57.8 |
3.6 |
103.9 |
4.9 |
108.8 |
Impairment of
property, plant and equipment, intangible assets and right-of-use
assets |
1.5 |
2.6 |
0.1 |
4.2 |
23.2 |
27.4 |
Non-current
contract fulfilment assets utilisation, impairment and
derecognition |
|
59.8 |
16.0 |
— |
75.8 |
8.7 |
84.5 |
Onerous contract
provisions |
|
— |
7.1 |
— |
7.1 |
— |
7.1 |
Year
ended31 December
2022 |
Notes |
Capita
Public
Service
£m |
Capita
Experience
£m |
Capita
plc
£m |
Total
adjusted
£m |
Adjusting
items
£m |
Total
reported
£m |
Adjusted
operating
profit |
5 |
93.7 |
35.7 |
(51.4) |
78.0 |
— |
78.0 |
Cost reduction
programme |
|
— |
— |
— |
— |
— |
— |
Business exits –
trading |
9 |
— |
— |
— |
— |
39.7 |
39.7 |
Total trading
result |
|
93.7 |
35.7 |
(51.4) |
78.0 |
39.7 |
117.7 |
|
|
|
|
|
|
|
|
Non-trading
items: |
|
|
|
|
|
|
|
Business exits –
non-trading |
9 |
|
|
|
— |
(23.2) |
(23.2) |
Other adjusting
items |
5 |
|
|
|
— |
(174.1) |
(174.1) |
Operating
profit/(loss) |
|
|
|
|
78.0 |
(157.6) |
(79.6) |
|
|
|
|
|
|
|
|
Interest
income |
6 |
|
|
|
|
|
8.9 |
Interest
expense |
6 |
|
|
|
|
|
(40.6) |
Share of results
in associates and investment
gains |
|
|
|
|
|
|
5.8 |
Gain on business
disposal |
9 |
|
|
|
|
|
166.9 |
Profit before
tax |
|
|
|
|
|
|
61.4 |
|
|
|
|
|
|
|
|
Supplementary
Information |
|
|
|
|
|
|
|
Depreciation and
amortisation |
|
38.2 |
66.5 |
14.6 |
119.3 |
19.1 |
138.4 |
Impairment of
property, plant and equipment, intangible assets and right-of-use
assets |
— |
7.7 |
(0.6) |
7.1 |
0.8 |
7.9 |
Non-current
contract fulfilment assets utilisation, impairment and
derecognition |
|
67.2 |
16.3 |
— |
83.5 |
2.2 |
85.7 |
Onerous contract
provisions |
|
— |
1.7 |
— |
1.7 |
— |
1.7 |
4 Revenue and
segmental information
continued
Geographical
location
The table below
presents the carrying amount of non-current assets (excluding
deferred tax, financial assets and employee benefits) by the
geographical location of those
assets.
|
2023 |
|
2022 |
|
United
Kingdom £m |
Europe
£m |
Other
£m |
Total
£m |
|
United
Kingdom
£m |
Europe
£m |
Other
£m |
Total
£m |
Non-current
assets |
1,112.6 |
14.1 |
17.0 |
1,143.7 |
|
1,320.9 |
11.7 |
8.9 |
1,341.5 |
5 Adjusted
operating profit and adjusted profit before
tax
IAS 1
Presentation of Financial Statements permits an entity to present
additional information for specific items to enable users to better
assess the entity’s financial
performance.
The Board has
adopted a policy to disclose separately those items that it
considers are outside the underlying operating results for the
particular year under review and against which the Group’s
performance is assessed internally. In the Board’s judgement, these
need to be disclosed separately by virtue of their nature, size
and/or incidence, for users of the consolidated financial
statements to obtain an understanding of the financial information
and the underlying performance of the Group. In general, the Board
believes that alternative performance measures (APMs) are useful
for investors because they provide further clarity and transparency
of the Group’s financial performance and are closely monitored by
management to evaluate the Group’s operating performance to
facilitate financial, strategic and operating decisions.
Accordingly, these items are also excluded from the discussion of
divisional performance in the strategic report. This policy is kept
under review by the Board and the Audit and Risk
Committee.
The Board
considers APMs to be helpful to the reader, but notes that APMs
have certain limitations, including the exclusion of significant
recurring and non-recurring items, and may not be directly
comparable with similarly titled measures presented by other
companies.
Those items
excluded from the adjusted income statement are: business exits;
amortisation and impairment of acquired intangibles; impairment of
goodwill; certain mark-to-market valuation changes that impact net
finance expense/income; the costs associated with the cyber
incident in March 2023, and the costs associated with the cost
reduction programme announced in November
2023.
The items below
are excluded from the adjusted
results: |
|
|
Operating
(loss)/profit |
|
|
(Loss)/profit
before
tax |
|
Notes |
2023
£m |
2022
£m |
|
2023
£m |
2022
£m |
Reported |
|
(52.0) |
(79.6) |
|
(106.6) |
61.4 |
|
|
|
|
|
|
|
Amortisation and impairment of acquired
intangibles |
|
0.2 |
5.1 |
|
0.2 |
5.1 |
Impairment of
goodwill |
|
42.2 |
169.0 |
|
42.2 |
169.0 |
Net
finance
costs/(income) |
6 |
— |
— |
|
2.2 |
(3.4) |
Business
exits |
9 |
36.4 |
(16.5) |
|
38.8 |
(182.3) |
Cyber
incident |
|
25.3 |
— |
|
25.3 |
— |
Cost reduction
programme |
|
54.4 |
— |
|
54.4 |
— |
|
|
|
|
|
|
|
Adjusted |
|
106.5 |
78.0 |
|
56.5 |
49.8 |
-
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%).
-
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).
-
The adjusted
operating profit and adjusted profit before tax for 2022 have been
re-presented for the impact of business exits during 2023 and the
change in adjusting items. This has resulted in adjusted operating
profit decreasing from £102.9m to £78.0m and adjusted profit before
tax decreasing from £73.8m to
£49.8m
Amortisation
and impairment of acquired intangible
assets: the Group
recognised acquired intangible amortisation of £0.2m (2022: £5.1m).
These charges are excluded from the adjusted results of the Group
because they are non-cash items generated from historical
acquisition related activity. The charge is included within
administrative
expenses.
Impairment of
goodwill: the Group
carries on its balance sheet significant balances related to
goodwill. Goodwill is subject to annual impairment testing and any
impairment charges are reported separately because they are
non-cash items generated from historical acquisition related
activity. The charge is included within administrative
expenses.
Net finance
costs: net finance
costs excluded from adjusted profits relate to movements in the
mark-to-market value of forward foreign exchange contracts to cover
anticipated future costs and therefore have no equivalent
offsetting transaction in the accounting records, also refer to
note 6.
Business
exits: the trading
result of businesses exited, or in the process of being exited, and
the gain or loss on disposals are excluded from the Group's
adjusted results. Note 9 provides further detail regarding which
income statement line items are impacted by business
exits.
Cyber
incident: As detailed in
the Chief Financial Officer's review, the Group has incurred
exceptional costs associated with the cyber incident. These costs
comprise specialist professional fees, recovery and remediation
costs and investment to reinforce Capita’s cyber security
environment. A charge of £25.3m has been recognised in the year
ended 31 December 2023, which excludes any potential insurance
receipts because they had not met the criteria for recognition.
Please also refer to note 13 contingent liabilities. The
charge is included within administrative
expenses.
Cost reduction
programme: As detailed in
the Chief Financial Officer’s review, the Group announced the
implementation of a significant cost reduction programme in
November 2023. A charge of £54.4m has been recognised in the year
ended 31 December 2023 for the costs to deliver the cost
reduction programme. This includes redundancy and other costs of
£23m to deliver a significant reduction in indirect support
function and overhead roles, and property related costs of £31m
arising from the associated rationalisation of the Group’s property
estate with impairment of right-of-use assets and property, plant
& equipment, and provisions in respect of onerous property
costs. The charge is included within administrative
expenses.
6 Net finance
costs
The table below shows the composition of net
finance costs, including those excluded from adjusted
profit:
|
|
2023
£m |
2022 £m |
Interest
income |
|
|
|
Interest on
cash |
|
(1.9) |
(1.1) |
Interest on
finance lease
assets |
|
(4.1) |
(4.2) |
Net interest
income on defined benefit pension
schemes |
|
(2.7) |
(3.6) |
Total interest
income |
|
(8.7) |
(8.9) |
|
|
|
|
Interest
expense |
|
|
|
Private
placement loan
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 mark-to-market
value |
|
3.2 |
(3.6) |
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 |
-
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.
-
Fair value
hedge ineffectiveness arises from changes in currency basis, and
the movement in a provision for counterparty risk associated with
the
swaps.
7
Taxation
Income tax
charge
The reported
income tax charge for the period is £74.0m on reported loss before
tax of £106.6m (2022: reported income tax credit of £14.6m on
reported profit of £61.4m), and an adjusted income tax charge for
the period of £31.1m on adjusted profit before tax of £56.5m (2022:
adjusted tax charge of £4.4m on adjusted profit of £49.8m). The
most significant reconciling items, explaining the difference from
the standard UK weighted average corporation tax rate of 23.5% for
the period (2022: 19.0%) are changes in the accounting estimate of
recognised deferred tax assets, unrecognised current year tax
losses carried forward and non-deductible goodwill
impairment.
