Capita plc Annual Report 2021 Our purpose
Capita is a purpose-led
organisation which exists
to ‘create better outcomes’
for all its stakeholders.
Read more about our purpose on page 4.
Our business model
Read more about our business model
on pages 6 and 7.
This Annual Report, other corporate
publications, our latest news
and announcements, and more
information about us is available
on our website capita.com
CEO’s review
Read more from our CEO
on pages 10 to 25.
Our people
Read more about our people
on pages 35 to 39.
Strategic report
Corporate governance
Financial statements
2021 highlights
1
2 At a glance
4 Our purpose and strategy
6 Our business model
8 Chairman’s introduction
10 Chief Executive Officer’s review
16
20
24
26 Chief Financial Officer’s review
Public Service
Experience
Portfolio
35 Our people
40 Stakeholder engagement
42 Responsible business
50 TCFD
53
Risk management
and viability statement
64 Chairman’s report
67 Board members
69
Corporate governance
statement
Directors’ responsibility
statement
82
83 Committees
84
86
96
Nomination Committee
Audit and Risk Committee
Directors’ remuneration
report
120 Independent auditor’s report
133 Consolidated financial
statements
138 Notes to the consolidated
financial statements
204 Company financial statements
206 Notes to the Company
financial statements
218 Additional information
218 Shareholder information
219 Alternative performance
measures (APMs)
Cautionary statement
The directors present the Annual Report for the year ended
31 December 2021, which includes the strategic report,
corporate governance, and audited accounts for this year. Pages
1 to 119 of this Annual Report comprise a report of the directors
which has been drawn up and presented in accordance with
English company law, and the liabilities of the directors in
connection with that report shall be subject to the limitations and
restrictions provided by such law. Where the directors’ report
refers to other reports or material, such as a website address,
this has been done to direct the reader to other sources of Capita
plc information which may be of interest. Such additional
materials do not form part of this report.
Capita plc Annual Report 2021
2021 highlights
1
Our performance
During 2021, we completed our transformation,
establishing a platform to drive sustainable improving
financial performance, while continuing to strengthen the
balance sheet. We also continued to focus on maintaining
high standards of client service delivery and ensuring that
all our stakeholders remain a priority for Capita.
Financial highlights and KPIs
Reported revenue
Reported profit/(loss)
before tax
Reported free
cash flow3
£3,182.5m
(2020: £3,324.8m)
£285.6m
(2020: £(49.4)m)
£(237.1)m
(2020: £303.8m)
Adjusted revenue1
Adjusted profit before tax1
Adjusted free cash flow3
£3,008.5m
(2020: £2,995.5m)
£93.5m
(2020: £5.4m)
£78.1m
(2020: £170.3m)
Reported earnings/(loss)
per share (continuing ops)
Adjusted earnings
per share2
13.33p
(2020: (0.41)p)
1.61p
(2020: 2.41p)
Read more in the Chief Financial Officer’s review on pages 26 to 34.
1. Refer to alternative performance measures (APMs) on pages 219 to 222.
2. Refer to note 2.7 to the consolidated financial statements.
3. Refer to note 2.10 to the consolidated financial statements.
Non-financial highlights and KPIs
Points swing in
employee net
promoter score
-22pts
(2020: +7pts)
Points swing in
customer net
promoter score1
-3pts
(2020: +17pts)
Suppliers paid
within 60 days4
Total shareholder
return (TSR)
98%
(2020: 95%)
(6.9)%
(2020: (76.1)%)
Employee
engagement
Diversity:
gender M/F
Reduction in
carbon footprint6
(location-based)
CO2 emissions
Scope 1,2 and 37
68%
(2020: 72%)
51/49%
(2020: 52/48%)
21%
(2020: 40%)
43.6m
gross tonnes
(2020: 55.2m gross tonnes)
Voluntary
employee turnover
Diversity:
ethnicity5
Reduction in carbon
footprint6 (market-based)
30%
(2020: 20%)
56/19%
41%
(2020: 35%)
4. Data includes invoices paid through Capita UK companies.
5. White/Black, Asian and minority ethnic. 25% of people chose not to respond or not to specify.
6. Reduction in carbon footprint based on emissions per headcount from 2018 baseline.
7. Scope 3 for business travel only.
Strategic reportCapita plc Annual Report 2021 At a glance
About us
Capita is a consulting, transformation
and digital services business.
We are driven by our purpose: to ‘create better outcomes’ – for our employees,
clients and their customers, suppliers and partners, investors, and society.
Every day we help millions of people by delivering innovative solutions to
transform and simplify the connections between businesses and customers,
governments and citizens.
We partner with clients and provide them with the insight and cutting-edge
technologies that allow them to focus on what they do best and make
peoples’ lives easier and simpler.
We operate across three divisions – Public Service, Experience and Portfolio –
in the UK, Europe, India and South Africa.
2
What we do as a business
Consult
We work collaboratively with
clients as partners, drawing
on our practical experience
and delivering solutions
Capita
Capita is a consulting,
transformation and
digital services business
We run London’s
congestion charge
and ultra-low emission
zone (ULEZ) on
behalf of Transport
for London (TfL).
We help the British
Army attract, source
and select its officers
and soldiers.
We administer the
Teachers’ Pension
Scheme for the
Department for
Education.
Deliver
We provide software and
networks, and digitally
enabled services and
operations, often under
multi-year contracts
Transform
We create innovative
solutions to transform
businesses and services
Strategic reportCapita plc Annual Report 2021
At a glance
continued
3
Capita’s new structure
Two core growth divisions
focused on distinct market and
client needs; a third division of
non-core businesses.
Public Service
The number one strategic supplier of
business process services (BPS) and
technology services to the UK Government.
Experience
The UK’s leading customer experience
business with a blue-chip client base
designing, transforming and delivering
high-quality customer service.
Portfolio
An expanded portfolio of
valuable but non-core
businesses.
Main verticals: Education & Learning;
Local Public Services; Health & Welfare;
Defence, Security & Fire; Justice, Central
Government and Transport
Main verticals: Telecoms, Media
& Technology; Multi-industry;
Financial Services
Pillars: People; Property;
Technology; Software;
Business Solutions;
Travel; FERA
Adjusted revenue1 contribution
Adjusted revenue1 contribution
Adjusted revenue1 contribution
47%
(2020: 42%)
39%
(2020: 44%)
14%
(2020: 14%)
Adjusted divisional operating profit1
contribution
Adjusted divisional operating profit1
contribution
Adjusted divisional operating
profit1 contribution
51%
(2020: 12%)
36%
(2020: 75%)
13%
(2020: 13%)
Divisional financial performance: (see also pages 19, 22
and 25) is presented on an adjusted basis. Reported is not
included, as the Board assesses divisional performance on
adjusted results. The calculation of adjusted figures and our
key performance indicators (KPIs) are contained in the APMs
on pages 219 to 222.
Divisional details and performance can be
found on pages 16 to 25.
1. Refer to APMs on pages 219 to 222.
Strategic reportCapita plc Annual Report 2021 Our purpose and strategy
Our purpose
We are driven by our purpose: to ‘create
better outcomes’ – for our employees,
clients and customers, suppliers and
partners, investors, and society.
We are committed to being a responsible
business – in how we operate, serve society,
respect our people and the environment, and
deliver improving returns to our investors.
4
Capita ‘creates better outcomes’
for all its stakeholders:
Our people by providing an
environment in which they
can thrive and develop
Number of people
in 2021
52,000
Everyone at Capita
strives to create better
outcomes for all our
stakeholders by living
our values of being:
Clients and customers by
delivering solutions, transforming
businesses and services,
and by delighting them
Service delivery
in 2021
99%
Suppliers and partners by
treating them fairly and
encouraging them to deliver
Investors by delivering
improving returns
Society by acting as a
responsible business for the
communities we serve
Supplier payment
compliance in 2021
98%
Share price
movement in 2021
(2.7)p
Reduction in carbon
footprint in 2021
11.6m
gross tonnes
Open
Ingenious
Collaborative
Effective
We bring these values to
life through our day-to-day
behaviours and by putting
our purpose at the centre
of everything we do.
Strategic reportCapita plc Annual Report 2021 5
Aligning with our performance-
based remuneration:
Annual bonus for the executive
directors determined by:
Free cash flow
Adjusted profit before tax (PBT)
Organic revenue
Strategic objectives
Measured through our KPIs:
Financial
Adjusted revenue1
Non-financial
Employee NPS points swing
£3,008.5m
(2020: £2,995.5m)
-22pts
(2020: +7pts)
Adjusted free cash flow1
Customer NPS points swing
£78.1m
(2020: £170.3m)
-3pts
(2020: +17pts)
Adjusted earnings per share1
Suppliers paid within 60 days
1.61p
(2020:2.41p)
98%
(2020: 95%)
Headline net debt (pre-IFRS 16):
adjusted EBITDA1
1.7x
(2020: 2.4x)
1. Refer to APMs on pages 219 to 222.
Our purpose and strategy
continued
Our strategy
To create a simpler, stronger and
more successful business that will
drive organic revenue growth and
sustainable free cash flow.
Simplify
• More focused business with strong
positions and growth potential
• Using common, scalable capabilities
• Empowering our people to deliver
• Further streamlined cost base
Strengthen
• Winning more of the right work
• Improving cash generation and
Portfolio disposal proceeds
reducing net debt
• Extend debt maturities
• Investment in asset base,
technology and people
Succeed
• Purpose-led, responsible business
• Innovative and creative
• Inflecting to revenue growth
• Expect to deliver positive
sustainable free cash flow2 in 2022
2. Sustainable free cash flow = reported free cash flow excluding the impact
of disposals.
Strategic reportCapita plc Annual Report 2021 Our business model
6
How we create value
At Capita, we provide
consulting, transformation
and digital services.
Our markets: We operate in large and
growing markets, at scale and often with
significant market share.
Public: BPS spending growing at
c.5% (Source: TechMarketView)
Government spending in the UK with private
organisations is around £110bn and
spending on BPS is growing at around 5%.
The forecast market growth is driven by
government increasingly looking to leverage
technology, new digital products and
emerging capabilities such as artificial
intelligence.
Experience: market growth of c.5%
over next three years (Source: Everest)
The global customer experience market is
valued at around £244bn and is expected
to grow at around 5% over the next three
years. The drive to digital includes a
customer desire to shift to self-service,
where convenience matters, and high-
quality human interactions, supported by
technology when needed.
Our expertise
and resource
Market expertise
We have deep understanding of our clients
and their markets; for example, in customer
engagement, government services and
technology solutions.
Technological resources
We offer technology-led, digitally enabled
services and solutions. We are investing
in digital and software development. We
partner with global technology leaders.
Client relationships
We form longstanding partnerships with
a wide range of clients, from blue-chip
businesses to the public sector, to transform
their activities by delivering insight and
innovative solutions.
Our people
We are a people-focused business, built
around 52,000 skilled and committed
employees who have deep understanding
of our clients’ markets and needs.
What we do as
a business
Capita is a consulting, transformation
and digital services business.
We are focused on creating value and
better outcomes by working collaboratively
with our clients as partners.
We provide consulting and professional
services, drawing on our practical
experience; provide digitally enabled
services and solutions, often under
multi-year contracts.
We consult, transform and deliver.
Consult
We work collaboratively with clients
as partners, drawing on our experience
and delivering solutions.
Transform
We create innovative solutions to
transform businesses and services.
International infrastructure
Deliver
We have an international delivery platform,
with more than 18,000 people providing
technology solutions and customer
engagement services, principally in Europe,
India and South Africa.
We provide digitally enabled
services and operations, often
under multi-year contracts.
Our consultants:
• Work collaboratively with clients as
trusted, long-term strategic partners.
• Proactively identify opportunities within
client businesses.
• Generate forward-looking insights by
analysing, researching and debating
trends and data.
• Support the design and implementation
of better solutions for clients.
• Maximise opportunities across
Capita, driving pipeline and creating
pull-through revenue.
Our transformation services:
• Improve process quality, reliability
and efficiency.
• Help reduce risk and cost.
• Create new opportunities for clients.
• Allow clients to focus on what they
do best.
Our digital services:
• Help simplify clients’ services.
• Assist better decision making.
• Contribute to process acceleration.
• Improve end-customer experiences.
Strategic reportCapita plc Annual Report 2021
Our business model
continued
7
Generating financial value
Better outcomes for stakeholders
We generate revenue, profit and cash
flow by providing valuable services to our
clients, consistently and efficiently over
the long term.
Transformational services
Clients procure our digitally enabled
services and network solutions through
contracts, often long term, to effect
significant change in their businesses.
In 2021, approximately 72% of Group
adjusted revenue was underpinned by
long-term contracts, with around 16%
from short-term contracts. Our order book
at 31 December 2021 was £6.1bn.
Transactional services
Approximately 12% of adjusted revenue1
comes from our transactional businesses
where we sell products and professional
services to our clients across a wide range
of functions. In 2021, this represented
£349.2m of adjusted revenue1.
Efficient operations
Running our business as efficiently as we
can allows us to pass savings through to
our clients and customers over the long
term, as well as generating value for our
shareholders. During 2021, we delivered
transformation cost savings of £123m
by reducing the cost of poor quality,
structuring our business better and
adopting efficiency-generating
technologies such as automation.
Generating cash flow
We aim to generate sustainable free cash
flow from revenue growth, increasing
profit margins through greater efficiency
and eliminating the cash cost of poor
quality operations. During 2021, adjusted
free cash flow1 fell from £170.3m to
£78.1m, reflecting the reversal of the
abnormally high level of pandemic-related
cash generation achieved in 2020.
Our people by providing an environment
in which they can thrive and develop.
Clients and customers by delivering
solutions, transforming businesses and
services, and by delighting them.
Suppliers and partners by treating them
fairly and encouraging them to deliver.
Investors by delivering improving returns.
1. Refer to APMs on pages 219 to 222.
Society by acting as a responsible
business for the communities we serve.
Strategic reportCapita plc Annual Report 2021 Chairman’s introduction
Establishing
the platform
for growth
The completion of Capita’s
transformation has resulted
in a clear, improved and
simpler operating model.
The fundamentals needed
to build a successful
company are in place.”
8
Sir Ian Powell
Chairman
In 2021, Capita made further progress towards
becoming a sustainable, profitable business
capable of delivering positive free cash flow.
The fundamentals needed to build a successful
company are in place – strong service delivery,
a stronger balance sheet, and a simpler, more
efficient and stable structure. We have
addressed the major financial and operational
debt that the business faced. The business
is now more predictable, and operates with
the values and behaviours that align with
Capita’s purpose.
I would like to thank all of Capita’s people for
their total commitment in a year of disruption
caused by external forces and the final stages
of operational restructuring which now
provides the platform to achieve the key goal
of meaningful growth.
In 2021, the company saw organic growth,
albeit marginal, for the first time in six years.
The retention of key contracts, the winning of
new work, a strong pipeline and the addition
of new clients in fast-growing markets all give
cause for optimism.
The effort and investment required to achieve
all this should not be underestimated, but it has
been essential to create a business that has a
future and that people want to work for and with.
2021 was a pivotal year for Capita where
much was achieved, including the end of the
transformation, a significant reduction in debt
and moving the pension fund into surplus.
Despite the progress made to improve so many
aspects of the business, the year was
disappointing for our shareholders who have
been patient and supportive, attributes which
we do not take for granted. They now need to
experience the benefits of the company’s
completed transformation.
These achievements now need to be built
upon to deliver consistent, predictable
outcomes for all parties engaged with the
company and in particular those who have
invested in its future.
Strategy and performance
The completion of Capita’s transformation
has resulted in a clear, improved and
simpler operating model.
The divisional structure – Public Service,
Experience and Portfolio – put in place in
2021 is robust and straightforward and
enables the Group to be fully focused on
executing its growth strategy.
In recent years, a huge amount of work
has resulted in improved quality and
reliability of operational delivery, discipline
and controls around the work we take on,
and a consistent approach to how we do
that work.
As a result, Capita’s reputation is far better
than when we started the transformation
and is helping to produce the revenue
opportunities for sustainable growth across
the company.
Strategic reportCapita plc Annual Report 2021 Chairman’s introduction
continued
9
The Board and governance
Values and culture
We are continually striving to improve the
governance of Capita and to reflect the
changing needs of the company in the skills
and experiences of the Board.
In May, Tim Weller joined the company as Chief
Financial Officer and the Board as an executive
director, bringing with him almost 20 years’
experience as a CFO and extensive business
knowledge which is highly relevant to Capita.
In February 2022, we welcomed Nneka
Abulokwe as an independent non-executive
director. Nneka is a highly respected technology
leader and entrepreneur, whose digital
innovation expertise will be of great benefit
to Capita.
Our employee directors, Lyndsay Browne and
Joseph Murphy, continued their important work
on the Board; and we will ensure that the
employee voice and perspective remains a
vital, ongoing part of the Board constitution.
Baroness Lucy Neville-Rolfe left the Board in
2021 and I would like to thank her for her four
years of service as a non-executive director.
I would also like to thank all members of the
Board for their commitment, continued support
and hard work.
As we restructured our divisions and reduced
the size of some of our support functions,
a number of people who had played crucial
roles in the transformation left the company
and I would like to thank all of them for
their contributions.
Our purpose remains the central driving force
across Capita. We aim to ‘create better
outcomes’ for all stakeholders – our people,
clients and customers, suppliers and partners,
investors, and society.
Throughout the Covid-19 crisis, the safety and
wellbeing of our people has been our number
one priority.
We are also determined to support the lowest
paid people in our business and are proud to
be accredited for our commitment to the real
living wage.
At the same time, we have continued to focus
on increasing diversity and inclusion across
the organisation. The diversity of the Board
is improving, and we are pleased that four of
our nine Executive Committee members
are women.
We have also continued to work hard to
address our gender and ethnicity pay gaps –
but there is still more to be done.
We were disappointed to have seen a fall in
our employee net promoter score. This partly
reflects structural and operating changes
across the company, amid the continuing
challenges of the pandemic.
But we remain determined to create an
engaging, rewarding and supportive
environment to attract and retain great
leaders and colleagues.
There is still much to be done
at Capita, but 2021 was a year
of progress in which many
goals set at the beginning of
the year were achieved.”
We are also focused on strengthening our
credentials as a responsible business by
delivering on our environmental, social and
governance (ESG) objectives.
In February 2021, as part of our commitment to
help fight climate change, we set our science-
based carbon emissions reduction targets –
and have pledged to achieve full net zero,
including across our supply chain, by 2035.
Looking forward
Over the past five years, the changes
necessary to give Capita a sustainable future
have been substantial and difficult. The scale of
the transformation was greater than could have
been imagined, but the progress made under
new leadership since 2017 has been significant
and deserving of recognition.
There is still much to be done at Capita and
challenges remain, but 2021 was a year of
progress in which many goals set at the
beginning of the year were achieved.
Despite headwinds, we have established the
platform for long-term revenue growth and
sustainable free cash flow.
We now need to execute on our business
plans and ensure this progress delivers
returns to investors.
Sir Ian Powell
Chairman
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
A year of
significant
change
We now have a foundation in
place to deliver sustainable,
improving financial
performance and look forward
to delivering this as we move
into 2022 and beyond.”
Jon Lewis
Chief Executive Officer
Summary
2021 was a year of significant change at Capita
as we completed our transformation and
established the platform for long-term success.
We now have a foundation in place to deliver
sustainable, improving financial performance
and look forward to delivering this as we move
into 2022 and beyond.
At the same time, we will continue to prioritise
being a purpose-led, responsible business; this
is our licence to operate. We are pleased to
have maintained a high customer net promoter
score (cNPS). However, our employee NPS
(eNPS) was disappointing, reflecting the degree
of change in the business and the continued
impact of the pandemic, and we have a
comprehensive plan in place to address this.
We have also made good progress with diversity
and we have committed to a net zero plan.
In August, we established our new, simplified
divisional structure which will deliver significant
benefits in the future: two core divisions that
focus on public and private sector digital
transformation and technology outsourcing
services; clarity of focus on our markets
and clients; benefits expected from greater
operational efficiency; and a third division
of non-core businesses that will be disposed
of. The proceeds from these disposals will
be used to continue to strengthen our
balance sheet.
Our contract delivery, which is the foundation
for the turnaround and revenue growth, has
remained strong. We fixed the last of our
legacy problem contracts, resolving both
Primary Care Support England (PCSE)
and Electronic Monitoring services (EMS)
transformation issues in the year. Client trust
in us is far better than when we started the
transformation, and we are winning new
scopes of work as a result.
Our ability to deliver sustainable revenue
growth is fundamental to our long-term
success. We delivered modest revenue
growth in 2021, reversing six years of
declines, and expect this trend to continue
to improve. We have high retention rates,
10
are winning incremental scopes of work with
our existing clients and are starting to win
business with new clients. Our weighted
pipeline of opportunities for 2022 is
substantial and broad based.
During 2021, we took action to reduce
operating and administrative costs by a
further £123m and, over the transformation,
the total amount of cost savings has been
more than £425m. The main areas have
been in operational excellence – ’doing
things better, doing things once’ – as well
as in more efficient management structures,
property and Group IT and procurement
savings. There is more to come as we focus
on the benefits of standardisation and
efficiency in each division and in a lean
Group overhead structure.
We continued to strengthen the balance
sheet and successfully completed a number
of key disposals, exceeding our target of
£700m of proceeds, which has enabled
us to address our funding commitments
in 2021 and 2022. We will continue to
strengthen the balance sheet with further
disposals, as well as improving the pension
fund position.
The transformation is now finished. We
have a simpler and more focused structure
in place, strong positions in growing markets
and a structurally lower cost base. We are
continuing to strengthen the balance sheet.
The platform is in place to grow revenue,
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
Harnessing our collective
power to reach net zero
In 2021, we set out an ambitious and
far-reaching roadmap to take us to net zero
by 2035.
Underpinned by science-based targets, our
three-phased approach aims to see us reach
operational net zero by 2025 and operational
and business travel net zero by 2030. This will
involve reducing business travel emissions by
75% from 2019’s baseline and transitioning our
fleet to EV by 2032.
We have committed to achieving full net zero,
including across our supply chain, by 2035,
ahead of the UK Government’s target of 2050.
This requires working closely with our supplier
base of around 21,000 to guide and support
them in setting their own targets.
For additional information on our net zero plan
see page 47
1. Refer to alternative performance measures (APMs) on pages 219 to 222.
11
Revenue at Capita has grown
for the first time in six years.”
Our net zero timeline
Milestone 1:
Operational net zero
by 2025
Neutralise operational Scope 1 and 2 emissions
Milestone 2:
Operational and travel
net zero by 2030
Neutralise operational Scope 1 and 2, and
business travel emissions
Milestone 3:
Full net zero
completion by 2035
Neutralise operational Scope 1 and 2, business
travel and supply chain emissions
increase margins and cash conversion and to
drive positive free cash flow.
Financial results
Adjusted revenue1 at Capita has grown for
the first time in six years, albeit modestly,
to £3,008.5m (2020: £2,995.5m). This was
underpinned by some major contract wins,
in particular the Royal Navy training contract
and in the Public Service division as a whole.
These offset the impact of contract losses,
mainly from 2020, in the Experience division,
as well as the net revenue loss of Covid
contracts won in 2020. We also expected
further benefits from a recovery in our
Covid-affected businesses, such as
Agiito (our travel & events business),
but lockdowns and slow market recovery
affected this significantly.
Adjusted profit before tax1 increased by
£88.1m this year to £93.5m (2020: £5.4m).
This principally reflected the benefit of
transformation cost savings, new revenue
and the unwind of the prior year holiday
accrual, offsetting revenue losses and the
reinstatement of the employee bonus
scheme. Reported profit of £285.6m
(2020 loss: £49.4m) benefited significantly
from profits on disposal of Education
Software Solutions (ESS) and AXELOS in
particular, offsetting the write down of our
historical finance systems asset as well as
onerous contract provisions in our closed
book Life & Pensions business.
Cash generation is a key metric for the
business. Our adjusted free cash flow1 was
£78.1m (2020: £170.3m), but we also had to
fund £328.2m of additional cash commitments,
including £104.1m of VAT deferred from last
year, pension payments of £155.5m and our
final year of below-the-line restructuring
payments of £68.6m. Reported free cash
outflow in 2021 of £(237.1)m (2020 inflow:
£303.8m) reflects these additional payments.
We continued to strengthen the balance sheet
during the year, with net debt reducing to
£879.8m at 31 December 2021 (£1,077.1m at
31 December 2020), funded mainly through our
disposal programme. In early 2022 we reached
our total of £700m of target proceeds, ahead of
schedule, enabling us to meet £440m of debt
maturities in 2021 and 2022. More broadly,
we are also targeting a reduction in our
other financial obligations, including further
pension deficit contributions and reducing
our lease commitments through our property
footprint reduction.
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
cNPS remains high
+29pts
(2020: +32pts)
12
We operate the Ultra Low Emission Zone
(ULEZ) on behalf of TfL. In 2021, we
delivered the successful expansion of the
zone from a small part of Central London
through to the boundaries of the North and
South Circular roads. This was a key
milestone for Mayor of London, Sadiq
Khan’s, work to reduce air pollution in the
city and make London’s streets safer for
all road users. Teams from across Capita
worked in partnership with TfL and our
supply chain to deliver the very significant
cloud migration, scale the existing platforms
and bring new team members on board to
ensure the service was ready to launch.
Purpose
Our purpose – to create better outcomes –
is our licence to operate in our markets and
therefore a fundamental part of our strategy,
with cNPS and eNPS scores linked to
remuneration, as well as being a driver of
revenue through the social value and net zero
components of government contracting.
The cNPS remains high at +29 points, albeit
slightly down on last year (+32), which we
believe is more a reflection of the exceptional
work done in 2020 to support our clients
through the early days of Covid and moving
to remote working. We continue to strive
to delight our clients.
Our eNPS declined this year by 22 points.
While we expected some decline as a result of
the scale of the transformation activity in the
year, this was more pronounced than we had
anticipated and, in an already challenging
labour market, represents a key challenge in
engagement and retention. While employees
felt positive in their immediate surroundings
and activities, there were strong views that
we needed to focus more on the longer-term
opportunities at Capita. We are addressing this
through plans for better communication and
engagement, clearer investment in training
and development, and implementing a more
attractive employee value proposition. This
will be a significant area of focus in 2022.
Our plans to increase the diversity of our
people recognises the need to represent the
communities that we work in, our desire to
attract and retain high-quality talent, and to
broaden the range of thinking and innovation
in the business. Our Board has increased its
diversity, particularly with the appointments of
Neelam Dhawan and Nneka Abulokwe, and
44% of the Executive Committee is now female,
with 22% Black, Asian and minority ethnic
representation. But there is still more to be
done throughout the organisation.
In 2021, we set out an ambitious plan to take
us to net zero by 2035 ahead of the UK
Government’s target of 2050. Underpinned
by science-based targets, our three-phased
approach aims to see us reach operational net
zero by 2025 and operational and business
travel net zero by 2030. This will involve
reducing business travel emissions and
transitioning our fleet to electric vehicles by
2032. We will work closely with our suppliers,
and over 50% of our supply chain has now
signed up to science-based targets. We
reduced our Scope 1 and 2 emissions by 42%
in 2021 compared with our 2019 base line,
largely due to the impact of Covid.
Looking at other stakeholders, our supplier
metrics have also improved, with 98% of all
suppliers being paid within government
guidelines of 60 days, a three percentage
point increase from last year.
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
13
We signed a learning services contract
renewal worth up to £124m with a major UK
financial services client. Under the contract,
our Capita Learning Services Business
provides a broad range of learning
services, as well as market insight and
thought leadership. These services include
learning consultancy, virtual and face-to-
face learning programmes, and digital and
simulated learning. We are also responsible
for procurement and management of any
third-party learning suppliers to the client,
including administrating training and the
sourcing of learning professionals to
deliver on client projects.
Winning business and growing revenue
Our markets
We operate in the outsourced digital
transformation, business process services
(BPS) and technology markets, in the public
and private sectors, which are large and
growing. The markets that we address are
growing at around 5% a year, with niches
growing at more than double that rate.
Both core divisions, Public Service and
Experience, have strong positions in their
markets, as the UK Government’s largest IT
outsourcing supplier and as the UK’s leading
customer service provider, respectively. Our
ability to win work at scale and our insight
into our clients’ systems, processes and
end-customers after many years of experience
is what drives our leading positions in those
markets. We collaborate with some of the
world’s leading providers of technology, such
as Microsoft, Salesforce and Amazon Web
Services (AWS), as well as developing our own
software and solutions, which enable us to
deliver the best customer service outcomes.
Operational delivery supporting contract
retention and new business
That our improvement in operational
performance is once again a core strength of
the business has been a fundamental part of
the transformation, establishing our clients’ trust
and winning new revenue. We now have a
reputation for strong delivery with key growth
clients, such as TfL for whom we delivered
a significant cloud migration and additional
scale of existing platforms.
Our operational KPIs have remained high
across the business. Our day-to-day service
level KPIs stayed at c.99% through the year and
our IT infrastructure is now significantly more
reliable, with critical incidents down by 88%
since January 2018 and our average resolution
time 29% quicker than the industry benchmark.
We have now finished fixing failing legacy
contracts from when we started the
transformation, with PCSE and EMS resolved
in the year as planned.
The return on this investment, apart from the
improvement in cash flow and profit, is that we
have won new scopes of work with many of our
clients where we historically had delivery
issues: the extension of the British Army
Recruitment (RPP) contract; the ULEZ with TfL;
the award of the Turing scheme administration
with the Department for Education; and further
work with the Ministry of Justice.
Our win rate on contract renewals remains
high at 93%, reflected in the high cNPS scores,
and we have seen the annual revenue attrition
on our contract base now reach a more normal
3% a year, compared with almost double that
in recent years. Overall, we have a more
solid revenue foundation on which to build
growth opportunities.
Both core divisions have strong
positions in their markets.”
Winning revenue
We are now starting to deliver the contract wins
that will underpin that revenue growth, as we
leverage scale and client insight, alongside our
re-established operational reliability. The focus
of the core divisions into market verticals
means that we can now bring a range of
products and capabilities together to focus on
specific client needs, which is a significant
change for us. The benefit of this approach is
already evident in the recent successes at the
Ministry of Defence, and within our Financial
Services and Telecoms verticals.
In 2021 we won £3.8bn of total contract value
(TCV), an increase of 31% on 2020’s £2.9bn.
This included a small number of large contracts
(Royal Navy, two European telecoms contracts
and two financial services clients) but just under
60% of the TCV was won in contracts valued
under £50m. The bulk of the TCV was won in
the Public Service division which saw TCV
growth of 54% year on year, while the
Experience division was broadly flat. The
Portfolio division grew strongly with an increase
of 12% in TCV to £572m (2020: £512m). The
in-year benefit of the total contract wins was
£1,208m, 10% higher than 2020, with a
comparative decline in Experience due to the
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
14
one-off Covid work secured in 2020 offsetting
new work in Public Service. Within the
divisions, the Public Service book to bill was
1.7x (2020: 1.3x) reflecting the balance of
business won, while Experience was 0.7x
(2020: 0.7x) partly reflecting the delay of some
major contracts, like the BBC.
In the second half, we won some important
renewals in both divisions, including Personal
Independence Payments (PIP) for the
Department for Work and Pensions (DWP), an
extension to the Standards and Testing Agency
contract with the Department for Education, and
contracts with the RSPCA, Thames Water and
a global fast-moving consumer goods client.
We also secured new scopes of business with
existing clients such as in the Defence Fire and
Rescue (DFRP) contract, surface transportation
for TfL and an extension to our successful Job
Entry Targeted Support (JETS) programme in
Scotland. Our focus on new clients started to
produce promising results towards the end of
the year, with a recent contract award from the
Fintech company, Trade Republic, with more in
the pipeline for 2022. Since the year end we
have also won a £456m TV licensing contract
extension with the BBC.
Our order book grew to £6.1bn (2020: £5.9bn).
Group book to bill at the year end was 1.2x,
slightly less than we expected after the BBC
extension moved into 2022, but still indicating
a strong base for future revenue growth.
Building a pipeline for future
revenue growth
Looking forward, we are now better structured
to continue to grow revenue, bringing together
our strong market positions, new client-facing
structure and improving client offerings. As we
drive greater efficiency from our new divisional
and Group structure, we will also become more
competitive. Finally, we will continue to leverage
the ‘consult, transform and deliver’ model that is
expected to secure more opportunities for the
Group, as well as improving the margin mix of
the business we execute.
We have continued to build our pipeline of new
opportunities. The 2022 unweighted pipeline is
£9.4bn, a 7% increase on 2021 when adjusted
for the Royal Navy training contract, which was
signed on 11 January 2021. The 2022 weighted
TCV pipeline for the year is £2,501m, 42%
higher than at the same point in 2021 (2020:
£1,758m) excluding the Royal Navy training
contract. This is split broadly equally between
Experience (£1,320m) and Public Service
(£1,130m), showing that significant opportunities
exist in both divisions and, based on our
conversion rate last year, gives us an
encouraging outlook for 2022.
Post year end, we have closed a number of
contracts that we had expected in 2021,
including the BBC TV licensing extension.
Other significant bids expected in the first half
of 2022 are for a financial services company,
NHS England and the DWP.
Operational excellence, efficiency
and scale to drive margins
Reducing cost
Over the course of the transformation, we have
made cost savings of more than £425m to bring
the cost base in line with a smaller, more
efficient and more focused business. Savings in
2021 totalled £123m, which were again focused
on operational excellence, taking out spans and
layers of management as we integrated
businesses and operations, and savings in the
overhead and Group functions. These cost
savings were a major driver of our profit
improvement in 2021.
Our operational excellence programme
is focused on process and productivity
improvement and will be enhanced by benefits
derived from our new structure, including
standardisation and best practice experience
from around the Group, as well as deployment of
digital services and robotic process automation.
We made procurement and IT savings of £28m
through consolidation and benchmarking
suppliers, negotiating improved terms,
leveraging scale benefits and using more
data-driven decision making.
Reducing the size of our property portfolio
continues to be a major driver of cost savings in
the business. During the year, we realised £26m
of cost savings as we closed 55 properties, on
top of the 49 that were closed in 2020, reducing
the associated lease obligations by £49m.
Capita has now reduced its property footprint
by 25% over the past two years.
Completing the transformation and
implementing our new leaner structure allowed
savings in the Group overhead and functions
to be delivered in 2021. Ongoing savings are
planned through increased productivity and
reducing internal structural inefficiencies,
for example through further property
rationalisations and materially reducing the
number of legal entities in the Group.
Managing inflation
As for most other businesses in the UK,
inflationary pressures increased in 2021,
alongside increasing levels of staff attrition. This
was experienced across all our businesses but in
particular for IT professionals in India, consultants
and for our call centre staff in the UK.
Our first priority has been to invest in our
people. A fully staffed, engaged workforce
delivers better service quality, additional
revenue opportunities and lower staff turnover.
This means investment in recruiting, training
and development as well as better employee
engagement and wage increases.
As a contracting business, we are used to
dealing with inflation and two-thirds of our
client contracts include terms that allow us to
pass on inflationary costs. Taking into account
transactional revenue (c.12% of our Group
revenue, 66% of which will be disposed through
the Portfolio division), as well as contracts
that will end or be renegotiated in the next
18 months, the unhedged exposure to inflation
remains relatively small.
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
15
As a result, we are confident that the profit
impact of inflation can be mitigated over time,
with no material impact to profit expected in 2022.
Longer term, we see employee wage pressures
at our clients as a potential driver for further
outsourcing and use of digital technology.
Strengthening our balance sheet and
delivering positive free cash flow
Reducing debt
One of the biggest priorities in the
transformation was to reduce our financial
obligations to a more sustainable level.
In the past four years we have reduced gross
debt by £1.1bn, made over £300m in pension
deficit funding contributions, and addressed our
organisational deficit, including expenditure on
IT equipment and structure, fixing legacy
contracts, and investing in systems.
Last year, we announced a business disposal
programme targeting to raise £700m to meet
the significant additional cash commitments in
2021 of deferred VAT, restructuring and pension
deficit payments, and to ensure sufficient
liquidity to pay debt maturities in 2021 and 2022.
That target has now been achieved, ahead of
schedule, with the agreed sale of Trustmarque,
within the Technology pillar, on 28 January 2022
meaning we have realised total disposal
programme proceeds of around £750m.
We will continue our plan to reduce debt
through the disposal of the non-core Portfolio
division. Excluding the Technology pillar, the
division now has around £338m of revenue,
£27m of profit, before allocation of Group
overheads, and £30m of operating cash flow on
a 2021 proforma basis. This includes the Agiito
business that in 2021 was still loss-making and
cash-negative as a result of the impact of Covid.
Since the beginning of 2022, we have launched
processes to dispose of two further pillars
within the Portfolio division, representing
around £188m of revenue and £20m of profit
before allocation of Group overheads, on a
2021 proforma basis.
We also continue to ensure our other
stakeholders are fairly treated. As a result of our
pension deficit payments and investment
returns, our pension scheme funding target is
slightly ahead of where we expected. Some of
the disposal proceeds will be used to accelerate
future funding payments so that we expect the
Group’s pension schemes to be self-sufficient
as part of the next actuarial review.
Finally, as noted above, our property portfolio
rationalisation has also led to the reduction in
our lease liability which, at 31 December 2021,
was £424m, a 10% reduction in the year
(2020: £473m). This is expected to fall further as
we reduce and renegotiate lease durations and
dispose of Portfolio properties.
Targeting sustainable free cash flow2
Now that we have completed the
transformation, we are targeting the delivery
of growing, positive sustainable free cash flow2,
starting in 2022.
Cash conversion in the divisions is targeted
to improve as deferred income balances on
1. Refer to APMs on pages 219 to 222.
2. Sustainable free cash flow = reported free cash flow excluding the impact of disposals.
our legacy transformational contracts roll off
and we continue to improve our cash
management processes.
Our adjusted free cash flow1 in 2021 reflected
the unwind of 2020 cash preservation initiatives
to protect the business from the impact of
Covid-19 and reported free cash in the period
reflected expenditure on the final year of
the transformation and repayment of VAT
deferred from 2020. These below-the-line
commitments will substantially disappear
in 2022.
Over the next couple of years, we also expect
the pension deficit payments to reduce
materially, as the pension scheme transitions
to self-sufficiency.
Our lease payments, net of receipts, are also
expected to decrease in line with our property
footprint, having already reduced from £95.2m
in 2020 to £82.1m in 2021.
Outlook
Year ending 31 December 2022
In 2022, we expect to deliver revenue growth,
positive sustainable free cash flow2 and to
continue to strengthen the balance sheet.
Our revenue growth is built on strong contract
performance in 2021, our order book, lower
attrition, a growing pipeline of new business
in both Public Service and Experience, as well
as ongoing recovery from Covid-affected
businesses.
Notwithstanding the margin benefit from
revenue growth and the flow through of the
cost benefits from the divisional restructure
implemented in 2021, we expect operating profit
margins to reduce slightly in 2022. This reflects
the full-year impact of prior-year contract losses
and the structural decline in the closed book
Life & Pensions in Experience, operational
changes in the Army recruitment contract in
Public Service, as well as the cost of recruiting
and training staff to support our growth.
Next year, we will include restructuring, pension
deficit contribution and VAT payments within
our adjusted free cash flow1. With higher
cash-backed profit and the significant decrease
in the payments noted above, we expect to
deliver positive sustainable adjusted free cash
flow1 in 2022.
As we continue to make disposals, we expect
net debt to decrease materially.
Medium term
Beyond 2022, we expect core Capita to
continue to build on the platform we have
established today.
We will target revenue growth at least in line
with the mid single-digit range of our core
markets and deliver high single-digit Group
EBITDA margins. We expect to grow free
cash flow, as cash conversion increases to
between 70% and 80% and additional cash
commitments fall away.
We will maintain a prudent approach to
our capital structure, and will target a leverage
ratio of around 1x net debt:EBITDA on
a pre-IFRS 16 basis.
Jon Lewis
Chief Executive Officer
Strategic reportCapita plc Annual Report 2021 Public Service
16
The Public Service
division is well positioned
for growth.”
Andy Start
CEO, Capita Public Service
Public Service
Public Service is the number one strategic supplier of
business process services (BPS) and technology services
to the UK Government.
Adjusted revenue1
£1,410.4m
(2020: £1,273.0m) 10.8%
Adjusted operating profit1
£98.3m
(2020: £12.9m) 662.0%
We are a socially responsible supplier
to government that uses applied digital
transformation and BPS to improve the
productivity of government operations and
the citizen experience of public services.
We believe that innovative, purpose-driven,
quality public services are critical to delivering
safer, greener and healthier communities.
Public Service is structured across five market
verticals: Education & Learning; Local Public
Services; Health & Welfare; Defence, Fire &
Security; and Justice, Central Government &
Transport; as well as the non-consolidated
Smart DCC subsidiary.
We use a ‘consult-transform-deliver’ matrix
operating model underpinned by a strong
digital capability.
1. Refer to APMs on pages 219 to 222.
2. Tussel
3. TechMarketView
Adjusted revenue by type (%)
Revenue by market (%)
3
2
5
1
2
1
4
3
1 87% Long-term contractual
2 9% Short-term contractual
3 4% Transactional
1 18% Education & Learning
2 19% Local Public Services
3 15% Health & Welfare
4 18% Defence, Fire & Security
5 30% Justice, Central Government & Transport
Financial performance
Divisional financial summary
Adjusted revenue1 (£m)
Adjusted operating profit1 (£m)
Adjusted operating margin1 (%)
Adjusted EBITDA1 (£m)
Adjusted cash generated from operations1 (£m)
Order book (£m)
2021
2020
Change %
1,410.4
98.3
7.0
148.3
120.0
3,286.3
1,273.0
12.9
1.0
87.7
95.6
2,736.6
10.8
662.0
69.1
25.5
20.1
Strategic reportCapita plc Annual Report 2021Chief Executive Officer’s review continued Chief Executive
Officer’s review
continued
Public Service
continued
17
Business units
• Education & Learning
• Local Public Services
• Health & Welfare
• Defence, Fire & Security
• Justice, Central Government & Transport
Employees
• 12,000
Client distribution
• UK
Major contract wins and renewals
• A new contract with the Royal Navy worth
£925m over 12 years
• Scope expansion on the DFRP and Smart
DCC contracts worth £127m
• A new contract for the JETS programme in
Scotland worth £29m across two years
• A new 23-month contract worth £6m by the
Department for Education to support students
participating in the Turing Scheme
Competitors
• Atos
• Sopra Steria
• CGI
• TCS
• Cognizant
• Accenture
• DXC Technology
• BJSS
• Cap Gemini
• Kainos
• Serco
• Maximus
Our markets and growth drivers
Government spending in the UK with private
sector organisations is c.£110bn2 and it is
estimated that the software and IT services
market is valued at c.£13.3bn. Our current
core addressable market is around
c.£12.5bn. The BPS element of that,
comprising both the business process
outsourcing (BPO) and digital BPS sub-
segments, is growing at c.5% per annum.
The BPS market is shifting quickly towards
being more digitally and data-enabled and
cloud-based as the UK Government is
increasingly looking to leverage technology,
digital products and emerging capabilities.
Data analytics, predictive and artificial
intelligence, robotic process automation,
cloud and cyber protection are all being
deployed to deliver improved service
through technology transformation and
delivery, using repeatable standardised
technology and methodologies, technology
stacks, partner ecosystems, tools and
intellectual property.
As a result, BPS that is heavily dependent
upon technology enabled transformation
(namely digital BPS) is growing at over 10%
a year.
Public Service has a market share of around
15%3 in software & IT services (SITS) and
around 30%3 in the UK Government BPS.
Our near-term aim is to
consolidate Public Service’s
position as market leader in UK
public sector BPS.
Public Service competes against a number
of providers across the spectrum of services
that we provide, including Atos, Sopra Steria,
CGI, TCS, Cognizant, Accenture, DXC
Technology, BJSS, Cap Gemini, Kainos,
Serco and Maximus.
Our strategy
Our strategy is to be a purpose-led, socially
responsible business that uses applied digital
transformation and BPS to improve the
productivity of government operations and the
citizen experience of public services.
Our near-term aim is to consolidate Public
Service’s position as market leader in UK public
sector BPS through selectively addressing
attractive opportunities in BPO (eg DFRP, PIP,
RPP) and digital BPS (JETS, TfL, Department
for International Trade).
The Public Service division is well positioned
for growth, benefiting from its breadth of
coverage, domain understanding, scale,
and sales and delivery capability in our
respective verticals, each of which presents
significant opportunity. This is already
evident in our strong recent track record of
contract wins, scope increases on our
current contract base and high renewal rates.
Our digital capability includes design
experience, data mastery, a modern
software engine and an automation toolkit
that is combined with technology partners
such as Microsoft Azure where it makes
sense to use them. We are building a
standardised platform, where we can use
our process insight to present a ‘digital first’
solution for our clients’ needs. Recently we
built our Grantis solution on this proposition,
developing a platform that has been
successfully integrated on a contract with the
Department for International Trade and we
believe there are a number of further
applications for the product.
Investing in growth
Capita’s strong competitive-edge comes
through our deep knowledge of the public
sector and an ability to deliver complex
service and technology transformation and
integration projects.
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
Public Service
continued
We took £32m of structural cost
out of the division in 2021 by
eliminating duplication, reducing
overheads and reviewing
office usage.
18
We run the JETS programme in Scotland on
behalf of the DWP. The programme sees us
support people made unemployed by the
pandemic into new roles. Since we started
delivering the scheme in 2021, we have
helped over 4,000 people into new roles. We
have done so by helping them develop the
skills and confidence needed to apply for
roles in sectors of the Scottish economy
that are growing. Following our strong
performance on this contract, the DWP
awarded us with a contract extension which
will see us continue to run the programme to
March 2023.
Read more online at capita.com/our-work
By bringing together all our public sector
activities into the new Public Service division,
we are better able to sell the full range of our
services via an integrated strategic account
management approach; for example, better
combining our Capita One software solution
with our strong presence in local government.
We have an effective team that can leverage
our insight with an increasingly standardised
approach to growing pipeline and disciplined
bidding. We continue to use our consulting
capability to identify major market opportunities
and to broaden Capita’s client partnering model.
Alongside large one-off contracts, we are
beginning to access more regular pools of
revenue through our access to government
frameworks, using a single team and better
account management, consulting and
partnership. Over the past 18 months we
have successfully been included on more than
30 frameworks worth £25bn over the next
five years.
At 31 December 2021, the total unweighted
pipeline was £8,149m, a decrease of £3,855m
from December 2020, with £2,422m of TCV
won, including the Royal Navy training contract,
so the book to bill at year end was 1.7x
(2020: 1.3x). Weighted pipeline was £1,305m
(2020: £2,272m, £1,347m excluding the Royal
Navy training contract). We renewed 89% of
contracts that we bid for, while our win rate on
new opportunities was 54%. The order book at
the year end was £3,286m, an increase of
£550m since 31 December 2020.
Post year end, we secured a new scope of work
with the Royal Navy. Significant upcoming bids
in 2022 are for work with NHS England, the
DWP and the London Borough of Barnet.
Cost and operational excellence
We see good margin and profit opportunity in
the division over the next few years.
We successfully embedded the Public Service
delivery model in August 2021 and since then
we have maintained consistently high levels of
client service, improving contract financial
performance and creating additional
opportunities on contracts.
As well as the revenue benefits noted above,
there are also significant efficiencies from our
divisional standardised processes and use of
the Technology and Software Solutions (TSS)
shared service function within Capita.
Operational excellence and efficiency have
continued to improve profitability in the division.
We also continued to take structural cost out of
the division, with £32m saved in 2021. This was
from eliminating duplication within the new
structure, lower divisional overhead and
property savings due to a review of office
usage, with reductions in footprint across two
major sites.
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
Public Service
continued
Our consortium, Team Fisher, which includes
Raytheon UK, Elbit Systems UK, Fujitsu, the
University of Lincoln and several smaller British
suppliers, has successfully met all initial
milestones in our 12-year programme to
transform and modernise the Royal Navy’s
shore-based training across 16 sites. Capita’s
consortium has continued to make strong
progress since taking over the contract in April
2021 when Capita and its partners transferred
more than 800 colleagues to deliver and facilitate
training for service personnel. Training has
continued smoothly with no interruption to
planned training through the handover process.
Read more online at capita.com/our-work
1. Refer to APMs on pages 219 to 222.
19
Throughout the year there was continued
emphasis on our remaining historically
problematic contracts:
the DFRP contract due to our strong contract
delivery. In addition, the ULEZ contract with TfL
went live on schedule in October 2021.
• In May we completed the last legacy
Financial performance
transformation element of the PCSE contract.
The GP payments and pensions
transformation successfully went live,
enhancing efficiency and consistent
operational delivery.
• We continue to deliver the day-to-day monitor
service on our EMS contract with the Ministry
of Justice and during the year we mutually
agreed a conclusion to the EMS
transformation project.
• On the RPP, extended in December 2020, we
achieved 100% of the recruitment target for
regular soldiers and officers for the year and
expect to reach full operating capability with
our cloud conversion project in 2022.
As a result, we have now finished fixing the
previously failing legacy contracts.
The major contracts within the division
delivered an overall cash inflow in the year,
which shows our continual progress and strong
management of contract delivery.
We have also executed on expectations with
new major transformational contracts, with key
service commencement dates met on the newly
won Royal Navy training contract with no
service credit deductions incurred. We continue
to win additional expansions of our services on
Adjusted revenue1 increased by 10.8% to
£1,410.4m following significant contract wins
including the Royal Navy training contract, our
first full year of DFRP and commencement of
the JETS programme. There was recovery in
some of the transactional parts of Local
Government and Capita One, as Covid
restrictions eased and activity levels increased.
We also benefited from Covid-related projects
in our Intelligent Communications business and
the one-off deferred income release from the
conclusion of the EMS transformation project.
The impact of contract losses significantly
reduced in 2021, mostly relating to the local
government sector.
Adjusted operating profit1 improved by 662.0%
to £98.3m, reflecting the year-on-year uplift
from 2020 impacts such as the first-year loss
on DFRP and contract-related provisions
and impairments. There was significant
improvement in contract financial performance,
mainly from tight contract cost control.
There have been continued savings from
successful cost out programmes within
operational efficiency and procurement as
well as from the new structure and service
delivery model.
Adjusted cash generated from operations1
increased by 25.5% to £120.0m reflecting
the improved EBITDA performance of the
division, partially offset by the unwind of
prior-year advanced receipts on DFRP
and contract investment following the
commencement of the Royal Navy
training contract.
Outlook
We expect the revenue growth rate in
Public Service to normalise as the Royal
Navy training contract annualises towards
mid-single digits, in line with the market,
delivered by a strong pipeline of
opportunities, winning more from
current and new frameworks and major
contract renewals.
In the medium term, we expect to target
high single-digit to low double-digit EBITDA
operating margins, as we continue to win
work at appropriate rates of return and as
we drive ongoing operational, structural and
overhead efficiency.
Strategic reportCapita plc Annual Report 2021 Experience
20
Experience
Experience is one of Western Europe’s leading customer
experience businesses. It is the market leader in the UK
and ranks third in EMEA.
Adjusted revenue1
£1,184.7m
(2020: £1,307.7m) -9.4%
Adjusted operating profit1
£69.1m
(2020: £80.9m) -14.6%
We are experts in designing, transforming and
delivering frictionless experiences for our clients
and their customers. Our services include
omni-channel contact-centre management,
speech analytics, social media analytics, data
and insight, application development and
robotics process automation. We also have a
strong position in regulated financial services
which requires robust systems and governance.
The value we bring to our clients is increasingly
built around transforming the customer
experience through the application of
digital services underpinned by data insight
and analytics.
Adjusted revenue by type (%)
Secondary revenue split (%)
3
2
1
1 75% Long-term contractual
2 20% Short-term contractual
3 5% Transactional
3
1
2
1 39% Telecoms, Media & Technology
2 21% Multi-industry
3 40% Financial Services
Financial performance
Divisional financial summary
Adjusted revenue1 (£m)
Adjusted operating profit1 (£m)
Adjusted operating margin1 (%)
Adjusted EBITDA1 (£m)
Adjusted cash generated from operations1 (£m)
Order book (£m)
2021
2020
Change %
1,184.7
69.1
5.8
141.5
55.8
2,271.8
1,307.7
80.9
6.2
142.2
145.0
2,428.7
(9.4)
(14.6)
(0.5)
(61.5)
(6.5)
Increasingly, the value we
bring to our clients is
achieved by using digital
services to transform the
customer experience.”
Aimie Chapple
CEO. Capita Experience
1. Refer to APMs on pages 219 to 222.
Strategic reportCapita plc Annual Report 2021Chief Executive Officer’s review continued Chief Executive
Officer’s review
continued
Experience
continued
21
Business units
• Telecoms, Media & Technology
• Multi-industry
• Financial Services
Employees
• 30,000
Client distribution
• UK, Ireland, Germany and Switzerland
Major contract wins and renewals
• An extension for up to seven years for a
long-standing major European
telecommunications client with TCV of £528m
• A three-year renewal worth £58m with our
market-leading Tesco Mobile client
• A new win with a FinTech client to provide
multilingual customer service across 15
languages worth £9m
• An eight-year renewal with the RSPCA building
on our 17-year partnership
Competitors
• Atento
• T-Tech
• Teleperformance
• Sykes Enterprises
• Webhelp
• Accenture
• Concentrix
• Firstsource
• Majorel
• In-sourcing trend
Our markets and growth drivers
The global customer experience market is
valued at more than £244bn4 and is
expected to grow at around 5% between
2020 and 2024. Around 27% of the
customer experience market is currently
outsourced, with half of that focused in
Telecoms, Media & Technology, and
Financial Services. Growth opportunities
still exist in these verticals, with further
opportunities in other markets and
segments that we serve.
We are the largest provider of customer
experience services in the UK and Ireland
with a market share of around 13%.
Our competitors in the customer experience
segment are mostly global and include
peers such as Teleperformance, Webhelp,
Concentrix and Majorel.
The Covid pandemic accelerated the rise in
customer propensity towards self-service
and automation and in turn drove our
clients’ strategies to further digitise service
offerings, as well as commit to the structural
benefits of agents working remotely.
We aim to provide best-in-class
services tailored to our clients’
needs.
Our strategy
Our experience in delivering customer
experience services in certain industries and
geographies gives us the ability to understand
our clients’ challenges and put together
solutions based on our technology, insight and
digital platforms.
During the year we restructured Experience
around market verticals and horizontal value-
add capabilities, to move to client-centricity in
all offerings. To drive our revenue opportunity,
we have a new leadership team in the verticals
with significant experience in those markets,
improving our sales and marketing strategy and
granularity of client offerings.
We deliver our services on both an on-shore
and near-shore basis, with delivery centres in
the UK, Europe, the Middle East, India and
South Africa. This gives us access to specific
skills and expertise (such as in languages or IT
skills) that can be delivered 24 hours a day at a
competitive rate to our clients. Significant
leverage is available from this cost base as
we grow our revenues.
Our ambition is to provide best-in-class
services within an advanced tool kit of
services which can be tailored to client
needs. This will use both in-house and
third-party technology, such as the assisted
customer conversation and augmented
conversation technology which is now
utilised on a variety of contracts. Partnering
with AWS, we have also developed a natural
language platform which improves tailored
customer experiences and reduces call
handling times.
We are also focused on resolving the
structural challenges facing the closed book
Life & Pensions business, which has
declining revenue in a few long-duration
legacy contracts, on a high-cost platform.
To mitigate the impact, we are focusing on
service modernisation and identifying
efficiencies in our provision of services.
The unit had revenues in 2021 of £199m,
adjusted profit before tax of £13m and
negative free cash flow of £19m. We
continue to focus on our regulated
businesses and growth areas in insurance,
finance, pensions and mortgages.
4. Everest
Strategic reportCapita plc Annual Report 2021 22
We were awarded a customer management
contract extension with a major European
telecoms provider worth £528m over seven
years. Building on a partnership of over 20
years, and employing over 1,000 people
locally, we will continue to deliver 24/7
customer service to customers. We will also
provide customer support on a range of
products and services including technical
assistance for mobile phone and TV
products, as well as order fulfilment support
for residential and business customers.
Read more online at capita.com/our-work
Chief Executive
Officer’s review
continued
Experience
continued
Investing in growth
The main focus of our investment continues to
be in our consulting and technology capability,
providing advanced data and insight to support
our customer service agents, which we are
starting to deploy for clients. We continue to
invest to ensure that our platforms are reliable,
cyber-secure and capable of flexing with surges
in volume. We generated £100m of revenue
from contact centre support during the Covid
pandemic as a result of our reliability and scale.
Our strong day-to-day operational partnerships
with our clients drove high retention rates on
contract renewal of 97%. However, we are
targeting new scopes of work with existing
clients as well as working with new clients in
new areas such as FinTech where we recently
signed a contract with Trade Republic.
At 31 December 2021, the total unweighted
pipeline was £5,510m, an increase of £761m
since 31 December 2020, with £842m of TCV
won. A significant part of the work won was for
renewals and new scopes of work for existing
clients. Weighted pipeline at 31 December 2021
was £1,582m (2020: £932m).
The order book at year end was £2,272m, a
decrease of £157m since 31 December 2020
as some sizeable deals moved to 2022, such
as TV Licensing. As noted above, renewal rates
remained strong at 97% on opportunities bid
but conversion of new opportunities was low at
14%. Winning work from new scopes of work
and new clients is a key area of focus.
Significant upcoming bids in 2022 are for a
financial services motor financing opportunity,
a telecoms renewal and an insurance client
renewal. Since the year end we have been
awarded a renewal of the TV Licensing contract
with the BBC worth up to £456m over five years.
Our operational delivery remains strong and,
across 2021, we focused on delivering a
secure, stable and reliable service for our
clients despite challenges around Covid and
lockdown arrangements in key geographies.
The pandemic resulted in high staff sickness
levels in some geographies where we had to
develop robust plans to maintain service levels
for the areas worst affected. In South Africa we
expanded our geographical footprint, opening a
new office in Durban to mitigate delivery
challenges and strengthen new skillsets. We
are now exploring opportunities in our existing
geographies to future-proof consistent delivery.
Cost and operational excellence
Financial performance
With the divisional structure now in place, we
have opportunities to drive the efficiencies that
will make our offering more competitive in the
market and increase profit and cash flow in
the division.
In 2021 we secured cost savings of £43m.
During the year, we opened a single shared
service centre in the UK, which drove cost
savings and efficiency improvements. As we
extend this work under the new structure, we
expect to derive additional benefits from
consistency of planning processes and
resourcing, which is driving high-quality delivery.
Adjusted revenue1 declined by 9.4% to
£1,184.7m as a result of attrition from contract
expiries and losses including Tesco Bank,
Phoenix, VW Group and First Group. There
were continued planned volume decreases
within the closed book Life & Pensions
business, and reductions in revenue following
completion of a number of Covid-19 and other
projects. Wins in the period included successes
with a major telecoms company in Germany
and our first full year with Irish Water.
1. Refer to APMs on pages 219 to 222.
Strategic reportCapita plc Annual Report 2021 Chief Executive
Officer’s review
continued
Experience
continued
We signed a customer service contract renewal
with the RSPCA for a further eight years, building
on our 17-year strong partnership with the charity.
Under the contract renewal, we will continue to
run the RSPCA’s national control centre from
their site in Dearne Valley, assisting them with
the implementation of their 2021 to 30 strategy
and delivering a digital transformation
programme to help drive significant animal
welfare improvements across England and
Wales. Capita will implement an enhanced
telephony platform and webchat operation
which, by using data analytics, will optimise
both telephone and web-based, self-service
of animal welfare cases.
Read more online at capita.com/our-work
1. Refer to APMs on pages 219 to 222.
Adjusted operating profit1 reduced by 14.6% to
£69.1m, reflecting the reduction in revenue and
prior year one-off Covid-19 savings. This was
offset by continued successful transformational
cost savings on our wider cost-saving
programme, as well as the year-on-year
uplift from the 2020 mobilcom-debitel contract
asset impairment.
We received termination notices on our
Co-operative Bank and Carphone Warehouse
contracts during the year, following both clients’
decision to change their corporate strategy.
The associated deferred income and contract
assets are now being released over the
termination period; compared with the
previously assumed contract end dates on
both contracts. There was a one-off benefit
from the net deferred income release and exit
fees, to compensate the Group for exit costs
and future profit.
Adjusted cash generated from operations1
reduced by 61.5% to £55.8m following the
unwind of cash preservation measures and
timing of invoicing on a telecoms contract
in 2021.
In the medium term, we expect
to target high single-digit to low
double-digit EBITDA margins.
23
Outlook
As we have previously highlighted, the
Experience division is around 18 months
behind Public Service in its business
improvement journey. Investment in
revenue growth allied to operational
productivity and efficiency and eliminating
cash drag will drive profit and cash flow
improvements in the longer term.
We expect revenue to stabilise in 2022. Our
revenue growth objective in the medium
term is to replicate that of our addressable
markets, which will be driven by our more
client-centric business model. We will also
look to target higher-growth markets.
In the medium term, we expect to target
high single-digit to low double-digit EBITDA
margins in the division. This reflects the
near-term building of revenue, delivering
efficiencies in the operating cost base and
reducing the overhead, while investing in
our people and technology. As revenue
growth becomes more established,
operating leverage will drive further
margin improvement.
Strategic reportCapita plc Annual Report 2021 Portfolio
24
Portfolio
Portfolio comprises all our non-core businesses that are
intended for disposal. This includes assets from our historical
Specialist Service division, as well as businesses transferred
from other divisions in our previous divisional structure.
Adjusted revenue1
£413.4m
(2020: £414.8m) -0.3%
Adjusted operating profit1
£23.8m
(2020: £14.2m) 67.6%
Our markets and growth drivers
Adjusted revenue by type (%)
Portfolio includes a range of businesses
serving public and private clients across
multiple markets and sectors, which are
generally mature.
We enjoy strong market positions in many of
the market vertical sectors we operate in, with
strong brands and positive client perception of
our services.
Our strategy
The division comprises an enlarged portfolio
of valuable but non-core businesses for which
Capita is not the best owner and which we
intend to sell at the appropriate time.
We have organised the division into ‘pillars’
comprising businesses with similar
characteristics which allows us to effect
disposals more efficiently and makes it
easier to manage them in the interim.
1
3
2
1 10% Long-term contractual
2 35% Short-term contractual
3 55% Transactional
Financial performance
Divisional financial summary
Adjusted revenue1 (£m)
Adjusted operating profit1 (£m)
Adjusted operating margin1 (%)
Adjusted EBITDA1 (£m)
Adjusted cash generated from operations1 (£m)
Order book (£m)
2021
413.4
23.8
5.8
56.0
59.8
557.3
2020
Change %
414.8
14.2
3.4
51.3
104.2
685.4
(0.3)
67.6
9.2
(42.6)
(18.7)
Over the past two years,
our businesses focused
on maintaining excellent
service levels.”
Chantal Free
CEO, Capita Portfolio
1. Refer to APMs on pages 219 to 222.
Strategic reportCapita plc Annual Report 2021Chief Executive Officer’s review continued Chief Executive
Officer’s review
continued
Portfolio
continued
Business units
• People
• Property
• Technology
• Software
• Business Solutions
• Travel
• FERA
Employees
• 5,000
Client distribution
• UK
Major contract wins and renewals
• A renewal with the Northern Ireland Civil
Service (NICS) to deliver HR and payroll
solutions partnering with Fujitsu, worth £45m
• A new contract with an insurance company in
our Software pillar worth £6m
• A contract within our People pillar with Social
Security Scotland worth £2m
These pillars are Technology, Property,
People, Software, Business Solutions,
Travel and the FERA joint venture.
During 2021, we successfully completed the
disposals of ESS, Capita Life & Pensions
(Ireland) and AXELOS. We also announced
the disposals of Secure Solutions and
Services (SSS), our Speciality Insurance
business and AMT-Sybex. SSS and
AMT-Sybex completed early in the new year.
Following the year end, we agreed the sale
of Trustmarque (comprising the businesses
in our Technology pillar) for cash proceeds of
c.£115m. In Q1, we launched the disposals
of two further pillars. Combined, these two
pillars generated £188m of revenue and
£20m of profit before tax, before allocation of
Group overheads, in 2021.
The majority of the remaining businesses
are expected to be disposed of in 2022,
depending on Covid recovery and general
market conditions.
Cost and operational excellence
Over the past two years, our businesses
focused on maintaining excellent service
levels, despite the ongoing impact of the
pandemic on a number of pillars within the
division. As a result, the division’s cNPS
improved for the third consecutive year.
1. Refer to APMs on pages 219 to 222.
In areas which continued to face challenging
market conditions, we undertook work to
position the businesses better for new market
conditions. Within Agiito (our rebranded travel &
events business), we focused on the efficiency
of the long-term operating model and in
Enforcement we supported clients to clear
backlogs which built up in the pandemic to
ensure focus on future volumes and local
council needs.
We continued with our successful cost saving
programme, delivering £18m of cost reduction
in the year.
Financial performance
Adjusted revenue1 decreased slightly by 0.3%
to £413.4m; while some businesses saw
revenue improvement with markets recovering
from the impact of Covid, including Capita
Resourcing and our Technology businesses,
this did not offset the impact of significant
projects ending. Some markets continued to
be severely impacted by Covid, with recovery
slower than anticipated. This particularly
affected our Travel businesses (Agiito and
Evolvi) as well as Enforcement and Optima,
our remortgaging business.
Adjusted operating profit1 increased by 67.6% to
£23.8m as the revenue margin mix improved.
Actions taken in 2020 to right-size the division
and benefits from successful cost-saving
initiatives continue to drive profit.
25
Adjusted cash generated from operations1
decreased by 42.6% to £59.8m, mainly due
to the unwind of 2020 events, as volumes
increased and the working capital benefit in
the prior year from volume reductions and
cash preservation reversed.
Outlook
High single-digit revenue growth is
expected, particularly supported by recovery
in the Covid-affected businesses, based on
assumptions of no further lockdowns.
We expect profit improvement to reflect the
increase in revenue and to see the benefit
of high operational leverage fall through
to profit.
This outlook is based on the proforma
scope of the division at year end.
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
26
Strengthening the
balance sheet
We have already exceeded the target we set
of £700m in total disposal proceeds to be
delivered by June 2022.”
Tim Weller
Chief Financial Officer
Summary of financial performance
Overview
Financial highlights
Reported results – continuing operations
Adjusted1 results – continuing operations
Reported
2021
Reported
2020
Reported
YOY change
Adjusted1
2021
Adjusted1
2020
Adjusted
YOY change
£3,182.5m £3,324.8m
£(86.6)m £(32.0)m
£285.6m
£(49.4)m
£222.3m £225.6m
(4)% £3,008.5m £2,995.5m
£51.1m
£139.1m
£93.5m
£5.4m
£295.1m £228.4m
(171)%
678%
(1)%
0.4%
172%
1,631%
29%
£(121.3)m £434.2m
(128)%
£185.4m £295.2m
(37)%
13.33p
3,351%
(0.41)p
£(237.1)m £303.8m
(178)%
£(879.8)m £(1,077.1)m £197.3m
1.61p
£78.1m
(33)%
2.41p
(54)%
£170.3m
£(879.8)m £(1,077.1)m £197.3m
Revenue
Operating profit/(loss)
Profit/(loss) before tax
EBITDA
Cash generated
from operations
Earnings/(loss) per
share
Free cash flow
Net debt
1 Refer to alternative performance measures (APMs) on pages 219 to 222.
Adjusted revenue1 was broadly in line with the
prior year. Contract losses halved compared
with 2020 benefiting from our sustained focus
on retention and service delivery. Contract wins
reflect the commencement of the Royal Navy
training contract, Job Entry Targeted Support
(JETS) contract and the annualised impact
of the Defence Fire and Rescue Project
(DFRP) contract.
The increase in adjusted profit before tax1
reflects the benefit of stable revenues, cost
savings from our transformation programme
and the reduction in the holiday pay accrual
in 2021 compared with 2020, offset by other
cost increases, including the impact of the
reinstatement of the employee bonus scheme.
The adjusted profit before tax1 in 2021 excludes
the financial impact of a closed book Life &
Pensions contract termination, which by virtue
of size has been excluded from adjusted results
as later described in this report. The Group
continued to participate in the job retention
scheme made available by the Government
to help ease the employment impact of
Covid-19 and furlough related income of
£4.9m (2020: £21.3m) was recorded in
the period which was offset against the
associated payroll costs.
Adjusted cash generated from operations1
reduced by £109.8m to £185.4m reflecting
the increase in adjusted operating profit1
offset by movements in working capital.
Adjusted free cash flow1 reduced by 54% in
the period as the reduction in adjusted cash
generated from operations1 was partially
offset by lower capital expenditure and
interest payments.
As part of our drive for simplification of the
business, and strengthening the balance
sheet, we continue to seek to dispose of
a number of non-core businesses. During
2021 we completed the disposal of the
Education Software Solutions (ESS)
business and of AXELOS, realising cash
proceeds of c.£343.5m and £182.2m
respectively. We also announced the
disposal of our Speciality Insurance
Strategic reportCapita plc Annual Report 2021
Chief Financial Officer’s review
continued
business, subject to certain consents; the
disposal of the AMT Sybex software business,
for initial cash consideration of £23.0m, and
potential additional consideration of up to
£17.0m, subject to certain conditions; and the
disposal of our Secure Solutions and Services
(SSS) business for cash proceeds of £72.0m.
The sale of both AMT Sybex and SSS
completed in January 2022.
On 28 January 2022, we announced the disposal
of the Trustmarque business for £111m on a cash
free, debt free basis, and the Group expects to
receive net proceeds of c.£115m at completion.
Additional consideration of c.£3m is payable to
Capita contingent on certain future events. The
sale is subject to certain consents. The proceeds
from this sale, subject to successful completion,
mean we will exceed the target we set of £700m
in total disposal proceeds to be delivered by
June 2022.
These disposals form part of the Board-approved
disposal programme and the preparation for a
number of further disposals has commenced
where there are opportunities to maximise the
value from exiting non-core businesses. The
Group expects to use the proceeds from this
disposal programme to repay maturing debt, to
make further deficit reduction contributions to
the Group’s defined benefit pension scheme
and to invest in driving growth in the remaining
core businesses. In 2021, we repaid £232.3m
of private placement notes, and made pension
deficit contributions of £155.5m.
In the second half of 2021, the Group moved to
a new, three division, organisation structure,
1 Refer to APMs on pages 219 to 222.
creating a platform for revenue growth,
increasing opportunities for savings from
shared support services and a leaner Group
overhead, all of which is expected to drive a
richer contract margin mix and further efficiency.
Liquidity as at 31 December 2021 was
£392.4m, made up of £345.7m of the undrawn
element of our committed revolving credit
facility (RCF) and £46.7m of unrestricted cash
and cash equivalents net of overdrafts. The
existing RCF expires on 31 August 2022, and
in June we entered into a new £300m RCF
covering the period from 31 August 2022 to
31 August 2023. The two RCFs incorporate
provisions such that the amounts available
under the facilities will be partially reduced
when proceeds are realised from future
business disposals. For full details refer to the
Capital and financial risk management section
later in this review.
The 31 March 2020 triennial valuation of the
Capita Pension and Life Assurance Scheme
(the Scheme) was concluded during the year
and identified a deficit for funding purposes of
£182.2m, which is expected to be recovered
through agreed deficit contributions of £105m
across 2022–2026 on top of the regular pension
deficit contribution of £59m paid in 2021. The
valuation of the Scheme liabilities for funding
purposes differs to the valuation for accounting
purposes mainly as a result of the different
assumption principles required for funding and
accounting purposes. At 31 December 2021,
the Scheme showed a small surplus for
accounting purposes of £7m on an accounting
basis (2020: deficit £242m), which has been
reflected in the Group’s balance sheet as at
27
£m
2,995.5
(14.7)
2,980.8
(104.3)
(66.6)
25.3
139.1
34.2
3,008.5
Adjusted revenue1 bridge by key driver
Year ended 31 December 2020
One-offs in 2020
Year ended 31 December 2020 rebased
Contract losses
Ongoing contract scope and volume changes
Transactional revenue growth*
Contract wins
One-offs in 2021
Year ended 31 December 2021
* Excludes DWP PIP contract modification from transactional to contractual.
that date. Management estimates that, at
31 December 2021 the net asset of the
Scheme on a funding basis consistent with
the 2020 triennial valuation was approximately
£40m (2020: net liability £155m). The Trustee
of the Scheme has also agreed a more prudent
secondary funding target which will enable
the Scheme to reduce its reliance on the
covenant of the Group. On this basis, at
31 December 2021, the funding level was
around 91% (or a net liability of £165m) which
is expected to be met by a mixture of the
remaining deficit contributions of £105m and
asset outperformance.
Adjusted results
Capita reports results on an adjusted basis to
aid understanding of business performance.
The Board has adopted a policy of disclosing
separately those items that it considers are
outside the underlying operating results for
the particular period under review and against
which the Group’s performance is assessed
internally. In the directors’ judgement, these
items need to be disclosed separately by
virtue of their nature, size and/or incidence
for users of the financial statements to obtain
an understanding of the financial information
and the underlying in-period performance of
the business.
In accordance with the above policy, the trading
results of business exits, along with the
non-trading expenses and gain or loss on
disposals, have been excluded from adjusted
results. To enable a like-for-like comparison of
adjusted results, the 2020 comparatives have
been re-presented to exclude 2021 business
exits. As at 31 December 2021, the following
businesses met this threshold and were
classified as business exits and therefore
excluded from adjusted results in both 2021
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
continued
and 2020: ESS; AXELOS; Life Insurance and
Pensions Servicing business in Ireland; AMT
Sybex software; SSS; the Speciality Insurance
business; and a software business.
Reconciliations between adjusted and reported
operating profit, profit before tax and free cash
flow are provided on the following pages and in
the notes to the financial statements.
Adjusted revenue
Adjusted revenue1 was broadly in line with the
prior year. The adjusted revenue1 movements
were as follows:
• one-off contract related items in 2020,
including the release of deferred income
and write-off of contract assets arising
from contract terminations, settlements
and modifications, provisions recognised
on onerous contracts and contract related
asset impairments;
• contract losses halving year-on-year
reflecting sustained focus on retention
and service delivery;
• ongoing contract scope and volume reduction
reflecting pandemic-related work in 2020 and
projects in Experience which did not repeat
in 2021;
• unplanned contractual one-offs in 2021,
including the release of deferred income
and termination gains arising from contract
terminations and modifications, including on
the EMS contract with the Ministry of Justice
in Public Service and The Co-operative Bank
contract and a contract with a telecoms client
in Experience;
1 Refer to APMs on pages 219 to 222.
• transactional revenue growth mainly driven
by Public Service and to a lesser extent
Portfolio; and
• the benefit of a number of notable contract
wins, including the commencement of the
Royal Navy training contract and the JETS
contract which commenced in February,
combined with the annualised impact of the
DFRP contract in Public Service and smaller
wins within Experience.
Order book
The Group’s consolidated order book was
£6,115m at 31 December 2021 (2020: £5,851m)
as additions from contract wins and extensions
in 2021 (£2,901m), including the Royal Navy
training contract and contract extensions with
two major European telecoms providers,
exceeded the reduction from revenue
recognised in the year (£2,297m) and contract
terminations, business disposals and scope
changes (£339m).
Adjusted profit before tax
Adjusted profit before tax1 increased in 2021.
The adjusted profit before tax1 bridge opposite
reflects the following items:
• to ensure a like-with-like starting point, the
2020 one-offs, which included contract asset
impairments and contract provisions, are
adjusted for;
• the margin effect of contract losses, scope and
volume, transactional changes and contract
wins were a net £26.9m negative, with new
wins not yet offsetting the impact of contract
losses and scope and volume reductions;
Adjusted profit before tax1 bridge by key driver
Year ended 31 December 2020
One-offs in 2020 – contract-related
Year ended 31 December 2020 rebased
Contract losses
Ongoing contract scope and volume changes
Transactional revenue growth
Contract wins
One-offs in 2021 – contract-related
Cost savings
Other cost movements
Bonus
Holiday pay
Year ended 31 December 2021
Adjusted operating profit to adjusted free cash flow1
Adjusted operating profit1
Add: depreciation/amortisation and impairment property, plant and equipment
and intangible assets
Adjusted EBITDA1
Working capital
Other
Adjusted cash generated from operations1
Net capital expenditure
Interest/tax paid
Adjusted free cash flow1
2021
£m
139.1
156.0
295.1
(123.5)
13.8
185.4
(51.3)
(56.0)
78.1
28
£m
5.4
23.9
29.3
(44.4)
(19.1)
8.5
28.1
12.2
123.3
(11.7)
(47.7)
15.0
93.5
2020
£m
51.1
177.3
228.4
34.3
32.5
295.2
(68.3)
(56.6)
170.3
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
continued
29
• unplanned contractual one-offs in 2021,
including the release of deferred income
and write-off of contract assets arising from
contract terminations, settlements and
modifications, and provisions recognised
on onerous contracts. These resulted in net
gains of £7.5m in Public Service and £4.7m
in Experience which have not been excluded
from adjusted results because they are
considered to be in the normal course
of business;
• the transformation programme continued
to deliver substantial savings in 2021 with
a £123.3m year-on-year benefit;
• other cost movements, primarily from general
inflation; and
• the year-on-year impact of the reinstatement
of the employee bonus scheme this year with
£31.2m expensed during 2021 including
£17.3m accrued at 31 December 2021
compared with the release of the 2019’s
£16.5m accrual in the first half of 2020,
was partially off-set by a reduction in holiday
pay accrual.
Moving forward, we expect to see the reward
from the investment in cost transformation over
the past few years, with revenue growth and
operating leverage driving the bottom line, albeit
this is expected to be partially offset in the short
term in 2022 by the impact of cost inflation and
staff attrition as the UK economy enters a high
inflation, high employment period.
Adjusted profit before tax1 excludes contract-
related provisions and impairments of £43.1m
in the closed book Life & Pension business in
1 Refer to APMs on pages 219 to 222.
Experience. These have been excluded from
adjusted results due to their materiality and are
detailed in the Reported results section.
Adjusted free cash flow
Adjusted free cash flow1 in the year ended
31 December 2021 was an inflow of £78.1m
(2020: inflow £170.3m). The decrease
compared with the prior period is driven by
a reduction in adjusted cash generated
from operations1, capital expenditure and
interest payments.
Adjusted cash generated from operations1
benefited from the improvement in adjusted
profit before tax1 explained above, offset by
a material working capital outflow compared
with an inflow in 2020. In 2020, the Group’s
cash flow benefited from shorter public sector
payment cycles as part of the Covid-19
response and advanced payments from a small
number of major clients at 31 December 2020.
As expected, 2021 has been impacted by the
unwind of these advanced receipts together
with the natural expansion in working capital
as the Group transitions to growth.
Capital investment reduced year on year
following the 2020 completion of a number
of transformation-related projects.
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 significant
restructuring, the amortisation and impairment
of acquired intangibles, including goodwill, and
the impact of business exits.
Adjusted1 to reported profit bridge
Adjusted1
Amortisation and impairment of acquired
intangibles
Impairment of goodwill
Litigation and claims
Net finance costs
Business exit
Business exit – on-hold disposal costs
Contract-related provisions and impairments
Significant restructuring
Reported
Impairment of goodwill
Following the corporate reorganisation in the
second half of 2021, the Group reviewed the
historical assessment of cash generating
units (CGUs) and the allocation of goodwill.
Reflecting the way management now exercises
oversight and monitors the Group’s performance,
the Board concluded that the lowest level at
which goodwill is monitored is at the divisional
level for Public Service and Experience, and at
a sub-divisional level for Portfolio, and goodwill
has been reallocated to these new CGUs or
group of CGUs, as appropriate. At 31 December
2021, this resulted in an impairment of goodwill
in the Travel CGU within the Portfolio division
as the travel industry continues to be impacted
by Covid-19 which is reflected in the projected
near-term cash flows as well as the increase in
comparable companies’ discount rates.
Operating profit/(loss)
Profit/(loss) before tax
2021
£m
139.1
(12.0)
(11.5)
9.3
—
(20.1)
—
(43.1)
(148.3)
(86.6)
2020
£m
51.1
(26.4)
—
(0.7)
—
60.5
(7.5)
—
(109.0)
(32.0)
2021
£m
93.5
(12.0)
(11.5)
9.3
(1.4)
399.1
—
(43.1)
(148.3)
285.6
2020
£m
5.4
(26.4)
—
(0.7)
(1.5)
90.3
(7.5)
—
(109.0)
(49.4)
Transformation programme savings
£123m
year-on-year benefit in 2021
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
continued
30
Refer to note 3.4 to the consolidated financial
statements for further details.
• a software business in the Portfolio division
that the Group has decided to exit; and
Business exits
Business exits include the effects of businesses
that have been disposed of or exited during the
period and the results of businesses held-for-
sale at the reporting date. Individual businesses
within the Portfolio division under the new
corporate structure will be treated as held-for-
sale where their disposal is seen to be highly
probable and is expected to complete within the
following 12 months. At 31 December 2021
business exits comprised:
• the ESS business whose disposal was
completed on 1 February 2021;
• the Life Insurance and Pensions Servicing
business in Ireland whose disposal was
completed on 1 March 2021;
• the AXELOS joint venture with the UK
Government whose disposal was completed
on 29 July 2021;
• the AMT Sybex software, SSS and Speciality
Insurance businesses which were in the
process of being sold and which met the
held-for-sale criteria. Accordingly, these
businesses were treated as disposal groups
held-for-sale at this date. The disposal of the
AMT Sybex Software and SSS businesses
completed subsequently in 2022 (refer to note
6.3 of the consolidated financial statements
for further details);
1 Refer to APMs on pages 219 to 222.
• the exit costs, including professional fees,
salary costs and separation planning costs,
relating to further planned disposals for which
the held-for-sale and business exit criteria
were not met at 31 December 2021.
In accordance with our policy, the trading
results of these businesses, along with the
non-trading expenses and gain on disposal,
were classified as business exits and therefore
excluded from adjusted results. To enable
a like-for-like comparison of adjusted results,
the 2020 comparatives have been restated
to exclude the 2021 business exits.
Further businesses are planned for disposal
as part of the Group’s simplification strategy.
However, given the status of the relevant
disposal processes, the businesses did not
meet the criteria to be classified as assets
held for sale at 31 December 2021 and,
accordingly, their trading results are included
within adjusted results. This includes the
Trustmarque business whose disposal was
announced on 28 January 2022 (refer to note
6.3 of the consolidated financial statements
for further details).
Significant restructuring
In 2018, the Board launched a multi-year
transformation programme to support the
objectives of simplifying and strengthening
Capita. The programme was extended
to property rationalisation, procurement
centralisation, transformation of support
functions, including investment in growth, and
operational excellence initiatives, including
investment in automation. These activities were
designed to improve the cost competitiveness
of the Group and secure Capita’s position in the
markets it serves and strengthen governance
and control.
The transformation programme included
planned improvements to the Group’s financial
reporting systems. New financial systems were
due to go live in the second half of 2019 and,
while progress was made, a decision was taken
to defer the go-live because more work was
required on the core processes and procedures
before the system could be effectively
implemented. Several interim activities were
progressed during both 2020 and 2021 and the
technical asset including the IT infrastructure,
software and codebase were preserved.
The new system was deemed necessary to
provide effective functionality across the then
six reporting divisions, supported by the central
functions and covering a multifaceted legal
entity structure. In addition, the decision to
invest in new financial reporting systems was
predicated on the fact that the Group’s existing
ERP platform would not be supported by the
relevant supplier beyond 2025.
During 2021, the Group simplified its divisional
and management organisation structure with
ongoing programmes to streamline the legal
entity structure of the Group. As a result, the
Board concluded in late 2021 that continued
investment in a new system was not critical
to support the finance transformation. This
coincided with confirmation from the supplier
that the Group’s existing ERP platform will be
supported until at least 2030.
These developments allowed management to
reconsider the technical imperative to move to
a new ERP platform and to assess the extent
to which the Group would be better served by
continuing to use its existing platform. It has
become clear that it is feasible to use the
existing platform and, in doing so, avoid the
disruption, additional cost and risk of a
transition to a new platform. The simplified
operating model makes possible a continuation
of the systems already available with more
limited investment to achieve the required
functionalities that will deliver the prime
objectives of standardisation, automation and
improved quality of information.
Therefore, the Board approved a revised
approach at the end of 2021 to focus on
optimising the existing financial reporting
systems and not migrate to an entirely new
finance system. As such, an impairment of
£53.5m was recognised at 31 December 2021
representing the book value of the elements of
the new finance system which are no longer
expected to be utilised.
The Group has continued to invest in shared
service centres and offshoring, and in making
improvements to the Group’s existing reporting
systems, processes, and controls. Further
enhancements are planned for 2022, that will
take into consideration the Government’s
proposed audit and governance reform,
including the potential adoption of a UK-
Sarbanes-Oxley regime.
The costs of the transformation programme,
including redundancy costs, are excluded from
adjusted operating profit1 as significant
restructuring. 2021 is the final year of major
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
continued
investments in the transformation programme
where the costs are excluded from adjusted
results. From 1 January 2022, any residual
restructuring costs will be included within
adjusted results.
Contract-related provisions and
impairments
The new corporate structure has simplified
internal reporting, which has highlighted those
businesses that represent a drag on the
Group’s cash resources. This includes the Life
& Pensions business that provides outsourced
administration services for the associated
closed pension books which we maintain on
behalf a small number of clients.
The Group has highlighted in prior reporting the
structural challenges associated with the closed
book Life & Pensions contracts. These provided
for upfront cash inflows to support initial
transformation activities with a much lower level
of cash inflows once the transformation phase
was completed. Under the Group’s long-term
contract accounting policy (see note 2.1 of the
consolidated financial statements), the cash
flow profile of these contracts has resulted in
deferral of profit into future years which is not
backed by net cash flows (because the relevant
cash receipts arose in the early years of
contract execution). Additionally, some of the
contracts contain evergreen clauses allowing
the customers to extend the contracts
indefinitely until the run-off of the underlying
pensions books is complete.
The Life & Pensions business has remained in
structural decline as some customers, with
1 Refer to APMs on pages 219 to 222.
legacy IT systems, have switched to suppliers
who can provide a single digital platform for all
their books. The Group has sought to drive
efficiencies to mitigate this fall off in volumes,
while supporting customers who have selected
new outsource providers or taken the activities
back in-house.
The closed books and contractual dynamics
have led to onerous conditions to service these
contracts. The Board has been required to
assess the likely length of the remaining
contracts, given the pattern and experience of
contract terminations while also recognising the
evergreen clauses. Accordingly, management
has in prior years provided for the onerous
contract conditions based on the best estimate
of the remaining contract terms. The contingent
liability note has highlighted that should the
contracts end earlier or extend for longer this
may result in a material reduction or increase in
the provision recorded.
During 2021, the Group has continued to
support a major customer on the transfer of
services to another supplier. This is taking
significantly longer than initially expected.
Management has reassessed the lifetime
estimate to include not only the onerous
contract terms but also the period and likely
costs to support the final handover of services.
This assessment has extended across all
contracts that contain evergreen clauses,
including those where there are ongoing
discussions regarding either termination or
transfer of services. This reassessment,
reflecting the development in the latter half of
2021, provides cover for contracts to extend out
to 2026. This has resulted in an increase to the
Adjusted to reported free cash flow
Adjusted1
Pension deficit contributions
Significant restructuring
Litigation and claims
Business exits
Business exits – on hold disposal costs
Non-recourse trade receivables financing
VAT deferral
Reported
31
2021
£m
78.1
(155.5)
(68.6)
(18.5)
41.2
—
(9.7)
(104.1)
(237.1)
2020
£m
170.3
(29.5)
(64.1)
—
102.2
(7.5)
13.6
118.8
303.8
contract provision and impairment of contract
assets totalling £43.1m which has been
reported as an adjusting item (see note 2.4 to
the consolidated financial statements). In prior
years the financial impacts of such contract
judgements have not been shown as adjusting
items because they were considered to be
normal course of business, not material in the
context of the Group’s results and not
associated with the transformation plan.
However, due to the quantum of the charge
arising from the 2021 reassessment, the Board
consider it appropriate to separately disclose
this as an adjusted item to highlight the impact
on the results in the period.
Further detail of the specific items charged in
arriving at reported operating profit for 2021 is
provided in note 2.4 to the consolidated
financial statements.
Adjusted to reported free cash flow
Reported free cash flow was lower than
adjusted free cash flow1, principally reflecting
pension deficit contributions (which the
directors consider to be debt-like in nature) and
the cash costs of the significant restructuring
programme, partially offset by cash inflows on
business exits.
In addition, in both 2021 and 2020, the benefit
from the Covid-19-related Government VAT
deferral measures and utilisation of a non-
recourse trade receivables financing facility
were also excluded from adjusted free cash
flow1. The VAT deferral benefit has largely
reversed during 2021. The non-recourse trade
receivables financing facility was put in place in
the early stage of the Covid-19 pandemic to
mitigate the risk of customer receipts slippage.
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
continued
Cash flow headwinds
As previously reported, in 2021 the Group was
impacted by material cash outflows arising
from reversal of the VAT deferral noted above,
pension deficit contributions and significant
restructuring. The actual cash outflows in
2021 together with forecast outflows for 2022
in respect of these items is set out in the
table opposite.
One of the largest outflows in 2021 was the
repayment of deferred VAT under the
Government’s Covid-19 support measures.
There have been substantial catch-up pension
deficit contributions in the year. Following
agreement reached in June with the pension
Trustees in respect of the 2020 triennial
valuation, we expect to make a further regular
deficit contribution of around £30m in 2022.
Moving into 2022, restructuring costs are
expected to be materially lower and it is not
planned that these costs will be excluded from
adjusted results beyond the current financial year.
The material reduction in the cash outflows
in 2022 arising from these items, is one of
the key factors underpinning the expected
transition to sustainable free cash flow2 from
that year onwards.
Impact on net debt
Net debt at 31 December 2021 was £879.8m
(31 December 2020: £1,077.1m). The reduction
in net debt largely reflects the proceeds from
the ESS and AXELOS disposals.
Over the medium term, following the completion
of our Portfolio divestment programme, we will
be targeting a pre-IFRS 16 headline leverage
ratio for Capita of around 1.0 times headline net
debt to adjusted EBITDA1.
The calculations of the net debt to adjusted
EBITDA1 and interest cover ratios for covenant
purposes in respect to the Group’s US private
placement loan notes and other financing
arrangements are set out in the APM appendix
to the consolidated financial statements.
At 31 December 2021, the US private
placement loan notes net debt to adjusted
EBITDA1 covenant ratio was 1.5 times
(31 December 2020: 1.8 times) and was
2.0 times for all other financing agreements
(31 December 2020: 2.5 times) compared with
maximum permitted levels of 3.0 times and
3.5 times respectively.
At 31 December 2021, the interest cover1
covenant ratio was 9.9 times for the US private
placement loan notes and 9.6 times for other
financing arrangements (31 December 2020:
8.5 times and 7.8 times respectively) compared
with minimum permitted levels of 4.0 times for
all debt instruments.
The Group was compliant with all debt
covenants at 31 December 2021.
Cash flow headwinds
VAT deferral
Pension deficit contributions
Below-the-line restructuring
Total
Net debt
Opening net debt
Cash movement in net debt
Non-cash movements
Closing net debt
Remove closing IFRS 16 impact
Headline net debt (pre-IFRS 16)
Cash and cash equivalents net of overdrafts
Debt net of swaps
Headline net debt (pre-IFRS 16)/adjusted EBITDA1
Headline net debt (post-IFRS 16)/adjusted EBITDA1
Liquidity
RCF
Backstop liquidity facilities
Less: drawing on facilities
Undrawn committed facilities
Net cash, cash equivalents net of overdrafts
Less: restricted cash1
Liquidity
1 Refer to APMs on pages 219 to 222.
2 Sustainable free cash flow = reported free cash flow excluding the impact of disposals.
32
Actual
2021
£m
104.1
155.5
68.6
328.2
Forecast
2022
£m
16.0
30.0
—
46.0
2021
£m
2020
£m
(1,077.1)
208.5
(11.2)
(879.8)
448.4
(431.4)
101.5
(532.9)
1.7x
2.7x
(1,356.7)
344.1
(64.5)
(1,077.1)
508.1
(569.0)
141.1
(710.1)
2.4x
3.1x
2021
£m
385.7
—
(40.0)
345.7
101.5
(54.8)
392.4
2020
£m
452.0
150.0
—
602.0
141.1
(34.5)
708.6
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
continued
33
Year-end liquidity
£392.4m
(2020: £708.6m)
Headline leverage post IFRS 16
2.7x
(2020: 3.1x)
Capital and financial risk management
Liquidity remains a key area of focus for the
Group. Financial instruments used to fund
operations and to manage liquidity comprise
US private placement loan notes, Euro
fixed-rate bearer notes, a Schuldschein loan,
RCFs, leases and overdrafts.
The Group’s RCF provides flexible liquidity
available to fund operations and £40m was
drawn under this facility at 31 December 2021
(2020: undrawn).
The Group’s RCF expires on 31 August 2022
and in June 2021 the Group entered into a
new RCF for £300m covering the period from
31 August 2022 to 31 August 2023. The two
RCFs incorporate provisions such that they will
partially reduce in quantum as a consequence
of specified transactions, and subsequent to
the year end, the first RCF reduced to £377.5m
following the receipt of disposal proceeds.
Further details of these facilities can be found in
section 4 to the consolidated financial statements.
The Group secured a committed backstop
liquidity facility in February 2020. This reduced
to £93.5m on 30 June 2020 with the disposal of
the Eclipse business. It was then supplemented
by a second backstop liquidity facility, bringing
the combined value of the two facilities back to
£150.0m. Both backstop liquidity facilities
terminated on 1 February 2021 with the receipt of
proceeds from the disposal of the ESS business.
As part of the Group’s mitigation of the impact
of Covid-19, in June 2020 a non-recourse
invoice discounting facility was executed.
The value of invoices sold under the facility at
31 December 2021 was £3.9m (31 December
2020: £13.6m).
At 31 December 2021, the Group had £101.5m
of cash and cash equivalents net of overdrafts,
and £512.9m of private placement loan notes,
fixed-rate bearer notes, and Schuldschein loan.
These debt instruments mature over the period
to 2027, with repayment of £217.7m and £66.3m,
in 2022 and 2023 respectively. The 2022 and
2023 maturities are expected to be funded
through the Group’s existing facilities, cash
and cash equivalents and from the proceeds
of the Group’s ongoing portfolio divestment
programme without the need to obtain new
financing. As such, a measured approach will
be taken to any potential refinancing with time
taken to implement a longer-term debt solution
at the appropriate moment.
In March 2022, the Group executed with one
of its relationship banks a committed backstop
bridge facility. The facility provides £70m of
additional liquidity and it incorporates provisions
such that it will be cancelled or will partially
reduce in quantum as a consequence of
specified transactions, including on the
completion of the announced disposal of
Trustmarque. The committed facility has an
expiry date of 31 August 2023 with an option
by the lender, for a further one-year extension.
The facility is subject to covenants, which are
the same as the RCF.
Going concern assumption
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.
In carrying out the going concern assessment,
the Board has recognised that, in a severe but
plausible downside scenario, the mitigants to
the possibility of insufficient liquidity in the
going concern assessment period will require
third party agreements and approvals which
represent events that are outside the direct
control of the Company. Accordingly, there
are material uncertainties applicable to going
concern assessments, as defined in auditing
and accounting standards, related to events or
conditions that may cast significant doubt on the
Group’s ability to continue as a going concern.
Nevertheless, reflecting the Board’s confidence
in the benefits expected from completion of the
transformation programme and execution of
the approved disposal programme coupled
with the potential to obtain further financing
beyond its existing committed funding facilities,
the Group and Parent Company continue to
adopt the going concern basis in preparing
these consolidated financial statements as
set out in section 1 to the consolidated
financial statements.
1 Refer to APMs on pages 219 to 222.
Strategic reportCapita plc Annual Report 2021 Chief Financial Officer’s review
continued
34
An impairment test was performed at
31 December 2021 in respect of the Parent
Company’s investments in subsidiaries and
amounts owed by subsidiary undertakings.
No material impairments were identified in
respect of the Parent Company’s investments
in subsidiaries, and an impairment of £48.6m
was recognised in respect of amounts owed
by subsidiaries.
Viability assessment
The Board’s assessment of viability over the
Group’s three-year business planning time
horizon is summarised in the viability statement
on page 62.
Pensions
The 31 March 2020 triennial valuation of the
Scheme was concluded during the year and
identified a deficit for funding purposes of
£182.2m which is expected to be recovered
through deficit recovery contributions of £30m
in each of the years ending 31 December 2022
and 2023, in addition to the contributions
totalling £59m already paid by the Group at
31 December 2021. As part of the triennial
valuation, the Group also agreed to pay an
additional £15m a year between 2024 and
2026 in order to enable the Scheme to target
a lower-risk investment strategy facilitating
lower reliance on the covenant provided by
the Group.
In addition to the above, £35.7m of deficit
contributions in respect of the previous funding
agreement, plus a special contribution of
£50.1m to buy back the intellectual property
rights as part of the ESS disposal, were paid
to the Scheme in 2021. At 31 December 2021,
£5.0m was held in escrow and will be released
to the Scheme in 2022.
The total net defined benefit pension position
for accounting purposes moved from a net
liability at the start of the year (liability: £252.1m)
to a small net asset by 31 December 2021
(asset: £5.8m). The main reasons for this
movement were the £150.5m of deficit funding
contributions paid into Scheme, along with
favourable market conditions (particularly the
material increase in the yields available on
good quality, long-term corporate bonds offset
to some degree by an increase in future
inflationary expectations) that are used to derive
the assumptions, and higher than expected
asset returns. This was also partly offset by
experience over the year (with actual inflation
being higher than expected).
The valuation of the Scheme liabilities for
funding purposes (the actuarial valuation)
differs from the valuation for accounting
purposes (which are shown in these financial
statements) mainly due to different assumption
principles being used based on the different
regulatory requirements of the valuations.
Management estimate that at 31 December
2021 the net asset of the Scheme on a funding
basis (ie the funding assumption principles
adopted for the full actuarial valuation at
31 March 2020 updated for market conditions at
31 December 2021) was approximately £40m
(31 December 2020: net liability £155m).
The Trustee of the Scheme has also agreed
a secondary more prudent funding target to
enable it to reduce the reliance the Scheme
has on the covenant of the Group. On this
basis, at 31 December 2021, the funding level
was around 91% (or a net liability of £165m).
The deficit of £165m, is expected to be met by
a mixture of the remaining deficit contributions
of £105m and asset outperformance. The
Trustee of the Scheme has agreed with the
Company to accelerate the payment of some
of the deficit contributions on a £ for £ basis in
the event of disposal proceeds being used to
fund mandatory prepayments of debt
Consolidated balance sheet
At 31 December 2021 the consolidated net
assets were £296.5m (2020: net liabilities
£81.1m).
The movement from net liabilities to net assets
is predominantly driven by the expiry of the put
option to acquire the non-controlling interest in
AXELOS, the Group’s joint venture with the UK
Government, and the gains realised on the
disposal of both ESS and AXELOS in the year.
Parent Company balance sheet
The company’s market capitalisation was
significantly less than the net assets of the
Parent Company at 31 December 2021 and the
directors gave consideration as to why this
might be the case and whether assets on the
Parent Company balance sheet may be
impaired. The factors considered included: the
differing basis of valuations (point in time nature
of the market capitalisation and that third parties
value the services sector on income statement
multiples versus long-term view using a
discounted cash flow for the basis of
impairment testing under accounting
standards), sum-of-the parts view and the
multiples achieved on recent disposals, and
that the sector may be trading at or below book
value with the market making a general
assessment of the sector and all companies
within the sector which can ignore the liquidity
profile and specific risks of an entity.
Management’s estimate of the value in use of
the Group used in the testing of goodwill and
intangibles for impairment at 31 December
2021 gave a value for the Group that exceeded
the market capitalisation at that date, and
supported the Parent Company net assets.
Strategic reportCapita plc Annual Report 2021 Our people
35
Focusing on the health,
safety and wellbeing of
all Capita employees has
remained our number one
strategic priority during
the pandemic.
Putting our
people first
Like so many other businesses, we have continued
to be challenged by the effects of Covid-19, while
making sure that the health, safety and wellbeing
of our colleagues is our number one priority.
Workforce
52,000
people employed in 10 different countries
It was a challenging year for Capita and its
people for many different reasons. We started –
and ended – 2021 in a pandemic; while as a
business, after continuing to embed our hybrid
ways of working, we moved from six divisions
to three.
This was part of our ongoing strategy to simplify
and strengthen. We have restructured the
divisions to make us more client-centric,
focused on growth, while continuing to keep our
cost base under review. These changes mean
we are now a simpler and stronger
organisation, operating more effectively.
During the year, our People function supported
the move to three divisions, while updating the
systems and processes in the function itself;
continued to deliver on many of the priorities in
our ‘HR 2020’ strategy; and worked to provide
the right support and guidance to our
colleagues across the organisation.
But such challenges and changes also mean
it has never been more important that we
continue to listen to what our colleagues are
thinking and feeling.
We carry out an internal survey every year
to help us understand how engaged our
colleagues are with Capita and its plans, how
they are feeling, and what they think about
working for the business.
The people survey results showed teams and
managers are doing a great job. Trust levels are
high within teams, there are regular discussions
about performance, and colleagues feel that
their managers care about their wellbeing
and help them succeed to their full potential.
Overall, our people rate their managers at
an average of 87% across all our manager
commitments, which form a key part of our
values and behaviours.
The results demonstrate the success of our
commitment to our new ways of working and
our virtual first approach, with 90% of
colleagues agreeing that their manager is
supportive of flexible or hybrid working.
The results also show we are making great
progress in building a more diverse and
inclusive workplace, with 81% of respondents
reporting ‘I can be myself at work’, 88% saying
that their manager has taken, or would take,
action against any form of discrimination, and
87% confirming they feel safe at work. These
results reflect the hard work delivered across
the organisation to improve diversity and
inclusion and to make it a more honest, open
and safe place to work.
However, despite many positive results in the
survey, we have seen a decline in our overall
engagement figures with a 22-point negative
swing in our employee net promoter score.
There are also additional areas where it is clear,
according to the feedback, we are falling short.
As a result, we have introduced a new
employee listening tool with a renewed focus on
action plans; engaged with leadership teams
across the business to further consult and listen
to our colleagues; and agreed a range of next
steps to address key areas of concern
throughout 2022.
HR operations
We also face a different set of challenges, amid
the most competitive recruitment market in a
generation. We are focusing on resourcing –
how we can recruit and retain the best talent –
while refining our employee value proposition
(EVP); and standing out among the crowd has
never been more important.
Strategic reportCapita plc Annual Report 2021 Our people
continued
36
As retention is the key element of our
recruitment challenges, we continue to work on
the performance and development of our
colleagues, growing the Capita Academy and
adding new learning modules. Socially
responsible resourcing also remains a priority
and you can read more about our Kickstarter
programme on page 37.
Our workforce has reduced by around 3,200
colleagues over the past year, predominantly
due to: the sale of businesses; redundancies
because of the pandemic and changes as part
of our transformation; and a cautious approach
to recruitment. Our voluntary turnover was 30%
(2020: 20%).
Continuing to focus on the health,
safety and wellbeing of all colleagues
Focusing on the health, safety and wellbeing of
all Capita employees has remained our number
one priority during the pandemic. As part of our
transformation, for the first time all health-
related functions have come together into one
group – Team Health – under the leadership of
the Group Senior Medical Officer. These health
functions are: wellbeing; health, safety and the
environment (HSE); safeguarding; clinical
governance; and occupational health.
Team Health provides guidance and standards
to support the divisions and business units. It
also works increasingly closely with our team of
more than 1,000 clinicians to harness skills,
knowledge and expertise – to drive our
approach to caring for colleagues and deliver
best practice to our clients.
In 2021, we also conducted a review of the
occupational health provision for all our UK
colleagues, resulting in the appointment of a
new occupational health provider, Health
Partners. They will work closely with us to
deliver occupational health and wellbeing
programmes that align directly with our Group
health strategies. Alongside this, we continue to
provide occupational health support in all our
global locations through targeted approaches,
such as insurance plans and employee
assistance programmes.
In our HSE, safeguarding and wellbeing
functions, we undertook a formal external legal
review of our requirements. We released new
policy documents in most functions, along with
new Group standards, setting out in detail the
requirements for training and processes for all
colleagues at every level of the business. We
continue to engage closely with divisional and
business unit leads to ensure that we comply
with these standards and meet our legislative
requirements. We developed wellbeing
initiatives to support all our global colleagues,
including targeted programmes of events for
World Mental Health Day and World
Menopause Day.
We continued our work to protect all colleagues
in our global locations. Our multidisciplinary
approach to our pandemic response was led
by a member of the Group executive team, and
involved: Team Health and colleagues from
our commercial leadership; HR; property and
facilities; and resilience teams. It is delivered by
our colleagues in the frontline business units.
Overall, we have taken a proactive approach to
protecting colleagues and our clients, carefully
balancing the needs of colleague safety with
service delivery and commercial growth, but
always making sure our people’s wellbeing
remains our number one priority. Capita
guidance is informed by government guidelines
in all countries in which we operate. We received
positive feedback about our work in this area
from colleagues, partners and customers.
Our plans for 2022 include: continuing to
develop and embed new policies and standards
within the divisions and business units; driving
assurance programmes around these
requirements; growing the wellbeing and
health components of our new occupational
health services; and increasing the digital
transformation of the tools we use to care for
all employees.
Performance and development
We will continue to define, communicate and
execute Capita’s performance and development
strategy to maximise our employees’ potential
through skills development and progression.
This will be underpinned by our career pathway
framework, which we commenced mapping
during 2021. We provide a global academy
approach to learning that gives individuals
access to development, delivers the business
effect required and enables growth in
individuals and the business.
We will continue to define,
communicate and execute
Capita’s performance and
development strategy to
maximise our employees’
potential through skills
development and
progression.
Strategic reportCapita plc Annual Report 2021 Our people
continued
37
We have seen good levels of engagement with the learning resources over the past year, eg:
c.77,000
digital learning modules completed – an increase
of more than 28,000 on 2020
c.31,300
colleagues completed anti-racism training
(since its launch in May 2021)
c.7,300
management faculty digital modules completed –
an increase of more than 2,000 on 2020
c.9,600
colleagues completed a Lean Six Sigma White
Belt digital module
390
colleagues attended management faculty virtual
labs, including a ‘train the trainer’ programme
c.3,900
personal development modules completed –
an increase of more than 1,600 on 2020
c.11,900
colleagues completed social distancing learning
c.1,500
Indian colleagues completed D,E&I training
Capita Academy
For the Academy, Capita’s learning institute,
2021 was a year of engaging with colleagues
and highlighting our resources across Capita.
We continued to build a solid resource bank
within the Academy, which provides colleagues
with a suite of accessible learning and supports
their ongoing development. We introduced
Lean (organisational excellence courses based
on the Lean Six Sigma principles) project
management to the Academy suite of tools. We
continued to invest in our manager population
by offering a coaching programme in
partnership with Better Up that provided
valuable support for 100 key colleagues.
• Line management upskilling using
Advance and Accelerate programmes
for 710 managers.
We supported many wellbeing initiatives,
offering digital modules including ones on social
distancing and working remotely. In addition,
specialist speakers provided practical tools and
techniques for personal wellbeing. We invested
in our content development including a focus
on anti-racism, licence to hire, global induction
rebuild and personal profiling workshops.
We also shared our approach to wellbeing
and other materials with clients and families,
supporting our wider community.
Looking forward, we will continue to focus on
organising our resources and providing easy
access for all colleagues so they can self-serve
and self-develop. We will continue to build our
learning suite and provide clear alignment to
our career pathway framework, supporting
attraction, diversity and inclusion,
competency development, and retention
of our talent globally.
Professional development
We offer 68 different professional development
programmes across the UK and 750 colleagues
enrolled on one of our levy-funded programmes
in 2021, taking our on-programme learners up
to 1,400. We are proud of our success to date,
which includes:
• Being nominated for Apprenticeship
Programme of the Year at the
Learning Awards.
• £7.5m of our apprenticeship levy spent since
the Academy started.
• Capita in India was recognised as a Great
Place to Work® with all 15 people practices
individually certified.
Investment in apprenticeships at all levels has
continued to grow and is providing ongoing
opportunities to build the skills required for our
ongoing business success and for serving our
clients successfully in support of growth.
Youth employability
We recognise that young people have been
disproportionately affected by the pandemic,
and that those who are most disadvantaged
remain furthest from the workforce, despite the
recent bounceback in the jobs market. Those
who are most affected include people who
are Black, from minority ethnic backgrounds,
disabled, from disadvantaged socioeconomic
backgrounds and those with caring
responsibilities. We have not only increased
the number of opportunities available to young
people, but also actively sought to attract,
engage and employ young people from
these groups.
Capita was one of the first organisations to sign
up to the UK Government’s Kickstart Scheme.
From the start of 2021 to date, we have offered
56 Kickstart placements, with the majority
being delivered virtually. 60% of our
Kickstarters have secured a permanent role
in Capita after the programme.
Strategic reportCapita plc Annual Report 2021 Our people
continued
38
We also aim to increase the number of direct
entry apprenticeships available over the next
few years.
Developing colleagues’ potential
We continue to strengthen our approach to
performance development, ensuring managers
can have meaningful and effective
development, career and wellbeing discussions
with colleagues to build their skills for the future.
In 2021, we aligned our performance process
across most of the Group. For mid-year
reviews, we launched our behavioural
competencies, aligned with an online capability
assessment tool helping individuals assess and
acknowledge areas where they can improve
their skills and develop their capability.
Supporting future leaders
Our Executive MBA programme now has
around 90 entrants. It is funded from the
apprenticeship levy and helps high-potential
colleagues to develop their leadership skills and
progress at Capita.
We also launched and developed a mutual
mentoring programme, which has been rolled
out to more than 270 colleagues. The
programme has helped to educate and raise
the awareness of our leaders about the
challenges facing many colleagues, and
supports a more inclusive workplace.
To improve diversity at senior levels, we
continue to support high-potential women and
individuals from under-represented groups
through cross-company mentoring
opportunities. In 2021, 80 colleagues were
enrolled in these programmes. We are
delighted to have won the Moving Ahead
Mentee of the year award 2021.
Reward
While we focused our pay reviews on the lowest
paid employees in 2021, as a real living wage
employer, we also worked to redesign our
incentive plans to improve consistency across
the businesses.
Following cancellation of the bonus in 2020, our
management bonus plan for 2021 was split
over the two half years (for Executive
Committee and below) with both halves
achieving payouts for plan participants.
We introduced three new platforms to make life
easier – Benefex for benefits, Level for salary
advances and savings, and Hartlink for
pensions – as well as launching several
financial wellbeing products as part of our
benefits package.
We also concluded a major remuneration policy
review following extensive consultation with
investors and our new remuneration policy was
approved at the 2021 AGM; see page 98 of the
directors’ remuneration report for more details.
The need to stand out among
the crowd with a compelling
EVP has never been more
important – particularly
across digital platforms.
Resourcing
The effect of the pandemic on employment has
been more profound and long-lasting than the
initial effects experienced in 2020, such as job
retention schemes (furlough) and issues of
unemployment.
The impact of Covid-19 has driven, what look to
be, permanent changes in people’s perspective
on employment and their work-life balance,
significantly affecting the way employers need
to position themselves in the external market.
This has been compounded by skills shortages
in many sectors of the economy. The need to
stand out among the crowd with a compelling
EVP has never been more important –
particularly across digital platforms.
Hiring demand across Capita in 2021 exceeded
pre-pandemic levels and continued to follow the
trends seen in the external market, driven by
the ‘great resignation’ phenomenon. In the UK,
around 11,700 people started their careers with
Capita (60% of all our hiring) and across all our
operating geographies, the total number of
hires was more than 19,400, with South Africa
and India accounting for 17% and 11% of all
hires respectively. Pleasingly, the work that
started in 2019 to move away from a
dependency on employment agency supply, to
a new direct delivery hiring model powered by
our own shared services team in Mumbai,
continued to deliver genuine value to the
business. The requirement to use third-party
recruitment agencies reduced for a second
consecutive year from 13% (2020) to 8% (2021),
with a corresponding increase in direct delivery
rising from 77.5% (2020) to 89% (2021).
Notably, roles placed with agencies also
continue to be directly sourced by the internal
team and, by taking this action, more than £1m
in agency fees was saved. This trend is
consistent with the overall market but it is one to
watch in 2022 as this will affect our ability to
retain top talent.
Systems and transformation
In 2021 we supported the transformation of the
business, aligning and updating HR systems to
represent the new structure being put in place.
We moved all employee benefits to a new
benefits platform, expanding the benefits
offering and providing a better user experience
for employees following the disposal of our
employee benefits business. As a result of that
disposal, Capita Atlas pensions platform also
went live in September 2021, receiving positive
feedback from employees across Capita.
We launched an HR chatbot, Herbot, at the
beginning of 2021 which helps with common
transactions and queries from employees.
Given the success experienced with Herbot
engagement, we plan to make it available via
Strategic reportCapita plc Annual Report 2021 Our people
continued
39
Microsoft Teams and expand the types of
queries being handled and allow for further
automation with Workday.
Our People Hub continues to provide support
across HR, with the response rate increased to
99.11% of calls to the hub being answered
within 15 seconds. The team have also been
vital in administering and implementing the
UK’s Coronavirus Job Retention Scheme for
any affected Capita colleagues, and additionally
supporting the redeployment process.
Property portfolio
We continued to transform and simplify our
property footprint with further consolidation
during 2021 with 55 locations closed globally.
Our move to hybrid ways of working has been
rolled out successfully, aided by the introduction
of our desk booking app which allows our
colleagues to book desks at 19 key ‘hub and
spoke’ office locations around the UK. This is
also being rolled out in our global portfolio.
We continue to look to invest in our locations as
we create more flexible and better equipped
space, providing our colleagues with improved
technology to complement our ways of working.
This allows us to come together, both face-to-
face and virtually, to collaborate and to meet with
clients and stakeholders. To support this, we
have recycled more than 5,000 items of furniture
internally from the sites we have closed.
While our office spaces are still being used
for direct delivery work and for colleagues to
benefit from collaborative working, we are
focused on making sure they will be used
carefully to ensure people only travel when they
need to. This forms part of Capita’s ambitious
set of plans to reduce corporate travel
emissions by 75% by the end of the decade –
and be net zero across all parts of the business
by 2035.
As part of our responsible business
commitment, we have also donated more than
2,300 items of furniture to more than 30 schools.
Additionally, a number of office chairs and filing
cabinets have been donated to the NHS.
We continue to strengthen our approach to
performance development, ensuring managers
can have meaningful and effective development,
career and wellbeing discussions with colleagues
to build their skills for the future.
Strategic reportCapita plc Annual Report 2021 Stakeholder engagement
Engaging
with our
stakeholders
Society
Our people
Create better
outcomes
Investors
Clients
and customers
Suppliers and
partners
Section 172 statement
The following disclosures describe how the directors have had
regard to the matters set out in section 172(1a) to (f) and forms
the directors’ statement required under section 414CZA of the
Companies Act 2006.
40
Our people
Clients and customers
Why they are important
They deliver our business strategy; they support the organisation to build a
values-based culture; and they deliver our products and services ensuring
client satisfaction.
What matters to them
Flexible working; learning and development opportunities leading to
career progression; fair pay and benefits as a reward for performance; and
two-way communication and feedback
How we engaged
• People surveys
• Regular all-employee communications
• Employee director participation in Board discussions
• Employee focus groups and network groups
• Workforce engagement on remuneration
Topics of engagement
• Protection of employees during Covid-19
• HR policies during Covid-19
• Future ways of working as a result of Covid-19
• Creating an inclusive workplace
Outcomes and actions
Issue of Capita-specific Covid-19 guidance and regular updates; new and
temporary HR policies; increased provision and support for employee
wellbeing and flexible working; and simplification of property portfolio and
office space.
Risks to stakeholder relationship
• Our ability to recruit due to the global economic bounceback
• Our ability to retain people, impacting the quality of service we can provide
• Our ability to change our culture and practices in line with our responsible
business agenda
Key metrics
Employee NPS and people survey completion level
Further details
Our people section on pages 35 to 39
Responsible business section on pages 42 to 49
Directors’ remuneration report pages 96 to 119
Why they are important
They are recipients of Capita’s services; and Capita’s reputation depends on
delighting them.
What matters to them
High-quality service delivery; delivery of transformation projects within agreed
timeframes; rapid response to support pandemic planning; and responsible
and sustainable business credentials
How we engaged
• Client meetings and surveys
• Regular meetings with government and annual review with Cabinet Office
• Created a senior client partner programme giving an experienced, single
point of contact for key clients and customers
Topics of engagement
• Remote working on client services as a result of Covid-19
• Current service delivery
• Possible future services
• Co-creation of client value propositions
Outcomes and actions
Feedback provided to business units to address any issues raised; client value
propositions team supporting divisions with co-creation ideas; and senior client
partner programme undertaking client-focused growth sprints to build
understanding of client issues and ideas to help address them.
Risks to stakeholder relationship
• Loss of business by not providing the services they want
• Damage to reputation by not delivering to their requirements
Key metrics
Customer NPS; specific feedback on client engagements
Further details
Chief Executive Officer’s review on page 12
Client relations section on page 48
Strategic reportCapita plc Annual Report 2021
Stakeholder engagement
continued
41
Suppliers and partners
Investors
Society
Why they are important
They own the business and provide essential capital; and their input and
feedback is considered when making decisions.
Why they are important
Capita is a provider of key services to government impacting a large proportion
of the population.
What matters to them
Reporting on strategic, operational and ESG factors; financial performance;
access to the Board and senior management; and regular communication
What matters to them
Social mobility, youth skills and jobs; digital inclusion; diversity and inclusion;
climate change; business ethics and accreditations and benchmarking
Why they are important
They share our values and help us deliver our purpose; maintain high
standards in our supply chain; and achieve social, economic and
environmental benefits aligned to the Social Value Act.
What matters to them
Payments made within agreed payment terms; clear and fair procurement
process; building lasting commercial relationships; and working inclusively with
all types of business
How we engaged
• Supplier meetings throughout source to procure process
• Regular reviews with suppliers
• Supplier questionnaires and risk assessments
Topics of engagement
• Supplier payments
• Sourcing requirements
• Supplier performance
• Supplier Charter
How we engaged
• Financial and other reports and trading updates
• Regular investor programme with Board and feedback throughout the year
• Discussions around AGM on resolutions and governance topics
• Dedicated investor relations contacts and email inbox
• Regular Board reports from investor relations function and external advisers
Topics of engagement
• Transformation progress
• Balance sheet and liquidity
• Ongoing impact of Covid-19
• Governance
Outcomes and actions
Alignment of payments with agreed terms; supplier feedback on improvements
to procurement process; improvement plans and innovation opportunities; and
improved adherence to supplier charter.
Outcomes and actions
More frequent market communication; and increased level of engagement
with largest shareholders.
Risks to stakeholder relationship
• Environmental issues
• Commitment to tackling net zero
• Supply chain resilience
Key metrics
% of supplier payments within agreed terms; supplier relationship
management feedback score; SME spend allocation; and supplier
diversity profile
Further details
Supplier engagement section on page 48
Risks to stakeholder relationship
• Changes to outsourcing market, eg government policy
• Delivery on strategic and financial objectives
• Key aspects of governance. eg remuneration
Key metrics
Revenue; profit; free cash flow; net debt and gearing; and AGM voting
Further details
Shareholder engagement section on page 73
Principal decisions table on page 73
How we engaged
• Memberships of non-governmental organisations
• Charitable and community partnerships
• External accreditations and benchmarking
• Working with clients, suppliers and the Cabinet Office
Topics of engagement
• Youth employment
• Tackling digital inclusion
• Workplace inequalities
• Climate change
Outcomes and actions
Publication of net zero plan; real living wage accreditation; youth and
employability programme; and commitments to tackle racism and enhance
ethnic diversity.
Risks to stakeholder relationship
• Lack of understanding of the issues important to them
• Insufficient communication or involvement in shaping and influencing
strategies and plans
Key metrics
Net zero by 2035; community investment; workforce diversity and ethnicity
data, including pay gaps
Further details
Our people section on pages 35 to 39
Responsible business section on pages 42 to 49
Strategic reportCapita plc Annual Report 2021
Responsible business
42
Focusing on
what matters
Our five-year responsible business strategy ensures we
remain focused on addressing the issues where we can have
the biggest impact through our own operations and through
the products and services we provide to our clients.
In 2021, we continued to focus our responsible
business priorities on the issues that mattered
most – our colleagues’ wellbeing, creating an
inclusive workplace, tackling economic
inequalities, fighting climate change, and
ensuring we continue to operate responsibly
throughout our business.
The fallout from the pandemic has led to a shift
in societal expectations and certain issues have
been particularly prominent. Even as the
pandemic slowed, people struggled to maintain
their mental wellbeing and had to adapt to new
ways of working in the longer term. Recognising
this, we created a new wellbeing framework
taking into account that remote and hybrid
working has become the norm and colleagues
needed support and guidance to adapt.
Regular communication has been crucial and
we created new channels to increase
accessibility and visibility of our communication,
including a new colleague website to access
regularly updated Covid-19 information, and
set up new networks such as our Working
Together Apart community so colleagues can
stay connected.
Inequalities in society worsened for many
groups and we continued to focus on building a
diverse and inclusive workplace. We want to
create an environment where diversity is valued
and respected and all colleagues can bring
their whole selves to work. During 2021, we
shared our ethnicity pay gap data publicly for
the first time. We rolled out several education
and awareness schemes around race and
ethnicity for colleagues, including a mutual
mentoring programme designed to support
participants to better understand race-related
challenges, and thousands of colleagues
successfully completed our new anti-racism
training. We stepped up our commitment to
support colleagues with a disability, and
achieved level 2 of the Disability Confident
scheme (employer) in addition to working with
external agencies to ensure that career
opportunities with Capita are made more visible
and accessible. We made progress on gender
diversity at the most senior levels and at the
date of this report four of our nine Executive
Committee members are women, including two
of our three divisional CEOs and our newly
During 2021, we set out
our plans to reach net
zero by 2035.
appointed Chief General Counsel, and we will
prioritise gender balance issues across mid and
senior levels for 2022.
We continued to support young people with
employability and skills through our charity
partnerships, Kickstart placements and two
early careers apprenticeship programmes, and
launched a pilot project to provide real work
placement opportunities to prison leavers to
help bring positive changes to their lives.
COP26 highlighted to the world how critical the
need is for global climate action and we are
determined to play our part. During 2021, we
set out our plans to reach net zero by 2035 after
having our company-wide, short-term 1.5°C
carbon reduction targets verified by the Science
Based Target initiative (SBTi). Our three-
phased approach aims to reach operational net
zero by 2025; operational and business travel
net zero by 2030; and full net zero by 2035 –
including our supply chain.
Strategic reportCapita plc Annual Report 2021 Responsible business
continued
43
People
Community
Planet
Operating responsibly
Delivering
our strategy
themes
Building a more
inclusive organisation
Driving greater
social mobility
Reducing our
environmental impact
Operating
responsibly for our
stakeholders
Enabling better
digital access
Goals
• Ensuring our workforce
• Empowering 100,000 young
reflects the diversity of the
communities we serve and is
inclusive.
people in the communities we
serve to progress into the
world of work by 2023.
• Equipping 10,000 people in
our communities with the
digital skills required for
today’s world by 2023.
• Seeking to reduce our carbon
footprint and supporting our
clients to do the same.
• Seeking to integrate
environmental, social,
ethical and governance
considerations across our
business operations.
Areas of focus
• Prioritising our colleagues’
• Tackling youth unemployment
• Promoting digital skills for all
wellbeing
• Engaging with our colleagues
• Reimagining our workplaces
• Building an inclusive
organisation
• Tackling environmental
challenges with clients
• Improving our environmental
performance
• Adapting to climate change
• Client relations
• Supplier engagement
• Ethical business
Supporting the
United Nations’
Sustainable
Development
Goals
Engaging with our colleagues
Crucial in any crisis is clear, concise
communications. We appointed a dedicated
communications lead to work closely with our
pandemic planning team with the aim of
ensuring our colleagues received accurate and
easily accessible guidance and information
relating to Covid-19 – focusing on their welfare
as a priority and reassuring them of the steps
that we were taking. We also launched a
dedicated colleague website which can be
accessed by all employees including anyone
who was furloughed.
Given the high levels of uncertainty that
emerged in 2020, it has never been more
important to motivate and engage our
colleagues – whether through campaigns such
as #justsaythanks and our Working Apart but
Together pledge, through visible leadership, or
by involving our people in shaping our future
ways of working. The Working Together Apart
Yammer Community has more than 8,300
members. We also ran our annual people
survey which was completed by more than
30,000 colleagues globally. For more
information on the survey see page 35.
Building an inclusive workplace
At Capita, we are committed to creating an
environment where diversity is valued,
respected and included; and where we benefit
from all colleagues sharing their different
perspectives and bringing their whole selves to
work. In this way, each person can do their part
to create better outcomes. We are committed to
this goal not just because it helps us deliver
Strategic reportCapita plc Annual Report 2021
Responsible business
continued
better for our clients and end-users, but
because we believe it’s the right thing to do.
During 2021, we continued to build on our
previous work to create a more inclusive
workplace for all our people. This included:
• Continuing to grow and support our seven
global employee network groups.
• Being a real living wage employer.
• Introducing an option for all employees to
share their pronouns on Workday, Outlook
and Teams in order to support our colleagues
of different gender identities.
• Launching a new ‘sensitively curious’
programme, where employees can ask
sensitive questions in a safe space and have
them answered by a colleague with the
relevant lived experience.
• Delivering Capita’s first Group entry level
apprenticeship programme, supported by
a ‘no CV’ and ‘motivation and behaviours’
hiring approach to remove bias and improve
diversity. Based on its success, we are now
expanding this approach to additional roles.
• Running an ongoing lunch and learn series
to build awareness and understanding of our
similarities and differences. In 2021 this
included topics such as: gender pronouns;
religious celebrations; being of mixed-
heritage; neurodiversity; and many more.
This is in addition to our ongoing celebration
of awareness events, including Pride,
International Women’s Day, Black History
Month, Black Lives Matter, Mental Health
Awareness week and International Day of
People with Disabilities.
• Introducing a new survey system to allow for
analysis by demographics. We are now able
to work with each of our employee network
groups on specific results relevant to their
area of focus.
• Updating and publicly sharing Capita’s
diversity and inclusion policy.
We also delivered a programme of socially
responsible resourcing that has:
• Created a market-leading real living wage
Kickstart programme – 56 young people
benefited in 2021.
• Developed a suite of teaching materials
(videos and lesson plans) to support
disadvantaged students to be able to access
employment for Teach First.
• Launched project compass to provide real
work placement opportunities to prison
leavers – with a pilot in 2021 run in
association with Project Remake.
• Developed the first ever work experience
programme for pupils permanently excluded
from school in collaboration with Making
The Leap.
Our focus on racial diversity
In 2021, we continued our strong focus on
supporting our racially diverse colleagues, and
particularly our Black colleagues. This is in line
with the three commitments we developed in
2020, which are to:
1.
Ensure an inclusive culture with zero
tolerance of racism.
Employee gender diversity at
31 December 2021
Board
2
1 7 (70%) Male
2 3 (30%) Female
1
Executive Committee
2
1 8 (73%) Male
2 3 (27%) Female
1
Senior management*
2
1 95 (85%) Male
2 17 (15%) Female
1
All employees
2
1
1 26,420 (50.5%) Male
2 25,860 (49.5%) Female
2. Have a sustainable representation of ethnic
diversity, which reflects the communities we
operate in, at all levels of the workplace.
*
Senior management includes directors of subsidiary legal
entities as per requirements of the Companies Act section
414C(8)(c)(ii) and 414C(10)(b).
44
3. Educate about and raise awareness
of racism in the workplace, through the
power of our networks.
Key activities in 2021 included:
• Introducing a zero-tolerance procedure and
supporting policy related to anti-racism and
anti-discrimination.
• More than 31,300 colleagues completed our
tailored, in-house anti-racism training.
• More than 250 people participated in our
bespoke mutual mentoring programme,
connecting senior leaders with colleagues
from a racially diverse background, where they
follow a 10-month programme to develop better
understanding of race-related challenges.
• More than 100 colleagues expanded their
horizons by participating in one of three
external mentoring programmes supporting
female and minority ethnic colleagues.
• Selecting candidates to take part in the pilot
of RISE, our new inclusive leadership
programme aimed at unblocking leadership
opportunities for racially diverse colleagues
in the UK.
• Signing up to the 10,000 Black Interns
programme, with our first cohort joining us
in 2022.
• Sponsoring Black Tech Fest.
• Sharing our ethnicity pay gap data for the
first time.
• Continuing to work with our Black Lives
Matter advisory group, to deliver a
programme of action to create a more
equitable and inclusive workplace for our
Black employees.
Strategic reportCapita plc Annual Report 2021 Responsible business
continued
Community investment
c.£0.9m
(2020: £2.1m)
Supporting our colleagues with a disability
In 2021, we were proud to achieve Disability
Confident Employer status for the whole Capita
Group. In 2022, we aim to raise this status to
being a Disability Confident Leader, by
increasing our focus on how we support
colleagues with a disability. Examples of work
in 2021 and early 2022, included:
• Working with JobCentre Plus, Vercida and
Evenbreak to ensure that career opportunities
with Capita are visible and accessible.
• Implementing a reasonable adjustment
passport with a guidance document to
simplify the process for disabled colleagues
to request, secure and maintain adjustments.
• Reviewing key policies and procedures to
provide better support and clarity for
individuals with a disability.
• Working with our Capita ability employee
network (CAN) to analyse our people survey
variances based on whether colleagues
identify as having a disability.
45
Turning the dial on gender
Throughout 2021, we continued to focus on
how we can address our gender pay gap and,
particularly, increase the representation of
women in senior roles. This is a challenging
area for Capita, and we expect it will continue
to be a priority area for us in 2022 and beyond.
We are particularly pleased that four of our nine
Executive Committee members are women at
the date of this report, including two of our three
divisional CEOs and our newly appointed Chief
General Counsel, but we know we have more
work to do across our leadership levels.
Examples of activities delivered in 2021 and
early 2022 include:
• Extending our requirement for women on
senior shortlists.
• Accelerating female development through our
mentoring and high-potential scheme, including
focused external mentoring programmes.
• Increasing our options for flexible work in
order to make more leadership roles accessible
to women with caring responsibilities.
• Driving greater inclusivity throughout the
• Mapping our career path framework across
the full organisation in order to identify and
share career path opportunities for our people,
and also identify gender ratios at comparable
job levels across the organisation.
• Working with our gender employee network
group to analyse 2021 survey results and
develop a targeted action plan for 2022.
Tackling economic inequalities
The Covid-19 pandemic highlighted the
importance of providing continuing support to
our local communities. Research has shown
that it is the already disadvantaged who have
borne the brunt of the consequences of the
crisis, from significant educational disruption
through to the highest levels of job insecurity,
furlough and unemployment. Throughout 2021,
we maintained our focus on equipping young
people with the skills they need for the
workplace and enhancing social mobility and
we invested more than £910,000 in charitable
causes, particularly in our local communities,
through charitable donations, volunteering,
gifts-in-kind and employee fundraising.
hiring process by introducing a ‘licence to hire’
inclusive hiring training programme for all
recruiting managers, as well as using a
digital behaviours-based assessment that
removes bias from the early stages of
candidate screening.
We continued to support our corporate charity
partners, Teach First and Young Enterprise, as
they adapted their programmes to provide
online support to young people improving their
employability skills. In support of Young
Enterprise, we sponsored the Young Money
Challenge which challenged young people,
aged 4 to 19, to think about responsible
consumerism and how their spending choices
can impact the planet. We also sponsored
the UK Social Mobility Awards for the fifth
year running.
Enhancing our response to the issue of youth
skills and employment, our youth employability
programme continued apace, working with The
Youth Group charity to support young people in
education and as they enter the workplace.
The programme will build on the success of
our charitable partnerships and fully embraces
the UK Government’s Kickstart programme
providing 16 to 24-year-olds with a six-month
work placement which could lead to
permanent positions.
Since October 2020 we have worked closely
with the UK Department for Work and Pensions
(DWP) and The Youth Group to deliver a highly
commended Kickstart programme for Capita.
In 2021, we offered 56 placements with most
being delivered virtually. A diverse group of
young people started their placements and we
are pleased that many have been retained by
the business or gone into full time education.
Strategic reportCapita plc Annual Report 2021 Responsible business
continued
Climate change is one of the
defining issues of our time
and it has never been more
important for businesses
to commit to significantly
reducing emissions.
46
In addition to Kickstart, 2021 saw the launch of
two early careers apprenticeship programmes.
The first welcomed 30 apprentices studying
towards a degree apprenticeship in Digital and
Technology Solutions offering rotations across
our business units including placements within
Cloud, Artificial Intelligence, Data and People
& Transformation.
The second was a pilot programme within our
Pensions Solutions business supporting 15
individuals into the business as Apprentice
Pensions Administrators working with our
strategic partner Corndel to deliver a business
fundamentals apprenticeship specifically
tailored for those new to the professional
working world.
Digital inclusion
We worked in 2021 with Good Things
Foundation, the digital inclusion charity, to
inspire senior leaders in England to set
ambitious strategies to tackle digital inequality.
The Covid-19 pandemic has highlighted the
need for greater digital inclusion across the
country – to ensure people from all
backgrounds, including the disadvantaged,
have both access to devices and the skills
necessary to use them.
Our partnership engaged with several
combined authorities in England to help them
develop their approaches to digital inclusion.
It led to the creation of a roadmap providing
practical ideas for digital inclusion strategies
aimed at tackling digital inequality. We also
grant-funded a number of community partners
who helped more than 570 individuals to learn
digital skills as well as input into the roadmap.
Research shows 20% of adults over 65 in the
UK are digitally excluded; and, while this is an
improvement on 2020’s 29%, it still left many in
loneliness and lacking support networks at a
time when so much of people’s lives has had to
be lived online. Capita colleagues volunteered
their time during the year to take part in
Business in the Community’s ClickSilver
Connections scheme which provides mentors
to help older and vulnerable people to connect
with friends and family, source essential items,
find information and gain digital confidence.
Fighting climate change and improving
biodiversity
As was clear during the COP26 conference,
climate change is one of the defining issues of
our time and it has never been more important
for businesses to commit to significantly
reducing emissions and avoid the worst
consequences of global warming.
During 2021, having achieved verification by the
SBTi of our company-wide short-term 1.5°C
carbon reduction targets, we set out our plans
to reach net zero carbon by 2035. This is one of
the top priorities for Capita’s Board and we will
be linking net zero commitments to executive
pay from 2022. We are pleased with our
progress to date on this issue and by our
achievement of a score of A- in our CDP
disclosure for environmental performance.
With 52,000 colleagues across the globe,
Capita is acutely aware of its own internal
responsibilities when it comes to taking a lead
on issues of sustainability. We launched our ‘do
one thing’ campaign in the run-up to COP26 to
better inform and engage colleagues on the
ways they can support achieving net zero by
changing their own behaviour.
We also continue to focus on delivering
solutions to support sustainability through our
work with clients. Through our Smart Data
Communications Company (DCC), we continue
to drive a low-carbon economy by building and
implementing a new secure data network to
connect smart meters to the systems of energy
suppliers and network operators, which is
projected to save 45m tonnes of carbon by
2034 in Britain alone. By the end of 2021, we
had connected over 17 million smart meters to
our network, saving around 500,000 tonnes
CO2 equivalent (tCO2e) per annum, paving the
way for better use of energy. At Capita, we also
launched the expanded ULEZ with TfL, making
the zone 18 times larger than previously – a
huge step forward for clean air in the UK
capital, and benefiting far more people in the
city by reducing congestion and air pollution;
92% of vehicles entering the capital are now
complying with the minimum emission
standards.
COP26 also highlighted the importance of
protecting and enhancing nature, as well as
the climate; biodiversity being intrinsically linked
to reducing carbon emissions. Capita has
embarked on several projects to protect nature
in the UK and Brazilian Amazon. Smart DCC,
which has been carbon neutral since 2020,
offsets all emissions it cannot reduce using a
Carbon Trust certified scheme. For each tCO2e
offset, one tree is planted in the UK and an
additional tCO2e is offset to guarantee the
emission reductions through the Reduced
Strategic reportCapita plc Annual Report 2021 Responsible business
continued
47
Emissions from Deforestation and Degradation
project within the Verified Carbon Standard
framework that is located in the Brazilian
Amazon. In the UK, the trees are typically
planted across school grounds, parks, farms,
woodlands and other biodiversity sites,
providing wildlife habitats and often bringing
educational and community benefits.
As part of our contract with the DWP to deliver
the JETS programme in Scotland, which
launched at the start of 2021, we have
supported over 4,000 job seekers, who had
become unemployed due to the Covid-19
pandemic, into new roles in sectors such as
hospitality, retail, care and construction and
planted a tree for every person we placed in
sustainable employment. The trees will be
planted through Revere, an innovative nature
restoration finance organisation, across the
Cairngorms, Loch Lomond and Trossachs
national parks.
In February 2021, we set verified company-
wide science-based 1.5°C carbon reduction
targets, which are to reduce absolute Scope 1,
2 and 3 (business travel) greenhouse gas
(GHG) emissions by 46% by 2030 from a 2019
baseline, and to ensure that 50% of our
suppliers by spend, covering purchased goods
and services and capital goods, will have
science-based targets by 2025. Progress
against our targets will be monitored annually.
Net zero plan
Underpinned by our science-based targets,
2021 saw us set out an ambitious and far-
reaching roadmap to take us to net zero by
2035. These are challenging targets which we
are committed to at every level of our
organisation. Our three-phased approach aims
to reach operational net zero by 2025;
operational and business travel net zero by
2030; and full net zero by 2035 – including our
supply chain. We will submit our 2035 net zero
target to SBTi for verification in May 2022, to
ensure our target methodology is in line with the
highest standards.
Annual GHG emissions
Following the onset of the pandemic, we
significantly reduced business travel and, even
as lockdowns have eased, travel bounceback
has been mitigated by our new, virtual first ways
of working. Our electricity emissions have also
reduced, both through efficiency and reduction
in property portfolio. However, due to the
pandemic, we have had to increase fresh air
Annual GHG emissions
Scope 1 (tCO2e)
Scope 2 (tCO2e) (location-based)
Scope 2 (tCO2e) (market-based)
Scope 3 (tCO2e)
Total gross tonnes of CO2e (location-based)
Total gross tonnes of CO2e (market-based)
Total gross tonnes of CO2e/£1m revenue
(location-based)
Total gross tonnes of CO2e/headcount
(location-based)
Table of progress against targets
Progress against SBTi verified 1.5°C science-based
GHG reduction targets
Scope 1 (TCO2e)
Scope 2 (TCO2e) (market-based)
Scope 3 (business travel)
Scope 3% suppliers by spend with science-based
targets verified by SBTi
Other metrics
100% renewable power progress (as % of total power)
Transition to low emission vehicles:
Diesel
Hybrid electric
Pure electric
Average CO2e
Fleet vehicle energy source
2021
15,021*
24,088*
10,328*
4,500*
43,609
29,848
2020
18,980*
28,359*
23,526*
7,881*
55,219
50,386
2019
18,961*
41,894*
27,651*
30,823*
91,677
77,434
13.70
16.60
24.92
0.73
0.85
1.00
2021
target
17,368
25,328
28,161
29%
2021
80%
2021
actual
15,021
10,328
4,500
39%
2020
68%
2030
target
10,201
14,876
16,540
85%
2019
63%
62%
32%
5%
96g/km
77%
19%
4%
98g/km%
99%
1%
0%
109g/km
Milestone 1:
Operational net zero
Milestone 2:
Operational + travel net zero
Milestone 3:
Full net zero
2025
Operational (Scope 1 & 2)
2030
Operational (Scope 1 & 2)
+ business travel emissions
2035
Operational (Scope 1 & 2)
+ business travel
+ supply chain emissions
Notes:
Total gross tonnes of CO2e/£1m revenue (location-based) in 2021 and 2020 has been calculated using statutory revenue. In 2019
adjusted revenue has been used.
Scope 1: Emissions from Capita sources that are controlled by us, including the combustion of fuel, company-owned vehicles and the
operation of our facilities.
Scope 2: Emissions from the consumption of purchased electricity, heat or steam.
Scope 3: Emissions from non-owned sources related to Capita’s activities, including business travel and waste.
Strategic reportCapita plc Annual Report 2021
Responsible business
continued
48
circulation in our buildings, many of which have
remained open to service our client obligations
throughout this period. This has significantly
increased the amount of heat required to
maintain a comfortable temperature, hence our
Scope 1 emissions have not decreased in line
with the other Scopes.
In 2021, we also published our second
disclosure statement against the
recommendations of the Financial Stability
Board’s Task Force on Climate-related
Financial Disclosure (TCFD) (see page 50).
Following our commitment to be net zero by
2035, the challenges that will be most difficult
to address are decarbonisation of our heating
systems and collecting, monitoring and
managing the reduction of emissions from our
nearly 21,000 suppliers. We are already making
progress on the switch to renewable power,
transition to low emission vehicles, and
reducing business travel emissions (where
we are ahead of target).
Methodology
We measure our environmental performance
by reporting our carbon footprint annually in
terms of tonnes CO2 equivalent (tCO2e), an
absolute measure, and tonnes CO2 equivalent
per £1m revenue and per person (intensity
measures). The data relates to Capita’s owned
and leased facilities under its operational
control across all geographies. We report
separately on our direct emissions from
Capita-controlled and owned sources (Scope
1), indirect emissions from consumption of
electricity, heat or steam (Scope 2), and
emissions from third parties (Scope 3). This
ensures our compliance with Part 7 of The
Companies Act 2006 (Strategic Report and
Director’s Report) Regulations 2013 which
requires certain disclosures in respect of GHG
emissions (the Strategic Report GHG Emission
disclosures). We engaged an external agency,
Corporate Citizenship, to provide independent
limited assurance over the selected GHG
emissions data (highlighted in the table on page
47 with a *) using the assurance standards
ISAE 3000 and 3410. Corporate Citizenship has
issued an unqualified opinion over the selected
data; its full assurance statement is available at
www.capita.com/responsible-business/
resources-and-reports.
Our disclosures cover sources of our GHG
emissions from our operations in UK, Ireland,
Central Europe (Poland, Germany,
Switzerland), India and South Africa. Capita
converts the consumption data into a carbon
footprint with consideration for the World
Business Council for Sustainable Development
and World Resources Institute’s Greenhouse
Gas Protocol, together with the latest emissions
factors from the UK Department for
Environment, Food and Rural Affairs,
Association of Issuing Bodies and International
Energy Agency.
Operating responsibly
We have maintained our focus on operating
responsibly throughout our business with the
aim of helping our clients to respond to the
Covid-19 pandemic and deal with wider
societal challenges.
Client relations
We actively seek the views of our clients
through an annual customer net promoter score
(cNPS) survey. In the survey we ask for
feedback on our current performance and
advice on areas that they would like us to focus
on in future. We feed this information back to
our teams who then take the time to understand
any root causes of issues raised and set
actions which are monitored via our customer
relationship management platform, Salesforce.
In 2021, we received feedback from more than
950 individuals across 663 clients. This enabled
us to achieve a 56% response rate (up from
53% in 2020) and the results give Capita a
cNPS score of +29 for 2021.
Although the 2021 cNPS score is three points
lower than 2020, the number of detractors has
decreased by 19 to 126. The overall cNPS
score decrease was due to a larger volume of
passive responses (405 in 2020 compared with
431 in 2021). +29 is still a large improvement on
our 2018 and 2019 scores and it is a 13-point
positive swing since we began reporting.
Supplier engagement
Around 92% of our total supply chain are small
and medium-sized enterprises (SMEs),
including sole traders and micro-businesses.
We continued to recognise the impact that the
pandemic has had on many of these suppliers,
with varying demand for products and services
often severely affecting their cash flow.
Consequently, we have paid them in line with
our payment terms, which are stricter than the
UK Government’s Prompt Payment Code. In
2021, we paid 95% of our sole traders, micro-
organisations and SME suppliers within our
agreed payment terms.
We spent more than £2bn in 2021 with nearly
21,000 direct suppliers in 82 countries. We
value the business relationships we have
with our suppliers and seek to build lasting
relationships, treating our suppliers and
partners fairly and paying promptly. We want
to work with suppliers who share our values
and support us in delivering our purpose.
Our aim is to encourage and work with
suppliers in order to achieve the highest
standards within our supply chain. We are
committed to working with our supply-base
to ensure that together we can achieve wider
social, economic and environmental benefits.
Our supplier charter, which is available on our
website, remains at the core of strengthening
our commitments to support more SMEs,
increasing the diversity of our supply chain,
promoting supply chain resilience and
encouraging ambitious carbon reduction
targets. All new and renewing suppliers are
expected to comply with this charter.
We are signatories to the Prompt Payment
Code, reporting our payment practices and
performance to the government every six
months; 98% of our suppliers were paid within
60 days or less.
Strategic reportCapita plc Annual Report 2021 Responsible business
continued
Employees on the Board
Listening to and involving our colleagues is key
to living our purpose and values at Capita, as
well as fostering an engaged and inclusive
workplace. Our two employee non-executive
directors will complete their term in the summer
of 2022 and in 2021 a process to recruit opened.
Employee voices are more important than ever
and we want to ensure that we bring even more
diverse and innovative thinking to our senior
leadership, this time at executive level. We
intend to set up a new leadership council that
will brainstorm solutions and challenge our
strategies and organisational issues, providing
advice and recommendations to the Executive
Committee from an employee perspective.
Eight employees will join the leadership
council in 2022 and will be paired with an
Executive Committee member (on a six-month
rotating basis) to receive one-to-one mentoring,
and have a chance to input into the strategy
of the business.
Targeting bribery and corruption
We do not tolerate bribery or corruption. Our
anti-bribery and corruption policy applies to all
Capita businesses, employees and suppliers.
The Risk & Compliance team monitors
compliance, with a view to ensuring all parts of
the business are aware of their responsibilities
in terms of charitable donations, sponsorships,
facilitation payments, gifts and hospitality. All
employees must complete financial crime
training annually.
Upholding human rights
We aspire to conduct business in a way that
values and respects the human rights of all our
stakeholders. Our human rights policy details
our commitments to upholding the principles of
human rights, as set out in the UN declaration
of human rights and the International Labour
Organization core labour principles. We comply
with all relevant legislation, including the UK
Modern Slavery Act and our compliance
statement can be found on our website. We
outline expectations and compliance to the
standards we set out for suppliers, working with
them to ensure they operate in accordance with
this policy, upholding the principles of human
rights in their operations and supply chains.
Protecting privacy
Our clients and our colleagues expect us to
keep their data safe and secure, and to respect
their privacy. We take this responsibility very
seriously, with a view to ensuring we only
process personal data in line with all applicable
laws, including how we collect, store, use,
retain, transfer and delete personal data.
Our privacy policy details how we expect
everyone to take responsibility for privacy,
including the protection of data, applying our
privacy standards, procedures and guidance in
their areas of the business. These requirements
include maintaining information asset registers,
following a comprehensive incident
management process, completing privacy
by design and default, and data protection
impact assessments. We continue to raise
awareness of the importance of privacy
through our mandatory training and ongoing
communication programmes.
49
Non-financial information statement
This section of the report constitutes Capita’s non-financial information statement, produced to comply
with sections 414CA and 414CB of the Companies Act 2006. The table below, and information it refers to,
is intended to help stakeholders understand our position on key non-financial matters. This builds on
reporting that we do under the following frameworks: CDP, Dow Jones Sustainability Index and the
EcoVadis CSR Assessment.
Reporting requirement
Policies and standards which govern
our approach
Where is this referenced in this report?
Environmental
matters
• Health, safety and environmental policy
(E)
• Code of conduct (E)
• Health, safety and environmental
policy (E)
• Diversity and inclusion policy (E)
• Employee handbook (I)
• Responsible business: fighting climate
change and improving biodiversity
pages 46 to 47
• Our people section pages 35 to 39
• Responsible business: building an
inclusive workplace pages 43 to 45
• Diversity data page 44
Employees
Human rights
Social matters
Anti-corruption
and anti-bribery
Due diligence
and outcome
Business model
Non-financial KPIS
• Human rights policy (E)
• Supplier charter (E)
• Modern slavery statement (E)
• Information and cyber security policy (E)
• Privacy policy (E)
• Employment screening policy (I)
• Procurement policy (E)
• Responsible business: operating
responsibly – supplier engagement
page 48
• Responsible business: operating
responsibly – upholding human rights
page 49
• Community and charity policy (E)
• Community and charity standard (I)
• Volunteering FAQ (I)
• Matched funding FAQ (I)
• Fundraising FAQ (I)
• Responsible business: digital inclusion
page 46
• Responsible business: youth
employability page 37
• Code of Conduct: Anti-bribery and
• Responsible business: targeting bribery
corruption policy (E)
• Financial crime policy (E)
and corruption page 49
• Risk management framework
• Annual internal audit plan
• Risk register
• Audit and Risk Committee report
• Risk management framework pages
53 to 55
• Audit and Risk Committee report pages
86 to 95
• Business model pages 6 and 7
• Non-financial KPIs page 1
• Responsible business
I – Group policies, guidance and standards published internally; E – Group policies, statement and reports published externally
Strategic reportCapita plc Annual Report 2021 TCFD
Task Force on
Climate-related
Financial Disclosures
TCFD statement of compliance
Capita has made disclosures consistent with
the TCFD recommendations in accordance with
the FCA Policy Statement 20/17 and listing rule
LR 9.8.6R(8). Core information to respond to
each of them is reported on the following
pages. Additional detail can be found on our
website. Below is a summary of the TCFD
recommendations not fully disclosed against in
this report and any plans to achieve full
disclosure in the future.
Strategy – physical risk impact: based on our
initial climate risk assessments, in the near
term, transition risks were deemed to be more
material to the business than physical risks. As
such, in 2021 we prioritised analysis of
transition risks and in 2022 we will be
undertaking a review to quantitatively identify
and assess physical risks that are relevant to
our business and global operations.
Strategy – climate scenario analysis: in
2021, Capita conducted a qualitative
assessment to rank and prioritise identified
transition risks and opportunities. In 2022, we
will continue climate scenario analysis to
quantify the potential financial impact of our
priority risks and opportunities. This will inform
Capita’s understanding of the resilience of its
business strategy under different timeframes
and forward-looking scenarios, including a
well-below 2°C scenario.
Metrics – climate metrics & targets:
Following the publication of cross-industry,
climate-related metrics and target categories
from the TCFD in 2021, and through the
development of our climate risk assessment,
we intend to monitor and report additional
metrics and targets. In the near term we are
also looking to develop categorisation of our
services that are low carbon-aligned, in order
to track revenue coming from these climate-
related opportunities.
50
Planned actions
in 2022
• Link executive
remuneration to
the achievement
of climate targets
• CEO to chair
responsible
business
committee
from 2022
TCFD Disclosure
Governance
Board responsibility for climate-related risks and opportunities:
Capita’s Board is responsible for promoting long-term sustainable success, generating value for
shareholders and contributing to wider society. This includes its role in ensuring climate-related
issues are appropriately considered when setting business strategy, deploying capital, agreeing
remuneration metrics, and setting corporate policy. To achieve these responsibilities, the Board
is assisted by three committees:
• The Audit and Risk Committee (ARC) assists in managing risk systems, including managing climate
change as a principal risk.
• The Remuneration Committee is responsible for setting policies for executive pay and incentives
and approving changes to existing remuneration plans. In 2021, the committee announced that
executive remuneration will become linked to the achievement of Capita’s climate targets during
2022.
• The Executive Committee responsible business committee has senior level oversight of climate-
related issues and is chaired by our CEO.
In 2021, the Board signed off Capita’s net zero 2035 target and the escalation of climate change
as a principal risk as per the recommendations of Capita’s executive risk committee.
Management’s responsibility for climate-related risks and opportunities:
Climate-related responsibilities are assigned to specific management-level positions that
coordinate activity across and within each business division.
• Capita’s Chief Executive Officer: overall responsibility for climate-related risks & opportunities
and for ensuring that climate issues are appropriately considered at Board level.
• Divisional Heads of Responsible Business: deliver on Capita’s sustainability initiatives and
commitments, including those relating to climate change.
• Divisional Heads of Risk: adapt Group-wide risk policies and identify climate-related risks to align
with their business divisions and operating context, which feedback to Group level.
• Group Head of Environment: ownership of the climate change principal risk and managing
development of Capita’s net zero strategy. Works closely with the Group Risk and Compliance
functions, particularly around the climate change principal risk.
Strategy
In 2021, Capita conducted a climate scenario analysis to identify and assess climate risks and
opportunities over forward-looking climate scenarios. Climate risks and opportunities are
assessed across short-term (0 to 3 years), medium-term (4 to 9 years), and long-term (10+
years) time horizons to reflect the longer-term impacts from climate change. Capita has used
the hypothetical climate scenarios developed by Network for Greening the Financial System
(NGFS). These include three scenario categories: orderly transition (for early ambitious action),
disorderly transition (for when action is late and sudden), and hot house world (for limited
action resulting in significant warming). The climate scenario analysis is expected to be
completed in 2022 and consists of two key phases:
• Initiate quantitative
climate scenario
analysis to assess
the financial
impacts of key
climate risks &
opportunities
Strategic reportCapita plc Annual Report 2021 Task Force on Climate-related
Financial Disclosures (TCFD)
continued
51
TCFD Disclosure
Strategy continued
Phase 1 (completed in 2021): qualitative risk & opportunity assessment
• Gap analysis against TCFD recommendations to identify actions to achieve full disclosure, and a
peer review of sector climate-related disclosures.
• Internal stakeholder engagement to examine potential operational impacts from climate
change. Teams engaged included Procurement, Business Growth & Continuity, Risk
Management, Responsible Business and Financial planning. Each team has identified relevant
climate related risks and opportunities for their function.
• Qualitative assessment of risks and opportunities across relevant geographies, time horizons
and climate scenarios based on scores for vulnerability, likelihood and magnitude assessment
criteria (results can be found on Capita’s website). This enables the prioritisation of climate impacts
for further analysis in phase 2.
Phase 2 (to be initiated in 2022): quantify financial impact from the most material climate
risks and opportunities and integrate into financial planning and business strategy
• Quantitative climate scenario analysis will seek to calculate the climate adjusted financial value
associated with some of the most material risks and opportunities. The results will be shared with
risk management and financial planning teams to further integrate climate considerations into
Capita’s business strategy.
• Physical risk assessment will be undertaken for critical sites across Capita’s portfolio. This
includes a forward-looking assessment of relative exposure to water stress, heat stress, sea level
rise, wildfires, floods and hurricanes & typhoons over a high global warming scenario (IPCC RCP
8.5 GHG emissions scenario). The results will inform property portfolio management decisions.
Priority transition risks and opportunities
Although the climate scenario analysis will continue in 2022, the three climate transition
impacts currently of highest strategic importance to the business are identified below.
Transition category
Potential impacts
Capita response
Markets: shifting customer
demand for low carbon
aligned goods, services,
and suppliers
New, growing markets
related to Capita’s
low-carbon related goods
and services.
Increasingly stringent carbon
performance requirements
from customers.
Products & services:
Capita must build its
strategic focus on growing of
its service offering of
consulting and technical low
carbon solutions across both
Public Service and
Experience divisions.
Resilience: Capita’s net
zero target and transition
plan will drive
decarbonisation across
our value chain.
Planned actions
in 2022
TCFD Disclosure
Planned actions
in 2022
• Develop oversight
of climate-related
opportunities by
categorising
low-carbon aligned
products and
services
• Review plans to
install renewable
generation
capacity at
global sites
• Gain SBTi
validation for
long-term net
zero target
Strategy continued
Technology: technological
limitations, costs, and
complexities associated with
phasing out fossil fuels from
Capita’s operations
Business cost and feasibility
of procuring and generating
low-carbon energy through
new energy sources for a
geographically diverse asset
portfolio.
Reputational: risk of failing
to deliver against science-
based net zero target, due to
supply chain emissions
Partial dependency on
supplier decarbonisation and
target setting. Could result in
higher exposure to
climate-related penalties and
taxes.
Energy source: Capita
already procures renewable
electricity at all controlled UK
sites with intent to extend
globally and at landlord-
controlled sites where
possible. Further opportunity
to, undertake assessment of
specific options for heating
and onsite renewables
across sites.
Resilience: Capita
encourages suppliers to
measure and set targets for
their emissions, as a result of
enhanced due diligence on
carbon performance in
supplier selection criteria.
Climate-related opportunities:
Capita provides solutions that enable GHG emission reductions and sees this as an important
growth opportunity as clients seek ways to decarbonise. In 2021, we supported the UK
Government to deliver London’s ULEZ helping minimise transport emissions. Additionally, our
Smart DCC business enables data-driven analysis of energy consumption, predicted to save
45m tonnes of carbon by 2034 in the UK alone. We provide consulting services to support clients
decarbonising their buildings, and in 2021 we worked with over 50 councils to provide resilience
services to under pressure planning teams, to increase delivery of major developments such as
large windfarm schemes and low-energy housing. Additionally, Capita’s climate transition plan to
achieve net zero offers numerous opportunities to streamline business-wide efficiencies, reduce
emissions and operating costs, and support our customers’ net zero commitments as a supplier.
Climate transition plan:
Capita is committed to achieving net zero by 2035, a target we will be validating with the SBTi
during 2022. Further details on our climate transition plan can be found on our climate change
hub webpage. Key climate initiatives underway to reduce our emissions footprint include:
• Streamlining Capita’s global property portfolio to reduce building-related emissions.
• Maintaining our energy efficiency programme, which identifies energy anomalies and enables
data-driven efficiency improvements across Capita’s property portfolio.
• Procuring renewable electricity across all Capita’s controlled UK sites, with intent to extend
coverage to 100% of tenanted buildings occupied where possible.
• Transitioning vehicles to EV or hybrid, with 33% of fleet transitioned to date.
• Promoting hybrid and virtual working to reduce commuting and business travel emissions.
• Increasing the proportion of supply chain spend on suppliers with science-based GHG
reduction targets.
Strategic reportCapita plc Annual Report 2021 Task Force on Climate-related
Financial Disclosures (TCFD)
continued
TCFD Disclosure
Risk management
Climate change is fully integrated into our risk management system and in early 2021, was
escalated to a Group-wide principal risk. As a principal risk, climate change is given the highest
level of governance to ensure a quarterly review by the ARC and Board, and ownership is
assigned to the Group Head of Environment.
Risk identification & assessment process:
Since establishing climate change as a principal risk, Capita held several internal interviews to
understand how risks and opportunities manifest for Capita’s different divisions and functions.
A longlist of risks and opportunities was developed and cross-referenced against a peer review
and TCFD resources, and was qualitatively analysed in 2021. In 2022, this longlist will be
quantitatively analysed, and subsequently decisions will be made around whether to accept,
transfer, mitigate or control these more granular climate-related risks, using Capita’s Group-wide
risk management framework.
In Capita’s Group-wide risk assessment process, ongoing and emerging risks are continually
monitored across emerging legal, health, safety and environmental regulations (such as the UK
Government’s PPN 06/21), using Watermans and an online compliance tool. Identified risks are
added to Capita’s risk register and escalated to the Executive Committee if needed. Each
identified risk is evaluated against six impact categories: finance, people, legal & regulatory,
technology, customer, and strategy. Whichever impact has the highest score will determine the
risk’s overall risk score, which is then pitched against four levels of likelihood.
Risk management process:
Capita’s risk evaluations are governed by three key layers of risk committee: ARC, executive risk
committee, and divisional risk committee. Once Group-wide risks are added to Capita’s risk
register, the register is devolved to Public Service and Experience to identify, evaluate and clarify
climate-related risks based on their specific function and operating context. Resources are
assigned to implement risk management plans by the executive risk committee. Divisional
assessments are fed back to the Group level.
As with all Group-wide risks, the climate change principal risk scoring process identifies key
controls and mitigating actions to reduce risk from inherent to residual level. Further risk
reduction actions are taken to bring residual risk down to the risk appetite level set by the Board.
Current climate risk controls include adopting a science-based emission reduction target;
monitoring supply chain emissions; climate factors integrated into due diligence when
onboarding new suppliers; business continuity planning to ensure climate resilience; a travel
policy to reduce inter-office travel; and ongoing monitoring of health, safety and environment
legislation. These controls and their effectiveness are reviewed regularly.
Planned actions
in 2022
TCFD Disclosure
• Commence a deep
dive into divisional
risk scorecards
• Develop process
of understanding
physical and
transition risks,
outputs will support
risk prioritisation
and assessment
process
Metrics and targets
Climate-related metrics:
The business is committed to developing cross-industry, climate-related metrics in accordance
with the 2021 TCFD implementation guidance update.
• Scopes 1-3 emissions: we measure and disclose our operational (Scope 1 and 2) and business
travel (Scope 3) GHG emissions annually within this annual report (page 78) and our full value chain
via CDP’s climate questionnaire, in accordance with the GHG Protocol’s methodology.
• Exposure to climate-related risks: in 2022, it is expected that the results of the climate scenario
analysis will inform the amount of potential financial exposure to material climate impacts.
• Revenue from climate related opportunities: In 2022, Capita will initiate the categorisation of
services that directly/indirectly enable GHG emission reductions through customer implementation.
Once defined, systems will be adjusted to track low carbon-related revenues.
• Capital deployment on management of climate risks and opportunities: Capita has
established a climate transition plan to achieve net zero, and the costs of achieving this target in
alignment with the SBTi are being assessed in 2022.
• Proportion of executive remuneration assigned to climate considerations: Capita has
committed to incorporate performance against its climate targets in remuneration policy in 2022.
Other climate-related indicators monitored:
• Number of suppliers who set their own science-based GHG reduction targets, helping track supply
chain emissions and attainment of SBTs.
• Proportion of renewable power for electricity, tracking our fossil fuels phase-out and adoption of new
energy sources.
• Emissions associated with business travel, contributing to attainment of climate targets.
• Carbon intensity of business by turnover and headcount.
Climate-related targets:
Capita has set a range of ambitious targets to reduce its impact on global warming, and its
exposure to climate-related risks. In 2020, Capita set and validated its near-term SBT with SBTi.
This commits Capita to reduce absolute Scope 1, 2 and 3 (business travel) emissions by 46% by
2030, from a 2019 base year ), and for 50% of suppliers by spend across purchased goods and
services and capital goods to have set SBTs by 2025 (1.5°C-aligned). Capita also announced its
net zero by 2035 target ambition in 2021 and has submitted long-term targets to the SBTi for
validation, following the release of the SBTi’s net zero standard last year. This long-term SBT will
require an ambitious 90% absolute reduction of Scope 1, 2 and 3 emissions from 2019, before
counterbalancing residual emissions to achieve net zero.
52
Planned actions
in 2022
• Secure SBTi
validation of our
net zero long-term
SBT
• Engage more
suppliers to
achieve our
supplier
engagement
target, as well as
reduce operational
(Scope 1 & 2)
emissions
• Introduce
climate-related
executive
remuneration
metric
Strategic reportCapita plc Annual Report 2021 Risk management
53
Risk management
and internal control
Managing risks and
opportunities
We recognise that effective internal
control and risk management are
essential to our long-term success
and are fundamental in helping us
achieve our strategic objectives and
protecting shareholder value. Risk
management is a core component of
our business processes, which have
been enhanced through our newly
established organisational structures.
Managing risks through transformation
During the year, Capita completed the final
phase of its transformation by creating two core
divisions, Public Service and Experience, and
establishing a division responsible for managing
the portfolio of businesses being held for
disposal. The new operating structure became
effective in August 2021. Throughout the period
of organisational change, the company
maintained its focus on risk management.
Before the organisational structure change, fully
operational risk and assurance committees
were in place in each of the former divisions,
providing oversight and governance over risk
management. In the current organisational
structure, risk and assurance committees
have been established at the divisional and
functional levels. Further work will take place
during 2022 to embed risk and assurance
committees below the newly constituted
divisions, both at a market vertical and
business unit level.
Internal control and risk
management journey
We continuously seek opportunities to enhance
our risk management and internal control
environment and to introduce greater rigour and
standardisation in processes and controls as
appropriate. During the year, Capita continued
to progress many initiatives, including the key
control questionnaire (KCQ) and finance
minimum control standards roll out. An internal
control improvement programme was also
initiated to take a systematic approach to
enhancing internal key financial and non-
financial controls with a view to preparing for
potential UK-SOx attestation requirements
under the proposals being developed by the
Department for Business, Energy & Industrial
Strategy. The Board recognises that Capita’s
control effectiveness remains overly dependent
on management intervention and there is a lack
of control documentation allowing for
inconsistency in process across most of the
Group. The Board and the Audit and Risk
Committee (the Committee) do not
underestimate the work needed to ensure that
robust internal control and risk assessment
frameworks are embedded fully. Work will
continue to be undertaken during 2022 to
enhance and improve the standardisation and
overall effectiveness of the Group’s internal
control framework.
Key control questionnaire
A KCQ process was introduced in 2020 and
completed again for 2021. The KCQ is used to
assess the effectiveness of key entity and
functional level controls by asking business
leaders to attest to control compliance within
their functional, divisional or business unit
areas. The results from the KCQ process serve
as a baseline for continuous improvement and
identify a series of improvement actions to be
implemented in subsequent periods.
Minimum control standards
In 2021, Group Finance enhanced the self-
assessment process across the business and
key functional areas to obtain assurance over
the operation of key financial controls. It is
intended that this process will continue to
operate in 2022, in parallel with new and
existing control initiatives.
An evaluation of financial controls is undertaken
by the senior finance team to identify areas
where these might only be partially effective or
be inefficient in achievement of their purpose.
Any material issues are dealt with through
mitigating activities to ensure the effectiveness
of the existing controls over financial reporting.
Risk oversight and governance
A risk-focused culture and tone is expected
across all levels at Capita, reflecting the tone at
the top of the Group set by the Board. The
Board is ultimately accountable for providing
strategic governance and stewardship of the
company. Throughout 2021, the principal and
emerging risks facing the company continued
to be reviewed by the Board, including those
risks that could threaten Capita’s business
strategy delivery, future performance, resilience
and liquidity.
The Board is committed to the continuous
improvement of our governance mechanisms
and risk management processes, to ensure
that risks, including new and emerging risks,
continue to be identified and managed
Strategic reportCapita plc Annual Report 2021 Risk management
continued
54
effectively at all levels of the Group. As part of
this commitment, a comprehensive review of
principal risks and their ownership was
undertaken during the year to ensure that they
remain relevant and appropriate. This included
determining whether any new or emerging risks
should be added to the principal risk profile.
The Committee, which has delegated
responsibility from the Board for maintaining an
effective risk management and internal control
system, is responsible for overseeing the
principal risks, their assessment and the
response strategies in place to mitigate them. In
2021 the Committee reviewed, discussed and
briefed the Board on risks, controls and
assurance, including the annual assessment of
the system of risk management and internal
control, to monitor the effectiveness of the
procedures for internal control over financial
reporting, compliance and operational matters.
The executive risk and ethics committee
(EREC) is responsible for identifying,
assessing, overseeing and challenging
principal risks across all Capita’s unregulated
businesses and provides regular updates to the
Committee.
Capita recognises the importance to clients and
customers of the financial services businesses
it operates, and the need for specific oversight
to manage and mitigate risks associated with
those businesses. The role of the financial
services risk committee (FSRC) is to provide
oversight of the regulated financial services
businesses. The FSRC is chaired by an
independent non-executive director and
provides regular updates to the Committee.
On a day-to-day basis, divisional and functional
leaders, senior leadership and business unit
teams manage and monitor risks that they are
accountable for.
Capita recognises that risk cannot be fully
eliminated and that there are certain risks the
Board and/or the senior leadership will accept
when pursuing strategic business opportunities.
However, these risk acceptance decisions are
made at an appropriate authority level and
reflect Capita’s defined risk appetite. Capita’s
risk governance framework is illustrated below.
Risk governance structure and assurance lines
Independent
assurance
Risk
oversight
Ownership and
management
of risk
Bottom
up
Board
Audit and Risk
Committee
Executive and risk
committees
Risk, compliance
and governance
Divisional and business
unit management
Local risk committees
Top
down
3
2
1
Third line of defence
• Report directly to the Board and the Committee on
the effectiveness of governance, internal control
and risk management, through an independent
risk-based assurance programme
• Help safeguard the first two lines and
recommend improvements as the risk
profile adapts and changes
Second line of defence
• Provide the policies, framework, tools, techniques
and support to empower risk and internal control
to be managed by the first line
• Establish monitoring controls, provide oversight
and regularly evaluate the effectiveness of the
first line
• Promote consistency of the key objectives and
management of risk across the Group
First line of defence
• Includes senior leadership and employees who,
as part of their core role, identify and manage
key risks
• Equipped with the necessary skills, knowledge
and tools to operate effectively and have the
relevant authority levels to embed the policies and
procedures across the internal controls and risk
management frameworks
Strategic reportCapita plc Annual Report 2021 Risk management
continued
The Board remains confident
that our existing governance
mechanisms and risk
management processes
will ensure that risks,
including emerging risks,
continue to be identified
and dealt with effectively
and in a timely manner.
55
Risk management process
Our risk management framework was refreshed
during 2021 with updates to the Group risk
policy and risk management standard. The risk
framework ensures that ownership and
responsibility for identification, assessment and
management of key risks and opportunities are
embedded throughout the Group. The Board
sets the context for risk management through
defining the strategic direction and risk appetite
for the organisation as a whole. The divisions,
functions and business unit teams then work in
collaboration to undertake a ‘top down, bottom
up’ approach to identify, assess and respond to
risks faced by Capita.
The risk management process is based on risk
registers, the maintenance of which continues
to be at the heart of our risk management
process. Key risks in the registers have
assigned risk owners who review them, on at
least a quarterly basis, as part of the risk
reporting process. The strength of existing
controls is evaluated to determine whether any
additional risk reduction actions are needed to
manage the risk level to within the risk appetite
set by the Board. In 2021, our principal risk
classification was updated to include the
‘vulnerable’ risk level. This resulted in some
risks being reclassified from ‘uncomfortable’ to
either ‘uncomfortable’ or ‘vulnerable’.
reputation and legal & regulatory. These risk
assessments are designed to ensure a
thorough assessment of the risks, as well as
the associated causes, controls, mitigations
and future risk reduction actions.
A risk and assurance committee timetable
enables smooth flow of risk information
between the business units, divisions,
functions, the EREC and the Committee.
Standard terms of reference, agenda and data
points are being developed at each governance
level to ensure risk management is consistently
reported and understood across the Group.
Risk appetite
The Board sets the Group’s risk appetite, as
proposed by the EREC, to ensure that it reflects
current external and market conditions. The risk
appetite outlines: those risks Capita should not
take; those which should be managed to an
acceptable level; and those which should be
accepted to deliver our business strategy.
As part of the ongoing risk management
framework refresh, risk appetite statements are
in the process of being developed for each
principal risk. This will provide greater clarity to
the organisation and to the risk owners on the
acceptable level of risk set by the Board and the
steps required to manage risk levels to within
the agreed appetite.
Risks are assessed at both an inherent
(pre-controls) and residual (post-controls) level,
against two scales addressing: (a) their
likelihood; and (b) their potential impact on the
group. The assessment of impact includes
finance, customer & client, technology, people,
The next step in our risk appetite journey is to
develop key risk indicators for each principal
risk which will be implemented during 2022 and
used as a measure by the business to assess
trends in the risk profile and whether the
business is operating within appetite.
Emerging risks
The identification of emerging risks is carried
out by both the divisions/business units, using a
bottom-up approach, and the executive, from a
top-down perspective. Regular reviews of risks,
including emerging risks and project/
programme risks, are included in risk and
assurance committees within Capita’s existing
governance structures. Capita has not identified
any emerging risks as all current key risks and
those previously identified as being emerging
are now ‘live’ risks.
Principal risks
Principal risks are defined as those risks that
are significant for the Group and are owned and
managed by a specified member of the
executive team who has accountability for
ensuring that the risk is managed within the risk
appetite levels set by the Board. Assigning risk
ownership at executive level also ensures that
an appropriate level of attention and focus is
applied in addressing the principal risks.
In 2021, two principal risks were added to the
Capita risk profile, around climate change and
the wellbeing, health and safety of our people.
It is also noted that several principal risks have
remained unchanged from prior years due
to various challenges faced by the company
and significant work remains to be done to
improve these risks. The transformation to
our new operating model will help address
some of these challenges. For more details
on the challenges faced and actions taken to
address them, please refer to the CEO report
on page 10.
Strategic reportCapita plc Annual Report 2021 Risk management
continued
The Capita principal risk profile as at 31 December 2021, is
illustrated below
t
n
a
c
fi
n
g
S
i
i
6
4
11
1
7
12
t
c
a
p
m
I
5
9
13
8
10
3
2
No.
Risk title
Risk description
1
2
3
4
Living our
purpose
Failure to live our purpose and failure to
change stakeholder perception so we are
seen to live our purpose
Strategy
Failure to define and resource the right
medium-term strategy
Innovation Failure to innovate and develop new value
propositions for clients and customers
People
attraction
& retention
Failure to attract, develop, engage and
retain the right people for current and future
client propositions
5 Culture
Failure to change the culture and practices
of Capita in line with our responsible
business agenda
Imminent
6 Data
protection
Failure to protect data, information and
IT systems
r
o
n
M
i
Rare
Key: Level of risk
Critical
Likelihood
The maximum level of risk Capita
can bear and remain effective at
delivering its strategy. Of immediate
critical concern.
Uncomfortable Risk level will cause problems that
would put uncomfortable pressure
on delivery.
Vulnerable
Acceptable
Risk level likely to cause problems
that would put uncomfortable
pressure on delivery.
A business-as-usual risk,
manageable with the right people
and processes in place to respond
to the threat. A tolerable level
of risk.
Risk movement since 2020
year end
7 Contracts
Failure to secure new contracts and/or
extend existing contracts
8 Delighting
clients
Failure to delight clients and customers
and deliver contractual obligations
9
Internal
control
Failure to develop and maintain
a risk-based system of internal control
10 Political
climate
Failure to plan for, influence and respond
to potential changes in the political climate
11 Financial
stability
Failure to maintain financial stability, viability
and achieve financial targets/results
12 Wellbeing,
health &
safety
Failure of Capita to protect the wellbeing,
health and safety of all Capita’s employees,
service users, and others
13 Climate
change
Failure to adapt Capita and its services
to the impacts of climate change
56
During the year, the likelihood and/or the impact of two principal risks changed.
The severity of principal risk 4 below, increased when compared with the
previous year:
Risk 4
Rationale for movement
Failure to attract, develop,
engage and retain the right
people for current and future
client propositions
During the year, we started to see a significant shift
in the labour market which increased the level of
Capita’s principal risk related to our ability to attract
and retain colleagues and talent. This became a key
topic that management focused on in order to
mitigate its impact on our delivery with the risk level
increased from uncomfortable to critical in Q3 2021.
A programme was established to address this issue
and actions are expected to continue during 2022.
The severity of principal risk 10 below, decreased when compared with the
previous year:
Risk 10
Rationale for movement
Failure to plan for, influence
and respond to potential
changes in the political
climate
During the year, we continued to build and maintain
a good relationship with the UK Government. We
developed a Group-wide public affairs strategy with
guidance on positive interaction with political
stakeholders to ensure consistent and credible
engagement. The Board agreed that the likelihood of
this risk had decreased, thus moving the risk level
from uncomfortable to vulnerable in Q2 2021. Going
forward, in 2022, this risk will change ownership and
be managed at divisional level.
The Board remains confident that our existing governance mechanisms and risk
management processes will ensure that risks, including emerging risks, continue
to be identified and dealt with effectively. However, the Board recognises that a
number of these risks are taking a number of years to address and bring back to
an appropriate level. The completion of the reorganisation is intended to address
this. The Board recognises the improvement made, which has resulted in Capita
being a simpler business with a stronger operational platform to underpin its future
development. At Capita, the principal risks are considered over the same three-
year period as the viability statement. They are listed and described below, and for
each risk, we disclose key mitigations and future actions to further manage the risk
and improve internal control.
Strategic reportCapita plc Annual Report 2021 Risk management
continued
57
Principal risk and risk level Potential impact
How we manage the risk
Principal risk and risk level Potential impact
How we manage the risk
• inability to grow
and develop into
new markets
Capita had six diverse divisions and businesses which limited our ability to
focus and innovate and develop new customer value propositions. The two
newly formed divisions will focus on progressing our innovation strategy.
1
2
Failure to live
our purpose
and failure
to change
stakeholder
perception
so that we are
seen to live
our purpose
Accountable
officer: CEO
Failure to
define,
resource and
execute the
right medium-
term strategy
Accountable
officer: CEO
3
4
• misalignment
between the
strategic
objectives and
the purpose of
the business
• transformation
does not change
stakeholder
perception
• brand and
reputation
adversely
impacted
• clients, suppliers,
and people don’t
want to work
with, or for,
Capita
• investors lose
confidence in the
Group’s ESG
credentials
• inability to evolve
and deliver
strategic
objectives
• investment
decisions with
sub-optimal
returns
• ineffective
prioritisation of
capital
investment
• misalignment
between Group
and business
objectives
• difficult to
articulate and
optimise
investment case
for investors
We encountered challenges in the countries in which we operate and,
with the change in our operating model during the year, we have taken
appropriate actions to live our purpose and will endeavour to continue
taking such actions in the future.
Mitigation actions in 2021
• Defined and published our net zero targets which were accredited by the
Science Based Targets initiative (SBTi)
• Made positive progress on our diversity & inclusion (D&I) agenda by
taking action on gender and ethnic diversity at Board and Executive
Committee level
• CEO chaired the BLM advisory group, overseeing targeted D&I initiatives
• Contributed to broader societal skills challenges by supporting the UK
Government’s Kickstart scheme
• Funded Covid-19 vaccine programmes for our colleagues in South Africa
and India
• Held proactive, open and honest engagement with our clients and
colleagues to better understand how we can continue to effectively
support them
• Initiated our virtual first approach to working, demonstrating our
commitment to our values
Future actions
• Establish a responsible business committee, to oversee all of our
responsible business and purposeful initiatives
• Further focus on how we deliver social value, and how this complements
our core service offerings
We have introduced a new operating model and created two divisions and a
disposal portfolio. The two newly created divisions have developed their
medium-term strategy in the year and will now focus on resourcing and
executing their strategy.
Mitigation actions in 2021
• Implemented client-centric market vertical operating model
• Simplified and more focused Group strategy with two core divisions
focused on growth
• Regular dialogue between Board, Executive Committee and divisional
CEOs on evolution and delivery of strategy
• Creation of a disposal portfolio division to monetise non-core assets to
enhance our balance sheet position
• A strengthened balance sheet, enabling more focus and flexibility on
optimising our strategy
Future actions
• Embed the operating changes and focus on growth in our areas of core
competencies
• Continue to dispose of portfolio businesses at the right price to reduce
debt and improve liquidity
Failure to
innovate and
develop new
value
propositions
for clients and
customers
Accountable
officers:
Divisional CEOs
• failure to
compete with
others who are
innovative
• loss of new and
existing business
to competitors
• eroded corporate
position in the
market
Failure to
attract,
develop,
engage and
retain the right
people for
current and
future client
propositions
Accountable
officer: Chief
People Officer
• inability to win
new work or
deliver to clients
due to lack of
resources
• loss of key
personnel/lack of
succession
• increased staff
attrition and
increase in costs
from buying in
short-term
contractors
• poor financial
performance
resulting in
inability to grow
• reputational
damage
Mitigation actions in 2021
• Developed a digital market strategy to help Public Service (PS) identify
where it needs to develop capabilities and improve its ways of working to
allow us to compete more effectively in the UK public sector market
• A Chief of Architecture has been recruited into PS to help define and
develop the required tech stack with Technology Software Solutions
(TSS), and the associated tech partner ecosystem
• Defined an end-to-end product management lifecycle including innovation
• Created a technology & product function to manage and govern
end-to-end technology lifecycles
• Further developed multi-lingual conversational artificial intelligence
capability to combine with Smartmate (Capita’s language capability) to
extend to other languages to support consumer engagement
Future actions
• Continue to horizon scan new customer value propositions
• Develop stronger strategic partnerships with key technology providers to
enable us to better leverage their products to serve our clients
• Explore opportunities to invest in the innovation and product teams to
build future capability
• Roll out of the governance product lifecycle
Unprecedented recruitment activity in the labour market and unprecedented
levels of UK employment have had a dramatic impact on our attrition levels.
A multi-year people plan will focus on attracting, engaging, retaining and
developing our employees and reduce attrition levels.
Mitigation actions in 2021
• Introduction of more flexible future ways of working
• Further improvement and standardisation of recruitment process and systems
• Listening to what our colleagues are telling us and turning these into
actionable plans
• Ran diversity and inclusion awareness and training
• Employee performance reviews to help identify opportunities for
development and increase engagement
• Referral scheme for colleagues to recommend candidates
Future actions
• Further develop our people proposition and attraction strategy to respond
to market labour challenges
• Continued focus on ensuring competitive pay and reward packages
• Implement a clear, consistent demand planning methodology which will
enable proactive recruitment and retention
• Rationalise and reduce screening time for candidates and remove
screening where not required
• Introduce a career path framework which enables people to plan and
develop their careers
Strategic reportCapita plc Annual Report 2021 Risk management
continued
58
Principal risk and risk level Potential impact
How we manage the risk
Principal risk and risk level Potential impact
How we manage the risk
5
Failure to
change the
culture and
practices of
Capita in line
with our
responsible
business
agenda
Accountable
officer: CEO
• potential for new
clients not to
want to contract
with Capita
• unable to attract
and retain talent
• negative
corporate
reputation
hampers our
ability to deliver
sustainable
growth
• lack of staff
engagement
and demotivated
staff leading to
attrition hindering
ability to deliver
strategic
objectives
We will establish a responsible business committee, to oversee all our
responsible business and purposeful initiatives, to embed our purpose,
values and behaviours and to identify opportunities that will enable us
to further improve our culture and develop better working practices for
our people.
Mitigation actions in 2021
• Initiated the review of our operating model to identify opportunities that will
enable us to further improve our culture and develop better working
practices for our people
• Updated the Blue-Book in line with our responsible business agenda and
focus on our client commitments to deliver better outcomes
• Continued to embed our purpose, values and behaviours through contract
review committee, individual objective setting, manager commitments,
manager development through manager academy and induction module
• Significant focus on D&I activities including employee network groups,
anti-racism training, mutual mentoring, diverse hiring practices and people
survey analysis by demographic
Future actions
• Regular engagement with our colleagues, driving improvements identified
from annual employee survey and emphasising the right tone from the top
• Implementation of diversity dashboards and reporting, to enable the
identification of remedial actions where required
• Embedding of pulse/employee survey methodology and action planning
• Implement phase two of the HR transformation programme
• Launch Capita leadership council
6
Failure to
protect data,
information
and IT systems
Accountable
officer: Chief
Technology
Officer (CTO)
• loss or theft of
confidential client
or customer data
due to cyber
attack
• disruption to
business
operations of
Capita and/or its
customers due to
cyber attack
• loss of one or
more of Capita’s
data centres
• reputational
damage leading
to loss of new
and existing
business
A decentralised IT landscape with ageing technology and years of
under-investment in our IT systems has made it a challenge for us to
enhance our IT infrastructure. In our transformation we created a TSS
function that will lead on providing operations, oversight and monitoring
of our IT systems and infrastructure across the company.
Mitigation actions in 2021
• The TSS Shared Service function has been created, bringing together all
the technology services into a single function to standardise and enhance
processes, delivering digital transformation and cyber security
• Implemented improved tooling and process to increase data security and
reduce the risk of data leakage
• Implemented additional security controls for the end user to reduce the
possibility of ransomware or virus attacks
• Continued to raise cyber security awareness across Capita via multimedia
projects to ensure everyone fully understands their role in protecting data
• Continued to consolidate smaller data centres into modern purpose-built
data centres with increased resilience
• Continued to reduce end of life out of support end user estates
• Reviewed and mitigated security risks related to group systems
and services
Future actions
• Establishment and execution of the technology strategy for TSS and the
wider business to introduce standardisation and harmonisation of Capita’s
IT landscape
• Enhance the understanding and reassessment of the pan-Capita
technology risk profile by creating a centralised risk register
• Identify a clear road map for technology to ensure full foresight of any
upcoming technology obsolescence
• Focus on a centralised and holistic view of the IT asset estate
• Embed process and forums to ensure continuous alignment of technology
across Capita
• Develop and enhance existing procedures across Capita to monitor and
manage emerging technology risk exposure.
Strategic reportCapita plc Annual Report 2021 Risk management
continued
59
Principal risk and risk level Potential impact
How we manage the risk
Principal risk and risk level Potential impact
How we manage the risk
7
Failure to
secure new
contracts and/
or extend
existing
contracts
Accountable
officers:
Divisional CEOs
• loss of contracts
• inability to
acquire new
business
• contract terms
and service
commitments
are not met or
understood
• exposure to
unexpected
costs/cost
overruns or
onerous terms
• brand and
reputation
damage
• financial claims/
penalties and
other disputes
with clients
• adverse impact
on contract
profitability
We continue to bid and win new contracts that we are confident we have the
resources and proven record to deliver on. The shift to our new operating
model should allow us to develop and execute our Go To Market growth
strategy, secure new contracts in line with our core competencies and give
us greater chances for growth.
8
Mitigation actions in 2021
• Implemented market verticals in Experience that are aligned with
operating model, governed through design authority to ensure alignment
with growth strategy
• Business development board established to drive prioritisations for growth
focused initiatives
• Embedded bi-monthly sales cadence calls to review progress and
challenge issues
• Aligned our technology and product capabilities to ensure we have
appropriate digital solutions
Future actions
• Refresh the contract review committee (CRC) policy and deal review
process, including incorporation of new H&S/ safeguarding risk
assessments and develop a fraud risk assessment process
• Refresh and roll out the CRC post-deal review process
• Assess and relaunch solution briefcase in Public Service
• Develop and embed the Public Service playbook (for example, how to use
standard contracts)
• Update delegation of authority matrices to reflect new ways of working
• Improve coordination between Pursuit, Programme and Performance
teams
• Co-creation of our Go To Market strategies to influence market trends and
solutions
• Driving up our digital capability, which will shape our future propositions
• Further develop client account plans that are centred on client and
industry problem solving
Failure to
delight clients
and customers
and deliver
contractual
obligations
Accountable
officers:
Divisional CEOs
• loss of existing
contracts
• brand and
reputation
damage
• limited or no new
business
• demotivated staff
leading to
attrition and loss
of capability/
capacity
• financial
penalties and/or
service credits
We will do more to delight those we provide services to and by introducing
our new customer success framework and providing monthly governance
over our contract and software performance, which will allow us to improve
the services we provide to our customers and clients.
Mitigation actions in 2021
• Established monthly governance over contract and software performance
and weekly review of SLA/KPI to enhance service delivery and focus on
achieving customer service obligations
• New ways of working programme (move some services to work from office
to home into business as usual solution) rolled out using project
governance methodology
Future actions
• Continue development of the divisional operating environment to drive
simplification and strengthening of service delivery
• Increase automation of development operations
• Undertake improvements to operational performance reporting, to support
earlier identification of potential performance concerns
• Undertake risk reduction operational maturity assessments to identify
opportunities to deliver better outcomes for our clients
• Identify commonality in failures or issues across divisions, and address
through coordinated action
• Roll out of foresight demand planning tool to better predict and manage
recruitment pipeline and mitigate attrition risk across the business
• Introduce a new customer success framework
Strategic reportCapita plc Annual Report 2021 Risk management
continued
60
Principal risk and risk level Potential impact
How we manage the risk
Principal risk and risk level Potential impact
How we manage the risk
9
Failure to
develop and
maintain a
risk-based
system of
internal control
Accountable
officer: CFO
10
Failure to plan
for, influence
and respond
to potential
changes in
the political
climate
Accountable
officer: CEO
• fraud,
misstatement
and inaccurate
financial
reporting
• greater
regulatory or
client scrutiny
• increased costs
associated with
risk remediation
activities
• breaches of law,
statutory and
legal reporting
leading to
regulatory fines
in financial
services sector
and loss of key
contracts
• reputational
damage and
adverse media
interest leading
to inability to
secure new
contracts
• Covid-19 has
continued to
drive the
formulation of
new policy at
speed affecting
the operational
environment for
the business
• possibility of
additional
regulatory
changes by new
government
impacting our
reputation
Our internal controls effectiveness is dependent on management experience
and intervention. A multi-year control improvement programme has been
partially implemented but progress has been impacted by the reorganisation
and changes to our finance systems approach. The move to two divisions
aims to ease the simplification, standardisation, automation and
documentation of controls in our key business processes.
Mitigation actions in 2021
• The KCQ self-assessment process was further refined and implemented.
This process required every business leader to attest to compliance with a
core set of controls
• Risk and assurance committees were established at division level
• A project to standardise and improve our process and controls
documentation was launched
• The delegation of authority document was revised in March 2021
Future actions
• Standardise finance processes and controls
• Further improve the coverage of financial policies and associated
standards
• Refresh and update the delegation of authority document following the
implementation of the new divisional structure
11
Failure to
maintain
financial
stability and
achieve
financial
targets
Accountable
officer: CFO
• poor cash flow
and high levels
of debt reduce
liquidity available
to invest in
business
development
and growth
• loss of
shareholder
value
• loss of investor
confidence
As a result of: Covid-19, the impact of government policy, client willingness to
spend less, our inability to continue to innovate and have the resources
available to fulfil contractual obligations have impacted our financial stability
and the strength of our balance sheet.
By transforming to two divisions and creating a disposal portfolio which
consists of businesses we are looking to divest, we aim to be better placed
to reduce debt, focus resources on two core divisions and reduce Group
overhead with the aim of delivering sustainable material free cash flow.
Mitigation actions in 2021
• Obtained lender consent for business disposals when required
• Completed the disposal of Education Software Solutions, and AXELOS
before the end of 2021 and announced the sale of Secure Solutions and
Services, Specialist Insurance, and AMT-Sybex during the year
• Secured an extension to the Group’s revolving credit facility (RCF)
• Completed the triennial pension valuation
• Continued close focus on working capital
Future actions
• Completion of remaining planned disposals of businesses
• Agreeing a further extension to the Group’s RCF and other borrowing
facilities as appropriate
We may encounter increased volatility in Government spending as they seek
to reduce debt accumulated during the pandemic. Our continued
commitment to being a leading responsible business, our reputation for
reliable delivery and seeking contracts that enhance social value will remain
our key focus.
Mitigation actions in 2021
• Engaged with government and other stakeholders in response to Covid-19
to understand policy impacts on Capita
• Monitored new policy developments and undertook horizon scanning
for political, regulatory, and economic developments impacting
political climate
• Engaged with Government and other parties (e.g. regulators) to promote
and protect reputation
Future actions
• Continue to engage with UK Government and others to promote and
protect reputation.
• Continue to monitor policy developments including emerging plans for
governmental strategic objectives including levelling up.
Strategic reportCapita plc Annual Report 2021 Risk management
continued
61
Principal risk and risk level Potential impact
How we manage the risk
Principal risk and risk level Potential impact
How we manage the risk
Failure to
adapt Capita
and its
services to the
impacts of
climate change
Accountable
officer: Chief
General Counsel
Covid-19 has had an impact on the health, safety and wellbeing of our
people, most of whom have been working from home for almost two years.
We have created Team Health which will focus on protecting and improving
the wellbeing, safety, and health of our employees and stakeholders.
13
Mitigation actions in 2021
• Improvements in the use of CASPER health and safety tool and
improvements to SHAPE for homeworkers and office workers
• Embed the Group clinical governance framework into the new corporate
divisional structure
• Implemented the Group Safeguarding framework including new risk
assessment process and training modules
• Introduced the new wellbeing framework
• Transitioned to a new occupational health provider – Health Partners
Future actions
• Develop and implement a culture of ownership and accountability for the
wellbeing, safety and health of our people by Group, divisional, and
business leadership
• Initial assessment and validation of Capita’s legal and statutory wellbeing,
safety and health requirements
• Embed and assure CRC HSE & Safeguarding risk assessments for
new contracts
• Update approach and process to wellbeing, safety and health incident
and near-miss reporting, management and analysis
12
Failure of
Capita to
protect the
wellbeing,
safety, and
health of all
Capita’s
employees,
the people we
work with and
our service-
users
Accountable
officer: Chief
General Counsel
• poor health,
injury and death
of colleagues
and service
users
• legislative
breaches/
prosecutions,
including
corporate
manslaughter
• costs associated
with
compensation
and litigation
• reputational
damage
• increased levels
of absenteeism
and recruitment/
retention
challenges
• increased
insurance
premiums
• loss of contracts
or inability to win
new contracts
• reduced
willingness of
contractors to
work with Capita
The threat of global warming has meant that our transition to a low carbon
economy requires a fundamental change in how we manage our supply
chain, our operations and how we assess changing demand and behaviours
in our markets. We have developed a multi-year strategy that will allow us to
become carbon neutral across our entire footprint by 2035.
Mitigation actions in 2021
• Established 1.5°C science-based carbon reduction targets verified by
SBTi
• Committed to full net zero carbon by 2035 with interim milestones in 2025
and 2030 with comprehensive supporting business plan and development
of performance metrics
• Increased the proportion of supply chain spend backed by science-based
carbon reduction targets
• Working towards transition to 100% renewable power across our property
portfolio and to hybrid and electric leased vehicles
• Developed a dedicated management information tool to monitor carbon
emissions by activity, region, division, function and business unit
• Updated the travel policy to reduce travel and commuting, prioritising
virtual first approach
Future actions
• Link objectives and STIP bonus to net zero initiatives from 2022
• Review the HSE policy to include specific environmental factors and
creation of a new environmental standard
• Engage with suppliers and customers to ensure resilience to transitional
and physical climate risk, developing low carbon business solutions
supporting net zero commitments
• Further efficiency, renewable energy and travel reduction programmes
• unpredictable
shift in markets to
low carbon
leading to
increased costs
and reduced
revenue
• increased cost
and uncertainty
of investment in
new technology
and substitution
of existing
products and
services
• reputational
threats from slow
adaptation to
climate change
• increased cost of
regulation and
decarbonisation
resulting from
transition to a
lower carbon
economy
• impact on
infrastructure,
service delivery
and supply chain
from extreme
weather events
• impacts of global
warming in
different
territories on
business
continuity and
staff welfare
Strategic reportCapita plc Annual Report 2021 Risk management
continued
Viability statement
62
In accordance with provision 31 of the UK
Corporate Governance Code 2018, the Board
has assessed the viability of the Group and
Parent Company over the three-year period to
31 December 2024, aligned with the period of
the Group’s bottom-up business planning
process. The Board believes that a three-year
period provides sufficient clarity to consider the
Group and Parent Company’s prospects and
facilitates the development of a robust base
case set of financial projections against which
severe but plausible downside scenario stress
testing can be conducted.
The completion of the Group’s multi-year
transformation programme during 2021 has
created the platform for sustainable improving
financial performance which underpins the
viability of the Group and Parent Company. The
Board particularly notes the following deliverables
from the transformation programme:
• The simplification and strengthening of the
Group’s organisation design establishing two
core divisions focused on public and private
sector markets providing a platform for a
return to revenue growth and delivery of
efficiency savings.
• A significant reduction in the Group’s cost
base, with continued in-year savings in 2021
of £123m which takes the cumulative savings
during the transformation programme to
£428m. This has successfully addressed the
cost competitive objective which was a core
element of the transformation programme.
• The ongoing successful execution of the
Portfolio business disposal programme which
has realised net cash proceeds totalling,
c.£900m since 1 January 2018, used to repay
maturing debt, to make further deficit reduction
contributions to the Group’s main defined
pension scheme and to invest in driving
growth in the remaining core businesses.
• The repayment of £1.4bn of debt, including
lease liabilities, since 1 January 2018.
• The successful extension during 2021 of
the Group’s revolving credit facility (RCF)
to 31 August 2023.
• The payment of c.£300m of deficit reduction
contributions to the Group’s main defined
benefit pension scheme since 1 January
2018, and the commitment to a further
£105m of deficit reduction contributions
across 2022-2026, which should enable
the scheme to reduce its reliance on the
covenant of the Group.
The foregoing elements of the transformation
programme provide the backdrop to the
three-year business plan approved by the
Board in February 2022 and are key factors in
the Directors’ viability assessment. The main
assumptions underpinning the base case
financial projections in the Group’s business
plan are set out below:
• Return to organic revenue growth broadly
in line with market trends in each of the two
core divisions.
• Operating profit margin expansion over the
business plan period reflecting the benefit of
operating leverage coupled with ongoing
efficiency delivery.
• Improving operating cash conversion as the
structural working capital drag from a small
number of large legacy transformation
contracts diminishes.
• Completion of the Portfolio disposal
programme during 2022 and 2023.
• The refinancing of the Group’s £300m RCF
following its maturity in August 2023.
The most material assumptions from a viability
assessment perspective, which are also
identified as material uncertainties in the severe
but plausible downside scenario in the going
concern assessment provided in section 1 to
the consolidated financial statements, relate to
the completion of the portfolio disposal
programme and the refinancing of the RCF.
Capita has a strong track record of executing
major planned disposals and has been
successful in obtaining new and extended
financing facilities over the last few years.
As such, in concluding on viability the Board
believes that it is reasonable to assume that
the Group will be successful in executing the
disposal programme and in refinancing the
RCF in line with the assumptions underpinning
the base case financial projections.
The three-year base case financial projections
were used to assess covenant compliance and
liquidity headroom under different scenarios.
This analysis included assessing the sensitivity
of the financial performance of the Group to
changes in trading conditions including reduced
rates of revenue growth and efficiency delivery.
In addition, the viability stress tests considered
severe but plausible downside impacts on
covenant and liquidity headroom from the
crystallisation of specific risks including those
set out in the principal risks section on pages 57
to 61. The stress tests covered potential
contract claims and performance issues,
data breaches, cyber-attacks and delays in
execution of the disposal programme.
The risks applied have not been probability
weighted but rather consider the impact should
each risk materialise by applying a ‘more likely
than not’ test. These wide-ranging risks are
highly unlikely to crystallise simultaneously and
there are mitigations under the direct control of
the Group that can be actioned to address a
combination of risk crystallisations that may
occur under a severe but plausible downside.
These have been considered in the Board’s
viability assessment.
Based on this assessment, and reflecting the
Board’s confidence in the platform for improving
financial performance resulting from completion
of the transformation plan, the Group’s ability to
refinance and to execute the approved disposal
programme, the Board has a reasonable
expectation that the Group and Parent
Company will be able to continue in operation
and meet their liabilities as they fall due over the
period of the viability assessment.
The strategic report was approved by the
Board and signed on behalf of the Board:
Claire Denton
Group Company Secretary
9 March 2022
Capita plc
Registered in England and Wales No.2081330
Strategic reportCapita plc Annual Report 2021 Corporate
governance
63
Corporate governanceCapita plc Annual Report 2021 Chairman’s report
64
Chairman’s
report
Board strength and resilience is essential to
operate successfully during a period of sustained
disruption. I am therefore pleased to introduce
the corporate governance section of this Annual
Report and present my introductory statement
on Board governance during 2021.
Sir Ian Powell
Chairman
The majority of meetings
in 2021 were held remotely
using video‑conferencing
technology.”
Board leadership
The directors of the Company in office at the date of this report are listed on pages 67 and 68.
There were several changes to Board membership during the year. Tim Weller was appointed
Chief Financial Officer (CFO) and Executive Director on 12 May 2021 as a permanent replacement
for Gordon Boyd, our interim CFO. David Lowden was appointed Non-Executive Director on
1 January 2021 and David became Senior Independent Director on 1 March 2021 following Gillian
Sheldon’s retirement from the Board on 28 February 2021 after eight and a half years. Neelam
Dhawan, an experienced leader in the technology industry, was appointed Non-Executive Director
on 1 March 2021.
Andrew Williams retired from the Board on 11 May 2021 after six years’ service and Baroness Lucy
Neville-Rolfe stepped down from the Board on 14 December 2021 following her appointment by the
Department for Work and Pensions to lead a review of the state pension age. On 1 February 2022,
we appointed Dr Nneka Abulokwe OBE to the Board as Non-Executive Director.
We are careful to ensure an appropriate balance of time commitments for each Board member.
Directorships are reviewed regularly and any proposed external appointment is considered
carefully. David Lowden was appointed non-executive director and chairman designate of Diploma
PLC on 19 October 2021 and became chairman on 19 January 2022. David will retire from the
Board of PageGroup plc on 30 April 2022. Matthew Lester was appointed non-executive director of
Intermediate Capital Group plc on 1 April 2021.
their contributions into Board committee meetings. Both Joseph and Lyndsay complete
their three-year terms in the summer of 2022 and a recruitment process for a replacement
is ongoing.
Board diversity
A diverse board broadens perspectives, enriches debate and ultimately improves the quality of
decision making, and we actively seek to improve the diversity of the Board. As at the date of
this Annual Report, we continue to exceed the 33% target for female representation, and our
ethnic diversity has continued to improve with the recent appointment of Nneka Abulokwe.
Further information on diversity in the Group is on page 44.
Female representation
Reappointment of directors
31 December 2021
1 February 2022
30%
36%
All members of the Board will stand for re-election (Tim Weller and Nneka Abulokwe for
election) at the annual general meeting (AGM) in May. All continuing Board members have
received a formal performance evaluation which demonstrates that each director continues to
be effective and committed to the role.
Meeting schedule
We remain committed to workforce engagement and highly value the engagement of our employee
non-executive directors, Lyndsay Browne and Joseph Murphy, in Board discussions. We have seen
the value of their input into Board debate and we continue to believe in the importance of bringing
The Board has a standing schedule to meet six times a year but holds further meetings as
required. Board and committee meetings are structured around the Company’s financial
calendar. Agenda planning is undertaken in advance of every meeting to ensure an appropriate
Corporate governanceCapita plc Annual Report 2021 Chairman’s report
continued
65
allocation of time to important topics. The majority of meetings held in 2021 were held remotely
using video-conferencing technology. Physical meetings are held where appropriate under
prevailing Covid-19 conditions and relevant guidance.
Senior management
We review regularly the structure of our businesses and management to ensure they remain
appropriate. The Executive Committee comprises the divisional executive officers and functional
heads under the Chief Executive Officer’s (CEO’s) leadership.
Board effectiveness
Corporate governance principles
We continue to pursue high standards of corporate governance and business practice, including
the principles embodied in the 2018 UK Corporate Governance Code, which permeate all aspects
of the Board’s activity and are reflected throughout this Annual Report. Further details on the
application of these principles are signposted below:
Leadership and purpose: articulation of Capita’s purpose on the inside front cover and page 4.
Division of responsibilities: governance framework on page 70.
Composition, succession and evaluation: Nomination Committee report on pages 84 and 85,
and Board evaluation section below.
Audit, risk and internal control: Audit and Risk Committee report on page 94, and internal control
and risk management statement on pages 53 to 61.
Remuneration: Remuneration Committee report on page 96.
Board time allocation (%)
Board directors: length of tenure
5
4
3
2
1
1 45% Executive reports
2 34% Strategy,
transformation and growth
3 10% Governance
(incl. Board evaluation)
4 6% IR / brand / reputation
5 5% Full and half-year results
Sir Ian Powell (Chairman)
5 years
Jon Lewis (CEO)
Tim Weller (CFO)1
David Lowden
Matthew Lester
Georgina Harvey
John Cresswell
Neelam Dhawan2
Nneka Abulokwe3
Lyndsay Browne
Joseph Murphy
4 years
10 months
1 year
5 years
6 years
2 years
1 year
1 month
2 years
2 years
2015
2018
2021
1. Joined the Board on 12 May 2021
2. Joined the Board on 1 March 2021
3. Joined the Board on 1 February 2022
Corporate governanceCapita plc Annual Report 2021
Chairman’s report
continued
66
Culture
We recognise the importance of culture as a significant driver of business sustainability. The Board
receives regular reports on HR activities that enable it to monitor developments in the Group’s
culture and provides supportive challenge to management. The dashboard below is an aggregation
of key measures informing the Board’s assessment of culture, and further information on each of
these, and the Group’s approach to investing in and rewarding its workforce, is set out in the people
and responsible business sections of the strategic report on pages 35 to 39 and 42 to 49.
Metric
Movement in employee net promoter score (a measure of employee satisfaction)
People survey response rate (a measure of employee engagement)
Employee rating of manager commitments (a measure of how managers live our values
and demonstrate our behaviours)
Voluntary turnover (a measure of employee commitment)
2021
2020
-22 points
+7 points
The evaluation concluded that the Board had continued to perform well during the pandemic.
Particular strengths were Board culture, stakeholder relationships and governance and compliance.
The evaluation also identified certain aspects of the Board’s work that could be improved and these
areas, set out in the following table, were highlighted and discussed by the Board when the
evaluation findings were presented.
Finding from 2021 evaluation
Proposed actions in 2022
Succession planning – further in-depth focus needed to
ensure Board composition is appropriate for the Group as
it shifts focus from transformation to growth.
Allocate additional time, including on the Nomination
Committee agenda, for review and discussion of
succession plans.
68%
87%
30%
72%
82%
20%
Strategy – Board has rightly focused on managing the
pandemic amid a more complex and lengthy turnaround
than originally envisaged. Additional focus on long-term
strategy for the two core divisions would be beneficial.
Board skills matrix – debate and agree a Board skills
matrix aligned to the redefined strategy.
Allocate Board time for additional regular divisional deep
dive reviews as part of the overall strategy debate.
This has now been undertaken.
Although it is pleasing to see the increased rating for managers (a 5% annual increase), the factors
behind the movements in employee net promoter score and voluntary turnover are being
investigated and understood. The CEO and management team are treating this very seriously and
will be taking steps to address these areas during 2022.
Board evaluation
Board evaluation is undertaken annually, with external evaluation every three years. An external
evaluation was performed in 2021 by Independent Board Evaluation and key findings are set out
below, together with actions taken during the year in response to the 2020 internal evaluation.
Finding from 2020 evaluation
Action in 2021
Transformation – ongoing development and delivery of
the transformation strategy including balance sheet
strength, reduction of operational complexity and reward
incentives to reflect objectives.
Revised remuneration policy, including new restricted share
award, was approved by shareholders at the 2021 AGM.
Risk management framework – with the Audit and Risk
Committee review changing risk profiles with the
transformation strategy.
Certain principal risks were allocated Board time for deep
dive review, particularly those impacted by the
transformation, such as cyber and IT resilience.
The external evaluation of the Board and its committees was undertaken by meeting observation
and personal interviews with each Board member, the Group Company Secretary, members of the
senior management team and external advisers. Findings were discussed with the Chairman and
presented to the Board. Committee feedback was presented to the relevant committee chair and
the Board’s feedback on the Chairman was discussed with the Senior Independent Director.
Feedback on individual directors’ performance was provided by the Chairman as part of the annual
review process.
Remuneration
Following consultation with major shareholders on the new restricted share plan for executive
directors, a revised remuneration policy was approved by shareholders at the 2021 AGM. Further
details can be found in the directors’ remuneration report on page 103.
Corporate governance and committee reports
The following pages in this section consist of our corporate governance and committee reports.
I hope that you will find these and the entire Annual Report informative. The Board will be happy
to receive any feedback you may have.
Sir Ian Powell
Chairman
9 March 2022
Corporate governanceCapita plc Annual Report 2021 Board of Directors
67
Board members
Key to committees
A Audit and Risk
N Nomination
R Remuneration
Committee chair
Chairman
Executive Directors
Independent Non-Executive Directors
Sir Ian Powell
Chairman
N
Jon Lewis
Chief Executive Officer
Tim Weller
Chief Financial Officer
David Lowden
Senior Independent Director
A N R
Matthew Lester
Appointed: March 2017
A N R
Georgina Harvey
Appointed: October 2019
A N R
Appointed: September 2016
Appointed: December 2017
Appointed: May 2021
Appointed: January 2021
Independent at appointment:
Yes
Key skills and experience: Sir
Ian was appointed as Non-
Executive Director on
1 September 2016 and as
Chairman on 1 January 2017. He
is a Chartered Accountant and,
before his retirement in June
2016, was Chairman and Senior
Partner of PwC UK between
2008 and 2016.
Other current appointments:
Chairman, Police Now; trustee of
The Old Vic, and of Wellbeing of
Women; and board member of
London First.
Key skills and experience:
before joining Capita, Jon was
Chief Executive Officer of Amec
Foster Wheeler. Prior to that, he
had a 20-year career at
Halliburton Company Inc, where
he held a number of senior roles,
including Senior Vice President
and member of the Halliburton
Executive Committee.
Board responsibilities:
managing and developing
Capita’s business to achieve the
Company’s strategic objectives.
External appointments: board
member of Equinor ASA.
Key skills and experience:
before joining Capita, Tim was at
G4S for five years as its CFO and
for three years before that as a
Non-Executive Director. He has
many years’ experience as a
CFO with Innogy, RWE Thames
Water, United Utilities, Cable &
Wireless and Petrofac. He spent
his early career at KPMG, where
he trained to become a Chartered
Accountant, becoming a partner
in 1997.
Board responsibilities: overall
control and responsibility for all
financial aspects of the
business’s strategy.
External appointments:
Non-Executive Director of
The Carbon Trust.
Key skills and experience:
David is a highly experienced
non-executive director, senior
independent director and chair of
UK listed companies. He was
formerly Chair of Huntsworth plc,
Senior Independent Director at
Berendsen, Chair of the Audit
and Risk Committee at William
Hill, Chair of the Audit Committee
at Cable & Wireless Worldwide
plc and Chief Executive of Taylor
Nelson Sofres plc.
Other current appointments:
Chairman of Diploma plc; Senior
Independent Director of Morgan
Sindall plc; and, until 30 April 2022,
Chairman of PageGroup plc.
Key skills and experience:
Matthew is a Chartered
Accountant with over 20 years’
experience in senior finance
roles. He was Group Chief
Financial Officer of Royal Mail plc
from November 2010 to July
2017. Matthew served as Group
Chief Financial Officer for ICAP
plc from May 2006 to November
2010. He was formerly a
Non-Executive Director at
Barclays plc and has also held
the position of Non-Executive
Director and Chair of the Audit
and Risk Committee at Man
Group plc.
Other current appointments:
Chairman of Kier Group plc; and
Non-Executive Director of
Intermediate Capital Group plc.
Key skills and experience:
Georgina has significant
experience across highly
competitive consumer-facing
markets and of delivering
successful transformational
change. Prior to her current roles,
Georgina was Managing Director
of Regionals and a member of
the Executive Committee of
Trinity Mirror plc from 2005
to 2012.
Other current appointments:
Non-Executive and Senior
Independent Director of McColl’s
Retail Group plc; and Non-
Executive Director of
Superdry plc.
Corporate governanceCapita plc Annual Report 2021 Board of Directors
continued
68
Independent Non-Executive Directors
Employee Non-Executive Directors
Key to committees
A Audit and Risk
N Nomination
R Remuneration
Committee chair
John Cresswell
Appointed: November 2015
A N R
Neelam Dhawan
Appointed: March 2021
A N R
Nneka Abulokwe OBE A N R
Appointed: February 2022
Lyndsay Browne
Appointed: July 2019
R
Joseph Murphy
Appointed: July 2019
A
Directors who served during
the year 2021
Key skills and experience: John
has substantial experience in
leading and growing
organisations as CEO and
executive director. He qualified as
a Chartered Accountant, has a
BSc in Economics and Politics,
and attended the advanced
management programme at
Harvard Business School.
Previously, he was CEO of Bibby
Line Group and Arqiva, and held
a number of executive director
roles on the board of ITV plc.
Other current appointments:
member of University of Liverpool
Management School Advisory
Board.
Key skills and experience:
Neelam has 40 years’ leadership
experience in the IT industry,
where she held senior positions
in Hewlett-Packard, Microsoft,
Compaq and IBM with
responsibility for a wide range
of areas including strategy,
corporate development, software
engineering and offshoring. She
now advises multinationals on
business and technology
transformation and, until recently,
was an advisor to IBM in India.
Other current appointments:
Non-Executive Board Member of
ICICI Bank Limited and Yatra
Online Inc; member of Koninklijke
Philips NV Supervisory Board;
board member of Skylo
Technologies Inc. and
Capillary Technologies.
Key skills and experience:
Nneka has significant experience
of delivering large-scale, high-
profile technology projects for
governments and private
institutions globally. She held
senior and executive positions
with Logica (now CGI), Atos
and Sopra Steria, in a corporate
career spanning more than 25
years, before founding MicroMax
Consulting, where she is currently
CEO. Nneka was awarded an OBE
in 2019 for services to business.
Other current appointments:
Non-Executive Director, Davies
Group; Director of MicroMax
Consulting Limited; external
member of the Audit & Risk
Committee, University
of Cambridge; adviser to Cranfield
School of Management Advisory
Board and DoGood Africa.
Key skills and experience:
Lyndsay is a member of the
Institute of Chartered
Accountants (Scotland) and has
undertaken various finance roles
in insurance and financial
services since joining Capita in
2003. She currently works as a
finance manager in the Portfolio
division and is involved in
commercial contract
management, the finance
transformation programme and
financial reporting. Before joining
Capita, Lyndsay worked for
KPMG Audit and Advisory in
Glasgow and Bermuda.
Other current appointments:
None.
Key skills and experience:
Joseph works in the technical
advisory team in the Real Estate
and Infrastructure business within
the Portfolio division. He joined
Capita in 2015 and is a Chartered
Civil Engineer with a masters
degree in ground engineering.
His role involves monitoring and
advising on large infrastructure
projects in the UK and Europe.
His previous experience includes
engineering design and
construction management.
Other current appointments:
None.
Gillian Sheldon, Andrew Williams
and Baroness Lucy Neville-Rolfe
retired from the Board on
28 February, 11 May and 14
December 2021 respectively,
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
69
Committed to high
standards of governance
Corporate Governance Code
Capita plc and its subsidiaries (the Group) are committed to maintaining high standards of
corporate governance. The UK Corporate Governance Code 2018 (the Code) applies to accounting
periods beginning on or after 1 January 2019 and is available from the Financial Reporting
Council’s website, www.frc.org.uk. Throughout the accounting period to which this report relates,
the Company complied with all relevant provisions set out in sections 1 to 5 of the Code except for
provisions 24 and 32 (audit and remuneration committees respectively to comprise independent
non-executive directors) as Joseph Murphy (member of the Audit and Risk Committee) and
Lyndsay Browne (member of the Remuneration Committee) are both non-executive employee
directors and therefore not considered independent. However, the Board felt that the value of the
employee perspective brought by Lyndsay and Joseph to Board meetings should be replicated
on those two committees. The formal appointment of each of them to the respective committee
demonstrates the Group’s commitment to employee engagement and the value of diversity of
perspective being more important than a purely compliance-driven approach to the Code.
Board changes during the year
On 12 May 2021, Tim Weller was appointed CFO in place of Gordon Boyd, interim CFO, who
resigned with effect from the same date. On 1 January 2021, David Lowden was appointed a
Non-Executive Director, and David succeeded Gillian Sheldon as Senior Independent Director
(SID) on 1 March 2021 following Gillian’s planned retirement from the Board on 28 February 2021
after eight and a half years. Neelam Dhawan was appointed a Non-Executive Director on 1 March
2021. Andrew Williams and Baroness Lucy Neville-Rolfe stepped down as non-executive directors
on 11 May 2021 and 14 December 2021 respectively. Further information on Board changes is set
out in the Nomination Committee report on page 84.
Board changes after year end
Board composition
At 31 December 2021, the Board comprised 10 directors, made up of the Chairman, CEO, CFO,
five independent non-executive directors and two employee non-executive directors. Details
of each director’s experience are set out in the directors’ biographies on pages 67 and 68.
Composition of the Board at 31 December 2021 and at the date of this report is shown in the
following tables.
Board composition at 31 December 2021:
Executive directors
Independent non-executive directors
Non-executive employee directors
Jon Lewis
Tim Weller
Lyndsay Browne
Joseph Murphy
Sir Ian Powell1
David Lowden
Matthew Lester
Georgina Harvey
John Cresswell
Neelam Dhawan
1. Independent on appointment in accordance with the Code.
Board composition at the date of this report:
Executive directors
Independent non-executive directors
Non-executive employee directors
Jon Lewis
Tim Weller
Lyndsay Browne
Joseph Murphy
Sir Ian Powell1
David Lowden
Matthew Lester
Georgina Harvey
John Cresswell
Neelam Dhawan
Nneka Abulokwe
On 1 February 2022, Nneka Abulokwe was appointed a Non-Executive Director.
1. Independent on appointment in accordance with the Code.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
70
The Board
Role of the Board
To promote Capita’s long-term sustainable success, generating
value for shareholders and contributing to wider society.
Matters reserved for the Board
• Strategy and
management
• Structure and capital
• Financial reporting
• Major contracts
• Board membership
• Internal controls
• Shareholder
communication
Nomination Committee
Audit and Risk Committee
Remuneration Committee
• Board and committee
• External audit
• Remuneration policy
composition
• Succession planning
• Diversity
• People strategy
internal controls
• Internal audit
• Financial reporting
• Remuneration principles
• Risk management and
• Incentive design and setting
of targets
• Executive and senior
management remuneration
Read more on page 96
Read more on page 84
Read more on page 86
Role of the directors
Chairman
The Chairman is responsible for leadership of the
Board and ensuring its effectiveness on all
aspects of its role. This includes setting the
Board’s agenda and ensuring that adequate time
is available for discussion of all agenda items, in
particular strategic issues. The Chairman should
also promote a culture of openness and debate,
by facilitating the effective contribution of
non-executive directors in particular and
ensuring constructive relations between
executive and non-executive directors. The
Chairman is responsible for ensuring that the
directors receive accurate, timely and clear
information, and should ensure there is effective
communication with shareholders.
Senior independent director
The SID acts as a sounding board for the
Chairman on Board-related matters, chairs
meetings in the absence of the Chairman, acts
as an intermediary for other directors when
necessary, leads the evaluation of the
Chairman’s performance, leads the search for
a new Chair, when necessary, and is available
to shareholders who wish to discuss matters
which cannot be resolved otherwise.
Non-executive directors
The non-executive directors constructively
challenge and help develop proposals on
strategy. They scrutinise the performance of
management in meeting agreed goals and
objectives, and monitor the reporting of
performance. They satisfy themselves on the
integrity of financial information and that financial
controls and systems of risk management are
robust and defensible. They are responsible for
determining appropriate levels of remuneration
of executive directors and have a prime role in
appointing and, where necessary, removing
executive directors, and in succession planning.
Executive directors
The executive directors are responsible for the
day-to-day running of all aspects of the Group’s
business. This responsibility is different from the
Chairman’s role in running the Board. The role
of CEO is separate from that of Chairman to
ensure that no one individual has unfettered
powers of decision making.
Non-executive employee directors
The non-executive employee directors are
appointed from the workforce to contribute an
employee perspective to Board discussions.
This is a key element of the Board’s approach
to employee engagement.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
71
Board meetings and attendance
During 2021, the Board held six scheduled meetings. Additional ad hoc meetings are held as
required. Attendance of the directors at Board and committee meetings is shown below; the
maximum number of meetings a director could attend is in brackets.
Sir Ian Powell1
Jon Lewis
Tim Weller2
David Lowden3
Matthew Lester
John Cresswell
Georgina Harvey
Neelam Dhawan
Lyndsay Browne
Joseph Murphy
Gordon Boyd2
Gillian Sheldon4
Andrew Williams4
Baroness Lucy Neville-Rolfe4
Audit and
Risk
Committee
Board
Remuneration
Committee
Nomination
Committee
6(6)
6(6)
4(4)
6(6)
6(6)
6(6)
6(6)
5(5)
6(6)
6(6)
2(2)
1(1)
2(2)
5(6)
n/a
n/a
n/a
6(7)
7(7)
7(7)
7(7)
6(6)
n/a
7(7)
n/a
0(1)
2(3)
7(7)
n/a
n/a
n/a
4(5)
5(5)
5(5)
5(5)
3(3)
5(5)
n/a
n/a
2(2)
2(2)
3(5)
3(3)
n/a
n/a
3(3)
3(3)
3(3)
3(3)
2(2)
n/a
n/a
n/a
1(1)
2(2)
3(3)
1. Sir Ian Powell is not a member of the Audit and Risk or Remuneration committees, but was invited to, and attended, a majority of the meetings.
2. Tim Weller was appointed to and Gordon Boyd resigned from the Board on 12 May 2021.
3. David Lowden was unable to attend a meeting of the Audit and Risk Committee and the Remuneration Committee held on the same date, due
to a pre-existing commitment.
4. Gillian Sheldon, Andrew Williams and Baroness Lucy Neville-Rolfe resigned from the Board on 28 February, 10 May and 14 December 2021
respectively.
Meetings held outside the normal schedule need to be flexible and are often held by telephone or
video-conference.
Any director’s absence from Board or committee meetings was previously agreed with the
Chairman of the Board or relevant committee and the CEO.
During 2021, the following formal director meetings took place:
• The Chairman held one-to-one individual review sessions with each executive director and each
non-executive director.
• The non-executive directors met without executive directors.
• The non-executive directors met without the Chairman, led by the SID.
Board leadership
There is a clear division of responsibility between the running of the Board by Sir Ian Powell as
Chairman and responsibility for the running of the Group’s business by Jon Lewis as CEO.
Sir Ian as Chairman and David Lowden as SID have held meetings comprising solely the non-
executive directors. David also met with the non-executive directors without Sir Ian. Both Sir Ian
and David are available to meet with significant shareholders when requested.
Governance and strategy
The Group recognises the contribution made by good governance to the Company’s success and
changes made at both Board and Executive Committee level demonstrate the importance of
embedding the right structures with the right people to deliver the Group’s strategy. The connection
between governance and delivery of strategy is reflected throughout this Annual Report.
In addition to their statutory duties, the directors must ensure that the Board focuses effectively on
all its accountabilities.
Section 172 of the Companies Act 2006 requires directors to act in a way they consider, in good
faith, would be most likely to promote the success of the Company for the benefit of shareholders
as a whole. In doing so, the directors must have regard (among other matters) to:
• the likely consequences of any decision in the long term
• the interests of the Company’s employees
• the need to foster business relationships with suppliers, clients and others
• the impact of the Company’s operations on the community and the environment
• the desirability of the Company maintaining a reputation for high standards of business conduct
• the need to act fairly towards all shareholders of the Company.
The Board determines the strategic objectives and policies of the Group to best support the delivery
of long-term value, providing overall strategic direction within an appropriate framework of rewards,
incentives and controls. The Board is collectively responsible for the success of the Company
and directors’ roles are set out above. Following presentations by executive and divisional
management, and a disciplined process of review and challenge by the Board, clear decisions on
policy or strategy are adopted, and the executive management are fully empowered to implement
those decisions.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
72
Stakeholder interests and the matters listed above are factored into all Board discussions and
decisions. For more information, please refer to the section 172 statement on page 41.
• Board membership and other appointments, including changes to the structure, size and
composition of the Board, and succession planning for the Board and senior management.
Board independence
Board of directors’ induction and training
Non-executive directors are required to be independent in character and judgement. All
relationships that may interfere materially with this judgement are disclosed as required under the
conflicts of interest policy (see page 75). The Board has determined that, except for the employee
non-executive directors, all the non-executive directors who served during the year were
independent and that, before and upon appointment as Chairman, Sir Ian Powell met the criteria of
independence as outlined in the Code.
Following appointment to the Board, all new directors receive an induction tailored to their individual
requirements. They are encouraged to meet and be briefed on the roles of key people across the
Group and have open access to all business areas and employees to build up an appropriate level
of knowledge of the business that extends beyond formal papers and presentations to the Board.
All directors have received an appropriate induction for their roles within Capita, including some or
all of the following:
Board composition is a deliberate balance of newer and longer-standing members, and reflects the
ongoing review and refreshment of Board membership to ensure a balance of skills and experience
appropriate for the broad nature of Capita’s businesses. The breadth of tenure and experience of
the non-executive directors means the Board is well positioned to advise, challenge and support
executive management as the Group progresses, following its multi-year transformation.
The Board believes that each of the non-executives has retained independence of character and
judgement and has not formed associations with management or others that may compromise
their ability to exercise independent judgement or act in the best interests of the Group. The Board
is satisfied that no conflict of interest for any director requires disclosure (see page 75).
Matters reserved for the Board
A formal schedule of matters reserved for the Board has been adopted and these include, but are
not limited to:
• Strategy and management, including responsibility for the overall leadership of the Group,
setting the Group’s purpose, values and strategy, and monitoring alignment with culture.
• Structure and capital, including changes relating to the Group’s capital structure and major
changes to the Group’s corporate structure, including acquisitions and disposals, and changes
to the Group’s management and control structure.
• Financial reporting, including the approval of the Annual Report, half-yearly report, trading
statements, preliminary announcement for the final results and dividend, treasury and accounting
policies.
• Internal controls, ensuring that the Group manages risk effectively by approving its risk appetite
and monitoring aggregate risk exposures.
• Contracts, including approval of all major capital projects and major investments.
• Ensuring satisfactory communication with shareholders.
• The nature of the Group, its business, markets and relationships.
• Meetings with the external auditor, lawyers, brokers and relevant operational and functional senior
management.
• Board procedures, including meeting protocols, committee activities and terms of reference, and
matters reserved for the Board.
• Overviews of the business via monthly performance review reports.
• The Group approach to risk management.
Ongoing training and briefings are also given to all directors, including external courses as required.
Tailored induction programmes were prepared for Tim Weller as CFO, David Lowden, Neelam
Dhawan and Nneka Abulokwe to ensure they were properly equipped to fulfil their roles.
Group Company Secretary
All Board members have access to independent advice on any matters relating to their
responsibilities as directors and as members of the various committees of the Board at the Group’s
expense. The previously separate roles of Chief General Counsel and Group Company Secretary
were combined in the appointment of Claire Denton as Chief General Counsel and Group Company
Secretary on 1 March 2022. Claire is available to all directors and is responsible for ensuring that all
Board procedures are complied with. Claire has direct access and responsibility to the chairs of the
standing committees and open access to all directors, and has been appointed as Secretary to the
Audit and Risk, Remuneration, and Nomination committees.
Claire will meet regularly with the Chairman of the Board and the Chairs of the Audit and Risk, and
Remuneration committees, and brief them on areas of governance and committee requirements.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
73
Shareholder engagement
There is an active engagement programme with the Company’s investors. The executive directors
meet regularly with institutional investors to discuss and obtain feedback on the business,
performance, strategy and corporate governance, and address any issues of concern. This is
undertaken through a combination of roadshows, group or one-to-one meetings and attendance
at investor conferences. The Chairman also met with existing institutional shareholders throughout
the year.
The Chair of the Remuneration Committee engaged with shareholders to discuss remuneration
ahead of the 2021 AGM. The investor relations team has day-to-day responsibility for
managing investor communications and always acts in close consultation with the Board. All
members of the Board, including the non-executive directors, receive a report on any significant
discussions with shareholders and anonymous feedback that follows the annual and half-yearly
presentations to investment analysts and institutional investors. Analyst reports concerning
Capita are circulated to the directors and the Board is kept informed of changes in the share register.
Shareholder meetings
Shareholders are normally encouraged to attend the AGM but, due to Covid-19 restrictions,
shareholder meetings in 2021 were held as closed meetings and a question and answer facility was
made available to shareholders on the Company’s website. Information for shareholders is available
on the Company’s website www.capita.com. The non-executive directors are normally available to
meet with shareholders to understand their views more fully. The Chairman is normally available to
meet with Capita’s significant shareholders. Directors, including chairs of the various committees,
are normally present at the AGM, subject to Covid-19 restrictions, to answer any questions.
Principal decisions
Principal decision*
Restructuring of
operating model: with
effect from 2 August
2021, the Group was
reorganised around a
new operational
structure comprising
three divisions, Public
Service, Experience
and Portfolio, supported
by shared services and
functions.
Impact on long-term
sustainable success
Growth: the more streamlined
structure was designed to help
the Group focus on distinct
growth markets and simplify
internal operations.
Principal risks: this was a
large-scale reorganisation
which could have negatively
impacted staff engagement
and retention. However, it was
well received overall and
positions the Group for its
growth strategy.
Net zero: approval of
an ambitious roadmap,
underpinned by
science-based targets,
to achieve net zero
carbon emissions by
2035.
Strategy: the approach
adopted is in line with
government requirements for
strategic suppliers.
Principal risks: this
commitment addresses one of
Capita’s principal risks.
Further details
People section
on page 35.
Stakeholder considerations
Our people: decision had high impact
on workforce – wellbeing and mental
health needed continued support against
the background of the ongoing pandemic
and move to hybrid working patterns.
Investors: the move to a simpler
organisational structure makes it easier
for our investors to understand and
analyse Group activities.
Society: addressing climate-related
issues is a key stakeholder concern and
the Group’s commitment to net zero by
2035 demonstrates that we recognise
this and are wiling to take the necessary
action.
Principal risks
section on
page 53.
* Principal decisions are those that are material to the Group and/or significant to any of our key stakeholder groups.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
74
Shareholder communications
In addition to the AGM, shareholders can access up-to-date information through the Group’s
website at www.capita.com. Shareholders can also view their holdings by using the Signal shares
shareholder portal, a service offered by Link Asset Services, the Group’s registrar, at
www.capitashares.co.uk. The Signal shares portal is an online service enabling shareholders
to quickly and easily access and maintain their shareholding online. Shareholders can also contact
Link by email at enquiries@linkgroup.co.uk. Link also provides a telephone helpline, 0371 664
0300, calls are charged at the standard geographic rate and will vary by provider. Calls outside the
United Kingdom will be charged at the applicable international rate. Lines are open between
9.00am and 5.30pm, Monday to Friday, excluding public holidays in England and Wales.
Business relationships
Details regarding relationships with suppliers, clients and others, together with further cross-
references, are provided in the section 172 statement on page 40.
Remuneration Committee
Details of the Remuneration Committee and its activities are given in the directors’ remuneration
report on pages 96 to 119.
Risk management and internal control
The Board monitors the Company’s risk management and internal control systems and carries out
an annual review of their effectiveness. The Audit and Risk Committee report contains further
details. The monitoring and review includes all material controls, including financial, operational and
compliance controls. This process is regularly reviewed by the Board. The Group’s key internal
control procedures are fully documented within the strategic report on pages 53 to 55.
Furthermore, through the operation of the risk governance process, the directors confirm, for the
purposes of provision 28 of the Code, that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity. A description of those risks, together with how they are being
managed or mitigated, is set out on pages 56 to 61.
Other statutory and regulatory information
Strategic report
The Company is required to prepare a fair review of the business of the Group during the financial
year ended 31 December 2021 and of the position of the Group at the end of the financial year, and
a description of the principal risks and uncertainties facing the Group (known as a ‘strategic report’).
The purpose of the strategic report is to enable shareholders to assess how the directors have
performed their duty under section 172 of the Companies Act 2006 (duty to promote the success of
the Company). The information that fulfils the requirements of the strategic report can be found on
pages 1 to 62. Details of the Group’s business goals, strategy and model are on pages 2 to 7.
Corporate governance report
The corporate governance statement as required by Rule 7.2.1 of the Financial Conduct Authority’s
Disclosure Guidance and Transparency Rules (DTRs) is set out on pages 69 to 82.
Management report
For the purposes of Rule 4.1.5R(2) and Rule 4.1.8R of the DTRs, this directors’ report and the
strategic report on pages 1 to 62 comprise the management report.
Post-balance sheet events
The following events occurred after 31 December 2021 and before the approval of these
consolidated financial statements but have not resulted in adjustments to the 2021 financial results:
Disposal of AMT Sybex: the disposal of the AMT Sybex software business to Jonas Computing
(UK) Limited completed on 1 January 2022. Cash proceeds of £23.0m were received on
completion, which included the settlement of intercompany balances owed by AMT Sybex to the
Group of £12.8m. Following an impairment of assets in 2021 based on the expected fair value less
cost of disposal of the business, net assets of £17.7m were disposed of on completion. Total costs
of disposal are estimated to be £3.4m, of which £1.7m were recognised at 31 December 2021.
Potential additional consideration of up to £17m is payable to Capita over 24 months, subject to
certain conditions.
Disposal of Secure Solutions and Services: the disposal of the SSS business to NEC Software
Solutions UK completed on 3 January 2022. Cash proceeds of £72.0m were received on
completion, which included the settlement of intercompany balances owed by SSS to the Group of
£41.8m. Net liabilities of £0.3m were disposed of, and total disposal costs are estimated to be £4.2m
(of which £2.9m were recognised at 31 December 2021). Consequently, we expect to record a total
gain on disposal of approximately £26.3m.
Disposal of Trustmarque: the disposal of the Trustmarque business to One Equity Partners was
announced on 28 January 2022 for £11.1m on a cash free, debt free basis, and the Group expects
to receive net proceeds of c.£115m at completion. Additional consideration of c.£3m is payable to
Capita contingent on certain future events.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
75
Election to apply FRS 101 – reduced disclosure framework
The Parent Company continues to apply UK GAAP in the preparation of its individual financial
statements in accordance with FRS 101 and these are contained in section 7 of the financial
statements on pages 204 to 217. FRS 101 applies IFRS as adopted by the UK with certain
disclosure exemptions. No objections have been received from shareholders.
Appointment, reappointment and removal of directors
Directors are appointed and may be removed in accordance with the Articles of Association
(Articles) of the Company and the provisions of the Companies Act 2006. All directors are subject to
election at the first AGM after their appointment and, in accordance with Provision 18 of the Code,
to annual re-election thereafter. A resolution to re-elect each director will therefore be proposed at
the AGM on 10 May 2022.
No person, other than a director retiring at the meeting, shall be appointed or reappointed a director
of the Company at any general meeting unless they are recommended by the directors.
No person, other than a director retiring at a general meeting as set out above, shall be appointed
or reappointed unless between seven and 35 days’ notice, executed by a member qualified to vote
on the appointment or reappointment, has been given to the Company of the intention to propose
that person for appointment or reappointment, together with notice executed by that person of his/
her willingness to be appointed or reappointed.
Group activities
Capita is a purpose-led and responsible business which exists to create better outcomes for all its
stakeholders. