Capita plc
Half Year Results 2024
Improved margin with good progress on cost reductions underpinning unchanged
underlying full year profit expectations
Adolfo Hernandez, Chief Executive Officer, said:
"In my first six months I have been working with colleagues to identify and
action many initiatives that will make Capita a better company. Our teams are
passionate about the delivery of critical services to our clients, their
customers and to wider society. Our focus is on ensuring that the value we
create for those stakeholders is reflected in the financial performance of the
business and I am excited about the future and the progress we've made in a
short period of time.
"We are implementing changes that will make us more competitive and drive
growth, by becoming more efficient and spending less, digitising our offerings
and leveraging technology partnerships. This, together with more precision in
delivery and evolving our culture, is enabling us to accelerate execution.
"We are on track to deliver on our cost reduction programme, having taken action
to deliver £100m out of the £160m of annualised cost reductions we expect to
achieve by June 2025. This will support our planned improvement in the adjusted
operating margin of the group, which in the first half increased from 3.1% to
4.5%.
"We have much more to do, but I am pleased that Capita is making encouraging
progress in its journey to deliver its medium-term financial targets and create
sustainable value for all its stakeholders".
H1 2024 Financial results adjusted for business exits, including Capita One
· Adjusted revenue1 decreased by 9% to £1,201.5m (H1 2023: £1,324.4m)
reflecting the non-repeat of one-off benefits in H1 2023 in Experience and the
impact of previously announced contract losses
· Adjusted operating profit1 increased 33% to £54.2m, benefitting from
the successful implementation of ongoing cost reduction programme
· Reported profit before tax of £60.0m (H1 2023 loss: £67.9m) boosted
by £38.1m gains on the sale of businesses, including Fera
· Free cash outflow excluding business exits* of £51.9m (H1 2023
outflow: £64.3m) reflecting costs associated with the cost reduction programme
and final pension deficit reduction contributions
· Net financial debt (pre-IFRS 16): adjusted EBITDA1 ratio 1.1x
Good momentum in delivery of positive cash flow in medium term
· Targeting £160m of annualised cost reductions, to be delivered by
June 2025
· At the half year, actions taken to deliver £100m of these savings,
with associated cash cost of £19.7m
· Operating cash flow* in H1 2024 improved by 75% to £51.4m reflecting
reduced deferred income releases
Contract wins
· Total contract value won £934.4m (2023: £1,317.0m), reflecting a
lower level of bid activity
· Book to bill ratio of 0.8x (2023: 1.0x)
· Contract win rate of 48% versus 63% last year, partially reflecting
our focus on ensuring contracts are bid at an appropriate margin in line with
the Group's medium-term operating margin target
Outlook for full year 2024
· Expect a low to mid-single digit percentage adjusted revenue
reduction, reflecting delayed operational go-live on certain contracts and a
more focused approach to bidding
· Expect modest adjusted operating margin improvement reflecting
continued benefit of cost reduction programme, pay review phasing and H2 2023
bonus release; underpinning profit expectations
· Adjusted operating profit1 and free cash outflow excluding business
exits* outlook unchanged on an underlying basis. Pro-forma outflow of between
£90m and £110m following Capita One disposal, with £50m cost associated with
cost reduction programme
· Capita One disposal to complete in Q3 with net proceeds of c.£180m;
minimal year end net financial debt
Six months
ended
30June
2024
Financial Reported Reported Reported Adjusted1 Adjusted1 Adjusted1
highlights 2024 2023 2024 2023
POP POP
change change
Revenue £1,237.3m £1,477.0m (16%) £1,201.5m £1,324.4m (9%)
Operating £43.9m £(35.8)m n/a £54.2m £40.9m 33%
profit/(los
s)
Operating 3.5% (2.4)% n/a 4.5% 3.1% 45%
margin
EBITDA £101.7m £85.6m 19% £102.2m £97.1m 5%
Profit/(los £60.0m £(67.9)m n/a £31.6m £18.3m 73%
s)
before tax
Basic 3.14p (5.06)p n/a 2.19p 2.68p (18%)
earnings/(l
oss)
per share
Operating £73.5m £34.2m 115% £51.4m £29.3m 75%
cash
flow*
Free cash £(44.6)m £(84.0)m 47% £(51.9)m £(64.3)m 19%
flow*
Net debt £(521.9)m £(544.6)m 4% £(521.9)m £(544.6)m 4%
Net £(166.4)m £(166.2)m -% £(166.4)m £(166.2)m -%
financial
debt (pre
-IFRS
16)
1 Capita reports results on an adjusted basis to aid understanding of business
performance.
* Adjusted operating cash flow and free cash flow exclude the impact of
business exits (refer to note 9).
Investor presentation
A presentation for institutional investors and analysts hosted by Adolfo
Hernandez, CEO and Tim Weller, CFO, will be held at 09:00am UK time, Friday
2August 2024. This will be held in the Capita offices at 65Gresham Street,
London EC2V7NQ. A live webcast will also be available (www.capita.com/investors)
and will subsequently be available on demand. The presentation slides will be
published on our website at 07:00am and a full transcript will be available the
next working day.
Webcast link:
https://webcast.openbriefing.com/capita-hy24/
For further information:
Helen Parris, Director of Investor Relations T +44 (0) 7720 169 269
Stephanie Little, Deputy Head of Investor Relations T +44 (0) 7541 622 838
Elizabeth Lee, Group Head of External Communications T +44 (0) 7936 332 957
Capita press office T +44 (0) 2076 542 399
LEI no. CMIGEWPLHL4M7ZV0IZ88.
Chief Executive Officer's review
H1 2024 Summary
Since joining Capita in January this year, I have spent time embedding myself
within the organisation and working with colleagues to identify and put in place
the many initiatives which will result in a "Better Capita". At a time of
dynamic change for the Group I continue to be impressed by the passion that our
teams have in their continued delivery of critical services to our clients,
their customers or service users and society.
However, as I said in March as part of my initial impressions, while the
business has strong foundations, the value Capita creates for its customers has
not been translated into positive financial performance and this will be a clear
area of focus going forwards. We have worked, at speed, to identify key
priorities and opportunities for future operational and financial improvement
and we've outlined our medium-term priorities.
The key components of being more competitive and funding our growth, as outlined
in March, are through becoming more efficient and spending less, digitising our
offerings, leveraging technology partnerships strongly, being more precise in
our delivery, improving governance and evolving our culture. We are now
accelerating the execution of actions which will deliver on these priorities.
As we work to improve our financial performance in this transformation, our
first priority is to increase the operating margin of the Group, with
sustainable cash generation and revenue growth to follow. We were pleased to
have delivered strong progress on that front in the first half, with the Group's
adjusted operating margin improving to 4.5% from 3.1%, predominantly as a result
of the cost reduction programme we commenced in 2023.
In June, we held a Capital Markets Event, at which we set out the Group's
strategic themes of "Better Efficiencies, Better Technology, Better Delivery and
Better Company" and the strategic priorities for the two divisions of Capita
Public Service and Capita Experience.
We also set out the Group's medium-term financial targets which are: delivering
low to mid-single digit revenue growth per annum; operating (EBIT) margin of 6 -
8%; and positive free cash flow from 2025, with operating cash conversion of 65%
to 75%; net financial debt leverage of ≤1x and continued reduction in lease
liabilities from the Group's ongoing property rationalisation.
The Group's transformation will be delivered in three waves: firstly quick wins
to fund the journey as we reduce our costs; secondly going back to basics to
improve our processes and infrastructure; and thirdly building for the future as
we reinvest c.£50m of the £160m of efficiencies we generate from the cost
savings programme to accelerate growth.
As we look forward, and strive to improve profitability, the Group will be more
focused and prioritise those business sectors in which we have strong expertise,
win today and where we see material opportunities in the future - these are
across our Public Service business and also the Contact Centre and Pension
Solutions businesses in Capita Experience.
We have identified some service lines which will be managed for value, including
closed book Life & Pensions, Mortgage Services, networks and standalone software
activities. The service lines identified as managed for value represented c.25%
of the Group's revenue in 2023. We are exploring options to derive value from
these service lines such as delivery through partners, radical transformation
and, in some cases, exit of the activity or service line.
In line with this strategy, in July, we announced the sale of the standalone
software business Capita One to MRI Software with expected net proceeds of
c.£180m. The sale is expected to complete towards the end of August, and the
proceeds will materially strengthen the Group's financial position while
providing funding and optionality for the transformation journey.
Notwithstanding the disposal of this high margin, but non-core business unit, we
re-iterate our medium-term operating margin target of 6-8%.
Better technology - relationships with hyperscalers
We have a great opportunity to drive the Group's transformation through re
-establishing and strengthening Capita's relationship with technology
hyperscalers. We have been very active in the first six months of the year,
working and partnering with hyperscalers to develop AI and generative AI
solutions which will improve consumer experiences while delivering greater
efficiency across both internal and external processes. This will allow the
Group to minimise its capital expenditure, while increasing the pace of
operational performance improvement to customers.
During H1 we agreed a number of partnerships and collaborations including with
Microsoft, ServiceNow, Salesforce and Amazon Web Services (AWS). We are jointly
developing solutions which can be used across our existing contract base, while
also looking at our sales pipeline to ensure we have tailored solutions around
future opportunities. Looking forward, we expect these partnerships to increase
the breadth of services and capabilities which Capita can deliver.
We have a number of solutions already delivering across the contract portfolio,
for example, on our Recruiting Partnering Project with the British Army, our
Capita Accelerate scanning and summary tool, which we developed last year, has
reduced applicant medical records processing time by 30%. This large language
artificial intelligence model has been approved by the UK Government's Ministry
of Defence and we see a number of possible additional use cases for the product
across the Group's existing contract base.
Following a successful design and pilot process this year, in June, we launched
CapitaContact with the London Borough of Barnet in the Local Public Service
vertical. This platform is a generative AI-powered contact centre solution which
provides a simplified customer experience, leveraging Amazon Connect. We now
plan to roll this out to more than 30 existing clients across the public and
private sector, which will drive further efficiencies for our clients, and
strengthen our client relationships. We will be scaling up the use of
CapitaContact significantly in the second half of the year and expect it to be
deployed as a standard solution for new contact centre opportunities going
forwards.
Within the contact centre business in Capita Experience, we have developed Agent
Suite a cutting-edge generative AI customer experience solution, which can be
used across multiple platforms, with two components, Agent Assist and Call
Sight. These solutions will allow contact centre agents to deliver personalised,
efficient and effective customer service and support. So far, using this tool,
we've seen a reduction in the average handling times of calls by c.20% and
improved first call resolution rates by more than 15%.
Elsewhere, we are exploring further opportunities with hyperscalers, such as
delivery of Virtual Ward capabilities with NHS Trusts and recruitment processes
which have a higher level of automation with less human intervention, where we
see a number of internal and external use cases.
Better efficiencies - transformation and cost reduction programme
At the start of this year, the Group established a programme management office
to deliver a company-wide transformation which will be spread across the three
waves; funding the journey, back to basics and building for the future.
To fund the journey, the Group is targeting £160m of annualised cost reductions,
to be delivered by June 2025. We are moving at pace in this area and as at 30
June 2024, the Group had taken actions which will deliver annualised savings of
£100m with cash outflow associated with delivery of the savings recognised in
the first half of £20m. We have good line of sight to the remaining savings to
be delivered and are confident in our ability to deliver them by June 2025.
The savings delivered to date across the Group have been realised across a
number of areas with the majority (£79m) from organisational simplification and
headcount reduction. Other savings were achieved from offshoring (£4m),
procurement (£11m) and further property rationalisation (£6m). We expect the
majority of the remaining savings to be delivered from further organisational
simplification.
The transformation initiatives are primarily expected to improve the cost
efficiency of Capita Public Service and Capita Experience with a smaller impact
on the corporate centre, reflecting the proportional split of the group's cost
base. The biggest margin improvement opportunity is in the contact centre
business in Capita Experience, which delivered an operating margin of below 1%
for the year ended 31 December 2023.
The programme management office is also focused on initiatives which will
deliver performance improvement across the Group. Examples of areas being
targeted include process improvement through digitisation, automation and
increasing sales effectiveness through the simplification of our go to market
and sales processes.
As outlined at the Capital Markets Event in June, we anticipate reinvestment
over the period to the end of 2025 of c.£50m on an annualised basis of the cost
savings we generate, in driving growth through technology and ensuring price
competitiveness.
Better company - cultural transformation and our people
Creating the right environment for our people will underpin our success
throughout the transformation journey and will help improve delivery through
increased engagement and reduced attrition. Since joining, I've travelled to
meet colleagues across our geographies and I've seen first-hand the passion our
colleagues have for the work they do, throughout the organisation.
The Group has embarked on a multi-year journey to build a culture where everyone
is united in achieving Capita's goals while also nurturing their individual
career aspirations.
We have a wide-ranging colleague engagement plan including initiatives at both a
group and divisional level. To ensure we understand the existing culture across
the Group, we have conducted a company-wide culture survey so we can take
informed and decisive actions as we plan for 2025 and into the medium term. We
are also launching our leadership playbook and development programme which will
help us nurture and develop talent through all levels of the organisation.
Staff attrition remains a key focus area. We've seen a continued reduction in
attrition across the Group, with 12-month voluntary attrition reducing from 24%
at the end of 2023, to 22% as at 30 June 2024. Capita Experience, which
historically experienced elevated levels of attrition, has seen further
improvement following a number of local interventions, and, since January 2023
attrition has reduced c.10% to 26%. The ongoing reduction in attrition will aid
Capita Experience on its margin improvement journey.
Our people priorities for the second half of the year are completion of the
Group's culture survey, development of our three core training academies for
Management & Leadership, Data & Technology and Sales, and continuing to
celebrate our cultural wins and role models throughout the Group, in line with
our #bebrilliantbeyou campaign.
Better delivery - operational performance
Delivering consistently and effectively for our clients is an important
cornerstone to our future success. Delivering the right service first time
reduces excess cost and avoids financial penalties which will help improve the
Group's margin.
In the first half of 2024, we maintained our operational performance with
average KPI performance above 90% in both divisions. In areas where KPI
performance was not met during the first half of the year, we are implementing
specific remediation actions to ensure we meet the high standards Capita expects
to deliver.
Highlights from our operational delivery in the first half of the year include:
· In Capita Public Service, on the division's contract to deliver Royal
Navy training, we partnered with Metaverse VR, to deliver eleven new Warship
Bridge Simulators across three Royal Navy locations in the UK , more than
doubling the Navy's simulator capacity
· Also in Capita Public Service, on the Standards and Testing Agency
contract, we printed and delivered 11 million test papers to schools for SATs
week hitting every milestone on time, including the marking and delivery of
99.9% of scripts
· In Capita Experience, across our delivery centres we handled over 16
million calls for clients in the UK , Ireland , Germany and Switzerland
· To support future delivery and growth in Capita Experience, we opened
two new global delivery centres in Bulgaria and South Africa . This expansion
will enable the division to meet the increasing demand for multi-lingual
services to broaden our market opportunities
As we move into the second half of the year, we are focused on delivering the
complex transition and mobilisation requirements of our new contracts with the
Students Loans Company, to help deliver the Disabled Students Allowance, and
with the City of London Police.
Growth
In the first six months of 2024, a lower value of bid activity resulted in a
reduction of Total Contract Value (TCV) won across both divisions. In H1 2024,
the Group won contracts with TCV of £934.4m, down 29% from £1,317m in the same
period in 2023. Reflecting the reduced TCV won, the Group's In Year Revenue
(IYR) generated from the wins in H1 was 36% lower at £391.6m. The Group's book
to bill was 0.8x (H1 2023: 1.0x).
Significant wins in the period included the renewal of contracts in Capita
Experience with two major European telecoms providers, one with an expanded
scope, with a combined TCV of more than £250m. There was success in the Defence,
Learning, Fire and Security vertical of Capita Public Service with a further
expansion of scope on the Royal Navy training contract with a TCV of £81m.
In order to improve the Group's margin performance in line with the medium-term
operating margin target, we remain focused on ensuring that contracts are bid at
an appropriate margin. As such, we have seen a reduction in total win rate to
48% from 63% in the same period last year across all opportunities.
Renewal rates increased to 95% from the 69% seen in H1 2023 but there was a
reduction in the win rate on new logos and expansions of existing scopes to 34%
from 57% in 2023. Improving the Group's win rate on new wins and expanded scopes
is an area of focus for the second half of the year and into 2025. However, we
are focusing efforts on our priority markets and service offerings which will
deliver our medium-term operating margin target, which may limit revenue growth
in the short term. We expect to see improvements in contract win rates as our
partnerships with hyperscalers are fully embedded into our contract offerings
and as our pricing becomes more competitive through delivery of our cost
reduction programme.
The order book at 30June 2024 was £4.9bn (31December 2023: £5.9bn) with £0.9bn
revenue recognised in the first half, £0.4bn in contract wins, scope changes and
indexation, £0.1bn in contract terminations and business exits and we saw two
contracts moved to framework agreements (£0.4bn), which do not meet the
accounting criteria for order book recognition.
The pipeline for the remainder of 2024 continues to build and there are
opportunities with a TCV of over £2bn closing in the second half the year. While
this is slightly lower than the value seen in previous years at this point, the
pipeline for 2025 remains strong, and is at the highest level seen at the same
point in recent years. In July, Capita Pension Solutions renewed an eight year
£48m TCV contract with the Royal Mail Statutory Pension Scheme. Elsewhere across
the Group, material opportunities in the second half of the year include
potential contracts with Ofgem and the Home Office within Capita Public Service
and a number of opportunities within the Energy & Utilities vertical in the
Contact Centre business of Capita Experience.
Capita is well placed to support in the delivery of the new UK Government's
priorities, including their five missions for Britain . Our capabilities include
providing 14,000 hours of planning support to over 100 local authorities every
month which can be an enabler to the Chancellors' recent planning and housing
reform announcement. Our virtual wards capacity has potential to reduce NHS
waiting lists and we are engaging in the recently announced the Strategic
Defence Review, given our strong track record in delivering Armed Forces
training and recruitment.
Financial results - revenue and profit
Adjusted revenue1 decreased 9.3% period on period to £1,201.5m (H1 2023:
£1,324.4m). Public Service reduced 2.8% to £688.5m, as the division saw revenue
reductions from the ending of contracts in Local Public Service, Scottish Wide
Area Networks and Electronic Monitoring.
As expected, revenue in Experience reduced 16.8% to £513.0m, reflecting the non
-repeat of one-off benefits in H1 23 following the transition of the Virgin
Media O2 contract and commercial settlement in the closed book Life & Pensions
business. The financial services vertical saw revenue reductions due to
previously announced contract losses which were partly offset by increased scope
and volumes in the Pension Solutions business and indexation.
Reported revenue declined 16% to £1,237.3m reflecting the core business
reductions coupled with the disposal of remaining Capita Portfolio businesses in
the prior year.