The forecast
future adjusted effective tax rates, before and assuming no
material changes to tax laws in the jurisdictions in which Capita
operates, are expected to be broadly similar to the UK corporation
tax rate, with an increase for taxable profits in higher tax rate
jurisdictions.
The major
components of the income tax charge/(credit) are set out
below:
|
2023 |
2022 |
Consolidated
income
statement |
Total
reported
£m |
Included
in
adjusted
profit
£m |
Not included
in
adjusted
profit
£m |
Total
reported
£m |
Included
inadjusted
profit1£m |
Not
included inadjusted
profit1£m |
|
|
|
|
|
|
|
Current
income
tax |
|
|
|
|
|
|
Current
income tax
charge |
26.2 |
26.4 |
(0.2) |
14.0 |
7.6 |
6.4 |
Adjustment in respect of prior
years |
4.0 |
4.0 |
— |
(1.2) |
(1.2) |
— |
Deferred
tax |
|
|
|
|
|
|
On
origination and reversal of temporary
differences |
43.9 |
0.8 |
43.1 |
(36.7) |
(11.3) |
(25.4) |
Effect of changes
in tax rate on deferred tax
balances |
(0.4) |
(0.4) |
— |
3.0 |
3.0 |
— |
Adjustment in respect of prior
years |
0.3 |
0.3 |
— |
6.3 |
6.3 |
— |
|
|
|
|
|
|
|
Total
charge/(credit) |
74.0 |
31.1 |
42.9 |
(14.6) |
4.4 |
(19.0) |
1. To enable a
like-for-like comparison of adjusted results, the 2022 comparatives
have been re-presented to exclude the businesses classified as
business exits during 2023 from adjusted profit. Refer to note
9.
Consolidated statement of comprehensive income and
consolidated statement of changes in
equity |
2023
£m |
2022 £m |
Deferred tax
movement on cash flow
hedges |
(2.6) |
1.6 |
Deferred tax
movement in relation to actuarial changes on defined benefit
pension
schemes |
3.3 |
5.2 |
Current income
tax movement on defined benefit pension scheme
contributions |
(19.2) |
(7.2) |
Deferred tax
movement in relation to share-based
payments |
(0.1) |
— |
Current income
tax deduction on the exercise of share
options |
(0.2) |
— |
|
|
|
Total
credit |
(18.8) |
(0.4) |
7 Taxation
continued
The
reconciliation between the total tax charge/(credit) and the
accounting profit multiplied by the UK weighted average corporation
tax rate is as
follows:
|
|
Total
tax |
|
Current
tax |
|
|
2023
£m |
2022 £m |
|
2023
£m |
2022 £m |
(Loss)/profit
before
tax |
|
(106.6) |
61.4 |
|
(106.6) |
61.4 |
Notional
(credit)/charge at UK weighted average corporation tax rate of
23.5% (2022:
19.0%) |
|
(25.1) |
11.7 |
|
(25.1) |
11.7 |
Adjustments in
respect of current income tax of prior
years |
a |
4.0 |
(1.2) |
|
4.0 |
(1.2) |
Adjustments in
respect of deferred tax of prior
years |
b |
0.3 |
6.3 |
|
— |
— |
Non-deductible
expenses/(non-taxable income) –
adjusted |
|
0.2 |
(2.3) |
|
0.2 |
(2.3) |
Non-deductible
expenses – business
exit |
c* |
4.9 |
2.3 |
|
4.9 |
2.3 |
Non-deductible
expenses – specific
items |
|
1.7 |
— |
|
1.7 |
— |
Loss/(profit) on
disposal of
businesses |
d* |
0.6 |
(31.6) |
|
0.6 |
(31.6) |
Non-deductible
goodwill
impairment |
e* |
9.9 |
32.0 |
|
9.9 |
32.0 |
Difference in
rate recognition of temporary
differences |
|
(0.4) |
3.0 |
|
— |
— |
Tax provided on
unremitted
earnings |
f |
0.2 |
1.4 |
|
— |
— |
Attributable to
different tax rates in overseas
jurisdictions |
g |
(4.3) |
0.5 |
|
(2.9) |
0.5 |
Movement in
unrecognised temporary
differences |
|
82.0 |
(36.7) |
|
— |
— |
Fixed asset
temporary
differences |
|
— |
— |
|
5.7 |
6.8 |
Current tax
impact on other temporary
differences |
|
— |
— |
|
(0.4) |
(6.4) |
Carry forward of
losses in current
period |
h |
— |
— |
|
31.6 |
1.0 |
At the effective
total tax rate of (69.4)% (2022: (23.8)%) and the effective current
tax rate of (28.3)% (2022:
20.8%) |
i |
74.0 |
(14.6) |
|
30.2 |
12.8 |
Tax
charge/(credit) reported in the income
statement |
|
74.0 |
(14.6) |
|
30.2 |
12.8 |
* These £15.4m
(2022: £2.7m) of reconciling items relate to the reported tax
charge only, with no impact on the adjusted tax charge. Further
details are given
below.
a The £4.0m
prior year charge adjustment includes: (i) £0.2m for additional
uncertain tax positions provided against; (ii) £0.3m credit which
has a corresponding impact within deferred tax of prior years; and
(iii) a £4.1m charge to adjust for finalisation of submitted tax
returns for which there is no opposite deferred tax credit in
relation to the temporary difference true-up because these are
unrecognised.
b Adjustments
in respect of deferred tax of prior years mainly relate to £0.3m of
charges which have a corresponding impact within current income tax
of prior
years.
c* Business
exit: relates to non-deductible closure costs associated with the
sale of entities. Refer to note 9 for further
details.
d*Relates to
the application of the tax exemption on accounting losses from the
sale of entities. Refer to note 9 for further
details.
e*Relates to
the goodwill impairments as detailed further in
note 11.
f
Movement on the deferred tax liability recognised on the unremitted
earnings of those subsidiaries affected by withholding
taxes.
g Mainly
relates to tax payable at lower rates, eg in the Isle of
Man.
h Relates to
the carry forward of tax losses in the current period, most of
which arise in relation to adjusting items (cost reduction
programme and cyber incident) and deductible pension contributions
in the period.
i
The current tax charge of £30.2m (2022: £12.8m) results in an
effective current tax rate of (28.3)%, which is different from the
UK weighted average statutory rate of tax of 23.5% predominantly
due to: non-deductible goodwill impairment; and unrecognised losses
carried forward. The impact of differing overseas tax rates is
covered in footnote
(g).
Deferred
tax
A change to the
main UK statutory corporation tax rate was substantively enacted on
24 May 2021. The rate applicable from 1 April 2023
increased from 19% to 25%. The net UK deferred tax assets for the
period to 31 December 2023, and the prior period, have been
calculated based on this
rate.
Deferred tax
relates to the
following:
7 Taxation
continued
|
|
Credited/(charged)
to |
|
|
At 1 January £m |
Income
statement
£m |
OCI and
changes
in
equity
£m |
Other
movements2
£m |
At
31 December
£m |
Deferred tax
assets |
|
|
|
|
|
Fixed assets
which qualify for tax
relief |
90.8 |
(1.2) |
— |
(2.4) |
87.2 |
Provisions and
other temporary
differences |
10.5 |
(1.5) |
2.6 |
(0.3) |
11.3 |
Pension
schemes |
5.9 |
(0.6) |
(3.3) |
(0.2) |
1.8 |
Share-based
payments |
1.3 |
0.1 |
0.1 |
— |
1.5 |
Tax
losses1 |
81.4 |
(42.5) |
— |
(2.2) |
36.7 |
|
189.9 |
(45.7) |
(0.6) |
(5.1) |
138.5 |
Jurisdictional
netting |
(0.4) |
|
|
|
1.8 |
Net deferred tax
assets |
189.5 |
(45.7) |
(0.6) |
(5.1) |
140.3 |
|
|
|
|
|
|
Deferred tax
liabilities |
|
|
|
|
|
Acquired
intangibles |
(0.2) |
0.1 |
— |
— |
(0.1) |
Contract
fulfilment
assets |
(2.2) |
2.0 |
— |
— |
(0.2) |
Unremitted
earnings |
(4.9) |
(0.2) |
— |
— |
(5.1) |
|
(7.3) |
1.9 |
— |
— |
(5.4) |
Jurisdictional
netting |
0.4 |
|
|
|
(1.8) |
Net deferred tax
liabilities |
(6.9) |
1.9 |
— |
— |
(7.2) |
|
|
|
|
|
|
Net deferred
tax |
182.6 |
(43.8) |
(0.6) |
(5.1) |
133.1 |
1. Mainly
trading losses available to shelter future profits and deferred
interest.
2. Other
movements includes business
disposals.
The main
movement in the net deferred tax asset is the income statement tax
charge arising on the change in the accounting estimate of deferred
tax.
For the purpose
of recognising deferred tax on the pension scheme surplus,
withholding tax at 35% would apply for any surplus being refunded
to the Group at the end of the life of the scheme. Corporation tax
at 25% would apply for any surplus expected to unwind over the life
of the scheme. Management have concluded that the corporation tax
rate should apply to the recognition of deferred tax on the pension
scheme surplus, reflecting the Group’s intention regarding the
manner of recovery of the
asset.
Deferred tax
assets are recognised only to the extent that it is probable that
future taxable profits will be available against which the assets
can be utilised. The recoverability of deferred tax assets is
supported by the deferred tax liabilities against which the
reversal can be offset and the expected level of future taxable
profits available to offset the assets when they
reverse.
The recognition
of deferred tax assets at 31 December 2023 has been based on
the forecast accounting profits in the 2024-2026 business plans
(BP) approved by the Board. This is the same plan used to derive
forecast cash flows for the goodwill impairment test (refer to note
11). A long-term growth rate of 1.7%, as used for impairment test
purposes, has been applied to the years beyond 2026. A reducing
probability factor has also been applied to future profits for the
potential decrease in reliability of forecasts extrapolated for
later years, such that profits beyond seven years of the balance
sheet date have not been considered probable for the purpose of
assessing deferred tax asset
recognition.
Unused tax
losses make up the majority of the temporary differences available
to be utilised in future periods. These losses mainly arose due to
the historic adoption of IFRS 15, previous Covid-19 related
downward pressures on profits and tax deductible restructuring
costs, and in the current year due to tax deductible cost reduction
programme expenses, cyber costs and pension contributions. Based on
the forecast accounting profits, management have concluded that
some of the deductible temporary differences and unused tax losses
are not recognisable due to uncertainty in their recoverability.
Therefore, there is a decrease in the amounts previously recognised
in respect of deferred tax assets, along with further unrecognised
temporary differences arising during the year. The impact of this
is a charge to the income statement of £45.2m. This is included in
the movement in unrecognised temporary differences of £82.0m in the
tax reconciliation table above, which also includes unrecognised
current year temporary differences (mainly losses) of £36.8m. The
reported income statement charge includes £45.5m change in the
deferred tax asset estimate due to the reduction in future taxable
profits on disposal of taxable subsidiaries, reflected in the tax
arising on business exits (see Note
9).
Deferred tax
asset recognition depends on the reliability of management’s
forecasts and the assumptions that underlie them. Management have
considered the severe but plausible downsides applied to the
base-case projections for assessing going concern and viability, to
gauge sensitivity and identify a reasonable possible alternative
result. This scenario identified a further potential reduction in
recognised deferred tax assets of approximately
£16m.
The Group has
unrecognised tax losses and other temporary differences that are
available for offset against future taxable profits of the
companies in which the losses or other temporary differences arose,
but have not been recognised because their recoverability is
uncertain. The table below shows the amounts split between UK and
non-UK
jurisdictions.
|
2023 £m
Gross
Amount |
2022 £m Gross Amount |
UK: |
|
|
Tax
losses |
628.7 |
332.7 |
Other temporary
timing
differences |
140.2 |
113.9 |
|
768.9 |
446.6 |
Non-UK: |
|
|
Tax
losses |
67.4 |
60.8 |
Other temporary
timing
differences |
11.2 |
11.6 |
|
78.6 |
72.4 |
Total |
847.5 |
519.0 |
7 Taxation
continued
The £328.5m
increase in unrecognised tax losses and other temporary differences
reflects the decrease in the amounts previously recognised in
respect of deferred tax assets, and unrecognised temporary
differences arising during the year due to tax deductible cost
reduction programme expenses, cyber costs and pension
contributions.
Assets have no
time expiry, but some losses are subject to specific loss
restriction rules. £28.8m (2022: £39.9m) of the losses were
incurred by companies acquired by the Group and are not a result of
the Group’s trading
performance.
Dividends
received from subsidiaries are largely exempt from UK tax but may
be subject to dividend withholding taxes levied by the overseas tax
jurisdictions in which the subsidiaries operate. The gross
temporary differences of those subsidiaries affected by such
potential taxes is £48.4m (2022: £58.4m). A deferred tax liability
of £5.1m (2022: £4.9m) has been recognised on the unremitted
earnings of those subsidiaries affected by such potential taxes
because the Group is able to control the timing of reversal and it
is anticipating dividends to be distributed. The earnings remitted
during the year have resulted in a reduction in the closing
deferred tax
liability.
8
Earnings/(loss) per
share
Basic
earnings/(loss) per share are calculated by dividing net profit for
the period attributable to ordinary equity holders of the Parent
Company by the weighted average number of ordinary shares
outstanding during the
year.
Diluted
earnings/(loss) per share are calculated by dividing the net
(loss)/profit for the period attributable to ordinary equity
holders of the Parent Company by the weighted average number of
ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on the
conversion of all the dilutive potential ordinary shares into
ordinary
shares.
|
|
2023 |
2022 |
|
|
pence |
pence |
Basic
earnings/(loss) per
share |
–
reported |
(10.60) |
4.47 |
|
–
adjusted |
1.70 |
2.64 |
Diluted
earnings/(loss) per
share |
–
reported |
(10.60) |
4.40 |
|
–
adjusted |
1.70 |
2.60 |
The following
tables show the earnings and share data used in the basic and
diluted earnings/(loss) per share
calculations:
|
|
2023 |
2022 |
|
|
£m |
£m |
Reported
(loss)/profit before tax for the
period |
|
(106.6) |
61.4 |
Income tax
(charge)/credit |
7 |
(74.0) |
14.6 |
Reported
(loss)/profit for the
period |
|
(180.6) |
76.0 |
Less:
Non-controlling
interest |
|
2.5 |
(1.2) |
Total
(loss)/profit attributable to
shareholders |
|
(178.1) |
74.8 |
|
|
|
|
Adjusted
profit before 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
m |
2022 m |
Weighted average
number of ordinary shares (excluding Employee Benefit Trust shares)
for basic earnings per
share |
1,680.9 |
1,671.7 |
Dilutive
potential ordinary
shares: |
|
|
Employee share
options |
— |
30.0 |
Weighted average
number of ordinary shares (excluding Employee Benefit Trust shares)
adjusted for the effect of
dilution |
1,680.9 |
1,701.7 |
At
31 December 2023 35,795,731 (2022: nil) options were excluded
from the diluted weighted average number of ordinary shares
calculation because their effect would have been anti-dilutive.
Under IAS 33 Earnings per Share, potential ordinary
shares are treated as dilutive when, and only when, their
conversion into ordinary shares would decrease earnings per share
or increase loss per share from continuing
operations.
The earnings
per share figures are calculated based on earnings attributable to
ordinary equity holders of the Parent Company, and therefore
exclude non-controlling interest. The earnings per share is
calculated on a total reported and an adjusted basis. The earnings
per share for business exits and specific items are reconciling
items between total reported and adjusted basic earnings per
share.
There have been
no other transactions involving ordinary shares or potential
ordinary shares between the balance sheet date and the date on
which these consolidated financial statements were authorised for
issue.
9 Business
exits and assets held for
sale
Business
exits
Business exits
are businesses that have been sold, exited during the period, or
are in the process of being sold or exited in accordance with the
Group's strategy. None of these business exits meets the definition
of ‘discontinued operations’ as stipulated by IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations, which requires comparative financial information
to be restated where the relative size of a disposal or business
closure is significant, which is normally understood to mean a
reported
segment.
However, the
trading result of these businesses, non-trading expenses, and any
gain/loss on disposal, have been excluded from adjusted results. To
enable a like-for-like comparison of adjusted results, the 2022
comparatives have been re-presented to exclude the businesses
classified as business exits during
2023.
Assets held for
sale
The Group
classifies a non-current asset (or disposal group) as held for sale
if its carrying amount will be recovered principally through a sale
transaction rather than continued use. For this to be the case, the
asset (or disposal group) must be available for immediate sale in
its present condition subject only to terms that are usual and
customary for sales of such assets (or disposal groups) and its
sale must be highly probable. For the sale to be highly probable,
the appropriate level of management must be committed to a plan to
sell the asset (or disposal group), and an active programme to
locate a buyer and complete the plan must have been initiated.
Further, the asset (or disposal group) must be actively marketed
for sale at a price that is reasonable in relation to its current
fair value, and, the sale should be expected to be completed within
one year from the date of
classification.
Based on the
above requirements, individual businesses will only reach the
criteria to be treated as held for sale when their disposal is seen
to be highly probable, and expected to complete within the
following twelve months. At 31 December 2023 one business (the
Group’s 75% shareholding in Fera Science Limited (Fera)) was deemed
to have met this threshold. At 31 December 2022 no disposals
were deemed to have met this
threshold.
2023 business
exits
Business exits
at 31 December 2023 primarily comprised the following business
disposals:
Business |
|
Disposal
completed
on |
Resourcing |
|
31 May
2023 |
Security
Watchdog |
|
31 May
2023 |
PageOne |
|
31 July
2023 |
Software |
|
31 July
2023 |
Enforcement |
|
31 July
2023 |
Travel |
|
14 November
2023 |
Fera |
|
17 January
2024 |
In addition to
the above disposals, the Group decided to exit a business in Capita
Public Service in the second half of the year, and the trading
result and non-trading expenses of this business have been excluded
from adjusted
results.
|
2023 |
|
2022
(Re-presented)1 |
Income statement
impact |
Trading
£m |
Non-trading
£m |
Total
£m |
Trading
£m |
Non-trading
£m |
Total
£m |
Revenue |
172.5 |
— |
172.5 |
|
405.6 |
— |
405.6 |
Cost of
sales |
(110.7) |
— |
(110.7) |
|
(284.6) |
— |
(284.6) |
Gross
profit |
61.8 |
— |
61.8 |
|
121.0 |
— |
121.0 |
Administrative
expenses |
(65.2) |
(33.0) |
(98.2) |
|
(81.3) |
(23.2) |
(104.5) |
Operating
(loss)/profit |
(3.4) |
(33.0) |
(36.4) |
|
39.7 |
(23.2) |
16.5 |
Net finance
costs |
— |
— |
— |
|
(1.1) |
— |
(1.1) |
(Loss)/gain on
business
disposal |
— |
(2.4) |
(2.4) |
|
— |
166.9 |
166.9 |
(Loss)/profit
before
tax |
(3.4) |
(35.4) |
(38.8) |
|
38.6 |
143.7 |
182.3 |
Taxation |
0.3 |
(43.9) |
(43.6) |
|
(7.3) |
26.0 |
18.7 |
(Loss)/profit
after
tax |
(3.1) |
(79.3) |
(82.4) |
|
31.3 |
169.7 |
201.0 |
-
To enable a
like-for-like comparison of adjusted results, the 2022 comparatives
have been re-presented to include the businesses classified as
business exits during
2023.
Trading revenue
and costs represent the current period trading performance of the
above businesses up to the point of being disposed or exited, and
in the comparative period those businesses disposed of during 2022
(AMT Sybex, Secure Solutions and Services, Trustmarque, Speciality
Insurance, Real estate and infrastructure consultancy, Optima Legal
Services, Pay360, and Capita Translation and
Interpreting).
Trading
expenses primarily comprise payroll costs of £121.0m (2022:
£307.2m), information technology costs of £18.5m (2022: £50.0m),
and the de-recognition of non-current contract fulfilment assets on
the early termination of a customer contract within the business
being exited in Capita Public Service of £8.2m (2022:
£nil).
Non-trading
administrative expenses include: asset impairments of £25.4m (2022:
£nil); disposal project costs of £5.6m (2022: £14.4m); other costs
including staff and redundancy costs of £2.6m (2022: £8.7m); and,
other income of £0.6m (2022: £nil). The asset impairments arising
in 2023 include goodwill within assets held for sale of £18.1m,
property, plant and equipment of £7.1m and right-of-use-assets of
£0.2m.
9 Business
exits and assets held for sale
continued
2023
disposals
During 2023 the
Group disposed of six businesses: Resourcing, Security Watchdog,
PageOne, Software, Enforcement and Travel. During 2022 the Group
disposed of eight businesses: AMT Sybex, Secure Solutions and
Services, Trustmarque, Speciality Insurance, Real estate and
infrastructure consultancy, Optima Legal Services, Pay360 and
Capita Translation and
Interpreting.
The (loss)/gain
arising was determined as
follows:
|
2023
£m |
2022 £m |
Property, plant
and
equipment |
0.3 |
0.2 |
Intangible
assets |
8.6 |
20.4 |
Goodwill |
3.2 |
178.3 |
Right-of-use
assets |
0.2 |
0.2 |
Income tax
recoverable and deferred tax
assets |
0.8 |
7.6 |
Contract
fulfilment
assets |
— |
2.8 |
Trade and other
receivables |
78.6 |
136.6 |
Cash and cash
equivalents |
14.6 |
55.9 |
Disposal
group assets held for
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 |
-
2023 balances
in respect of disposal group assets and liabilities held for sale
relate to three businesses (PageOne, Software and Enforcement) that
were transferred to held for sale on 30 June 2023, and were
subsequently sold on 31 July 2023. 2022 balances relate to three
businesses (AMT Sybex software, Secure Solutions and Services
(SSS), and Speciality Insurance) that were held for sale at 31
December 2021, and were subsequently sold during
2022.
Disposal costs
of £11.0m, relating to businesses disposed of in the year, were
recognised in prior years and are excluded from the above loss on
disposal of
businesses.
9 Business
exits and assets held for sale
continued
Disposal group
assets and liabilities held for
sale
At
31 December 2023, the Fera business was deemed to have met the
threshold to be treated as held for sale (2022: no disposals were
deemed to have met the held for sale
threshold).
|
2023
£m |
2022 £m |
Property, plant
and
equipment |
5.1 |
— |
Goodwill |
15.0 |
— |
Trade and other
receivables |
3.3 |
— |
Accrued
income |
6.1 |
— |
Prepayments |
1.4 |
— |
Cash and cash
equivalents |
7.2 |
— |
|
|
|
Disposal group
assets held for
sale |
38.1 |
— |
|
|
|
Trade and other
payables |
2.1 |
— |
Other taxes and
social
security |
1.6 |
— |
Accruals |
1.8 |
— |
Deferred
income |
3.6 |
— |
Income tax
payable and deferred tax
liabilities |
0.6 |
— |
|
|
|
Disposal group
liabilities held for
sale |
9.7 |
— |
Business exit
cash
flows
Businesses
exited and being exited had a cash generated from operations
outflow of £16.2m (2022: cash inflow of
£28.0m).
10 Cash flow
information
Additional cash
flow
information
|
|
|
2023 |
|
2022 |
|
Notes |
Reported
£m |
Excluding
business
exits2
£m |
Reported
£m |
Excluding
business
exits2
£m |
Cash
flows from operating
activities: |
|
|
|
|
|
Reported
operating
loss |
5 |
(52.0) |
(52.0) |
(79.6) |
(79.6) |
Less: business
exit operating
loss/(profit) |
9 |
— |
36.4 |
— |
(16.5) |
Total operating
loss |
|
(52.0) |
(15.6) |
(79.6) |
(96.1) |
|
|
|
|
|
|
Adjustments for non-cash
items: |
|
|
|
|
|
Depreciation |
|
79.5 |
78.1 |
96.9 |
93.8 |
Amortisation of
intangible
assets |
|
29.3 |
26.0 |
41.5 |
30.6 |
Share-based
payment
expense |
|
5.5 |
5.5 |
5.4 |
5.4 |
Employee
benefits |
|
7.7 |
7.7 |
9.0 |
9.0 |
Loss on sale of
property, plant and equipment and intangible
assets |
|
0.7 |
0.7 |
3.5 |
3.5 |
Amendments and
early terminations of
leases |
|
3.0 |
3.0 |
(4.7) |
(4.7) |
Impairment of
assets held for
sale |
|
18.1 |
— |
— |
— |
Impairment of
non-current
assets |
|
69.6 |
62.3 |
176.9 |
176.1 |
|
|
|
|
|
|
Other
adjustments: |
|
|
|
|
|
Movement in
provisions |
|
23.0 |
15.3 |
(42.1) |
(48.5) |
Pension
deficit
contributions |
|
(46.3) |
(30.0) |
(38.6) |
(30.0) |
Other
contributions into pension
schemes |
|
(9.2) |
(9.2) |
(10.0) |
(10.0) |
|
|
|
|
|
|
Movements
in working
capital: |
|
|
|
|
|
Trade and other
receivables |
|
(30.1) |
(5.6) |
(41.0) |
37.0 |
Non-recourse trade receivables
financing |
|
(9.2) |
(9.2) |
28.0 |
28.0 |
Trade and other
payables |
|
(8.5) |
(6.0) |
84.8 |
20.9 |
VAT
deferral |
|
— |
— |
(14.9) |
(14.9) |
Deferred
income |
|
(77.4) |
(81.8) |
(116.0) |
(122.0) |
Contract
fulfilment assets
(non-current) |
|
5.0 |
— |
18.7 |
20.3 |
|
|
|
|
|
|
Cash
generated from
operations |
|
8.7 |
41.2 |
117.8 |
98.4 |
|
|
|
|
|
|
Adjustments for free cash
flows: |
|
|
|
|
|
Income
tax paid |
|
(7.5) |
(3.6) |
(7.9) |
(10.9) |
Interest
received |
|
6.2 |
6.2 |
5.0 |
5.0 |
Interest
paid |
|
(47.7) |
(47.7) |
(43.0) |
(41.6) |
Net cash
(outflow)/inflow from operating
activities |
|
(40.3) |
(3.9) |
71.9 |
50.9 |
|
|
|
|
|
|
Purchase
of property, plant and
equipment |
|
(28.8) |
(27.4) |
(20.6) |
(11.2) |
Purchase
of intangible
assets |
|
(32.8) |
(31.6) |
(27.3) |
(27.3) |
Proceeds
from sale of property, plant and equipment and intangible
assets |
|
0.1 |
0.1 |
0.5 |
0.5 |
Capital element
of lease rental
receipts |
|
6.0 |
6.0 |
5.8 |
5.8 |
Capital element
of lease rental
payments |
|
(59.1) |
(58.7) |
(61.8) |
(61.1) |
|
|
|
|
|
|
Free cash
flow2 |
|
(154.9) |
(115.5) |
(31.5) |
(42.4) |
-
Definitions of
the alternative performance measures and related Key Performance
Indicators (KPIs) can be found in the
Appendix.
-
From
1 January 2023 free cash flow and free cash flow excluding
business exits are presented after deducting the capital element of
lease payments and receipts. Comparative amounts have been
re-presented.
Cyber
incident: In relation to
the exceptional cyber incident costs referred to in note 5,
the cash outflow during the year ended 31 December 2023 was
£20.1m and is included within free cash flow excluding business
exits, and cash generated from operations excluding business
exits.
Cost reduction
programme: In relation to
the implementation of the cost reduction programme detailed in note
5, the cash outflow during the year ended 31 December 2023 was
£6.1m and is included within free cash flow excluding business
exits, and cash generated from operations excluding business exits.
A further outflow of approximately £21m associated with the
programme announced in November 2023 is expected in
2024.
10 Cash flow
information
continued
Free cash flow
and cash generated from operations (alternative performance
measures - refer to
Appendix)
The Board
considers free cash flow, and cash generated from operations
excluding business exits, to be alternative performance measures
because these metrics provide a more representative measure of the
sustainable cash flow of the
Group.
Following
feedback from investors the Board has revised its definition of the
free cash flow and free cash flow excluding business exits
alternative performance measures. From 1 January 2023, both
these metrics have been presented after deducting the capital
element of lease payments and receipts, since this provides a more
relevant and comparable measure of the cash generated by the
Group’s operations and available to fund operations, capital
expenditure, non-lease debt obligations, and potential shareholder
distributions. Comparative amounts have been
re-presented.
These measures
are analysed
below:
|
Free cash
flow |
Cash generated/(used) by
operations |
|
2023
£m |
2022 £m |
2023
£m |
2022 £m |
Reported
(including business
exits) |
(154.9) |
(31.5) |
8.7 |
117.8 |
Business
exits |
23.1 |
(19.5) |
16.2 |
(28.0) |
Pension deficit
contributions triggered by
disposals |
16.3 |
8.6 |
16.3 |
8.6 |
|
|
|
|
|
Excluding
business
exits |
(115.5) |
(42.4) |
41.2 |
98.4 |
A
reconciliation of net cash flow to movement in net debt is
included below.
Business
exits: the cash flows
of businesses exited, or in the process of being exited, and the
proceeds from disposals, are disclosed outside the adjusted
results. The 2022 results have been re-presented for those
businesses exited, or in the process of being exited, during 2023
to enable comparability of the adjusted
results.
Pension deficit
contributions triggered by
disposals: the Trustee of
the Group’s main defined benefit pension scheme has agreed with the
Group to accelerate the payment of future agreed deficit
contributions on a pound for pound basis in the event of disposal
proceeds being used to fund mandatory prepayments of debt. The
disposal of Pay360 and Capita Translation and Interpreting in the
second half of 2022 and Resourcing in 2023 resulted in accelerated
deficit contributions totalling £16.3m being paid into the Scheme
during 2023. Additionally, as a result of the Trustmarque disposal
in March 2022, a further £14.5m of accelerated deficit
contributions is required by March 2024 (2022: Pension deficit
contributions of £8.6m triggered by: the disposal of the
Trustmarque business which led to accelerated deficit contributions
of £5.9m; and the disposal of the Axelos business in 2021 which led
to accelerated deficit contributions of
£2.7m).
Reconciliation
of net cash flow to movement in net
debt
Year ended
31 December
2023 |
Net debt
at
1
January
£m |
Cash flow
movements
£m |
Total
Non-cash
movement
£m |
Net debt
at
31
December
£m |
Cash, cash
equivalents and
overdrafts |
177.2 |
(106.9) |
(2.7) |
67.6 |
Private placement
loan
notes |
(289.5) |
17.5 |
5.0 |
(267.0) |
Unamortised
transaction costs on debt
issuance |
4.0 |
5.4 |
(4.9) |
4.5 |
Carrying value of
private placement loan
notes |
(285.5) |
22.9 |
0.1 |
(262.5) |
Cross-currency
interest rate
swaps |
24.8 |
(6.9) |
(4.3) |
13.6 |
Fair value of
private placement loan
notes |
(260.7) |
16.0 |
(4.2) |
(248.9) |
Other
finance |
(0.7) |
0.5 |
0.1 |
(0.1) |
Lease
liabilities |
(397.5) |
81.4 |
(47.3) |
(363.4) |
|
|
|
|
|
Total net
liabilities from financing
activities |
(658.9) |
97.9 |
(51.4) |
(612.4) |
Deferred
consideration
payable |
(0.7) |
— |
— |
(0.7) |
|
|
|
|
|
Net
debt |
(482.4) |
(9.0) |
(54.1) |
(545.5) |
Year ended
31 December
2022 |
Net debt at
1
January £m |
Cash
flow movements £m |
Total Non-cash movement £m |
Net debt at
31
December £m |
Cash, cash
equivalents and
overdrafts |
101.5 |
75.3 |
0.4 |
177.2 |
Private
placement loan
notes |
(513.4) |
236.8 |
(12.9) |
(289.5) |
Unamortised
discount on debt
issuance |
(2.1) |
— |
2.1 |
— |
Unamortised
transaction costs on debt
issuance |
2.6 |
5.2 |
(3.8) |
4.0 |
Carrying value of
private placement loan
notes |
(512.9) |
242.0 |
(14.6) |
(285.5) |
Cross-currency interest rate
swaps |
28.0 |
(10.1) |
6.9 |
24.8 |
Fair value of
private placement loan
notes |
(484.9) |
231.9 |
(7.7) |
(260.7) |
Other
finance |
(1.3) |
0.6 |
— |
(0.7) |
Credit
facilities |
(46.0) |
46.0 |
— |
— |
Lease
liabilities |
(448.4) |
84.4 |
(33.5) |
(397.5) |
|
|
|
|
|
Total net
liabilities from financing
activities |
(980.6) |
362.9 |
(41.2) |
(658.9) |
Deferred
consideration
payable |
(0.7) |
— |
— |
(0.7) |
|
|
|
|
|
Net
debt |
(879.8) |
438.2 |
(40.8) |
(482.4) |
Overdrafts
comprise the aggregate value of overdrawn bank account balances
within the Group’s notional interest pooling arrangements. These
aggregate overdrawn amounts are fully offset by surplus balances
within the same notional pooling
arrangements.
At
31 December 2023, the Group’s £260.7m committed revolving
credit facility was undrawn (31 December 2022:
undrawn).
11
Goodwill
|
2023
£m |
2022 £m |
Cost |
|
|
At 1
January |
1,423.3 |
1,676.8 |
Disposal of
businesses |
(199.6) |
(255.0) |
Transfer
to disposal group assets held for
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 |
-
Transfers to
disposal group assets held for sale in the year ended
31 December 2023 includes £49.3m that was transferred at
30 June 2023 and subsequently sold during the second half of
the
year.
Cash-generating
units
Reflecting the
way management exercises oversight and monitors the Group’s
performance, the lowest level at which goodwill is monitored is at
the divisional level for Capita Public Service and Capita
Experience, and at a sub-divisional level for Capita Portfolio. At
31 December 2023, following the disposal, transfer to assets
held for sale or transfer to another division of all the businesses
that were under Capita Portfolio, the Group has two remaining CGUs
or groups of CGUs for the purpose of impairment testing of
goodwill.
Carrying amount
of goodwill allocated to groups of
CGUs:
|
|
|
Capita
Portfolio |
|
CGU |
Capita
Public Service
£m |
Capita
Experience
£m |
People
£m |
Software
£m |
Business
Solutions £m |
Travel
£m |
Fera
£m |
Total
£m |
At 1
January |
284.6 |
209.8 |
1.7 |
36.3 |
21.7 |
36.8 |
15.0 |
605.9 |
Reclassifications |
1.8 |
— |
— |
— |
(1.8) |
— |
— |
— |
Disposal of
businesses |
— |
— |
(1.7) |
— |
— |
(1.5) |
— |
(3.2) |
Transfer
to assets held for
sale1 |
— |
— |
— |
(36.3) |
(13.0) |
— |
(15.0) |
(64.3) |
Impairment –
excluded from adjusted
profit |
— |
— |
— |
— |
(6.9) |
(35.3) |
— |
(42.2) |
Exchange
movement |
— |
(0.5) |
— |
— |
— |
— |
— |
(0.5) |
At
31 December |
286.4 |
209.3 |
— |
— |
— |
— |
— |
495.7 |
-
Transfers to
disposal group assets held for sale in the year ended
31 December 2023 includes £49.3m that was transferred at
30 June 2023 and subsequently sold during the second half of
the
year.
Business
exits
As set out in
note 9, six businesses were fully disposed of during the year.
Goodwill relating to all of these businesses is included within the
Group’s brought forward goodwill balances at 1 January 2023,
and has either been impaired during the course of the year, or
derecognised as part of business
disposals.
The Group’s
shareholding in Fera Science Limited was deemed to have met the
threshold to be treated as held for sale at 31 December 2023,
with goodwill relating to this business (Fera) reclassified to
disposal group assets held for
sale.
One business
within the Capita Public Service division met the criteria to be
treated as a business exit at 31 December 2023, however there
is no goodwill attributable to this
business.
The impairment
test
In undertaking
the annual impairment review, the directors considered both
internal and external sources of information, and any observable
indications that may suggest that the carrying value of goodwill
may be impaired. This included a comparison with the Group’s share
price and market
capitalisation.
The Group’s
impairment test compares the carrying value of each CGU with its
recoverable amount. The recoverable amount of a CGU is the higher
of fair value less cost of disposal, and its value in use. As the
Group implements the Group-wide cost reduction programme announced
in November 2023 and referred to in note 5, and continues to
be committed to evaluating additional cost savings opportunities,
it has been determined that at 31 December 2023, fair value
less costs of disposal will generate the higher recoverable
amount.
The valuation
of CGUs under fair value less costs of disposal assumes that a
third-party acquirer will undertake a similar plan to derive
similar benefits in the business going forward. The enterprise
value of each CGU is dependent on the successful implementation of
the cost reduction
programme.
Fair value less
costs of disposal for each CGU has been estimated using discounted
cash flows. The fair value measurement was categorised as a Level-3
fair value based on the inputs in the valuation technique used. The
costs of disposal have been estimated based on the Groups’
significant disposals in recent
years.
At 30 June
2023, a goodwill impairment of £35.3m was recognised in respect of
the Travel CGU. This impairment arose primarily due to the
expectation of acquirers factoring in additional investment and
costs required to run the businesses outside of the Group, and
general macroeconomic conditions. The Travel CGU was disposed of in
the second half of
2023.
11 Goodwill
continued
In addition, an
impairment of £6.9m was recognised at 30 June 2023 in respect
of a business in the Business Solutions group of CGUs in Capita
Portfolio. Since the disposal process for this business was less
far advanced, the recoverable amount of the CGU, being its
value-in-use, was calculated based on operating the business into
perpetuity. The goodwill impairment arose primarily due to a
negotiated exit of an end customer, which negatively impacted the
forecast financial performance of the business. In the second half
of 2023 this business was moved into the Capita Public Service
division and
CGU.
At
31 December 2023, the estimated recoverable amount of each
remaining Group of CGUs exceeded its respective carrying value. The
key inputs to the calculations are described below, including
changes in market
conditions.
Forecast cash
flows
The cash flow
projections prepared for the impairment test are derived from the
2024-2026 business plans (BP) approved by the Board, which are
prepared on a nominal basis. Key assumptions in the BP include the
delivery of planned revenue growth and the benefits that the cost
reduction programme is anticipated to deliver, in particular in the
Capita Experience CGU given recent past
performance.
The going
concern severe but plausible downside scenarios have taken account
of the potential adverse financial impacts resulting from the
following risks, which include the key assumptions noted
above:
-
revenue growth
falling materially short of
plan;
-
operating
profit margin expansion not being
achieved;
-
targeted cost
savings delayed or not
delivered;
-
additional
inflationary cost impacts which cannot be passed on to
customers;
-
unforeseen
operational issues leading to contract losses and cash outflows;
and
-
unexpected
financial costs linked to incidents such as data breaches and/or
cyber-attacks.
As such, the
below sensitivity analysis includes assessing the impact of these
crystallising on the impairment test
performed.
Other than for
movements in deferred income and contract fulfilment assets, cash
flows are adjusted to exclude working capital movements since the
corresponding balances are not included in the CGU carrying
amount.
Allocation of
central function
costs
The Board has
considered an appropriate methodology to apply when allocating
central function costs. The methodology applied for the 2023
impairment test was aligned to that applied in reporting segmental
performance (refer to note 4). The remaining Group related costs of
Capita plc, which have not been allocated as part of segmental
reporting, are allocated to CGUs for impairment testing purposes
based on 2024 forecast Earnings before Interest, Tax, Depreciation
and Amortisation
(EBITDA).
Long-term
growth
rate
The long-term
growth rate is based on economic growth forecasts by recognised
bodies and this has been applied to forecast cash flows for years
four and five (2027 and 2028) and for the terminal period. The 2023
long-term growth rate is 1.7% (2022:
2.2%).
Discount
rates
Management
estimates discount rates using nominal pre-tax rates of comparator
companies for each CGU or group of CGUs. The discount rates reflect
the latest market assumptions for the risk-free rate, the equity
risk premium and the net cost of debt, and which are all based on
publicly available external
sources.
The table below
presents the pre-tax discount rates applied to the cash flows for
2023 and 2022.
|
Capita Public
Service |
Capita
Experience |
|
2023 |
11.0% |
9.2% |
2022 |
11.8% |
10.4% |
Sensitivity
analysis
The impairment
testing as described is reliant on the reliability of management’s
forecasts and the assumptions that underlie them; and on the
selection of the discount and growth rates to be applied. To gauge
the sensitivity of the result to a change in any one, or
combination of the assumptions that underlie the model, a number of
scenarios were developed to identify the range of reasonably
possible alternatives and measure which CGUs are the most
susceptible to an impairment should the assumptions used be
varied.
The sensitivity
scenarios applied estimate potential impairments required (with all
other variables being equal) through: an increase in discount rate
of 1%, or a decrease of 1% in the long-term growth rate (for the
terminal period) for the Group in total and each of the CGUs; or,
through the severe but plausible downsides applied to the base-case
projections for assessing going concern and viability, without
mitigations, for 2024 to 2026, and the long-term growth rate (1.7%)
applied to the 2026 downside cash flows to generate projected cash
flows for 2027, 2028, and the terminal period. We have also
considered the impact of all of the scenarios together, which is
also a reasonable possible
alternative.
No potential
impairments have been identified under any of these sensitivity
scenarios, including the combination sensitivity
scenario.
Comparison to
share price and market
capitalisation
The company’s
market capitalisation indicates an enterprise value that continues
to be significantly less than the Group’s sum-of-the-parts CGU
valuation based upon the model prepared for impairment testing
purposes at 31 December 2023. The directors gave consideration
as to why this might be the case and the reasonableness of the
assumptions used within the impairment model, and whether these
points could indicate additional indicators of impairment in
respect of the Group’s goodwill
balances.
The factors
considered included: the differing basis of valuations (including
that third parties value the services sector on income statement
multiples versus long-term view using a discounted cash flow for
the basis of impairment testing under accounting standards),
sum-of-the-parts view and the multiples achieved on recent
disposals, general market assumptions of the sector which can
ignore the liquidity profile and specific risks of an entity, and
other specific items impacting the market’s view of the Group at
the moment.
Taking these
points into consideration, the Board are comfortable that there is
no impairment in respect of goodwill to be recognised at
31 December 2023, despite the continuing low market
capitalisation of the
Group.
12
Provisions
|
Cost
reduction provision £m |
Business
exit provision £m |
Claims
and litigation provision £m |
Property provision £m |
Customer contract provision £m |
Other provisions £m |
Total £m |
At 1
January |
— |
10.7 |
17.0 |
18.7 |
73.5 |
7.4 |
127.3 |
Provisions in the
year |
35.6 |
10.6 |
29.9 |
3.9 |
16.5 |
7.5 |
104.0 |
Releases in the
year |
— |
(3.3) |
(3.5) |
(6.3) |
(12.3) |
(2.7) |
(28.1) |
Utilisation |
(6.1) |
(10.2) |
(2.8) |
(7.4) |
(21.4) |
(6.9) |
(54.8) |
Discount unwind
on
provisions |
— |
— |
— |
— |
2.3 |
— |
2.3 |
Transfer
to disposal group liabilities held for
sale1 |
— |
— |
— |
(0.5) |
— |
— |
(0.5) |
Reclassification
between
categories |
— |
— |
0.8 |
(0.6) |
(0.1) |
(0.1) |
— |
|
|
|
|
|
|
|
|
At
31 December |
29.5 |
7.8 |
41.4 |
7.8 |
58.5 |
5.2 |
150.2 |
|
|
|
|
|
|
|
|
|
|
|
|
31 December
2023 £m |
31 December
2022 £m |
Current |
|
|
|
101.6 |
75.7 |
Non-current |
|
|
|
48.6 |
51.6 |
|
|
|
|
|
|
|
|
|
|
150.2 |
127.3 |
-
Transfers to
disposal group assets held for sale in the year ended
31 December 2023 includes £0.5m that was transferred at
30 June 2023 and subsequently sold during the second half of
the
year.
Cost reduction
provision: The provision
represents the cost of reducing headcount where communication to
affected employees has crystallised a valid expectation that roles
are at risk and it is likely to unwind over the next twelve months.
Additionally, it relates to unavoidable running costs of leasehold
properties, such as insurance and security, and dilapidation
provisions, where properties are exited as a result of the cost
reduction programme. These provisions are likely to unwind over
periods of up to four years. Refer to note 5 for further details on
the cost reduction
programme.
Business exit
provision: The provision
relates to the cost of exiting businesses through disposal or
closure including professional fees related to business exits and
the costs of separating the businesses being disposed. These are
likely to unwind over a period of one to four
years.
Claims and
litigation provision:
The Group is
exposed to claims and litigation proceedings arising in the
ordinary course of business. These matters are reassessed regularly
and where obligations are probable and estimable, provisions are
made based on the Group’s best estimate of the expenditure to be
incurred. Due to the nature of these claims, the Group cannot give
an estimate of the period over which this provision will
unwind.
Property
provision: The provision
relates to unavoidable running costs, such as insurance and
security, of leasehold property where the space is vacant or
currently not planned to be used, and dilapidation costs, for
ongoing operations, and not the cost reduction programme detailed
in note 5 (where such costs are included in the cost reduction
provision). The expectation is that this expenditure will be
incurred over the remaining periods of the leases which vary up to
23
years.
Customer
contract provision:
The provision
includes onerous contract provisions in respect of customer
contracts where the costs of fulfilling a contract (both
incremental and costs directly related to contract activities)
exceeds the economic benefits expected to be received under the
contract, claims/obligations associated with missed milestones in
contractual obligations, and other potential exposures related to
contracts with customers. Customer contract life-time reviews are
used to determine the value of an onerous contract provision. The
life-time contract review reflects the forecast of the best
estimate of external revenues and costs over the remaining contract
term. These provisions are forecast to unwind over periods of up to
six
years.
The customer
contract provision includes £53.3m (2022: £59.7m) in respect of
closed book Life & Pensions contracts in Capita Experience. The
closed books and contractual dynamics have led to onerous
conditions to service certain of these contracts. Management has
been required to assess the likely length of these contracts, given
the pattern and experience of contract terminations while also
recognising the evergreen clauses (which potentially allow the
customer to extend the contracts indefinitely until the run-off of
the underlying life and pension books is complete). Accordingly,
the Group has, in prior years, provided for the onerous contract
conditions based on the best estimate of the remaining contract
terms and the period and likely costs to support the final handover
of services. At 31 December 2023, the provision was increased
to provide cover for contracts to extend out to December 2028 (ie a
five year rolling
period).
Other
provisions: Relates to
provisions in respect of other potential exposures arising as a
result of the nature of some of the operations that the Group
provides, including supplier audit and regulatory provisions. These
are likely to unwind over periods of up to five
years.
13 Contingent
liabilities
Contingent
liabilities represent potential future cash outflows which are
either not probable or cannot be measured
reliably.
The Group has
provided, through the normal course of its business, performance
bonds and bank guarantees of £22.5m (2022: £34.0m). At
31 December 2023 there was an additional guarantee of £15m in
relation to the disposed Travel businesses, which has since reduced
to £9.5m in January 2024. Capita plc’s exposure is
counter-indemnified by Clarity Travel
Limited.
The Group is
reviewing its position in respect of a number of its closed book
Life & Pensions contracts. The outcomes and timing of this
review, which are uncertain, could result in no change to the
current position, the continuation of contracts with amended terms
or the termination of contracts. If an operation is terminated, the
Group may incur associated costs, accelerate the recognition of
deferred income or the impairment of contract
assets.
Following the
cyber incident in March 2023 detailed in the Chief Executive
Officer’s Review, Capita has been working closely with all
appropriate regulatory authorities and with customers, suppliers
and employees to notify those affected and take any remaining
necessary steps to address the incident. At the date of approval of
these consolidated financial statements, we remain in dialogue with
the Information Commissioner’s Office (ICO) and are responding to
their information requests. While we anticipate that there will be
further additional requests as part of ICO’s review, no formal
action has been taken by the ICO in connection with the cyber
incident and there have been no preliminary findings regarding
fault that could lead to any potential regulatory penalty. The
Group has received notification of potential claims for damages by
or on behalf of individuals whose data may have been exfiltrated as
part of the incident. At the date of approval of these consolidated
financial statements, the Group has received no substantive claims
in relation to the cyber incident. Whether any such claims will be
received is uncertain, but the Group will vigorously defend any
such claims and, at the date of approval of these financial
statements, it is not possible to reliably estimate the potential
value of any potential future claim or penalty against the
Group.
The Group’s
entities are parties to legal actions and claims which arise in the
normal course of business. The Group needs to apply judgement in
determining the merit of litigation against it and the chances of a
claim successfully being made. It needs to determine the likelihood
of an outflow of economic benefits occurring and whether there is a
need to disclose a contingent liability or whether a provision
might be required due to the probability
assessment.
At any time
there are a number of claims or notifications that need to be
assessed across the Group. The disparate nature of the Group’s
entities heightens the risk that not all potential claims are known
at any point in
time.
14 Post balance
sheet
events
The following
events occurred after 31 December 2023, and before the
approval of these consolidated financial statements, but have not
resulted in adjustment to the 2023 financial
results:
Disposal of
Fera
The disposal of
the Group’s 75% shareholding in Fera Science Limited (Fera) to a
fund managed by Bridgepoint Development Capital completed on
17 January
2024.
Cash proceeds
of £62m were received on completion, which included the settlement
of intercompany balances owed by Fera to the Group of £0.1m. Net
assets of c.£28m were disposed of on completion, alongside the
derecognition of non-controlling interests of c.£9m. Total costs of
disposal are estimated to be c.£9m, of which £3.5m were recognised
in 2022 and
2023.
Contract with
major European telecoms
provider
In February
2024, the Group extended and expanded its contract with a major
European telecoms provider. The new contract is based on expected
volumes, and therefore treated as a framework contract under IFRS
15. As a result, £365m included in the Capita Experience order book
at 31 December 2023 relating to the previous contract has been
released. The new contract is expected to be worth up to £420m to
2030.
Appendix -
Alternative performance
measures
The Group presents various alternative performance
measures (APMs) because internally the performance of the Group is
reported and measured on this basis. This includes Key Performance
Indicators (KPIs) such as adjusted revenue, adjusted profit before
tax, adjusted basic/diluted earnings per share, free cash flow
excluding business exits, and gearing ratios. In general, the Board
believes that the APMs are useful for investors because they
provide further clarity and transparency of the Group’s financial
performance and are closely monitored by management to evaluate the
Group’s operating performance to facilitate financial, strategic
and operating
decisions.
These APMs should not be viewed as a complete
picture of the Group’s financial performance which is presented in
the reported results. The exclusion of certain items may result in
a more favourable view when costs such as acquired intangible
amortisation, costs relating to the cyber incident in March 2023,
expenses associated with
the cost reduction programme announced in November
2023 and impairments of goodwill are excluded. These
measures may not be comparable when reviewing similar measures
reported by other
companies.
APM |
Closest
equivalent IFRS
measure |
Definition,
Purpose and
Reconciliation |
|
|
|
|
Income
statement |
|
|
|
|
|
|
Adjusted
revenue |
Revenue |
Calculated as
revenue less any revenue relating to businesses that have been
sold, or exited during the year or prior year; or, are in the
process of being sold, or
exited. |
|
This measure of
revenue is used internally in respect of the Group’s continuing
business (being the Group’s continuing activities, which exclude
business exits) and the Board believes it is a good indication of
ongoing
performance. |
|
|
The table below
shows a reconciliation between reported and adjusted revenue, as
well as adjusted revenue
growth: |
|
|
|
|
|
2023 |
2022 |
|
|
Reported revenue
per the income
statement |
|
|
£2,814.6m |
£3,014.6m |
|
|
Deduct: business
exits (note
9) |
|
|
£(172.5)m |
£(405.6)m |
|
|
Adjusted
revenue |
|
|
£2,642.1m |
£2,609.0m |
|
|
Adjusted revenue
growth |
|
|
1.3% |
1.7% |
|
|
|
|
|
|
|
Adjusted
operating
profit |
Operating
profit |
Calculated as
reported operating profit excluding items determined by the Board
to be outside underlying operations. These items are detailed in
note 5. |
|
A reconciliation
of reported to adjusted operating profit is provided in note
5. |
|
|
|
|
|
|
|
Adjusted operating profit
margin |
Operating profit
margin |
Calculated as the
adjusted operating profit divided by adjusted
revenue. |
This measure is
an indicator of the Group’s operating
efficiency. |
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 profit (note
5) |
|
b |
£106.5m |
£78.0m |
|
|
Adjusted
operating profit
margin |
|
b/a |
4.0% |
3.0% |
|
|
|
|
|
|
|
Adjusted
EBITDA |
No direct
equivalent |
Calculated as
adjusted operating profit for the last twelve months before:
depreciation, amortisation and impairment of property, plant and
equipment, intangible assets and right-of-use assets; net finance
costs; and the share of results in associates and investment gains
(other than those already excluded from adjusted operating
profit). |
|
|
The directors
believe that adjusted Earnings before Interest, Tax, Depreciation
and Amortization (EBITDA) is a useful measure for investors because
it is closely monitored by management to evaluate Group and
divisional operating
performance. |
|
|
This measure has
been calculated pre and post the impact of IFRS 16 to enable
investors to understand the impact of the Group’s lease portfolio
on adjusted
EBITDA. |
|
|
The table below
shows the calculation of adjusted
EBITDA: |
|
|
|
Post
IFRS 16 |
Pre
IFRS 16 |
|
|
|
2023 |
2022 |
2023 |
2022 |
|
|
Adjusted profit
before tax |
£56.5m |
£49.8m |
£57.0m |
£55.0m |
|
|
Add back:
adjusted net finance costs (note
6) |
£50.0m |
£34.0m |
£31.8m |
£15.7m |
|
|
Add back:
adjusted depreciation and impairment of property, plant and
equipment |
£30.7m |
£43.1m |
£30.7m |
£43.1m |
|
|
Add back:
depreciation and impairment of right-of-use
assets |
£50.7m |
£52.7m |
£—m |
£—m |
|
|
Add back:
adjusted amortisation and impairment of
intangibles |
£26.7m |
£30.6m |
£26.7m |
£30.6m |
|
|
Remove: Share of
results in associates and investment gains (income
statement) |
£—m |
£(5.8)m |
£—m |
£(5.8)m |
|
|
Adjusted
EBITDA |
£214.6m |
£204.4m |
£146.2m |
£138.6m |
|
|
Adjusted EBITDA
margin |
8.1% |
7.8% |
5.5% |
5.3% |
|
|
|
|
|
|
|
Alternative
performance measures
continued
APM |
Closest equivalent IFRS
measure |
Definition, Purpose and
Reconciliation |
|
|
|
|
Income
statement
continued |
|
|
|
|
|
Adjusted
profit before
tax |
Profit before
tax |
Calculated as
profit or loss before tax excluding the items detailed in
note 5, which includes: business exits (trading results,
non-trading expenses, and any gain/(loss) on business disposal);
acquired intangible amortisation; impairment of goodwill and
acquired intangibles; costs of the cyber incident in March 2023;
and expenses associated with the cost reduction programme announced
in November
2023. |
|
|
A reconciliation
of reported to adjusted profit before tax is provided in note
5. |
|
|
|
|
|
|
|
Adjusted
profit after
tax |
Profit/(loss)
after
tax |
Calculated as the
above adjusted profit or loss before tax, less the tax credit or
expense on adjusted profit or
loss. |
|
The table below
shows a
reconciliation: |
|
|
|
|
2023 |
2022 |
|
|
Adjusted profit
before tax (note
5) |
|
|
£56.5m |
£49.8m |
|
|
Tax on adjusted
profit (note
7) |
|
|
£(31.1)m |
£(4.4)m |
|
|
Adjusted profit
after tax |
|
|
£25.4m |
£45.4m |
|
|
|
|
|
|
|
Adjusted
basic earnings per
share |
Basic earnings
per
share |
Calculated as the
adjusted profit or loss for the year after tax less non-controlling
interests divided by the weighted average number of ordinary shares
outstanding during the
year. |
|
The Board
believes that this provides an indication of basic earnings per
share of the Group on adjusted profit after
tax. |
|
|
For the
calculation of adjusted basic earnings per share refer to note
8. |
|
|
|
|
|
|
|
Adjusted
diluted earnings per
share |
Diluted earnings
per
share |
Calculated as the
adjusted profit or loss for the year after tax less non-controlling
interests divided by the weighted average number of ordinary shares
outstanding during the period plus the weighted average number of
ordinary shares that would have been issued on the conversion of
all the dilutive potential ordinary shares into ordinary
shares. |
|
The Board
believes that this provides an indication of diluted earnings per
share of the Group on adjusted profit after
tax. |
|
|
For the
calculation of adjusted diluted earnings per share refer to note
8. |
|
|
|
|
|
|
|
Cash flows and
net
debt |
|
|
|
|
|
Cash
flows generated/(used) by operations excluding business
exits |
Cash
generated/(used) by
operations |
Calculated as the
cash flows generated from operations excluding the items detailed
in note 10 which includes: business exits (trading results,
non-trading expenses) and pension deficit contributions which have
been triggered by
disposals. |
|
A reconciliation
of reported to cash generated/(used) by operations excluding
business exits is provided in
note 10. |
|
|
|
|
|
|
|
Free cash
flow and free cash flow excluding business
exits |
Net cash flows
from operating
activities |
Free cash flow is
calculated as cash generated from operations after: capital
expenditure; income tax and interest; and, the proceeds from the
sale of property, plant and equipment and intangible assets; and
the capital element of lease payments and receipts. Free cash flow
excluding business exits has the same calculation but is excluding
the impact of business
exits. |
Free cash flow
and free cash flow excluding business exits are measures used to
show how effective the Group is at generating cash and the Board
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
APM |
Closest equivalent IFRS
measure |
Definition, Purpose and
Reconciliation |
|
|
|
|
|
Cash flows and
net debt
continued |
|
|
Operating
cash flow and operating cash
conversion |
No direct
equivalent |
Calculated as
operating cash flow excluding business exits divided by adjusted
EBITDA. |
The Board
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 |
|
|
|
Reported |
Excluding business
exits |
|
|
|
2023 |
2022 |
2023 |
2022 |
|
EBITDA |
a |
£144.5m |
£235.7m |
£214.6m |
£204.4m |
|
Add back: EBITDA
element of cyber incident and cost reduction
programme |
|
£63.8m |
£—m |
£—m |
£—m |
|
|
Working capital
(note 10) |
|
£(120.2)m |
£(40.4)m |
£(102.6)m |
£(30.7)m |
|
|
Add back: Working
capital element of cyber incident and cost reduction
programme |
|
£(8.1)m |
£—m |
£(8.1)m |
£—m |
|
|
Non-cash and
other adjustments (note
10) |
|
£30.7m |
£(38.9)m |
£23.0m |
£(45.3)m |
|
|
Add back:
Non-cash element of cyber attack and cost reduction programme (note
12) |
|
£(29.5)m |
£—m |
£(29.5)m |
£—m |
|
|
Operating cash
flow |
b |
£81.2m |
£156.4m |
£97.4m |
£128.4m |
|
|
|
|
|
|
|
|
|
|
Operating cash
conversion |
b/a |
56.2% |
66.4% |
45.4% |
62.8% |
|
|
|
|
|
|
|
|
Available
liquidity |
No direct
equivalent |
Calculated as the sum of any undrawn
committed facilities and the net cash, cash equivalents net of
overdrafts, less any restricted cash. Restricted cash is defined as
any cash required to be held under FCA regulations, cash held in
foreign bank accounts, and cash represented by non-controlling
interests. |
|
|
|
|
|
|
2023 |
2022 |
|
|
Revolving credit
facility
(RCF) |
|
|
|
£260.7m |
£288.4m |
|
|
Less: drawing on
committed
facilities |
|
|
|
£—m |
£—m |
|
|
Undrawn committed
facilities |
|
|
|
£260.7m |
£288.4m |
|
|
Cash and cash
equivalents net of
overdrafts |
|
|
|
£67.6m |
£177.2m |
|
|
Less: restricted
cash |
|
|
|
£(46.0)m |
£(60.4)m |
|
|
|
|
|
|
|
|
|
|
Available
liquidity |
|
|
|
£282.3m |
£405.2m |
|
|
|
|
|
|
|
|
Net
debt |
Borrowings, cash,
derivatives, lease liabilities and deferred
consideration |
Calculated as the
net of the Group’s: cash, cash equivalents and overdrafts; private
placement loan notes; other finance; currency and interest rate
swaps; lease liabilities; and deferred
consideration. |
The Board
believes that net debt enables investors to see the economic effect
of debt, related hedges and cash and cash equivalents in total and
shows the indebtedness of the
Group. |
|
|
|
|
|
|
|
The calculation
of net debt is provided in note
10. |
|
|
|
|
|
|
|
|
Net financial
debt (pre-IFRS
16) |
No direct
equivalent |
Calculated as the
sum of the Group’s: cash, cash equivalents and overdrafts; the fair
value of the Group’s private placement loan notes; other finance;
and deferred
consideration. |
|
The Board
believes that this measure of net debt allows investors to see the
Group's net debt position excluding its IFRS 16 lease
liabilities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
2022 |
|
|
Net
debt |
|
|
|
£545.5m |
£482.4m |
|
|
Remove: IFRS16
impact |
|
|
|
£(363.4)m |
£(397.5)m |
|
|
Net financial
debt (pre-IFRS
16) |
|
|
|
£182.1m |
£84.9m |
|
|
|
|
|
|
|
|
Alternative
performance measures
continued
APM |
Closest equivalent IFRS
measure |
Definition, Purpose and
Reconciliation |
|
|
|
|
Cash flows and
net debt
continued |
|
|
|
Gearing:
net debt to adjusted EBITDA
ratio |
No direct
equivalent |
This ratio is
calculated as net financial debt (pre-IFRS 16) divided by adjusted
EBITDA over a rolling twelve month period including business exits
not yet completed at the balance sheet
date. |
The Board
believes that this ratio is useful because it shows how significant
net debt is relative to adjusted
EBITDA. |
|
This measure has
been calculated including and excluding the impact of IFRS 16
on EBITDA and net debt because the Board believes this provides
useful information to enable investors to understand the impact of
the Group’s lease portfolio on its gearing
ratio. |
|
|
The table below
shows the components, and calculation, of the net debt / net
financial debt (pre-IFRS 16) to adjusted EBITDA
ratio: |
|
|
|
Post IFRS
16 |
Pre IFRS
16 |
|
|
|
2023 |
2022
1 |
2023 |
2022
1 |
|
|
Adjusted
EBITDA |
£214.6m |
£238.8m |
£146.2m |
£172.3m |
|
|
EBITDA in respect
of business exits not yet
completed |
£8.2m |
£1.3m |
£8.2m |
£1.3m |
|
|
Adjusted EBITDA
(including business exits not yet
completed) |
£222.8m |
£240.1m |
£154.4m |
£173.6m |
|
|
Net debt / net
financial debt (pre-IFRS
16) |
£545.5m |
£482.4m |
£182.1m |
£84.9m |
|
|
|
|
|
|
|
|
|
Net debt / net
financial debt (pre-IFRS 16) to adjusted EBITDA
ratio |
2.4x |
2.0x |
1.2x |
0.5x |
|
|
|
|
|
|
|
Gearing
including Fera proceeds: net debt to adjusted EBITDA
ratio |
No direct
equivalent |
This ratio is
calculated in the same way gearing above but includes the net
proceeds received from the disposal of the Fera business in January
2024. |
|
The Board
believes that this ratio is useful because it shows that the
gearing ratio would have been below the medium term aim of 1.0x had
the proceeds from the disposal of the Fera business been received
in December 2023 when the sale was
agreed. |
|
|
|
|
|
Pre IFRS
16 |
|
|
|
|
|
2023 |
|
Adjusted
EBITDA |
|
|
a |
£146.2m |
|
Net financial
debt |
|
|
b |
£182.1m |
|
|
|
|
|
|
|
Cash proceeds
received in January on disposal of Fera (note
14) |
|
|
|
£61.9m |
|
|
Cash held by Fera
at 31 December 23 (note
9) |
|
|
|
£(7.2)m |
|
|
Cash disposal
costs expected in 2024 related to Fera
disposal |
|
|
|
£(4.6)m |
|
|
Net proceeds
received from Fera disposal in January
2024 |
|
|
c |
£50.1m |
|
|
Net financial
debt including net proceeds received in January
2024 |
|
|
d =
b-c |
£132.0m |
|
|
|
|
|
|
|
|
|
Net financial
debt including net proceeds received to adjusted EBITDA
ratio |
|
|
d/a |
0.9x |
|
|
|
|
|
|
|
1.To ensure
consistent presentation of the ratios between years, the 2022
comparatives have not been
restated.