Adjusted operating profit increased 33% to £54.2m reflecting the benefit from
the ongoing cost reduction programme which more than offset the profit impact of
the revenue trends.
The adjusted operating margin for the Group was 4.5% improving from 3.1% in the
same period in 2023.
Reported profit before tax was £60.0m (H1 2023 loss: £67.9m) principally
reflecting, gains on the sale of businesses (£38.1m), compared with a loss of
£19.9m in H1 2023, the non-repeat of £42.2m goodwill impairment and £21.8m costs
associated with the Group's cyber incident in 2023.
Financial results - free cash flow and net debt
Cash generated by operations before business exits1 improved 273% to £19.0m
reflecting the improved EBITDA and a lower level of working capital outflows
reflecting the non-repeat of 2023's non-cash one-off income statement credits
and reduced deferred income releases. The cash cost associated with the Group's
cost reduction programme offset reduced pension deficit contributions and cyber
costs.
Free cash outflow excluding business exits1 improved to an outflow of £51.9m
from an outflow in 2023 of £64.3m, reflecting the improved cash generated by
operations and reduced interest and tax costs which offset an increase in
capital expenditure.
Pre-IFRS 16 net financial debt1 was £166.4m (31December 2023: £182.1m)
reflecting the free cash outflow and additional pension deficit payments of
£14.5m triggered by prior-year Portfolio disposals, which were offset by £49.7m
of net proceeds received on the Fera disposal.
Post-IFRS 16 net debt was £521.9m (31December 2023: £545.5m), reflecting the
free cash outflow in the first half offset by the further reduction in the
Group's lease liabilities as we continue to optimise our property footprint.
Full-year outlook
We expect the Group to show a low to mid-single digit percentage adjusted
revenue reduction for full year 2024, reflecting delayed operational go-live on
certain contracts and a lower level of in year revenue from contract wins as we
concentrate our business development activity on the Group's focus business
segments. At a divisional level, we expect a high single to low double digit
percentage revenue reduction in Experience with Public Service revenue expected
to be broadly in line with 2023.
We continue to expect a modest full year adjusted operating margin improvement
reflecting the continued benefit of the ongoing cost reduction programme, the
phasing of the Group's annual salary review and the release of the annual bonus
accrual in H2 2023.
Our adjusted operating profit and free cash flow excluding business exits
expectations for the full year remain unchanged on an underlying basis, with
proforma free cash outflow before business exits of £90m to £110m adjusted for
the Capita One disposal. Our operating cash conversion, is expected to be in
line with our previous guidance at c.60% to c.70%.
As the Capita One disposal is expected to complete towards the end of August, we
expect minimal net financial debt at the 2024 year end.
___________________________________________
1 Refer to alternative performance measures in the appendix
Divisional performance review
The following divisional financial performance is presented on an adjusted
revenue1 and adjusted operating profit1 basis. Reported profit is not included,
because the Board assesses divisional performance on adjusted results. The basis
of preparation of the adjusted figures and KPIs is set out in the Alternative
Performance Measures (APMs) summary in the appendix to this statement.
Public Service
Capita Public Service is the number one strategic supplier of Software and IT
Services (SITS) and business process services (BPS) to the UK Government.
The division is structured around three market verticals: Local Public Service;
Defence, Learning, Fire & Security and Central Government.
Markets and strategy
The core addressable market of Capita Public Service is £16.4bn2, growing at
approximately 4%2 per annum. Demand for our services across the public sector
continues to shift towards digitally enabled services which improve productivity
for the Government and the overall citizen user experience while offering 24/7
delivery and more optionality for service delivery methods.
As outlined at the recent Capital Markets Event, the division has identified
four key propositions which offer substantial sales potential across the public
sector client groups in the UK , through enhanced repeatability and cost
-efficient delivery, particularly in the areas of modern, technology-enabled
Business Process Outsourcing and National Preparedness. The four key
propositions are: Digital Business Services; Citizen Experience; Workforce
Development; and Place.
Better delivery and efficiencies
Capita Public Service continues to simplify its operating and delivery model to
improve end-to-end delivery. We are working to create a sustainable operating
model which allows us to deliver services at the quality and price clients
expect.
Public Service has continued to deliver consistently for clients, with KPI
performance in the first half of the year maintained at 95%.
Operational highlights in the first half of the year include:
· Within Central Government, we have processed more than 995,000
medical records on our contract with Primary Care Support England
· Within the Defence vertical of Capita Public Service, we managed over
1,500 fire and rescue incidents on our contract delivering the Defence, Fire and
Rescue Project
· In Local Public Service, we collected over £2.5bn revenue for local
councils and processed over £0.4bn in housing benefit and council tax relief
Moving forwards, the division is focused on building standardised repeatable
propositions, leveraging the scale of our hyperscaler partners while using our
domain knowledge and expertise. This will in turn reduce cost to serve and
improve market impact.
In the first half of the year, we launched CapitaContact following a successful
pilot with the London Borough of Barnet. This tool, powered by Amazon Connect,
provides a single agent interface for an omni-channel experience including
voice, chatbot, SMS and conversational menu routing allowing agents to provide
faster and more accurate responses to customers which increases first time call
resolution and customer satisfaction. This tool will be rolled out to a number
of clients in the second half of the year.
Looking to our future growth ambitions, we are exploring expansion into
international markets using our existing infrastructure, to increase the
division's addressable market and accelerate growth. We have a number of pilots
for growth in this area for example into the National Preparedness market in the
Middle East .
Growth
Across the first half of 2024, Public Service won TCV of £561.6m, down 26% from
the same period last year. IYR was £318.9m, broadly similar to the same period
in the prior year. The division's win rate across all opportunities was 39%,
down from 78% in 2023, as we saw a reduction in win rate in new and expanded
scopes of work, reflecting our focus on ensuring that contracts are bid at an
appropriate margin. The division's book to bill ratio was 0.8x.
The division saw success in Defence, Learning, Fire and Security with further
expansion on the Royal Navy training contract with a TCV of £81m. Under the
expanded scope, Capita will deliver technology enabled courses across a number
of areas including defence, diving and weapons engineering. There was also sales
success with the Health & Safety Executive and Ministry of Defence.
The unweighted pipeline for Public Service, across all close dates is £8.4bn,
from £7.5bn at the end of 2023, reflecting the timing of certain contract
tenders. There are a number of opportunities in the second half of the year,
including material opportunities with Ofgem, the Home Office and the Health &
Safety Executive. As look to 2025, the division has material opportunities with
the Ministry of Defence and with NHS England.
The divisional order book stands at £3,400m, a decrease of £146m from the year
end, reflecting the revenue recognised in the period which more than offset wins
in the period.
Divisional financial summary 2024 2023 % change
Adjusted revenue1 (£m) 688.5 708.0 (2.8)%
Adjusted operating profit1 (£m) 47.1 26.2 79.8%
Adjusted operating margin1 (%) 6.8% 3.7% 83.8%
Adjusted EBITDA1 (£m) 66.7 46.8 42.5%
Operating cash flow excluding business exits1 (£m) 49.8 33.7 47.8%
Order book (£m) (comparative at 31December 2023) 3,400.0 3,546.0 (4.1)%
Total contract value secured (£m) 561.6 758.1 (25.9)%
Adjusted revenue1 reduced 2.8% to £688.5m, reflecting the ending of contracts in
Local Public Services, Scottish Wide Area Network and Electronic Monitoring, non
-repeat of temporary contract activity in Royal Navy Training offset by volume
growth on our contract with Transport for London and the benefit of indexation
across the division.
Adjusted operating profit1 increased 79.8% to £47.1m, as the benefit from the
successful implementation of the cost reduction programmes was partly offset by
lower revenue.
Operating cash flow excluding business exits1 increased by 47.8% to £49.8m,
reflecting a step up in cash-backed EBITDA.
Outlook
We expect revenue growth to be delivered in the second half of the year as we
commence operational delivery on a number of contracts including Functional
Assessment Services with the Department for Work and Pensions and Disabled
Students Allowance with the Student Loans Company. For the year, we expect
revenue to be broadly flat.
The division is expected to show margin improvements across the year driven by
the benefit from the ongoing cost reduction programme.
Experience
Capita Experience comprises two focused business areas; the Contact Centre
business and Capita Pension Solutions and a selection of businesses, including
closed book Life & Pensions, which are being managed for value.
Markets and strategy
The Contact Centre business is one of Europe's leading customer experience
businesses, operating in the UK , Ireland , Germany and Switzerland with global
delivery centres in South Africa and India . The business delivers services
across four market verticals: Telecoms, Media & Technology; Energy & Utilities;
Financial Services and Retail. The annual addressable market of the EMEA contact
centre business is £28bn3, growing at c.4%3 per annum.
The Pension Solutions business in the UK delivers services to customers in the
private and public sector in a market worth £3.0bn4, with a projected market
growth rate of c.3%4 per annum.
Better delivery and efficiencies
Experience has maintained its operational delivery with average KPI performance
in the first half of the year of 89%, 94% excluding the Pension Solutions
business.
Operational highlights from the first half of the year include:
· On a Telecoms client which is served from our global delivery
centres, we have improved total call handling time by 29% and exceeded the
contract's target level of sales as a service
· We have answered over 225,000 calls for the RSPCA in the UK , helping
to protect animals in need
The Contact Centre business is implementing a significant reorganisation and
digitisation plan to improve its operating margin, closer to peers in the
market.
The call and contact centre industry continues to evolve rapidly through
technological advancement and shifting consumer expectations. The introduction
of generative AI offers the potential to deliver lower cost solutions and
enhance human agent productivity which will improve customer experience and
operating margin.
In the first half of the year Capita Experience launched nine new customer
service bundles offering repeatable, modular and scalable solutions which can
easily be tailored to clients' needs and requirements, while providing quicker
market entry. In the next year we will launch a number of additional service
bundles targeting specific sector needs. We expect these bundles to continue to
increase our market coverage.
To improve the margin performance in the division, Experience is increasing the
use of off and nearshore service delivery options. Since the start of the year
the division has increased in offshoring use from 45% to 60% in the operational
support function which is closely aligned to peer benchmarks.
In the medium term, we are exploring options to expand the Contact Centre
contract portfolio in adjacent international markets in EMEA, using our existing
infrastructure. To drive cost efficiency we are exploring further expansion of
our multi-lingual capabilities in Eastern Europe , which will allow us to provide
strong customer satisfaction with lower costs to serve.
In the Pension Solutions business, there is growing demand for automation and
digital platforms with scheme members looking for a seamless user experience
across their chosen platforms. This year we launched the Capita Digital Pensions
platform utilising Microsoft Dynamics 365, which uses data insights to provide a
hyper personalised member experience. This is a step change in our service
offering which will help the business expand into adjacent segments and
international markets.
Growth performance and key wins
In the first six months of 2024, Experience won deals with a TCV of £372.8m down
33% from the same period in 2023, IYR was £72.7m, down 76% from the prior
period. The book to bill for Experience was 0.7x.
Experience saw success within the Telecoms, Media & Technology vertical with the
renewal of contracts with two major European telecoms providers, one with an
expanded scope. The two contracts combined have a TCV of more than £250m.
The total unweighted pipeline for the division as at 30 June remains at £3.0bn.
Increasing the pipeline is a key focus for the division, and we are undertaking
a detailed review to understand future pipeline opportunities in all geographies
in which we operate to ensure we are well placed to drive growth. We also
anticipate growth from the launch of our service bundles and our partnerships
with hyperscalers as they increase the range of our market offerings.
In July, the Pension Solutions business renewed a contract with the Royal Mail
Statutory Pensions Scheme with a TCV of £48m. There are a number of
opportunities expected to close in the second half of the year across the
Contact Centre business, spread across the market verticals served.
The divisional order book stands at £1,529m, a decrease of £770m from £2,299m at
year-end, reflecting the increased number of contracts won in the division which
are framework agreements, which do not meet the accounting criteria for order
book recognition, including the two contracts with European telecoms clients
which this year resulted in the de-recognition of £388m from the order book.
Divisional financial summary 2024 2023 % change
Adjusted revenue1 (£m) 513.0 616.4 (16.8)%
Adjusted operating profit1 (£m) 25.1 39.1 (35.8)%
Adjusted operating margin1 (%) 4.9% 6.3% (22.2)%
Adjusted EBITDA1 (£m) 52.4 70.2 (25.4)%
Operating cash flow excluding business exits1 (£m) 26.1 28.9 (9.7)%
Order book (£m) (comparative at 31December 2023) 1,529.4 2,299.4 (33.5)%
Total contract value secured (£m) 372.8 558.9 (33.3)%
Adjusted revenue1 decreased by 16.8% to £513.0m, reflecting the non-repeat of
the one-off benefits in 2023 from the Virgin Media O2 contract transition and a
commercial settlement in the closed book Life & Pensions business and the impact
of previously announced contract losses with Financial Services. This was partly
offset by revenue growth in the Pension Solutions business and the benefit of
indexation.
Adjusted operating profit1 decreased by 35.8% to £25.1m due to the non
-recurrence of revenue one-offs, which resulted in a c.£30m profit benefit in H1
2023 and lower revenue, partly offset by lower overheads, including reduced
property footprint.
Operating cash flow excluding business exits1 reduced by 9.7% to £26.1m with
operating cash conversion increasing from 41.2% to 49.8% reflecting the non-cash
nature of the 2023 one-offs, which were offset by the benefit from the cost
reduction programme.
Outlook
For the full year we expect a high single to low double digit revenue percentage
decline.
As the division benefits from the cost reduction programme initiatives, we
expect its operating margin to improve in the second half of the year.
___________________________________________
1 Refer to alternative performance measures in the appendix
2 TechMarketView
3 Nelson Hall
4 External market research including ONS, House of Commons Library and Pensions
Policy Institute
Chief Financial Officer's review
Financial Reported Adjusted1
highlights results results
30June 30June POP 30June 30June POP
2024 2023 change 2024 2023 change
Revenue £1,237.3m £1,477.0m (16)% £1,201.5m £1,324.4m (9)%
Operating £43.9m £(35.8)m n/a £54.2m £40.9m 33%
profit/(loss)
Operating margin 3.5% (2.4)% n/a 4.5% 3.1% 45%
EBITDA £101.7m £85.6m 19% £102.2m £97.1m 5%
Profit/(loss) £60.0m £(67.9)m n/a £31.6m £18.3m 73%
before tax
Basic 3.14p (5.06)p n/a 2.19p 2.68p (18)%
earnings/(loss)
per share
Operating cash £73.5m £34.2m 115% £51.4m £29.3m 75%
flow*
Free cash flow* £(44.6)m £(84.0)m 47% £(51.9)m £(64.3)m 19%
Net debt £(521.9)m £(544.6)m 4% £(521.9)m £(544.6)m 4%
Net financial £(166.4)m £(166.2)m -% £(166.4)m £(166.2)m -%
debt (pre-IFRS
16)
* Adjusted
operating cash
flow and free
cash flow
exclude the
impact of
business exits
(refer to note
9).
Overview
Adjusted revenue1 reduction of 9% reflected previously announced contract hand
-backs and losses, and the impact of one-off benefits in the first half of 2023
in Experience.
Public Service revenue reduction reflected previously announced contracts ending
in Local Public Services, Scottish Wide Area Network and Electronic Monitoring
together with the non-repeat of temporary contract activity in Royal Navy
Training offset by increases on our contract with Transport for London and
indexation. Experience revenue reduction reflected the impact of 2023's one-off
deferred income benefit from the award of a new contract with Virgin Media O2
and a commercial settlement in the closed book Life & Pensions business,
previously announced contract losses within the Financial Services vertical,
including Co-operative Bank, and lower volumes in the UK business, partly offset
by revenue growth in the Pensions Solutions business and indexation.
The step-up in adjusted profit before tax1 reflected the benefit from the
ongoing cost reduction programme, which delivered a reduction in indirect
support and overhead costs, more than offsetting the impact of the revenue
trends noted above.
Adjusted earnings per share1 reduced as the increase in adjusted profit before
tax1 was offset by a lower adjusted income tax credit of £5.3m (2023: £25.3m).
The reduced adjusted tax credit in the current year reflected a lower deferred
tax asset release, due to fewer material changes, period-on-period, to the
factors impacting the deferred tax asset recognition model.
The reported profit before tax of £60.0m (2023: loss £67.9m), reflects the
improvement in adjusted profit before tax1 detailed above, lower costs incurred
in resolving the March 2023 cyber incident and higher gains on the sale of
businesses (2024: gain £38.1m; 2023: loss £6.6m) partly offset by costs incurred
in delivering the significant cost reduction programme that commenced in the
second half of 2023 (£8.2m).
The swing to reported earnings per share reflected the significant improvement
in profit before tax and the lower reported income tax charge. The reported tax
charge at 30June 2024 reflected changes in the accounting estimate of recognised
deferred tax assets, unrecognised current year tax losses and tax-exempt profits
on disposal. The prior period reflected a decrease in the recognised deferred
tax asset, due to the impact of business disposals.
Cash generated from operations excluding business exits1 increased, as expected,
by 273% to £19.0m, driven by an improvement in operating cash flow, reduction in
pension deficit contributions and costs in relation to the cyber incident in the
first half of 2023, partly offset by a cash outflow from the costs to deliver
the cost reduction programme.
Free cash flow excluding business exits1 in the six months ended 30June 2024 was
an outflow of £51.9m (2023: outflow £64.3m), reflecting the flow through of the
increase in cash generated from operations.
The increase in reported free cash flow reflects the above increase in free cash
flow excluding business exits1, a cash inflow from business exits, and reduction
in pension deficit contributions triggered by disposals.
During the first half of 2024 we completed the disposal of the Group's 75%
shareholding in Fera Science Limited (Fera), realising gross proceeds of £62m.
The Group received net cash proceeds of £49.7m reflecting the total proceeds
less cash held in the entity when the disposal completed on 17 January 2024, and
disposal costs. This was the final disposal of the c.£500m Board-approved
Portfolio programme which was launched in 2021.
In June 2024, we held a Capital Markets Event outlining the Group's strategic
themes and prioritised business sectors going forward. During the event, some
areas of the Group were identified as being "managed for value", and we outlined
the options being pursued, including exploring potential exits. Standalone
software activities were identified as part of the Group's activities that are
being "managed for value", and on 9 July 2024, we announced we had agreed the
sale of Capita One, a standalone software business. The disposal will result in
the Group receiving expected gross disposal proceeds of c.£207m upon completion
(estimated net cash proceeds of c.£180m after disposal costs and cash held in
the business at the anticipated disposal date). The net cash proceeds will
provide the Group with additional resources to strengthen its financial position
and further reduce indebtedness, as well as funding for its transformation
journey. Completion is expected towards the end of August, subject to
confirmation from the Secretary of State that no further action will be taken
under the UK's National Security and Investment Act.
In November 2023, we announced the implementation of a cost reduction programme
expected to deliver annualised efficiencies of £60m from Q1 2024. As noted in
March 2024, subsequent to the November 2023 announcement, we identified
additional cost saving opportunities expected to deliver an additional £100m of
annualised cost savings by mid 2025. We anticipate reinvesting around £50m of
these further savings back into the business to enhance the Group's technology,
service delivery and pricing proposition.
Liquidity as at 30June 2024 was £293.1m, made up of £250.0m of undrawn committed
revolving credit facility (RCF) and £43.1m of unrestricted cash and cash
equivalents net of overdrafts. In June 2023, we extended the maturity of the RCF
to 31December 2026 initially at £284m, but subsequently reducing to £250m on 23
January 2024 following receipt of proceeds from the Fera disposal. The RCF was
undrawn at 30June 2024 (31December 2023: undrawn).
Financial review
Adjusted results
Capita reports results on an adjusted basis to aid understanding of business
performance. The Board has adopted a policy of disclosing separately those items
that it considers are outside the underlying operating results for the
particular period under review and against which the Group's performance is
assessed internally. In the Board's judgement, these items need to be disclosed
separately by virtue of their nature, size and/or incidence for users of the
financial statements to obtain an understanding of the financial information and
the underlying in-period performance of the business.
In accordance with the above policy, the trading results of business exits,
along with the non-trading expenses (including the income statement charges in
respect of major cost reduction programmes) and gain or loss on disposals, have
been excluded from adjusted results. To enable a like-for-like comparison of
adjusted results, the 2023 comparatives have been re-presented to exclude
business exits in the second half of 2023 and the first six months of 2024. As
at 30June 2024, the following businesses met this threshold and were classified
as business exits and therefore excluded from adjusted results in both 2024 and
2023: Fera, Capita One, Mortgage Services and Capita Scaling Partner.
Reconciliations between adjusted and reported operating profit, profit before
tax and free cash flow excluding business exits are provided on the following
pages and in the notes to the financial statements.
Adjusted revenue
Adjusted revenue1 bridge by division Public Experience Total
Service £m £m
£m
Six months ended 30June 2023 708.0 616.4 1,324.4
Net reduction (19.5) (103.4) (122.9)
Six months ended 30June 2024 688.5 513.0 1,201.5
Adjusted revenue1 reduction of 9% was impacted by the following:
· Public Service (2.8% reduction): cessation of contracts in Local
Public Services, Scottish Wide Area Network and Electronic Monitoring, non
-repeat of temporary contract activity in Royal Navy Training offset by
increases on our road user charging contract with Transport for London and
benefit of indexation; and
· Experience (16.8% reduction): reflecting previously announced
deferred income benefit from the award of a new contract with Virgin Media O2
and a commercial settlement in the closed book Life & Pensions business, both in
the first half of 2023, previously announced contract losses within the
Financial Services vertical, including Co-operative Bank, and lower volumes in
the UK business, partly offset by revenue growth in the Pension Solutions
business and indexation increases.
Order book
The Group's consolidated order book was £4,929.4m at 30June 2024 (31December
2023: £5,882.6m). Additions from contract wins, scope changes and indexations in
2024 (£460.0m), including expanded scope on our Royal Navy Training contract
within Capita Public Service, were offset by the reduction from revenue
recognised in the period (£932.5m), contract terminations (£55.4m) and business
disposals (£37.2m). Furthermore, two European telecoms contracts were extended
in the period with the contracts being recognised as framework contracts, this
resulted in £388.1m being derecognised from the order book. These contracts are
expected to deliver combined total contract value of over £400m during the new
contract term.
Adjusted profit before tax
Adjusted profit before Public Experience Capita Total
tax1 bridge by division
Service £m plc £m
£m £m
Six months ended 30June 26.2 39.1 (47.0) 18.3
2023
Net growth/(reduction) 20.9 (14.0) 6.4 13.3
Six months ended 30June 47.1 25.1 (40.6) 31.6
2024
Adjusted profit before tax1 increased in 2024 driven by the following:
· Public Service: strong improvement in profit resulting from lower
overheads as a result of the successful implementation of the cost reduction
programme;
· Experience: reflects the non-repeat of 2023 one-offs (c.£30m) and
lower revenue, partly offset by lower overheads, including reduced property
footprint, as part of the cost reduction programme; and
· Capita plc: reflects benefits from cost reduction programme.
Adjusted tax credit
The adjusted income tax credit for the period was £5.3m (six months ended 30
June 2023: credit of £25.3m). The lower adjusted tax credit in the current year
reflected a lower deferred tax asset release, due to fewer material changes
period-on-period to the factors impacting the deferred tax asset recognition
model, such as the future taxable profit projections and the Group's defined
benefit pension position.
Cash generated from operations and free cash flow
Adjusted operating profit to free cash flow 30June 2024 30June 2023
excluding business exits1
£m £m
Adjusted operating profit1 54.2 40.9
Add: depreciation/amortisation and impairment of 48.0 56.2
property, plant and equipment and intangible assets
Adjusted EBITDA1 102.2 97.1
Working capital (30.4) (63.9)
Non-cash and other adjustments (20.4) (3.9)
Operating cash flow excluding business exits1 51.4 29.3
Adjusted operating cash conversion1 50% 30%
Pension deficit contributions (6.3) (15.0)
Cyber incident (6.4) (9.2)
Cost reduction programme (19.7) -
Cash generated from operations excluding business 19.0 5.1
exits1
Net capital expenditure (21.2) (24.8)
Interest/tax paid (22.6) (17.3)
Net capital lease payments (27.1) (27.3)
Free cash flow excluding business exits1 (51.9) (64.3)
Working capital improvement is principally driven by a lower level of deferred
income releases in the period (c.£40m reduction period-on-period). Non-cash and
other adjustments includes provision spend of around £15m, including around £8m
in respect of closed book Life & Pensions contracts, broadly in line with 2023.
Within this line in 2023 there was a benefit of around £13m adjusting for the
non-cash effect of net new provisions established through EBITDA in that period.
Cash generated from operations excluding business exits1 reflects the above and
the direct cash flow impact of the cyber incident in the first half of 2023
(£6.4m) and the cash costs of delivering the cost reduction programme (£19.7m).
The £6.3m of pension deficit contributions are in line with the deficit funding
contribution schedule previously agreed with the scheme trustees as part of the
2020 triennial valuation. In aggregate, including accelerated pension deficit
contributions resulting from business disposals, the Group has made pension
deficit contributions of £20.8m in the period and, reflecting the most recent
triennial funding agreement, no further deficit contributions are expected in
the second half of 2024 and beyond.
Free cash flow excluding business exits1 for the six months ended 30June 2024
was an outflow of £51.9m (2023 outflow £64.3m), reflecting the flow through of
the increase in cash generated from operations.
Reported results
Adjusted to reported profit
As noted above, to aid understanding of our underlying performance, adjusted
operating profit1 and adjusted profit before tax1 exclude a number of specific
items, including the amortisation and impairment of acquired intangibles and
goodwill, the impact of business exits and the impact of the cyber incident and
cost reduction programme.
Adjusted1 to reported Operating (Loss)/profit before tax
results bridge (loss)/pro
fit
30June 30June 30June 2024 30June 2023
2024 2023
£m £m
£m £m
Adjusted1 54.2 40.9 31.6 18.3
Amortisation and (0.1) (0.1) (0.1) (0.1)
impairment of acquired
intangibles
Impairment of goodwill - (42.2) - (42.2)
Net finance - - (0.4) (2.2)
costs/(income)
Business exits (2.4) (12.6) 36.7 (19.9)
Cyber incident 0.4 (21.8) 0.4 (21.8)
Cost reduction programme (8.2) - (8.2) -
Reported 43.9 (35.8) 60.0 (67.9)
Business exits
Business exits include the effects of businesses that have been sold or exited
during the period and the results of businesses held-for-sale at the reporting
date.
In accordance with our policy, the trading results of these businesses, along
with the non-trading expenses and gain on disposal, were included in business
exits and therefore excluded from adjusted results. To enable a like-for-like
comparison of adjusted results, the 2023 comparatives have been re-presented to
exclude businesses classified as business exits from 1July 2023 to 30June 2024.
At 30June 2024 business exits primarily comprised:
· the disposal of the Group's 75% shareholding in Fera Science Limited
which completed on 17 January 2024 and which completed the Board-approved
Portfolio business disposal programme; and
· the Capita One standalone software business which was identified as a
"managed for value" activity, and was in the process of being sold and met the
held-for-sale criteria.
In addition to the above disposals, the Group intends to exit the Mortgage
Services business and corporate venture business, Capita Scaling Partner, both
in Capita Experience, and the trading results and non-trading expenses of these
businesses have been excluded from adjusted results. The Capita Scaling Partner
business managed the Group's investment in start-up and scale-up companies. The
Group sold one of the Capita Scaling Partner investments during the first half
of the year realising a gain of £0.3m. The Group will seek to maximise value
from the remaining investments, which had a carrying value of £19.3m at 30 June
2024.
Cyber incident
The Group has continued to incur exceptional costs associated with the March
2023 cyber incident. These costs comprise specialist professional fees, recovery
and remediation costs and investment to reinforce Capita's cyber security
environment. A credit of £0.4m has been recognised in the six months ended
30June 2024, which reflects insurance income which met the criteria to be
recognised (30June 2023: charge of £21.8m). The cumulative total net costs
incurred in respect of the cyber incident are £24.9m. No provision has been made
for any costs in respect of potential claims or regulatory penalties in respect
of the incident as it is not possible, at this stage, reliably to estimate their
value.
Cost reduction programme
We announced the implementation of a major cost reduction programme in November
2023 which is now delivering annualised efficiencies of £60m from Q1 2024. As
noted in March 2024, subsequent to the November 2023 announcement, we identified
further cost saving opportunities expected to deliver an additional £100m of
annualised cost savings by mid 2025. We anticipate reinvesting around £50m of
these further savings back into the business to enhance the Group's technology,
service delivery and pricing proposition.
A charge of £8.2m has been recognised in the six months ended 30June 2024 for
the costs to deliver the cost reduction programme. This includes redundancy and
other costs of £11.0m to deliver a significant reduction in indirect support
function and overhead roles, partly offset by a credit of £2.8m arising from the
rationalisation of the Group's property estate. The net property estate credit
arises as the charge from the impairment of right-of-use assets and property,
plant and equipment, and provisions in respect of onerous property costs, in the
period, has been offset by adjustments to impairments and provisions recognised
in 2023 following lease modifications and changes to sublet assumptions. The
cash outflow in the first half of 2024 in respect of the cost reduction
programme was £19.7m, which is included within free cash flow and cash generated
from operations excluding business exits1. As announced in March 2024, the cost
reduction initiatives are expected to result in cash costs in the whole of 2024
of an estimated £50m.
Further detail of the specific items charged in arriving at reported operating
profit and profit before tax for 2024 is provided in note4 to the condensed
consolidated financial statements.
Reported tax charge
The reported income tax charge for the period of £7.1m (2023: charge of £16.8m)
reflects changes in the accounting estimate of recognised deferred tax assets
and tax-exempt profits on disposal. The prior period charge is higher reflecting
a decrease in the recognised deferred tax asset, due to the impact of business
disposals.
Free cash flow1 to free cash flow excluding business exits1
30June 2024 30June 2023
£m £m
Free cash flow1 (44.6) (84.0)
Business exits (21.8) 4.1
Pension deficit contributions triggered by disposals 14.5 15.6
Free cash flow excluding business exits1 (51.9) (64.3)
Free cash flow was higher than free cash flow excluding business exits1
reflecting free cash flows generated by business exits, partly offset by pension
deficit contributions triggered by the disposal of certain businesses.
Movements in net debt
Net debt at 30June 2024 was £521.9m (31December 2023: £545.5m). The decrease in
net debt over the six months ended 30June 2024 reflects the free cash outflow
noted above offset by the net cash proceeds from the disposal of Fera in the
period, and the continued reduction in our leased property estate.
Net debt 30June 2024 31December 2023
£m £m
Opening net debt (545.5) (482.4)
Cash movement in net debt 56.8 (9.0)
Non-cash movements (33.2) (54.1)
Closing net debt (521.9) (545.5)
Remove closing IFRS 16 355.5 363.4
impact
Net financial debt (pre (166.4) (182.1)
-IFRS 16)
Cash and cash equivalents 85.4 67.6
net of overdrafts
Financial debt net of swaps (251.8) (249.7)
Net financial debt 1.1x 1.2x
/adjusted EBITDA1 (both pre
-IFRS 16)
Net debt (post-IFRS 2.4x 2.4x
16)/adjusted EBITDA1
Net financial debt (pre-IFRS 16) reduced by £15.7m to £166.4m at 30June 2024,
resulting in a net financial debt to adjusted EBITDA (both pre-IFRS 16) ratio of
1.1x. Over the medium term, the Group is targeting a net financial debt to
adjusted EBITDA1 (both pre-IFRS 16) ratio of ≤1.0x.
The Group was compliant with all debt covenants at 30June 2024.
Capital and financial risk management
Financial instruments used to fund operations and to manage liquidity comprise
USD and GBPprivate placement loan notes, revolving credit facility (RCF), leases
and overdrafts.
Available liquidity1 30June 2024 31December 2023
£m £m
Revolving credit facility (RCF) 250.0 260.7
Less: drawing on committed facilities - -
Undrawn committed facilities 250.0 260.7
Cash and cash equivalents net of overdrafts 85.4 67.6
Less: restricted cash (42.3) (46.0)
Available liquidity1 293.1 282.3
In June 2023, we extended the maturity of the RCF to 31 December 2026, initially
at £284m, but subsequently reducing to £250m on 23 January 2024 following
receipt of proceeds from the Fera disposal. The RCF was undrawn at 30June 2024
(31December 2023: undrawn).
In addition, the Group has in place non-recourse trade receivable financing,
utilisation of which has become economically more favourable than drawing under
the RCF as prevailing interest rates have increased. As such, the Group has
continued its use of the facility across the year with the value of invoices
sold under the facility at 30June 2024 of £33.5m (31December 2023: £35.2m).
At 30June 2024, the Group had £85.4m (31December 2023: £67.6m) of cash and cash
equivalents net of overdrafts, and £265.1m (31December 2023: £262.5m) of private
placement loan notes and fixed-rate bearer notes.
Going concern
The Board closely monitors the Group's funding position throughout the year,
including compliance with covenants and available facilities to ensure it has
sufficient headroom to fund operations. In addition, to support the going
concern assumption the Board conducts a robust assessment of the projections,
considering also the committed facilities available to the Group.
The Group continues to adopt the going concern basis in preparing these
condensed consolidated financial statements as set out in note1 to the condensed
consolidated financial statements.
Pensions
The latest formal valuation for the Group's main defined benefit pension scheme
(the Scheme), was carried out as at 31March 2023. This identified a statutory
funding surplus of £51.4m. Given the funding position of the Scheme, the Group
and the Trustee of the Scheme agreed that no further deficit contributions from
the Group would be required other than those already committed as part of the
31March 2020 actuarial valuation. In accordance with the schedule of
contributions put in place following the 31March 2020 actuarial valuation, in
the first half of 2024 the Group has paid £6.3m of regular deficit contributions
and £14.5m of accelerated deficit contributions and other contributions
triggered by the disposal of Trustmarque in 2022. The Group is not expected to
pay any further deficit contributions to the Scheme in the second half of 2024
and beyond.
The valuation of scheme liabilities (and assumptions used) for funding purposes
(the actuarial valuation) are specific to the circumstances of each scheme. It
differs from the valuation and assumptions used for accounting purposes, which
are set out in IAS19 and shown in these condensed consolidated financial
statements. The main difference is in assumption principles being used based in
the different regulatory requirements of the valuations. Management estimates
that at 30June 2024 the net asset of the Scheme on a funding basis (i.e. the
funding assumption principles adopted for the full actuarial valuation at
31March 2023 updated for market conditions at 30June 2024) was approximately
£84m (31December 2023: net asset £81.0m) on a technical provisions basis. The
Trustee of the Scheme has also agreed a secondary more prudent funding target to
enable it to reduce the reliance the Scheme has on the covenant of the Group. On
this basis, at 30June 2024, the funding level was broadly fully funded.
The net defined benefit pension position of all reported defined benefit schemes
for accounting purposes increased from a surplus of £26.8m at 31December 2023 to
a surplus of £45.0m at 30June 2024. The main reasons for this movement are the
increase in the discount rate applied to the schemes' liabilities following the
increase in corporate bond yields (which reduces the value placed on the
liabilities), and the above deficit funding contributions; partly offset by
lower than assumed investment returns and a small increase in expected future
inflation.
Balance sheet
Consolidated net assets were £170.4m at 30June 2024 (31December 2023: net assets
£114.9m).
The increase predominantly reflects the decrease in net debt and increase in the
pension surplus set out above.
_____________________________________
1 Refer to alternative performance measures in the appendix
Forward looking statements
This half year results statement is prepared for and addressed only to the
Company's shareholders as a whole and to no other person. The Company, its
Directors, employees, agents and advisors accept and assume no liability to any
person in respect of this trading update except as would arise under English
law. Statements contained in this trading update are based on the knowledge and
information available to Capita's Directors at the date it was prepared and
therefore facts stated and views expressed may change after that date.
This document and any materials distributed in connection with it may include
forward-looking statements, beliefs, opinions or statements concerning risks and
uncertainties, including statements with respect to Capita's business, financial
condition and results of operations. Those statements, and statements which
contain the words "anticipate", "believe", "intend", "estimate", "expect" and
words of similar meaning, reflect Capita's Directors' beliefs and expectations
and involve risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future and which may cause results and
developments to differ materially from those expressed or implied by those
statements and forecasts.
No representation is made that any of those statements or forecasts will come to
pass or that any forecast results will be achieved. You are cautioned not to
place any reliance on such statements or forecasts. Those forward-looking and
other statements speak only as at the date of this trading update. Capita
undertakes no obligation to release any update of, or revisions to, any forward
-looking statements, opinions (which are subject to change without notice) or
any other information or statement contained in this trading update.
Furthermore, past performance cannot be relied on as a guide to future
performance.
No statement in this document is intended as a profit forecast or a profit
estimate and no statement in this document should be interpreted to mean that
earnings per Capita share for the current or future financial years would
necessarily match or exceed the historical published earnings per Capita share.
Nothing in this document is intended to constitute an invitation or inducement
to engage in investment activity. This document does not constitute or form part
of any offer for sale or subscription of, or any solicitation of any offer to
purchase or subscribe for, any securities nor shall it or any part of it nor the
fact of its distribution form the basis of, or be relied on in connection with,
any contract, commitment or investment decision in relation thereto. This
document does not constitute a recommendation regarding any securities.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group and its approach to
internal control and risk management are set out on pages 57 to 63 of the 2023
Annual Report and Accounts which is available on the Group's website at
www.capita.com/investors/results-reports-and-presentations.
The Executive Risk and Ethics Committee (EREC) have considered the principal
risks and uncertainties of the Group and have determined that those reported in
the 2023 Annual Report and Accounts remain materially the same for the remaining
half of the financial year.
Risk Risk description
title
1 Deliver profitable Attract new clients and retain existing clients
growth on appropriate commercial terms.
2 Contract performance Deliver services to clients in accordance with
contractual and legal obligations.
3 Innovation Innovate and develop new customer value
propositions with speed and agility.
4 People attraction Attract, develop, engage and retain the right
and retention talent.
5 Financial stability Maintain financial stability and achieve
financial targets.
6 Cyber security Protect our systems, networks and programs from
unauthorised use and access.
7 Environment, Social Comply with regulatory and contractual
and Governance (ESG) requirements to drive a purpose driven
organisation with the right focus on governance.
8 Safety and Health Protect the safety and health of all Capita's
employees and manage our duty of care to them,
the people we work with and those affected by our
activities.
9 Data Governance and Manage our data effectively (both clients and
Data Privacy Capita) as a strategic asset across the
organisation.
Statement of Directors' responsibilities
The Board of directors confirms, to the best of its knowledge, that these
condensed consolidated financial statements have been prepared in accordance
with IAS34 as adopted for use in the UK and that the Half Year Management Report
includes a fair review of the information required by Rules 4.2.7 and 4.2.8 of
the Disclosure Guidance and Transparency Rules of the United Kingdom Financial
Conduct Authority.
The names and functions of the Board of directors of Capita plc are listed on
the Group website at www.capita.com/our-company/about-capita/about-board.
By order of the Board
Adolfo HernandezTim Weller
Chief Executive OfficerChief Financial Officer
1August 20241August 2024
Condensed consolidated income statement
For the six months ended 30June 2024
Notes 30June 2024 30June 2023
£m £m
Revenue 3 1,237.3 1,477.0
Cost of sales (973.2) (1,138.4)
Gross profit 264.1 338.6
Administrative expenses (220.2) (374.4)
Operating profit/(loss) 3 43.9 (35.8)
Share of results in 1.4 -
associates and investment
gains
Net finance expense 5 (23.4) (25.5)
Gain/(loss) on disposal 8 38.1 (6.6)
of businesses
Profit/(loss) before tax 60.0 (67.9)
Income tax charge 6 (7.1) (16.8)
Total profit/(loss) for 52.9 (84.7)
the period
Attributable to:
Owners of the Company 53.0 (84.4)
Non-controlling (0.1) (0.3)
interests
52.9 (84.7)
Earnings/(loss) per share 7
- basic 3.14p (5.06)p
- diluted 3.07p (5.06)p
Adjusted operating profit 4 54.2 40.9
Adjusted profit before 4 31.6 18.3
tax
Adjusted basic earnings 7 2.19p 2.68p
per share
Adjusted diluted earnings 7 2.14p 2.68p
per share
Condensed consolidated statement of comprehensive income
For the six months ended 30June 2024 Notes 30June 2024 30June 2023
£m £m
Total profit/(loss) for the period 52.9 (84.7)
Other comprehensive income/(expense)
Items that will not be reclassified
subsequently to the income statement
Actuarial loss on defined benefit (3.5) (26.6)
pension schemes
Tax effect on defined benefit 0.8 6.1
pension schemes
Loss on fair value of investments - (0.1)
Items that will or may be
reclassified subsequently to the
income statement
Exchange differences on translation 0.2 (3.4)
of foreign operations
Gain/(loss) on cash flow hedges 4.8 (1.6)
Cash flow hedges recycled to the (0.9) (1.2)
income statement
Tax effect on cash flow hedges (1.0) 0.7
Other comprehensive income/(expense) 0.4 (26.1)
for the period net of tax
Total comprehensive income/(expense) 53.3 (110.8)
for the period net of tax
Attributable to:
Owners of the Company 53.4 (110.2)
Non-controlling interests (0.1) (0.6)
53.3 (110.8)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed consolidated balance sheet
At 30June 2024
30June 2024 31December 2023
Notes £m £m
Non-current assets
Property, plant and 72.7 80.0
equipment
Intangible assets 72.2 90.0
Goodwill 448.1 495.7
Right-of-use assets 185.4 208.5
Investments in 0.2 0.2
associates
Contract fulfilment 2 257.2 257.0
assets
Financial assets 11 115.3 97.2
Deferred tax assets 135.0 140.3
Employee benefits 13 49.7 32.7
Trade and other 10.4 12.3
receivables
1,346.2 1,413.9
Current assets
Financial assets 11 31.1 28.1
Income tax receivable 11.8 11.6
Disposal group assets 8 83.2 38.1
held-for-sale
Trade and other 386.8 350.7
receivables
Cash 11 148.7 155.4
661.6 583.9
Total assets 2,007.8 1,997.8
Current liabilities
Overdrafts 11 74.6 95.0
Trade and other 395.6 425.9
payables
Disposal group 8 46.7 9.7
liabilities held-for
-sale
Income tax payable 4.0 1.3
Deferred income 515.2 501.3
Lease liabilities 11 45.8 51.1
Financial liabilities 11 88.9 10.8
Provisions 10 74.5 101.6
1,245.3 1,196.7
Non-current
liabilities
Trade and other 5.9 8.5
payables
Deferred income 43.5 36.2
Lease liabilities 11 309.7 312.3
Financial liabilities 11 180.6 267.5
Deferred tax 7.2 7.2
liabilities
Provisions 10 40.5 48.6
Employee benefits 13 4.7 5.9
592.1 686.2
Total liabilities 1,837.4 1,882.9
Net assets 170.4 114.9
Capital and reserves
Share capital 12 35.2 35.2
Share premium 12 1,145.5 1,145.5
Employee benefit trust 12 (0.4) (0.7)
shares
Capital redemption 1.8 1.8
reserve
Other reserves (11.9) (15.0)
Retained deficit (992.5) (1,053.8)
Equity attributable to 177.7 113.0
owners of the Company
Non-controlling (7.3) 1.9
interests
Total equity 170.4 114.9
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed consolidated statement of changes in equity
For the six months ended 30June 2024
Share Share Employee Capital Retained Other
Total Non Total
capital premium benefit redemption deficit reserves
attributable -controlling equity
trust reserve to
£m £m shares £m £m the
owners £m
£m of
the
£m
parent interests
£m
£m
At 31 34.8 1,145.5 (4.2) 1.8 (843.2) (4.5)
330.2 22.5 352.7
December
2022
Loss for the - - - - (84.4) -
(84.4) (0.3) (84.7)
period
Other - - - - (20.6) (5.2)
(25.8) (0.3) (26.1)
comprehensive
expense
Total - - - - (105.0) (5.2)
(110.2) (0.6) (110.8)
comprehensive
expense for
the
period
Share-based - - - - 2.7 - 2.7
- 2.7
payment net
of
deferred
tax effect
Exercise of - - 3.8 - (3.8) - -
- -
share
options under
employee long
-term
incentive
plans
Shares issued 0.4 - (0.4) - - - -
- -
Change in put - - - - 2.0 - 2.0
- 2.0
-options held
by
non
-controlling
interests
At 30June 35.2 1,145.5 (0.8) 1.8 (947.3) (9.7)
224.7 21.9 246.6
2023
At 31December 35.2 1,145.5 (0.7) 1.8 (1,053.8) (15.0)
113.0 1.9 114.9
2023
Profit/(loss) - - - - 53.0 -
53.0 (0.1) 52.9
for
the period
Other - - - - (2.7) 3.1 0.4
- 0.4
comprehensive
(expense)/inco
me
Total - - - - 50.3 3.1
53.4 (0.1) 53.3
comprehensive
income/(expens
e)
for the
period
Share-based - - - - 2.8 - 2.8
- 2.8
payment net
of
deferred
tax effect
Elimination - - - - - - -
(9.1) (9.1)
of non
-controlling
interest on
disposal of
businesses
(note 8)
Exercise of - - 0.3 - (0.3) - -
- -
share
options under
employee long
-term
incentive
plans
(note 12)
De - - - - 8.5 - 8.5
- 8.5
-recognition
of
put-options
held
by
non
-controlling
interests
(note
11)
At 30June 35.2 1,145.5 (0.4) 1.8 (992.5) (11.9)
177.7 (7.3) 170.4
2024
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed consolidated cash flow statement
For the six months ended 30June 2024
Notes 30June 2024 30June 2023
£m £m
Cash generated/(used by) from operations 9 26.6 (5.6)
Income tax paid (0.4) (3.2)
Interest received 4.1 3.0
Interest paid (26.3) (21.6)
Net cash inflow/(outflow) from operating 4.0 (27.4)
activities
Cash flows from investing activities
Purchase of property, plant and equipment (7.2) (15.0)
Purchase of intangible assets (14.3) (14.4)
Proceeds from sale of property, plant and - 0.1
equipment, and intangible assets
Proceeds from disposal of associates and 0.3 -
joint ventures
Additions to originated loans receivable (0.5) -
Changes to investments at fair value through - (0.1)
other comprehensive income
Capital element of lease rental receipts 2.8 3.8
Deferred consideration from sale of 10.7 -
subsidiary undertakings
Total proceeds received from disposal of 8 56.0 8.2
businesses, net of disposal costs
Cash held by businesses when sold 8 (6.3) (3.7)
Net cash inflow/(outflow) from investing 41.5 (21.1)
activities
Cash flows from financing activities
Capital element of lease rental payments (29.9) (31.1)
Repayment of private placement loan notes - (48.7)
Proceeds from cross-currency interest rate - 8.2
swaps
Repayment of other finance - (0.5)
Proceeds from credit facilities - 41.0
Debt financing arrangement costs - (1.2)
Net cash outflow from financing activities (29.9) (32.3)
Increase/(decrease) in cash and cash 15.6 (80.8)
equivalents
Cash and cash equivalents at the beginning 67.6 177.2
of the period
Effect of exchange rates on cash and cash 2.2 (1.5)
equivalents
Cash and cash equivalents at 30 June 85.4 94.9
Cash and cash equivalents comprise:
Cash 148.7 161.3
Overdrafts (74.6) (86.8)
Cash, net of overdrafts, included in 11.3 20.4
disposal group assets and liabilities held
-for-sale
Total 85.4 94.9
Alternative performance measures (refer note
1.2(b))
Cash generated from operations before 9 19.0 5.1
business exits
Free cash flow before business exits 9 (51.9) (64.3)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Notes to the condensed consolidated financial statements
For the six months ended 30June 2024
1.1 Corporate information
Capita plc (the 'Company' or the 'Parent Company') is a public limited liability
company incorporated in England and Wales whose shares are publicly traded.
These condensed consolidated financial statements as at and for the six months
ended 30June 2024 comprise the Company and its subsidiaries (together referred
to as 'the Group').
These condensed consolidated financial statements were authorised for issue by
the Board of directors on 1August 2024.
These condensed consolidated financial statements are presented in British
pounds sterling and all values are rounded to the nearest tenth of a million
(£m) except where otherwise indicated.
1.2 Basis of preparation, judgements and estimates, and going concern
(a) Basis of preparation
These unaudited condensed consolidated financial statements have been prepared
in accordance with the Disclosure and Transparency Rules of the UK's Financial
Conduct Authority, and with IAS34 Interim Financial Reporting under UK -adopted
International Financial Reporting Standards (IFRS).
These condensed consolidated financial statements have been prepared by applying
the accounting policies and presentation that were applied in the preparation of
the Company's published consolidated financial statements for the year ended
31December 2023.
The Group has considered the impact of new, and amendments to, reporting
standards which are effective from 1January 2024 and concluded that they were
either not applicable, or not material, to these condensed consolidated
financial statements.
The Group is in the early stages of its assessment for all other standards,
amendments and interpretations that have been issued by the International
Accounting Standards Board (IASB) but are not yet effective.
These condensed consolidated financial statements do not comprise statutory
accounts within the meaning of Section434 of the Companies Act2006. Statutory
accounts for the year ended 31December 2023 have been delivered to the Registrar
of Companies. The auditor has reported on those accounts and their opinion was
(i) unqualified, (ii) did not include any matters to which the auditor drew
attention by way of emphasis of matter without modifying their opinion, and
(iii) did not contain a statement under section498(2) or (3) of the Companies
Act2006.
These condensed consolidated financial statements have been reviewed by the
Group's auditors pursuant to the Auditing Practices Board guidance on the Review
of Interim Financial Information.
(b) Adjusted results
IAS1 Presentation of Financial Statements permits an entity to present
additional information for specific items to enable users to better assess the
entity's financial performance.
The Board has adopted a policy to separately disclose those items that it
considers are outside the underlying operating results for the particular period
under review and against which the Group's performance is assessed internally.
In the Board's judgement, these need to be disclosed separately by virtue of
their nature, size and/or incidence for users of the condensed consolidated
financial statements to obtain a proper understanding of the financial
information and the underlying performance of the Group.
In general, the Board believes that alternative performance measures (APMs) are
useful for investors because they provide further clarity and transparency about
the Group's financial performance and are closely monitored by management to
evaluate the Group's operating performance to facilitate financial, strategic
and operating decisions. Accordingly, these items are also excluded from the
discussion of divisional performance. Refer to the appendix for further details
of the Group's APMs. Those items which relate to the ordinary course of the
Group's operating activities remain within adjusted results.
The Board has limited the items excluded from the adjusted results to: business
exits; amortisation and impairment of acquired intangibles; impairment of
goodwill; certain net finance expense/income; the costs associated with the
cyber incident in March 2023; and the costs associated with the cost reduction
programme announced in November 2023.
The Board considers free cash flow, and cash generated from operations excluding
business exits, after deducting the capital element of lease payments and
receipts, to be alternative performance measures because these metrics provide a
more representative measure of the sustainable cash flow of the Group.
While the Board considers APMs to be helpful to the reader, it notes that APMs
have certain limitations, including the exclusion of significant recurring and
non-recurring items, and may not be directly comparable with similarly titled
measures presented by other companies.
A reconciliation between reported and adjusted operating profit and profit
before tax is provided in note4, and a reconciliation between reported and free
cash flow excluding business exits and cash generated from operations is
provided in note9.
(c) Judgements and estimates
These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which require the Board
of directors to make judgements and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingencies at the date of the
financial statements and the reported income and expense during the presented
periods. Although these judgements and assumptions are based on the Board's best
knowledge of the amounts, events or actions, actual results may differ.
The significant judgements and assumptions made by the Board in applying the
Group's accounting policies and the key sources of estimation uncertainty were
the same as those applied to the consolidated financial statements for the year
ended 31December 2023.
Judgements
The key areas where significant accounting judgements have been made and which
have the most significant effect on the amounts recognised in the condensed
consolidated financial statements, are summarised below and set out in more
detail in the related note:
· Contract accounting (note2) - revenue recognition;
· Capitalisation of contract fulfilment assets (note2); and
· Adoption of the going concern basis of preparation (note1.2(d)).
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date, which have a significant risk of causing
material adjustment to the carrying amounts of assets and liabilities within the
next financial year, are summarised below and set out in more detail in the
related note. The Group based its assumptions and estimates on parameters
available when the condensed consolidated financial statements were prepared.
Existing circumstances and assumptions about future developments, however, may
change due to market changes or circumstances arising that are beyond the
control of the Group. Such changes are incorporated into the assumptions when
they occur:
· Contract accounting (note2) - impairment of contract fulfilment assets,
and customer and onerous contract provisions;
· Deferred tax asset recognition (note6);
· Valuation of investments (note 11); and
· Measurement of defined benefit pension obligations (note13).
(d) Going concern
In determining the appropriate basis of preparation of these condensed
consolidated financial statements for the six month period ended 30June 2024,
the Board is required to consider whether the Group can continue in operational
existence for the foreseeable future. The Board has concluded that it is
appropriate to adopt the going concern basis, having undertaken a rigorous
assessment of the financial forecasts, key uncertainties, sensitivities and
mitigations, as set out below.
Accounting standards require that `the foreseeable future' for going concern
assessment covers a period of at least twelve months from the date of approval
of these condensed consolidated financial statements, although those standards
do not specify how far beyond twelve months a Board should consider. In its
going concern assessment, the Board has considered the period from the date of
approval of these condensed consolidated financial statements to 31December 2025
('the going concern period'), which aligns with a year end and a covenant test
date for the Group.
The base case financial forecasts used in the going concern assessment are
derived from financial projections for 2024-2025 as approved by the Board in
June 2024.
The going concern assessment considers the Group's sources and uses of liquidity
and covenant compliance throughout the period under review. The value of the
Group's committed revolving credit facility (RCF) was £250.0m at 30June 2024 and
extends to 31December 2026.
Financial position at 30June 2024
As detailed further in the Chief Financial Officer's review, as at 30June 2024
the Group had net debt of £521.9m (31December 2023: £545.5m), net financial debt
(pre-IFRS16) of £166.4m (31December 2023: £182.1m), available liquidity of
£293.1m (31December 2023: £282.3m) and was in compliance with all debt
covenants.
Board assessment
Base case scenario
Under the base case scenario, the Group's transformation programme and
completion of the Portfolio non-core business disposal programme in January 2024
has simplified and strengthened the business and facilitates further efficiency
savings enabling sustainable growth in revenue, profit and cash flow over the
medium term. When combined with available committed facilities, this allows the
Group to manage scheduled debt repayments. The most material sensitivities to
the base case are the risk of not delivering the planned revenue growth and
efficiency savings from the Group's previously announced restructuring
programme.
The base case projections used for going concern assessment purposes reflect
business disposals completed up to the date of approval of these financial
statements and the agreed sale of the Capita One business because the completion
of the disposal has been assessed to be highly probable. The liquidity headroom
assessment in the base case projections reflects the Group's existing committed
financing facilities and debt redemptions and does not reflect any potential
future refinancing. The base case financial forecasts demonstrate liquidity
headroom and compliance with all debt covenant measures throughout the going
concern period to 31December 2025.
Severe but plausible downside scenario
In considering severe but plausible downside scenarios, the Board has taken
account of the potential adverse financial impacts resulting from the following
risks:
·revenue growth falling materially short of plan;
·operating profit margin expansion not being achieved;
·targeted cost savings delayed or not delivered;
·unforeseen operational issues leading to contract losses and cash outflows;
·sustained interest rates at current levels;
·non-availability of the Group's non-recourse trade receivables financing
facility; and
·unexpected financial costs linked to incidents such as data breaches and/or
cyber-attacks.
The likelihood of simultaneous crystallisation of the above risks is considered
by the directors to be low. Nevertheless in the event that simultaneous
crystallisation were to occur, the Group would need to take action to mitigate
the risk of insufficient liquidity and covenant headroom. In its assessment of
going concern, the Board has considered the mitigations, under the direct
control of the Group, that could be implemented including reductions or delays
in capital investment, and substantially reducing (or removing in full) bonus
and incentive payments. The Board considered the impact of the above risks and
mitigations on the Group both in the scenario where the Capita One disposal does
occur, and if it were not to occur. In the event of the simultaneous
crystallisation of risks and the Capita One disposal does not complete, the
Board also considered the ability of the Group to refinance a portion of the
2025 maturing debt. Taking these considerations into account, the Group's
financial forecasts, in a severe but plausible downside scenario, demonstrate
sufficient liquidity headroom and compliance with all debt covenant measures
throughout the going concern period to 31December 2025.
Adoption of going concern basis
Reflecting the levels of liquidity and covenant headroom in the base case and
severe but plausible downside scenarios, the Group continues to adopt the going
concern basis in preparing these condensed consolidated financial statements.
The Board has concluded that the Group will be able to continue in operation and
meet its liabilities as they fall due over the period to 31December 2025.
2 Contract accounting
At 30June 2024, the Group had the following results and balance sheet items
related to long-term contracts:
Note 30June 2024 30June 2023 31December 2023
£m £m £m
Long-term 3 908.7 1,114.8
contractual revenue
Deferred income 558.7 537.5
Contract fulfilment 257.2 257.0
assets (non-current)
Onerous contract 40.6 43.3
provisions
Background
The Group operates diverse businesses. The majority of the Group's revenue is
from contracts greater than two years in duration (long-term contractual),
representing 73.4% of Group revenue for the six months ended 30June 2024 (30June
2023: 75.5%).
Recoverability of contract fulfilment assets and completeness of onerous
contract provisions
Management first assesses whether contract assets are impaired and then further
considers whether an onerous contract exists. For half and full year reporting,
the Audit and Risk Committee specifically reviews the material judgements and
estimates, and the overall approach to this assessment in respect of the Group's
major contracts, including comparison against previous forecasts.
The major contracts are rated by management according to their financial risk
profile, which is linked to the level of uncertainty over future assumptions.
From the 2024 half year, the major contracts that the Audit and Risk Committee
review for half year reporting, are those in the high or medium rated risk
categories.
At the full year, those contracts material by virtue of their size relative to
the Group, will also be reviewed by the Audit and Risk Committee if not already
identified through the above indicators.
In the following paragraphs, the amounts disclosed for the current period are
only in respect of those major contracts that the Audit and Risk Committee have
reviewed (ie at half year this is only those major contracts which are in the
high or medium risk categories). The prior period amounts in relation to major
contracts are as previously presented, and as such reflect the major contracts
reviewed by the Audit and Risk Committee for that period end. The prior period
amounts are therefore not directly comparable to the those disclosed for the
current period.
The major contracts contributed £180.2m (30June 2023: £647.1m) or 15% (30June
2023: 46%) of Group adjusted revenue. Non-current contract fulfilment assets as
at 30June 2024 were £257.2m (31December 2023: £257.0m), of which £59.8m
(31December 2023: £125.1m) relates to major contracts with ongoing
transformational activities. The remainder relates to contracts post
transformation and includes non-major contracts.
As noted above, the major contracts, both pre- and post-transformation, are
rated according to their financial risk profile. For those that are in the high
and medium rated risk categories the associated non-current contract fulfilment
assets were, in aggregate £61.4m at 30June 2024 (31December 2023: £52.8m). The
recoverability of these assets is dependent on no significant adverse change in
the key contract assumptions arising during the next financial year. The balance
of deferred income associated with these contracts was £148.9m at 30June 2024
(31December 2023: £109.5m) and is forecast to be recognised as performance
obligations continue to be delivered over the life of the respective contracts.
Onerous contract provisions associated with these contracts were £33.7m at
30June 2024 (31December 2023: £37.3m).
Following these reviews, and reviews of smaller contracts across the business,
non-current contract fulfilment asset impairments of £0.2m (30June 2023: £nil)
were identified and recognised within adjusted cost of sales of which £nil
(30June 2023: £nil) relates to non-current contract fulfilment assets added
during the period. Additionally, net onerous contract provisions of £4.2m
(30June 2023: £1.7m) were identified and recognised in adjusted cost of sales
with a further £0.7m excluded from adjusted cost of sales as part of business
exits.
Given the quantum of the relevant contract assets and liabilities, and the
nature of the estimates noted above, management has concluded it is reasonably
possible, that outcomes within the next financial year may be different from
management's current assumptions and could require a material adjustment to the
carrying amounts of contract assets and onerous contract provisions. However, as
noted above, £59.8m of non-current contract fulfilment assets relates to major
contracts with ongoing transformational activities; and, £61.4m of non-current
contract fulfilment assets and £33.7m of onerous contract provisions relate to
the highest and medium rated risk category. Due to the level of uncertainty,
combination of variables and timing across numerous contracts, it is not
practical to provide a quantitative analysis of the aggregated judgements that
are applied, and management do not believe that disclosing a potential range of
outcomes on a consolidated basis would provide meaningful information to a user
of the financial statements. Due to commercial sensitivities, the Group does not
specifically disclose the amounts involved in any individual contract.
Certain major contracts in transformation have key milestones during the next
twelve months and an inability to meet these key milestones could lead to
reduced profitability and a risk of impairment of the associated contract
assets. These include contracts with the BBC, Transport for London , Department
for Work and Pensions and the City of London Police.
3 Revenue and segmental information
The Group's operations are managed separately according to the nature of the
services provided, with each segment representing a strategic business division
offering a different package of client outcomes across the markets the Group
serves. Capitaplc is a reconciling item and not an operating segment. Inter
-segmental pricing is based on set criteria and is either charged on an arm's
length basis or at cost.
The tables below present revenue and segmental profit for the Group's business
segments as reported to the Chief Operating Decision Maker. The Group now
comprises two divisions - Capita Public Service and Capita Experience -
following the completion of the Group's exit of the non-core businesses in the
Capita Portfolio division. Comparative information has been re-presented to
reflect businesses exited during the second half of 2023 and the first half of
2024. Comparative information has also been re-presented to reflect the move of
businesses between segments during the period to enable comparability.
Revenue
Adjusted revenue, excluding results from businesses exited in both periods
(adjusting items), was £1,201.5m (30June 2023: £1,324.4m), a decline of 9.3%
(30June 2023: an increase of 4.8%).
Six months Notes Capita Capita Total Adjusting Total
ended
Public Experience adjusted items reported
30June 2024
Service £m £m £m £m
£m
Continuing
operations
Long-term 570.5 309.7 880.2 28.5 908.7
contractual
Short-term 80.6 190.1 270.7 2.6 273.3
contractual
Transactional 37.4 13.2 50.6 4.7 55.3
(point-in-time)
Total segment 688.5 513.0 1,201.5 35.8 1,237.3
revenue
Trading revenue 700.2 527.9 1,228.1 - 1,228.1
Inter-segment (11.7) (14.9) (26.6) - (26.6)
revenue
Total adjusted 688.5 513.0 1,201.5 - 1,201.5
segment revenue
Business exits 8 - - - 35.8 35.8
- trading
Total segment 688.5 513.0 1,201.5 35.8 1,237.3
revenue
Six months Notes Capita Capita Total Adjusting Total
ended
Public Experience adjusted items reported
30June 2023
Service £m £m £m £m
£m
Continuing
operations
Long-term 574.8 496.2 1,071.0 43.8 1,114.8
contractual
Short-term 101.8 107.8 209.6 20.1 229.7
contractual
Transactional 31.4 12.4 43.8 88.7 132.5
(point-in-time)
Total segment 708.0 616.4 1,324.4 152.6 1,477.0
revenue
Trading revenue 719.7 630.8 1,350.5 - 1,350.5
Inter-segment (11.7) (14.4) (26.1) - (26.1)
revenue
Total adjusted 708.0 616.4 1,324.4 - 1,324.4
segment revenue
Business exits 8 - - - 152.6 152.6
- trading
Total segment 708.0 616.4 1,324.4 152.6 1,477.0
revenue
Order book
The tables below show the order book for each division, categorised into long
-term contractual (contracts with length greater than two years) and short-term
contractual (contracts with length less than two years). The length of the
contract is calculated from the service commencement date. The figures present
the aggregate amount of the currently contracted transaction price allocated to
the performance obligations that are unsatisfied or partially unsatisfied.
Revenue expected to be recognised upon satisfaction of these performance
obligations is as follows:
Order book Capita Capita Total
30June 2024 Public Experience £m
Service £m
£m
Long-term contractual 3,297.8 1,193.0 4,490.8
Short-term contractual 102.2 336.4 438.6
Total 3,400.0 1,529.4 4,929.4
Order book Capita Capita Capita Total
31December 2023 Portfolio Public Experience £m
£m Service £m
£m
Long-term contractual - 3,381.1 2,111.2 5,492.3
Short-term contractual 37.2 164.9 188.2 390.3
Total 37.2 3,546.0 2,299.4 5,882.6
The table below shows the expected timing of revenue to be recognised from long
-term contractual orders at 30June 2024:
Time bands of expected revenue Capita Capita Total
recognition from long-term contractual
orders Public Experience £m
Service £m
£m
< 1 year 868.1 407.5 1,275.6
1-5 years 1,671.7 581.7 2,253.4
> 5 years 758.0 203.8 961.8
Total 3,297.8 1,193.0 4,490.8
Prior year comparative information is not presented for the expected timing of
revenue recognition because it is a forward looking disclosure and therefore
management does not believe that such disclosure provides meaningful information
to a user of these condensed consolidated financial statements.
The order book represents the consideration that the Group will be entitled to
receive from customers when the Group satisfies its remaining performance
obligations under the contracts. However, the total revenue that will be earned
by the Group will also include non-contracted volumetric revenue, future
indexation linked to an external metric, new wins, scope changes and anticipated
contract extensions. These elements have been excluded from the figures in the
tables above because they are not contracted. Additionally, revenue from
contract extensions is also excluded from the order book unless the extensions
are pre-priced whereby the Group has a legally binding obligation to deliver the
performance obligations during the extension period. The total revenue related
to pre-priced extensions included in the tables above amounted to £233.2m
(31December 2023: £513.8m1). The amounts presented do not include orders for
which neither party has performed, and each party has the unilateral right to
terminate a wholly unperformed contract without compensating the other party.
Of the £4.5 billion (31December 2023: £5.5 billion) revenue to be earned on long
-term contracts, £0.9 billion (31December 2023: £3.4 billion1) relates to major
contracts. This amount excludes revenue that will be derived from frameworks
(transactional, ie point-in-time, contracts), non-contracted volumetric revenue,
non-contracted scope changes and future unforeseen volume changes from these
major contracts at half year, which together are anticipated to contribute an
additional £0.9 billion (31December 2023: £0.6 billion1) of revenue to the Group
over the life of these contracts.
Deferred income
The Group's deferred income balances solely relate to revenue from contracts
with customers. Revenue recognised in the reporting period that was included in
the deferred income balance at the beginning of the period was £427.1m (30June
2023: £504.5m; 31December 2023: £599.0m).
Movements in the deferred income balances were driven by transactions entered
into by the Group in the normal course of business during the six months ended
30June 2024.
___________________________________________
1 The prior period amounts in relation to major contracts are as previously
presented, and as such reflect the major contracts reviewed by the Audit and
Risk Committee for that period end (refer to note2). The prior period amounts
are therefore not directly comparable to the those disclosed for the current
period.
Segmental profit
The tables below present profit of the Group's business segments. For segmental
reporting, the costs of central functions have been allocated to the segments
using appropriate drivers such as adjusted revenue, adjusted profit or
headcount. Comparative information has been re-presented to reflect businesses
exited during the second half of 2023 and the first half of 2024.
Six months Notes Capita Capita Capita Total Adjusting Total
ended
Public Experience plc adjusted items reported
30June 2024
Service £m £m £m £m £m
£m
Adjusted 4 47.1 25.1 (18.0) 54.2 - 54.2
operating
profit
Cost 4 (3.6) 0.5 (5.1) - (8.2) (8.2)
reduction
programme
Business 8 - - - - 8.4 8.4
exits -
trading
Total trading 43.5 25.6 (23.1) 54.2 0.2 54.4
result
Non-trading
items:
Business 8 - (10.8) (10.8)
exits - non
-trading
Other 4 - 0.3 0.3
adjusting
items
Operating 54.2 (10.3) 43.9
profit/(loss)
Interest 5 4.9
income
Interest 5 (28.3)
expense
Share of 1.4
results in
associates
and
investment
gains
Gain on 38.1
business
disposal
Profit before 60.0
tax
Supplementary
information
Depreciation 18.7 25.8 1.1 45.6 1.4 47.0
and
amortisation
Impairment of 0.9 1.5 - 2.4 8.4 10.8
property,
plant and
equipment,
intangible
assets
and right-of
-use assets
Non-current 27.6 4.8 - 32.4 1.0 33.4
contract
fulfilment
assets
utilisation,
impairment
and
derecognition
Onerous - 4.2 - 4.2 - 4.2
contract
provisions
Six months Notes Capita Capita Capita Total Adjusting Total
ended
Public Experience plc adjusted items reported
30June 2023
Service £m £m £m £m £m
£m
Adjusted 4 26.2 39.1 (24.4) 40.9 - 40.9
operating
profit
Business 8 - - - - 12.5 12.5
exits -
trading
Total trading 26.2 39.1 (24.4) 40.9 12.5 53.4
result
Non-trading
items:
Business 8 - (25.1) (25.1)
exits - non
-trading
Other 4 - (64.1) (64.1)
adjusting
items
Operating 40.9 (76.7) (35.8)
profit/(loss)
Interest 5 4.4
income
Interest 5 (29.9)
expense
Loss on (6.6)
business
disposal
Loss before (67.9)
tax
Supplementary
information
Depreciation 19.6 29.1 4.2 52.9 4.9 57.8
and
amortisation
Impairment of 1.0 2.0 0.3 3.3 - 3.3
property,
plant and
equipment,
intangible
assets
and right-of
-use assets
Contract 30.3 7.2 - 37.5 2.7 40.2
fulfilment
assets
utilisation,
impairment
and
derecognition
Onerous - 1.7 - 1.7 - 1.7
contract
provisions
4 Adjusted operating profit and adjusted profit before tax
The Board has adopted a policy to separately disclose those items that it
considers are outside the underlying operating results for the particular period
under review and against which the Group's performance is assessed internally.
In the Board's judgement, these need to be disclosed separately by virtue of
their nature, size and/or incidence for users of the consolidated financial
statements to obtain a proper understanding of the financial information and the
underlying performance of the Group.
In general, the Board believes that alternative performance measures (APMs) are
useful for investors because they provide further clarity and transparency about
the Group's financial performance and are closely monitored by management to
evaluate the Group's operating performance to facilitate financial, strategic
and operating decisions. Accordingly, these items are also excluded from the
discussion of divisional performance. Those items which relate to the ordinary
course of the Group's operating activities remain within adjusted profit.
The items excluded from adjusted profit are discussed further below.
Operating Profit/
profit/(lo (loss)
ss) before
tax
Notes 30June 30June 30June 30June 2023
2024 2023 2024
£m
£m £m £m
Reported 43.9 (35.8) 60.0 (67.9)
Amortisation and 0.1 0.1 0.1 0.1
impairment of acquired
intangibles
Impairment of goodwill - 42.2 - 42.2
Net finance expense 5 - - 0.4 2.2
Business exits 8 2.4 12.6 (36.7) 19.9
Cyber incident (0.4) 21.8 (0.4) 21.8
Cost reduction programme 8.2 - 8.2 -
Adjusted 54.2 40.9 31.6 18.3
1.Adjusted operating profit of £54.2m (30June 2023: £40.9m) was generated on
adjusted revenue of £1,201.5m (30June 2023: £1,324.4m) resulting in an adjusted
operating margin of 4.5% (30June 2023: 3.1%).
2.The tax impact of the profit before tax adjusting items is a £12.4m charge
(30June 2023: £42.1m charge).
Amortisation and impairment of acquired intangible assets: the Group recognised
acquired intangible amortisation of £0.1m (30June 2023: £0.1m). These charges
are excluded from the adjusted results of the Group because they are non-cash
items generated from historical acquisition related activity. The charge is
included within administrative expenses.
Impairment of goodwill: the Group carries on its balance sheet significant
amounts of goodwill which are subject to annual impairment testing and when any
indicators of impairment are identified. Any impairment charges are reported
separately because they are non-cash items generated from historical acquisition
related activity. The charge is included within administrative expenses.
Net finance expense: net finance expense excluded from adjusted profits relate
to movements in the mark-to-market value of forward foreign exchange contracts
to cover anticipated future costs and therefore have no equivalent offsetting
transaction in the accounting records.
Business exits: the trading result of businesses exited, or in the process of
being exited, and the gain or loss on disposals, are excluded from the Group's
adjusted results. Note8 provides further detail regarding which income statement
lines are impacted by business exits.
Cyber incident: the Group has incurred exceptional costs associated with the
March 2023 cyber incident. These costs comprise specialist professional fees,
recovery and remediation costs and investment to reinforce Capita's cyber
security environment. A credit of £0.4m has been recognised in the six months
ended 30June 2024, which includes an insurance recovery which met the criteria
to be recognised (30June 2023: charge of £21.8m). Cumulatively the net costs
incurred total £24.9m. Refer to note15 contingent liabilities. The
(credit)/charge is included within administrative expenses.
Cost reduction programme: As detailed in the Chief Financial Officer's review,
the Group has implemented a significant cost reduction programme. A charge of
£8.2m has been recognised in the six months ended 30June 2024 for the costs to
deliver the cost reduction programme. This includes redundancy and other costs
of £11.0m to deliver a significant reduction in indirect support function and
overhead roles, partly offset by a credit of £2.8m arising from the
rationalisation of the Group's property estate. The net credit arises on
property as the charge arising from the impairment of right-of-use assets and
property, plant and equipment, and provisions in respect of onerous property
costs, in the period, has been offset by adjustments to impairments and
provisions recognised in 2023 following lease modifications and changes to
sublet assumptions. The cumulative cost recognised since the commencement of the
cost reduction programme in the second half of 2023 is £62.6m. The charge is
included within administrative expenses.
Refer to note9 for the cash flow impact of the above.
5 Net finance expense
The table below shows the composition of net finance costs, including those
excluded from adjusted profit:
Notes 30June 2024 30June 2023
£m £m
Interest income
Interest on cash (1.2) (0.9)
Interest on finance lease assets (2.8) (2.0)
Net interest income on defined benefit 13 (0.9) (1.5)
pension schemes
Total interest income (4.9) (4.4)
Interest expense
Private placement loan notes1 8.2 6.8
Bank loans and overdrafts 5.6 7.0
Cost of non-recourse trade receivables 11 2.1 1.4
financing
Interest on finance lease liabilities 10.9 11.0
Discount unwind on provisions 10 0.7 0.8
Total interest expense 27.5 27.0
Net finance expense included in adjusted 22.6 22.6
profit
Included within business exits
Bank loans and overdrafts - 0.7
Interest on finance lease liabilities 0.4 0.1
Other financial income - (0.1)
Total included within business exits 8 0.4 0.7
Other items excluded from adjusted
profits
Non-designated foreign exchange forward (0.2) 2.3
contracts - change in mark-to-market
value
Fair value hedge ineffectiveness2 0.6 (0.1)
Total other items excluded from adjusted 0.4 2.2
profits
Net finance expense excluded from 0.8 2.9
adjusted profit
Total net finance expense 23.4 25.5
1.Private placement loan notes comprise USdollar and British pound sterling
private placement loan notes, and the euro fixed rate bearer notes which were
repaid during 2023.
2.Fair value hedge ineffectiveness arises from changes in currency basis, and
the movement in a provision for counterparty risk associated with the swaps.
6 Income tax
30June 30June
2024 2023
Total Included Excluded Total Included in Excluded from
reported in from reported adjusted adjusted
adjusted adjusted profit profit
£m profit profit £m
£m £m
£m £m
Tax (7.1) 5.3 (12.4) (16.8) 25.3 (42.1)
(charge)/
c
redit
Excluding discrete items, the adjusted income tax charge for the six month
period is £8.6m (2023: £3.7m) and has been calculated by applying management's
best estimate of the full-year effective tax rate of 27.3% (estimated using full
-year profit projections excluding any discrete items) to the adjusted profit
before tax for the six months to 30 June 2024. The effective adjusted tax rate,
excluding discrete items, is higher than the standard UK rate of 25% mainly due
to withholding tax on dividends, Pillar Two income tax provisions and
unrecognised tax losses arising in overseas jurisdictions. The adjusted tax
credit on discrete items for the six months is calculated separately, and
relates to the change in estimate of deferred tax assets, £14.3m (2023: £29.4m)
and a prior year adjustment, charge of £0.4m (2023: £0.4m), resulting in the
total adjusted tax credit, including discrete items, of £5.3m (2023: credit of
£25.3m), on adjusted profit before tax of £31.6m (2023: profit of £18.3m).
Excluding discrete items, the reported tax charge of £6.5m (2023: £6.7m)
reflects the £2.1m tax credit on adjusting items. This has been calculated on an
item-by-item basis and reflects the tax exempt profit on disposal. The reported
tax charge on discrete business exit items relates to the deferred tax relating
to the change in estimate of deferred tax assets in respect of divestments,
£14.5m (2023: charge of £39.1m), resulting in the total reported tax charge,
including discrete items, of £7.1m (2023: charge of £16.8m), on a reported
profit before tax of £60.0m (2023: loss of £67.9m).
Deferred tax assets are recognised only to the extent that it is probable that
future taxable profits will be available against which the assets can be
utilised. The recoverability of deferred tax assets is supported by the deferred
tax liabilities against which the reversal can be offset and the expected level
of future profits in the countries concerned. The recognition of deferred tax
assets has been based on the latest financial projections for 2024-2025, using a
long-term growth rate of 1.7% and a reducing probability factor applied to
future profits, consistent with the approach in recent years. This assessment
results in a change in the accounting estimate of deferred tax of £0.2m, which
is reflected as a deferred tax charge in adjusting items due to business
disposals (£14.5m reduction), and an adjusted tax credit in relation to an
increase in taxable profits in the assessment model (£14.3m increase).
Unrecognised temporary differences have increased by £3.4m, resulting in total
unrecognised temporary differences as at 30June 2024 of £850.9m (31December
2023: £847.5m).
The estimated full year effective tax rate of 27.3% includes an income tax
expense of £0.5m (2023: not applicable) related to Pillar Two income taxes. This
charge relates to estimated Pillar Two top-up taxes on profits earned in the
Isle of Man , Switzerland and Poland .
The Group has an open and positive working relationship with HMRC, has a
designated customer compliance manager, and is committed to prompt disclosure
and transparency in dealings with HMRC and overseas tax authorities. The Group
does not have a complex tax structure, supported by legal structure
simplification from the entity rationalisation programme. The Group does not
pursue aggressive tax avoidance activities and has a low-risk rating from HMRC.
The Group has operations in a number of countries outside the UK . All Capita
operations outside the UK are trading operations and pay the appropriate local
taxes on these activities. Further detail, regarding Capita's tax strategy can
be found on the Policies and Principles area of the Capita website
(https://www.capita.com/our-company/about-capita/policies-and-principles).
7 Earnings/(loss) per share
Basic earnings/(loss) per share are calculated by dividing the net profit/(loss)
for the period attributable to ordinary equity holders of the Parent Company by
the weighted average number of ordinary shares outstanding during the period.
Diluted earnings/(loss) per share are calculated by dividing the net
profit/(loss) for the period attributable to ordinary equity holders of the
Parent Company by the weighted average number of ordinary shares outstanding
during the period plus the weighted average number of ordinary shares that would
be issued on the conversion of all the dilutive potential ordinary shares into
ordinary shares.
30June 2024 30June 2023
pence pence
Basic earnings/(loss) per share - reported 3.14 (5.06)
- adjusted 2.19 2.68
Diluted earnings/(loss) per share - reported 3.07 (5.06)
- adjusted 2.14 2.68
The following tables show the earnings and share data used in the basic and
diluted earnings/(loss) per share calculations:
30June 2024 30June 2023
Notes £m £m
Reported profit/(loss) 60.0 (67.9)
before tax for the
period
Income tax 6 (7.1) (16.8)
(charge)/credit
Reported profit/(loss) 52.9 (84.7)
for the period
Less: Non-controlling 0.1 0.3
interest
Total profit/(loss) 53.0 (84.4)
attributable to
shareholders
Adjusted profit before 4 31.6 18.3
tax for the period
Income tax 5.3 25.3
(charge)/credit
Adjusted profit for the 36.9 43.6
period
Less: Non-controlling 0.1 1.1
interest
Adjusted profit 37.0 44.7
attributable to
shareholders
30June 2024 30June 2023
£m £m
Weighted average number of ordinary shares 1,688.1 1,669.4
(excluding Employee Benefit Trust shares) for basic
earnings per share
Dilutive potential ordinary shares:
Employee share options 41.1 34.9
Weighted average number of ordinary shares 1,729.2 1,704.3
(excluding Employee Benefit Trust shares) adjusted
for the effect of dilution
At 30June 2023, 34,916,637 options were excluded from the diluted weighted
average number of ordinary shares calculation because their effect would have
been anti-dilutive. Under IAS33 Earnings per Share, potential ordinary shares
are treated as dilutive when, and only when, their conversion to ordinary shares
would decrease earnings per share or increase loss per share from continuing
operations.
The earnings per share figures are calculated based on earnings attributable to
ordinary equity holders of the Parent Company, and therefore exclude non
-controlling interest. The earnings per share is calculated on a total reported
and an adjusted basis. The earnings per share for business exits and specific
items are reconciling items between total reported and adjusted basic earnings
per share.
There have been no other transactions involving ordinary shares or potential
ordinary shares between the balance sheet date and the date on which these
condensed consolidated financial statements were authorised for issue.
8 Business exits and assets held-for-sale
Business exits
Business exits are businesses that have been sold, exited during the period, or
are in the process of being sold or exited in accordance with the Group's
strategy. None of these business exits meet the definition of `discontinued
operations' as stipulated by IFRS5 Non-current assets held-for-sale and
discontinued operations, which requires disclosure and comparatives to be
restated where the relative size of a disposal or business closure is
significant, which is normally understood to mean a reported segment.
However, the trading results of these businesses, non-trading expenses, and any
gain/loss on disposal, have been excluded from adjusted results. To enable a
like-for-like comparison of adjusted results, the 30June 2023 comparatives have
been re-presented to exclude businesses classified as business exits from 1July
2023 to 30June 2024.
Assets held-for-sale
The Group classifies a non-current asset (or disposal group) as held-for-sale if
its carrying amount will be recovered principally through a sale transaction
instead of continued use. For this to be the case, the asset (or disposal group)
must be available for immediate sale in its present condition subject only to
terms that are usual and customary for sales of such assets (or disposal groups)
and its sale must be highly probable. For the sale to be highly probable, the
appropriate level of management must be committed to a plan to sell the asset
(or disposal group), and an active programme to locate a buyer and complete the
plan must have been initiated. Further, the asset (or disposal group) must be
actively marketed for sale at a price that is reasonable in relation to its
current fair value, and the sale should be expected to be completed within one
year from the date of classification.
Based on the above requirements, individual businesses will only reach the
criteria to be treated as held-for-sale where the disposal is seen to be highly
probable and expected to complete within the following twelve months. At 30June
2023, the PageOne, Software, and Enforcement business disposals were deemed to
have met this threshold. At 31December 2023 one business (the Group's 75%
shareholding in Fera Science Limited) was deemed to have met the threshold to be
treated as held-for-sale.
2024 business exits
Business exits at 30June 2024 comprised:
Business Disposal completed on
Fera 17 January 2024
Capita One Held-for-sale at 30 June 2024
In addition to the above disposals, as disclosed in the 2023 Annual Report, the
Group decided to exit a business in Capita Public Service during the second half
of 2023, the trading result and non-trading expenses of that business have been
excluded from adjusted results. During the first half of 2024, the Group decided
to exit the Mortgage Services business and its corporate venture business
(Capita Scaling Partner), both in Capita Experience. The trading results and non
-trading expenses of these businesses have been excluded from adjusted results.
The Capita Scaling Partner business managed the Group's investments in start-up
and scale-up companies, one of which was sold during the first half of the year
realising a gain of £0.3m. The Group will seek to maximise value from the
remaining Capita Scaling Partner investments, which at 30June 2024 had an
aggregate carrying value of £19.3m, including loans receivable by Capita of
£1.2m. While it is the Board's intention to complete these disposals in the
short to medium-term, where there are presently no signed agreements in place
with any counterparty, there are a range of possible outcomes that could occur,
and the actual net proceeds received could be materially higher or lower than
the investment carrying values.
Income 30June 30June
statement 2024 2023
impact
Trading Non Total Trading Non Total
£m -trading £m £m -trading £m
£m £m
Revenue 35.8 - 35.8 152.6 - 152.6
Cost of sales (27.1) - (27.1) (95.7) - (95.7)
Gross profit 8.7 - 8.7 56.9 - 56.9
Administrative (0.3) (10.8) (11.1) (44.4) (25.1) (69.5)
expenses
Operating 8.4 (10.8) (2.4) 12.5 (25.1) (12.6)
profit/(loss)
Share of - 1.4 1.4 - - -
results in
associates and
investment
gains
Net finance (0.4) - (0.4) (0.8) 0.1 (0.7)
income/(expense
)
Gain/(loss) on - 38.1 38.1 - (6.6) (6.6)
business
disposal
Profit/(loss) 8.0 28.7 36.7 11.7 (31.6) (19.9)
before tax
Taxation (2.0) (12.2) (14.2) (3.0) (39.1) (42.1)
Profit/(loss) 6.0 16.5 22.5 8.7 (70.7) (62.0)
after tax
Trading revenue and costs represent the trading performance of the above
businesses up to the point of being disposed or exited, and in the comparative
those businesses disposed of during 2023 (being: Resourcing, Security Watchdog,
PageOne, Software, Enforcement, and Travel). Trading expenses primarily comprise
payroll costs of £18.0m (30June 2023: £108.8m) and information technology costs
of £9.5m (30June 2023: £20.2m).
Non-trading administrative expenses comprise: asset impairments of £8.7m (30June
2023: £18.1m); disposal project costs of £2.5m (30June 2023: £5.5m); other costs
including staff and redundancy costs of £nil (30June 2023: £2.2m); and other
income of £0.4m (30June 2023: £0.7m).
Non-trading taxation in 2024 relates to a change in accounting estimate of
deferred tax assets, due to businesses being disposed or exited and deductible
intangible impairment. Refer to note6 for further details.
2024 disposals
During the six months ended 30June 2024, the Group disposed of the Group's 75%
shareholding in Fera Science Limited. During the six months ended 30June 2023,
the Group disposed of two businesses: Resourcing and Security Watchdog. The
gain/(loss) arising was determined as follows:
30June 2024 30June 2023
£m £m
Property, plant and equipment - 0.1
Intangible assets - 7.9
Goodwill - 1.7
Trade and other receivables - 21.8
Accrued income - 6.4
Prepayments - 1.4
Cash and cash equivalents - 3.7
Disposal group assets held-for-sale 69.9 -
Trade and other payables - (3.7)
Accruals - (8.1)
Other taxes and social security - (1.2)
Deferred income - (3.7)
Income tax payable and deferred tax liability - (0.4)
Capita group loan balances - (15.0)
Disposal group liabilities held-for-sale (42.4) -
Net identifiable assets sold 27.5 10.9
Non-controlling interests (9.1) -
18.4 10.9
Sales price
- received in cash 61.9 3.3
- deferred receivable - 6.7
Less: disposal costs (5.4) (5.7)
Net sales price 56.5 4.3
Gain/(loss) on business disposals 38.1 (6.6)
Net cash inflow
Proceeds received 61.9 3.3
Less disposal costs:
- income statement charge (5.4) (5.7)
- change in accrued disposal costs during the period (0.5) (4.4)
Settlement of receivables due from disposed businesses
- disposal of businesses in the period - 15.0
Total proceeds received net of disposal costs paid 56.0 8.2
Total cash held by businesses when sold
Cash held by businesses when sold - (3.7)
Cash held by businesses classified as held-for-sale (6.3) -
Total cash held by businesses when sold (6.3) (3.7)
Net cash inflow 49.7 4.5
Disposal group assets and liabilities held-for-sale
At 30June 2024, the Capita One business was deemed to have met the threshold to
be treated as held-for-sale. At 31December 2023, the Group's 75% shareholding in
Fera Science Limited was deemed to have met the threshold to be treated as held
-for-sale.
30June 2024 31December 2023
£m £m
Property, plant and equipment - 5.1
Intangibles 10.5 -
Goodwill 47.0 15.0
Contract fulfilment assets 4.7 -
Trade and other receivables 5.4 3.3
Accrued income 0.2 6.1
Prepayments 3.0 1.4
Cash and cash equivalents 11.3 7.2
Income tax receivable and deferred tax assets 1.1 -
Disposal group assets held for sale 83.2 38.1
Trade and other payables 0.4 2.1
Other taxes and social security 0.1 1.6
Accruals 1.5 1.8
Deferred income 43.9 3.6
Income tax payable and deferred tax liabilities 0.8 0.6
Disposal group liabilities held for sale 46.7 9.7
Business exit cash flows
Businesses exited and being exited had a cash generated from operations inflow
of £22.1m (30June 2023: cash inflow of £4.9m).
9 Cash flow information
30June 30June
2024 2023
Note Reported Excluding Reported Excluding
£m business business
exits1 £m exits1
£m £m
Cash flows from
operating
activities:
Reported operating 4 43.9 43.9 (35.8) (35.8)
profit/(loss)
Add back: business 8 - 2.4 - 12.6
exit operating
loss
Total operating 43.9 46.3 (35.8) (23.2)
profit/(loss)
Adjustments for
non-cash items:
Depreciation 34.9 34.9 41.0 39.9
Amortisation of 12.1 10.8 16.8 13.1
intangible assets
Share-based 2.8 2.8 2.7 2.7
payment expense
Employee benefits 13 4.2 4.2 3.9 3.9
Loss on sale of 0.1 0.1 0.1 0.1
property, plant
and
equipment and
intangible assets
Amendments and (8.4) (8.4) 1.2 1.2
early terminations
of
leases
Impairment of non 10.8 2.1 63.6 45.5
-current assets
Other adjustments:
Movement in (35.4) (30.6) (5.8) (7.3)
provisions
Pension deficit (20.8) (6.3) (30.6) (15.0)
contributions
Other (4.1) (4.1) (4.5) (4.5)
contributions into
pension
schemes
Movements in
working capital:
Trade and other (46.7) (43.1) (106.4) (71.7)
receivables
Non-recourse trade (1.7) (1.7) (4.1) (4.1)
receivables
financing
Trade and other (25.8) (28.1) 27.6 21.6
payables
Deferred income 65.7 45.3 25.5 2.3
Contract (5.0) (5.2) (0.8) 0.6
fulfilment assets
(non
-current)
Cash 26.6 19.0 (5.6) 5.1
generated/(used
by) from
operations
Adjustments for
free cash flows:
Income tax paid (0.4) (0.4) (3.2) 0.6
Interest received 4.1 4.1 3.0 3.0
Interest paid (26.3) (26.3) (21.6) (20.9)
Net cash 4.0 (3.6) (27.4) (12.2)
inflow/(outflow)
from
operating
activities
Purchase of (7.2) (6.9) (15.0) (10.5)
property, plant
and
equipment
Purchase of (14.3) (14.3) (14.4) (14.4)
intangible assets
Proceeds from sale - - 0.1 0.1
of property,
plant and
equipment and
intangible
assets
Capital element of 2.8 2.8 3.8 3.8
lease rental
receipts
Capital element of (29.9) (29.9) (31.1) (31.1)
lease rental
payments
Free cash flow1 (44.6) (51.9) (84.0) (64.3)
1.Definitions of the alternative performance measures and related KPIs can be
found in the appendix.
Cyber incident: In relation to the exceptional cyber incident costs referred to
in note4, the cash outflow during the period ended 30June 2024 was £6.4m (30June
2023: £9.2m) and is included within free cash flow excluding business exits, and
cash generated from operations excluding business exits. The cumulative cash
outflow since the incident in the first half of 2023 is £26.5m.
Cost reduction programme: In relation to the implementation of the cost
reduction programme detailed in note4, the cash outflow during the period ended
30June 2024 was £19.7m and is included within free cash flow excluding business
exits, and cash generated from operations excluding business exits. The
cumulative cash outflow since the commencement of the cost reduction programme
in the second half of 2023 is £25.8m. As announced in March 2024, the cost
reduction initiatives are expected to result in cash costs in the whole of 2024
of an estimated £50m.
Free cash flow and cash generated from operations
The Board considers free cash flow, and cash generated from operations excluding
business exits, to be alternative performance measures because these metrics
provide a more representative measure of the sustainable cash flow of the Group.
These measures are analysed below:
Free cash flow Cash generated/(used) by
operations
2024 2023 2024 2023
£m £m £m £m
Reported (including (44.6) (84.0) 26.6 (5.6)
business exits)
Business exits (21.8) 4.1 (22.1) (4.9)
Pension deficit 14.5 15.6 14.5 15.6
contributions triggered by
disposals
Excluding business exits (51.9) (64.3) 19.0 5.1
Business exits: the cash flows of businesses exited, or in the process of being
exited, and the proceeds from disposals, are disclosed outside the adjusted
results. The 30June 2023 results have been re-presented for those businesses
exited, or in the process of being exited, during the period from 1July 2023 to
30June 2024 to enable comparability of the adjusted results.
Pension deficit contributions triggered by disposals: the Trustee of the Group's
main defined benefit pension scheme has agreed with the Group to accelerate the
payment of future agreed deficit contributions on a pound for pound basis in the
event of disposal proceeds being used to fund mandatory prepayments of debt. The
disposal of Trustmarque in March 2022 resulted in accelerated deficit
contributions totalling £14.5m being paid into the Scheme in the first half of
2024. The disposal of Pay360 and Capita Translation and Interpreting in the
second half of 2022 resulted in accelerated deficit contributions totalling
£15.6m in the first half of 2023.
Reconciliation of net cash flow to movement in net debt
Overdrafts comprise the aggregate value of overdrawn bank account balances
within the Group's notional interest pooling arrangements. These aggregate
overdrawn amounts are fully offset by surplus balances within the same notional
pooling arrangements.
At 30June 2024, Group's £250.0m committed revolving credit facility was undrawn
(31December 2023: undrawn).
Six months ended 30June Net debt at Cash flow Non-cash Net debt at
2024 1 January movements 30June
£m £m movement 1 £m
£m
Cash, cash equivalents 67.6 15.6 2.2 85.4
and overdrafts
Private placement loan (267.0) - (1.5) (268.5)
notes
Unamortised transaction 4.5 - (1.1) 3.4
costs on debt issuance
Carrying value of (262.5) - (2.6) (265.1)
private placement loan
notes
Cross-currency interest 13.6 - 0.5 14.1
rate swaps
Fair value of private (248.9) - (2.1) (251.0)
placement loan notes
Other finance (0.1) - - (0.1)
Lease liabilities (363.4) 41.2 (33.3) (355.5)
Total net liabilities (612.4) 41.2 (35.4) (606.6)
from financing
activities
Deferred consideration (0.7) - - (0.7)
payable
Net debt (545.5) 56.8 (33.2) (521.9)
1.The non-cash movement relates to: the effect of changes in foreign exchange
rates on cash; fair value changes on the swaps; amortisation of loan notes issue
costs; amortisation of the discount on the euro debt; and additions,
terminations and foreign exchange rate effects on the Group's leases.
Six months ended 30June Net debt at Cash flow Non-cash Net debt at
2023
1 January movements movement 1 30June
£m £m £m £m
Cash, cash equivalents 177.2 (80.8) (1.5) 94.9
and overdrafts
Private placement loan (289.5) 48.7 6.8 (234.0)
notes
Unamortised discount on 1.6 - (0.7) 0.9
debt issuance
Unamortised transaction 2.4 1.2 (1.0) 2.6
costs on debt issuance
Carrying value of (285.5) 49.9 5.1 (230.5)
private placement loan
notes
Cross-currency interest 24.8 (8.2) (5.4) 11.2
rate swaps
Fair value of private (260.7) 41.7 (0.3) (219.3)
placement loan notes
Other finance (0.7) 0.5 0.1 (0.1)
Credit facilities - (41.0) - (41.0)
Lease liabilities (397.5) 42.2 (23.1) (378.4)
Total net liabilities (658.9) 43.4 (23.3) (638.8)
from financing
activities
Deferred consideration (0.7) - - (0.7)
payable
Net debt (482.4) (37.4) (24.8) (544.6)
10 Provisions
Cost Business Claims and Property Customer Other
Total
reduction exit
litigation provision contract provisions
£m
provision provision
provision £m provision £m
£m £m
£m £m
At 1January 29.5 7.8 41.4 7.8 58.5 5.2
150.2
Provisions 8.0 4.0 4.5 1.5 7.2 2.8
28.0
in
the period
Releases in (3.9) (1.2) (7.4) 0.3 (7.0) (3.0)
(22.2)
the period
Utilisation (19.7) (5.2) (6.4) (1.8) (7.4) (1.2)
(41.7)
Discount - - - - 0.7 -
0.7
unwind on
provisions
At 30June 13.9 5.4 32.1 7.8 52.0 3.8
115.0
30June 31December
2024 2023
£m £m
Current 74.5 101.6
Non-current 40.5 48.6
115.0 150.2
Cost reduction provision: The provision represents the cost of reducing
headcount where communication to affected employees has crystallised a valid
expectation that roles are at risk and it is likely to unwind over the next
twelve months. Additionally, it relates to unavoidable running costs of
leasehold properties (such as insurance and security) and dilapidation
provisions, where properties are exited as a result of the cost reduction
programme. These provisions are likely to unwind over periods of up to four
years.
Business exit provision: The provision relates to the cost of exiting businesses
through disposal or closure including professional fees related to business
exits and the costs of separating the businesses being disposed. These are
likely to unwind over a period of one to four years.
Claims and litigation provision: The Group is exposed to claims and litigation
proceedings arising in the ordinary course of business. These matters are
reassessed regularly and where obligations are probable and estimable,
provisions are made representing the Group's best estimate of the expenditure to
be incurred. Due to the nature of these claims, the Group cannot give an
estimate of the period over which this provision will unwind.
Property provision: The provision relates to unavoidable running costs, such as
insurance and security, of leasehold property where the space is vacant or
currently not planned to be used, and dilapidation costs, for ongoing
operations, and not the cost reduction programme (where such costs are included
in the cost reduction provision). The expectation is that this expenditure will
be incurred over the remaining periods of the leases which vary up to 22 years.
Customer contract provision: The provision includes onerous contract provisions
in respect of customer contracts where the costs of fulfilling a contract (both
incremental and costs directly related to contract activities) exceed the
economic benefits expected to be received under the contract, claims/obligations
associated with missed milestones in contractual obligations, and other
potential exposures related to contracts with customers. Customer contract life
-time reviews are used to determine the value of an onerous contract provision.
The lifetime contract review reflects the forecast of the best estimate of
external revenues and costs over the remaining contract term. These provisions
are forecast to unwind over periods of up to six years.
The customer contract provision includes £46.4m (31December 2023: £53.3m) in
respect of closed book Life and Pensions contracts in Capita Experience. The
closed books and contractual dynamics have led to onerous conditions to service
certain of these contracts. Management has been required to assess the likely
length of these contracts, given the pattern and experience of contract
terminations while also recognising the evergreen clauses (which potentially
allow the customer to extend the contracts indefinitely until the run-off of the
underlying life and pension books is complete). Accordingly, the Group has, in
prior years, provided for the onerous contract conditions based on the best
estimate of the remaining contract terms and the period and likely costs to
support the final handover of services. At 30June 2024, the provision was
increased to provide cover for contracts to extend out to June 2029 (ie a five
year rolling period).
Other provisions: Relates to provisions in respect of other exposures arising as
a result of the nature of some of the operations that the Group provides,
including supplier audit and regulatory provisions, and for which an outflow of
economic benefits is deemed probable. These are likely to unwind over periods of
up to five years.
11 Financial instruments
The Group's financial assets and liabilities are classified based on the
following fair value hierarchy:
·Level-1: quoted (unadjusted) prices in active markets for identical assets or
liabilities.
·Level-2: other techniques for which inputs that have a significant effect on
the recorded fair value are based on observable (directly or indirectly) market
data. With the exception of current financial instruments (which have a short
maturity), the fair value of the Group's level-2 financial instruments was
calculated by discounting the expected future cash flows at prevailing interest
rates. The valuation models incorporate various inputs including foreign
exchange spot and forward rates and interest rate curves. In the case of
floating rate borrowings the nominal value approximates to fair value because
interest is set at floating rates where payments are reset to market values at
intervals of less than one year.
·Level-3: other techniques for which inputs that have a significant effect on
the recorded fair value are not based on observable market data.
Other financial instruments, where observable market data is not available, are
carried at either amortised cost or cost (undiscounted cash flows) as a
reasonable approximation of fair value. During the six months ended 30June 2024,
there were no assets or liabilities transferred between the fair value levels.
The following table analyses, by classification and category, the carrying value
of the Group's financial instruments and identifies the level of the fair value
hierarchy for the instruments carried at fair value:
At 30June Note Fair FVPL FVOCI Derivatives Amortised Total
Current Non-
2024
value £m £m used for cost £m £m
current
hierarchy hedging £m
£m
£m
Financial
assets
Lease n/a - - - 98.8 98.8
5.6 93.2
receivables
Cash flow Level-2 - - 2.3 - 2.3
1.4 0.9
hedges -
foreign
exchange
contracts
Cash flow a Level-2 - - 0.4 - 0.4
0.2 0.2
hedges -
interest
rate swaps
Non Level-2 0.4 - - - 0.4
0.4 -
-designated
foreign
exchange
forwards and
swaps
Cross a Level-2 - - 15.4 - 15.4
11.7 3.7
-currency
interest rate
swaps
Originated n/a - - - 1.2 1.2 -
1.2
loans
receivable
Financial Level-3 17.9 - - - 17.9
2.5 15.4
assets at
fair
value through
P&L
Financial Level-3 - 0.7 - - 0.7 -
0.7
assets at
fair
value through
OCI
Deferred n/a - - - 9.3 9.3
9.3 -
consideration
receivable
Cash n/a - - - 148.7 148.7
148.7 -
Cash included 8 n/a - - - 11.3 11.3
11.3 -
within
disposal
group
assets held
-for-sale
Total 18.3 0.7 18.1 269.3 306.4
191.1 115.3
financial
assets
At 30June Note Fair FVPL FVOCI Derivatives Amortised Total
Current Non-
2024 £m £m used for cost £m
value hedging £m £m
current
£m
hierarchy
£m
Financial
liabilities
Private a n/a - - - 265.1 265.1
87.4 177.7
placement
loan
notes
Other finance n/a - - - 0.1 0.1
0.1 -
Cash flow Level-2 - - 1.4 - 1.4
0.5 0.9
hedges -
foreign
exchange
contracts
Cash flow Level-2 - - 0.5 - 0.5
0.5 -
hedges -
interest
rate swaps
Non Level-2 0.4 - - - 0.4
0.4 -
-designated
foreign
exchange
forwards and
swaps
Cross a Level-2 - - 1.3 - 1.3 -
1.3
-currency
interest rate
swaps
Deferred n/a - - - 0.7 0.7 -
0.7
consideration
payable
Overdrafts n/a - - - 74.6 74.6
74.6 -
Lease n/a - - - 355.5 355.5
45.8 309.7
liabilities
Total 0.4 - 3.2 696.0 699.6
209.3 490.3
financial
liabilities
Financial assets measured at amortised cost consist of cash, lease receivables,
originated loans and deferred consideration receivable. The carrying value of
cash is a reasonable approximation of its fair value due to the short-term
nature of the instruments. Lease receivables, originated loans and deferred
consideration receivable are measured at amortised cost using the effective
interest rate method. Included in other investments are £0.7m (31December 2023:
£0.7m) of strategic investments in unlisted equity securities which are not held
-for-trading and the Group elected to recognise at Fair Value through Other
Comprehensive Income (FVOCI). During the period no dividends were received from,
and no disposals were made of, strategic investments.
The financial assets at Fair Value through Profit and Loss (FVPL) relate to the
Group's minority shareholding in companies as part of Capita Scaling Partner.
The assets are revalued when reliable information on fair value becomes
available, which is normally at each funding round. As set out in note 8, during
the first half of 2024 the Group decided to exit the Capita Scaling Partner
business, and the Group will seek to maximise value from the remaining
investments. Where the disposal process for an investment is deemed to be
sufficiently advanced at 30 June 2024, such that the disposal is expected to
complete within 12 months of the balance sheet date, the related asset has been
disclosed as current, rather than non-current. While it is the Board's intention
to complete these disposals in the short to medium-term, where there are
presently no signed agreements in place with any counterparty, there are a range
of possible outcomes that could occur, and the actual net proceeds received
could be materially higher or lower than the carried forward investment carrying
values.
Financial liabilities measured at amortised cost consist of loan notes,
overdrafts, lease liabilities, credit facilities and deferred consideration
payable. With the exception of certain series within the fixed rate private
placement loan notes, the carrying value of financial liabilities are a
reasonable approximation of their fair value. This is because either the
interest payable is close to market rates or the liability is short-term in
nature. The private placement loan note series that remain subject to a fixed
rate of interest have an underlying carrying value of £174.1m (31December 2023:
£173.9m) and a fair value of £166.1m (31December 2023: £166.3m). The carrying
value of overdrafts is a reasonable approximation of fair value reflecting the
short-term nature of the instruments. Lease liabilities and deferred
consideration payable are measured at amortised cost using the effective
interest rate method.
The Group's key financial liabilities are set out below:
a. Private placement loan notes
The private placement loan notes were issued in USD and GBP. The Group manages
its exposure to foreign exchange and interest rate movements through cross
-currency interest rate swaps, interest rate swaps, and cross currency swaps.
b. Bank facilities
The Group's revolving credit facility (RCF) was undrawn at 30June 2024
(31December 2023 undrawn). The Chief Financial Officer's review and going
concern basis of preparation in note1.2(d) includes further details of the RCF.
c. Put options of non-controlling interests
The option held by the non-controlling shareholder of Fera Science Limited
expired without being exercised on completion of the sale of the Group's
shareholding in Fera Science Limited on 17January 2024 (refer to note 8) and the
related liability was de-recognised.
At 31December Note Fair FVPL FVOCI Derivatives Amortised Total
Current Non-
2023
value £m £m used for cost £m £m
current
hierarchy hedging £m
£m
£m
Financial
assets
Lease n/a - - - 70.3 70.3
6.3 64.0
receivables
Cash flow Level-2 - - 1.8 - 1.8
1.4 0.4
hedges -
foreign
exchange
contracts
Cash flow Level-2 - - 0.1 - 0.1
0.1 -
hedges -
interest rate
swaps
Non Level-2 0.3 - - - 0.3
0.3 -
-designated
foreign
exchange
forwards and
swaps
Cross a Level-2 - - 14.5 - 14.5 -
14.5
-currency
interest rate
swaps
Originated n/a - - - 0.7 0.7 -
0.7
loans
receivable
Financial Level-3 16.9 - - - 16.9 -
16.9
assets at
fair value
through
P&L
Financial Level-3 - 0.7 - - 0.7 -
0.7
assets at
fair value
through
OCI
Deferred n/a - - - 20.0 20.0
20.0 -
consideration
receivable
Cash and cash n/a - - - 155.4 155.4
155.4 -
equivalents
Cash and cash 4 n/a - - - 7.2 7.2
7.2 -
equivalents
included
within
disposal
group assets
held
-for
-sale
Total 17.2 0.7 16.4 253.6 287.9
190.7 97.2
financial
assets
At 31December Note Fair FVPL FVOCI Derivatives Amortised Total
Current Non-
2023 used for £m £m
current
value £m £m hedging cost
£m
£m
hierarchy £m
Financial
liabilities
Private a n/a - - - 262.5 262.5 -
262.5
placement
loan notes
Other loan n/a - - - 0.1 0.1
0.1 -
notes
Cash flow Level-2 - - 3.6 - 3.6
1.5 2.1
hedges -
foreign
exchange
contracts
Cash flow Level-2 - - 1.2 - 1.2 -
1.2
hedges -
currency
swaps
Cash flow Level-2 - - 0.6 - 0.6
0.6 -
hedges -
interest rate
swaps
Non Level-2 0.2 - - - 0.2
0.1 0.1
-designated
foreign
exchange
forwards and
swaps
Cross a Level-2 - - 0.9 - 0.9 -
0.9
-currency
interest rate
swaps
Deferred n/a - - - 0.7 0.7 -
0.7
consideration
payable
Put options c Level-3 - 8.5 - - 8.5
8.5 -
of non
-controlling
interests
Overdrafts n/a - - - 95.0 95.0
95.0 -
Lease n/a - - - 363.4 363.4
51.1 312.3
liabilities
Total 0.2 8.5 6.3 721.7 736.7
156.9 579.8
financial
liabilities
The following table shows the changes from the opening balances to the closing
balances for Level-3 fair values.
Put options Investments
of non- FVPL and
controlling FVOCI
interests £m
£m
At 1January 8.5 17.6
Change in put-options recognised in retained earnings (8.5) -
Gain in fair value recognised in income statement - 1.0
At 30June - 18.6
Non-recourse trade receivables financing
In the UK , to provide working capital at economically favourable rate versus the
RCF, the Group uses a non-recourse trade receivables financing facility. The
value of invoices sold under this arrangement at 30June 2024 was £22.8m
(31December 2023: £23.7m). Additionally, in Germany the Group uses a non
-recourse trade receivable financing arrangement for two specific customer
contracts, the value of invoices sold under that arrangement at 30June 2024 was
£10.7m (31December 2023: £11.5m). The costs of selling such invoices of £2.1m
(30June 2023: £1.4m) are included in net finance expense in the condensed
consolidated income statement.
12 Issued share capital and share premium
Share capital Share premium Employee benefit trust shares
Allotted, called No.m £m £m No.m £m
up and fully paid
Ordinary shares
of 2 1/15p
At 1 January 1,701.1 35.2 1,145.5 16.8 (0.7)
Issued on - - - (7.7) 0.3
exercise of share
options
At 30June 1,701.1 35.2 1,145.5 9.1 (0.4)
The Group uses shares held in the Employee Benefit Trust (EBT) to satisfy future
requirements for shares under the Group's share option and long-term incentive
plans.
During the six months to 30June 2024, 7,745,618 (30June 2023: 8,413,744) shares
with a value of £0.3m (30June 2023: £3.8m) were transferred out of the EBT to
satisfy exercises under the Group's share option and long term incentive plans.
The total consideration received in respect of these shares was £nil (30June
2023: £nil).
The Group has an unexpired authority to repurchase up to 10.0% of its issued
share capital.
13 Employee benefits
The total net defined benefit pension position for accounting purposes as at
30June 2024 is calculated on a year-to-date basis, using the accounting
valuations as at 31December 2023.
The principal financial assumptions for the accounting valuation as at 30June
2024 for the UK based schemes (which represents around 98% total assets of the
defined benefit pension schemes in which the Group participates) were as
follows:
30June 2024 31December 2023
Discount rate 5.15% pa 4.55% pa
Rate of price inflation - RPI 3.15% pa 3.05% pa
Rate of price inflation - CPI 2.60% pa 2.45% pa
There were no changes in demographic assumptions since 31December 2023.
Movements in the total net defined benefit pension position recognised in the
balance sheet were as follows:
30June 2024 30June 2023
£m £m
At 1 January 26.8 39.6
Current service and (4.2) (3.7)
administration costs
Termination benefits - (0.2)
Interest income 0.9 1.5
Actuarial gain recognised in 81.1 50.7
OCI1
Return on plan assets, (84.6) (77.3)
excluding interest, recognised
in OCI
Employer contributions 24.9 40.0
Exchange movement 0.1 -
At 30 June 45.0 50.6
Schemes in a net surplus 49.7 54.2
Schemes in a net deficit (4.7) (3.6)
At 30 June 45.0 50.6
1. The increase in long-dated corporate bond yields, and hence the discount
rate, (by around 0.6% pa) reduced the value placed on the liabilities. This was
partially offset by the impact of actual inflation over the period being greater
than expected and future expected inflation being slightly higher.
The latest formal valuation for the Group's main defined benefit pension scheme
('HPS', which represents around 96% of the total assets of the defined benefit
pension schemes in which the Group participates), was carried out as at 31March
2023. This identified a statutory funding surplus of £51.4m. Given the funding
position of the HPS, the Group and the Trustee of the HPS agreed that no further
deficit contributions from the Group would be required other than those already
committed2 as part of the 31March 2020 actuarial valuation. In accordance with
the schedule of contributions put in place following the 31March 2020 actuarial
valuation, in the first half of 2024 the Group has paid £6.3m of regular deficit
contributions and £14.5m of accelerated deficit contributions triggered by the
disposal of Trustmarque in March 2022. The Group is not expected to pay any
further deficit contributions to the HPS in the second half of 2024 and beyond.
The estimated updated funding positions as at 30June 2024 show that the HPS
continued to meet its statutory funding target, and had met its secondary
funding target.
The next full actuarial valuation for the HPS is due to be carried out with an
effective date of 31March 2026.
2. These include additional, non-statutory, contributions to meet a secondary
funding target with the objective of having sufficient assets to invest in a
portfolio of low-risk assets with a low dependency covenant that will generate
income to pay members' benefits as they fall due.
14 Related-party transactions
Compensation of key management personnel
30June 2024 30June 2023
£m £m
Short-term employment benefits 2.9 3.4
Share-based payments 0.9 0.8
3.8 4.2
Gains on share options exercised in the period by Capitaplc Executive Directors
were £nil (30June 2023: £nil) and by key management personnel £0.1m (30June
2023: £0.3m).
During the period, the Group rendered administrative services to Smart DCC
Limited (DCC), a wholly-owned subsidiary which is not consolidated. The Group
received £62.6m (30June 2023: £61.3m) of revenue for these services and at the
balance sheet date had receivables of £11.1m (31December 2023: £9.0m) from DCC.
The services are procured by DCC on an arm's length basis under the DCC licence.
The services are subject to review by Ofgem to ensure that all costs are
economically and efficiently incurred by DCC.
HPS (Capita's main defined benefit pension scheme) is a related party of the
Group.
15 Contingent liabilities
Contingent liabilities represent potential future cash outflows which are either
not probable or cannot be measured reliably.
The Group has provided, through the normal course of its business, performance
bonds and bank guarantees of £23.8m (31December 2023: £22.5m). At 30June 2024
there was an additional guarantee of £9.5m in relation to the disposed Travel
businesses, which has since expired as of the 25 July 2024.
The Group is reviewing its position in respect of a number of its closed book
Life and Pensions contracts. The outcomes and timing of this review, which are
uncertain, could result in no change to the current position, the continuation
of contracts with amended terms or the termination of contracts. If an operation
is terminated, the Group may incur associated costs, accelerate the recognition
of deferred income or the impairment of contract assets.
Following the cyber incident in March 2023, Capita has been working closely with
all appropriate regulatory authorities and with customers, suppliers and
employees to notify those affected and take any remaining necessary steps to
address the incident. At the date of approval of these consolidated financial
statements, we remain in dialogue with the Information Commissioner's Office
(ICO) and are responding to the ICO's information requests. While we anticipate
that there will be further additional requests as part of the ICO's review, no
formal action has been taken by the ICO in connection with the cyber incident
and there have been no preliminary findings regarding fault that could lead to
any potential regulatory penalty. The Group has received notification of
potential claims for damages by or on behalf of individuals whose data may have
been exfiltrated as part of the incident. The Group has received only one
substantive claim in relation to the cyber incident, which was issued by Barings
Law on 4 April 2024. The Group intends to vigorously defend itself against this
and any other claims which may be issued. At the date of approval of these
financial statements, it is not possible to reliably estimate the value of any
existing, potential or future claim or penalty against the Group and
consequently no provision has been recorded.
The Group's entities are otherwise party to legal actions and claims which arise
in the normal course of business. The Group needs to apply judgement in
determining the merit of litigation against it and the chances of a claim being
successfully made. It needs to determine the likelihood of an outflow of
economic benefits occurring and whether there is a need to disclose a contingent
liability or whether a provision might be required due to the probability
assessment.
At any time there are a number of claims or notifications that need to be
assessed across the Group. The disparate nature of the Group's entities
heightens the risk that not all potential claims are known at any point in time.
16 Post balance sheet events
There have been no material events arising after the reporting date.
Independent review report to Capita plc
Conclusion
We have been engaged by Capita PLC ("the Company") to review the condensed set
of financial statements in the half-yearly financial report for the six months
ended 30 June 2024 which comprises the condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed consolidated
balance sheet, condensed consolidated statement of changes in equity, condensed
consolidated cash flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2024 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of
the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK ) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK ) 2410") issued for use in the UK . A
review of interim financial information consists of making enquiries, primarily
of persons responsible for financial and accounting matters, and applying
analytical and other review procedures. We read the other information contained
in the half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK ) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in
an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that the
directors have identified material uncertainties relating to going concern that
have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK ) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1.2, the annual financial statements of the Group are
prepared in accordance with UK -adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK .
In preparing the condensed set of financial statements, the directors are
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern, are
based on procedures that are less extensive than audit procedures, as described
in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Ian Griffiths
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
1August 2024
Appendix: Alternative performance measures
The Group presents various alternative performance measures (APMs) because
internally the performance of the Group is reported and measured on this basis.
This includes Key Performance Indicators (KPIs) such as adjusted revenue,
adjusted profit before tax, adjusted basic/diluted earnings per share, free cash
flow excluding business exits, and gearing ratios. In general, the Board
believes that the APMs are useful for investors because they provide further
clarity and transparency of the Group's financial performance and are closely
monitored by management to evaluate the Group's operating performance to
facilitate financial, strategic and operating decisions.
These APMs should not be viewed as a complete picture of the Group's financial
performance which is presented in the reported results. The exclusion of certain
items may result in a more favourable view when costs such as acquired
intangible amortisation, costs relating to the cyber incident in March 2023,
expenses associated with the cost reduction programme and impairments of
goodwill are excluded. These measures may not be comparable when reviewing
similar measures reported by other companies.
APM Closest Definition,
equivalent Purpose
IFRS and
measure Reconciliation
Income
statement
Adjusted Revenue Calculated as
revenue revenue less
any
[image] revenue
relating to
businesses
that
have been
sold, or
exited
during the
year or
prior year;
or, are
in the process
of
being sold, or
exited.
This measure
of
revenue is
used
internally
in
respect of
the
Group's
continuing
business
(being
the Group's
continuing
activities,
which
exclude
business
exits)
and the
Board
believes it
is
a good
indication
of
ongoing
performance.
The table
below
shows a
reconciliation
between
reported
and adjusted
revenue,
as well as
adjusted
revenue
growth/(decline
):
30June 30June
2024 2023
Reported £1,237.3m £1,477.0m
revenue
per the income
statement
Deduct: (£35.8m) (£152.6m)
business
exits (note3)
Adjusted £1,201.5m £1,324.4m
revenue
Adjusted (9.3)% 4.8%
revenue
(decline)/growt
h
Adjusted Operating Calculated as
operating profit reported
profit operating
profit
[image] excluding
items
determined by
the
Board
to be outside
underlying
operations.
These items
are
detailed in
note4.
A reconciliat
i
o
n
of reported
to
adjusted
operating
profit is
provided in
note4.
Adjusted Operating Calculated as
operating profit the
profit margin adjusted
margin operating
profit divided
[image] 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:
30June 30June
2024 2023
Adjusted a £1,201.5m £1,324.4m
revenue
Adjusted b £54.2m £40.9m
operating
profit (note4)
Adjusted b/a 4.5% 3.1%
operating
profit margin
Adjusted No direct Calculated as
EBITDA equivalent adjusted
operating
[image] profit
for the six
month
period before:
depreciation,
amortisation
and
impairment of
property,
plant and
equipment,
intangible
assets
and right
-of-use
assets; net
finance costs;
and
the share of
results in
associates and
investment
gains
(other than
those
already
excluded
from adjusted
operating
profit).
The directors
believe that
adjusted
Earnings
before
Interest, Tax,
Depreciation
and
Amortisation
(EBITDA)
is a useful
measure
for investors
because it is
closely
monitored
by
management to
evaluate Group
and
divisional
operating
performance.
This measure
has
been
calculated pre
and post the
impact
of IFRS16 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 Pre
IFRS16 IFRS16
30June 30June 30June 30June
2024 2023 2024 2023
Adjusted £31.6m £18.3m £32.4m £19.2m
profit
before tax
Add back: £22.6m £22.6m £14.5m £13.6m
adjusted
net finance
costs
(note5)
Add back: £12.9m £16.4m £12.9m £16.4m
adjusted
depreciation
and
impairment of
property,
plant and
equipment
Add back: £22.3m £26.5m £-m £-m
depreciation
and
impairment
of right-of
-use
assets
Add back: £12.8m £13.3m £12.8m £13.3m
adjusted
amortisation
and
impairment of
intangibles
Adjusted £102.2m £97.1m £72.6m £62.5m
EBITDA
Adjusted 8.5% 7.3% 6.0% 4.7%
EBITDA
margin
Alternative performance measures continued
APM Closest Definition,
equivalent Purpose
IFRS measure and
Reconciliation
Income
statement
continued
Adjusted Profit/(loss) Calculated as
profit/(loss) before profit or loss
tax before tax
before tax excluding the
items
[image] detailed in
note4
which include:
business exits
(trading
results, non
-trading
expenses,
and any
gain/(loss) on
business
disposal);
acquired
intangible
amortisation;
impairment of
goodwill and
acquired
intangibles;
costs
of the cyber
incident
in March 2023;
and
expenses
associated
with the cost
reduction
programme.
A reconciliation
of
reported to
adjusted
profit before
tax is
provided in
note4.
Adjusted Profit/(loss) Calculated as
profit/(loss) after the
tax above adjusted
after tax profit
or loss before
[image] tax,
less the tax
credit
or expense on
adjusted
profit or
loss.
The table below
shows a
reconciliation:
30June
30June
2024
2023
Adjusted
£31.6m £18.3m
profit
before tax
(note4)
Tax on
£5.3m £25.3m
adjusted
profit (note6)
Adjusted
£36.9m £43.6m
profit
after tax
Adjusted Basic earnings Calculated as
basic per the
earnings per share adjusted
share profit or
loss
[image] for the period
after tax less
non
-controlling
interests
divided
by the
weighted
average
number of
ordinary
shares
outstanding
during the
period.
The Board
believes
that this
provides
an indication
of
basic earnings
per
share of the
Group
on adjusted
profit
after tax.
For the
calculation
of adjusted
basic
earnings per
share
refer to
note7.
Adjusted Diluted Calculated as
diluted earnings per the
earnings per share adjusted
share profit or
loss
[image] for the period
after tax less
non
-controlling
interests
divided
by the
weighted
average
number of
ordinary
shares
outstanding
during the
period
plus
the weighted
average number
of
ordinary
shares that
would
have been
issued on
the
conversion of
all
the dilutive
potential
ordinary
shares
into ordinary
shares.
The Board
believes
that this
provides
an indication
of
diluted
earnings per
share of the
Group
on adjusted
profit
after tax.
For the
calculation
of adjusted
diluted
earnings per
share
refer to
note7.
Cash flows
and
net debt
Cash flows Cash Calculated as
generated/(us generated/(used) the
e cash flows
d generated
) from
by by operations
operations operations excluding the
excluding items
business detailed in
exits note9
which
[image] includes:
business exits
(trading
results,
non
-trading
expenses)
and pension
deficit
contributions
which
have been
triggered
by disposals.
A reconciliat
i
o
n
of reported
to
cash
generated/(us
e
d
)
by
operations
excluding
business
exits is
provided in
note9.
Free cash Net cash flows Free cash flow
flow from is
and free operating calculated as
cash activities cash
flow generated from
excluding operations
business after:
exits capital
expenditure;
[image] 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 reconciliatio
n 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 note9.
Operating No direct Calculated as
cash equivalent operating cash
flow and flow
operating excluding
cash business
conversion exits divided
by
[image] 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
30June 30June 30June
30June
2024 2023 2024
2023
EBITDA a £101.7m £85.6m
£102.2m £97.1m
Add back: £8.1m £21.8m £-m
£-m
EBITDA
element of
cyber
incident and
cost
reduction
programme
Working (£13.5m) (£58.2m)
(£32.8m) (£51.3m)
capital
(note9)
Add back: £2.4m (£12.6m)
£2.4m (£12.6m)
Working
capital
element of
cyber incident
and
cost reduction
programme
Non-cash and (£40.8m) (£2.4m)
(£36.0m) (£3.9m)
other
adjustments
(note9)
Add back: Non £15.6m £-m
£15.6m £-m
-cash
element of
cyber
incident and
cost
reduction
programme
(note 10)
Operating cash b £73.5m £34.2m
£51.4m £29.3m
flow
Operating cash b/a 72.3% 40.0%
50.3% 30.2%
conversion
Alternative
performance
measures
continued
APM Closest Definition,
equivalent Purpose and
IFRS measure Reconciliation
Cash flows
and net
debt
continued
Available No direct Calculated as
liquidity equivalent the sum of any
undrawn
committed
facilities
and the net
cash, cash
equivalents
net of
overdrafts,
less any
restricted
cash.
Restricted
cash is
defined as
any cash held
that is not
capable of
being applied
against
consolidated
total
borrowings
(inclusive of
cash
required to be
held under FCA
regulations
and cash
represented by
non
-controlling
interests).
30June
31December
2024
2023
Revolving £250.0m
£260.7m
credit
facility
(RCF)
Less: drawing £-m
£-m
on committed
facilities
(note 11)
Undrawn £250.0m
£260.7m
committed
facilities
Cash and cash £85.4m
£67.6m
equivalents
net
of overdrafts
(note 9)
Less: (£42.3m)
(£46.0m)
restricted
cash
Available £293.1m
£282.3m
liquidity
Net debt Borrowings, Calculated as
cash, the net of the
derivatives, Group's: cash,
lease cash
liabilities equivalents
and and
deferred overdrafts;
consideration 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
note9.
Net No direct Calculated as
financial equivalent the sum of the
debt Group's: cash,
(pre-IFRS cash
16) equivalents
and
overdrafts;
the fair value
of the Group's
private
placement loan
notes;
other loan
notes; and
deferred
consideration.
The Board
believes that
this
measure of net
debt allows
investors to
see the
Group's
net debt
position
excluding
its IFRS 16
lease
liabilities.
30June
31December
2024
2023
Net debt £521.9m
£545.5m
(note9)
Remove: IFRS16 (£355.5m)
(£363.4m)
impact (note9)
Net financial £166.4m
£182.1m
debt (pre
-IFRS16)
Gearing: No direct This ratio is
net debt to equivalent calculated as
adjusted net debt
EBITDA divided by
ratio 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
IFRS16 leases
on
EBITDA and
net
debt
because the
Board
believes this
provides
useful
information
to
enable
investors to
understand
the
impact of
the Group's
lease
portfolio on
its
gearing
ratio.
The table
below shows
the
components,
and
calculation,
of the net
debt / net
financial debt
(post and pre
IFRS16) to
adjusted
EBITDA
ratio:
Post Pre
IFRS16 IFRS16
Rolling twelve 30June 31December 30June
31December
month period 2024 20231 2024
20231
Adjusted £200.7m £214.6m £137.5m
£146.2m
EBITDA
EBITDA in £20.7m £8.2m £20.7m
£8.2m
respect of
business
exits not yet
completed
Adjusted £221.4m £222.8m £158.2m
£154.4m
EBITDA
(including
business exits
not yet
completed)
Net debt / net £521.9m £545.5m £166.4m
£182.1m
financial debt
Net debt / net 2.4x 2.4x 1.1x
1.2x
financial debt
to adjusted
EBITDA ratio
1. To ensure the consistent presentation of the ratios between periods, the
2023 comparatives have not been restated.
[image] Comparatives re-presented
Alternative performance measures continued
The below measures are submitted to the Group's lenders and the Board believes
these measures provide a useful insight to investors. The 31December 2023
comparatives have not been restated because they are not required to be restated
for covenant purposes.
Source
Covenants (based on rolling twelve 30June 31December
months) 2024 2023
Adjusted operating profit1 £103.0m £106.5m
Add back: covenant adjustments2 £77.5m £64.1m
Adjusted EBITA a1 £180.5m £170.6m
Adjusted EBITA £180.5m £170.6m
Add back: covenant adjustments3 £64.5m £70.9m
Covenant calculation - adjusted b1 £245.0m £241.5m
EBITDA
Adjusted EBITA (USPP covenants) a2 £172.3m £162.4m Adjusted for
difference
in
exceptional
items
treatment
Adjusted EBITDA (USPP covenants) b2 £236.8m £233.3m Adjusted for
difference
in
exceptional
items
treatment
Adjusted interest charge (£50.0m) (£50.0m)
Add back: covenant adjustments £4.4m £3.8m
Borrowing costs c1 (£45.6m) (£46.2m)
Less: IFRS16 impact £17.3m £18.2m
Borrowing costs (excluding IFRS 16) c2 (£28.3m) (£28.0m)
5.1 Interest cover (US PP covenant) a2/ 6.1x 5.8x Adjusted
c2 EBITA/Borrowi
ng costs
with
adjusted
EBITA
including
the impact
of IFRS16
and the
borrowing
costs
excluding
the impact
of IFRS16.
Minimum
permitted
value of 4.0
5.2 Interest cover (other financing a1/ 6.4x 6.1x Adjusted
agreements) c2 EBITA/Borrowi
ng costs
with
adjusted
EBITA
including
the impact
of IFRS16
and the
borrowing
costs
excluding
the impact
of IFRS16.
Minimum
permitted
value of 4.0
Net debt £521.9m £545.5m Line
information
in note9
Add back: covenant adjustments4 £53.6m £53.2m
Less: IFRS16 impact (£355.5m) (£363.4m) Line
information
in note9
Covenant calculation - adjusted net d1 £220.0m £235.3m
debt (excluding IFRS16)
6.1 Adjusted net debt to post IFRS 16 d1/ 0.9x 1.0x Adjusted net
adjusted EBITDA ratio (USPP covenant) b2 debt/adjusted
EBITDA with
adjusted net
debt
excluding
the impact
of IFRS 16
and adjusted
EBITDA
including
the impact
of IFRS16.
Maximum
permitted
value of 3.0
6.2 Adjusted net debt to adjusted d1/ 0.9x 1.0x Adjusted net
EBITDA ratio (other financing b1 debt/adjusted
agreements) EBITDA with
adjusted net
debt
excluding
the impact
of IFRS 16
and adjusted
EBITDA
including
the impact
of IFRS16.
Maximum
permitted
value of 3.5
1.Adjusted operating profit excludes items that are separately disclosed and
considered to be outside the underlying operating results for the particular
period under review and against which the Group's performance is assessed.
2.Covenant adjustments include adjustments for business exits, exceptional
costs, share-based payment and pension adjustments, and removal of profits owned
by minority interests.
3. Covenant adjustments include adjustments for depreciation and earnings
related to disposed entities.
4.Covenant adjustments include adjustments relating to restricted cash and cash
in businesses held-for-sale.
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Capita Plc
Capita Plc - Half-year Results 2024
2nd August 2024, 06:00
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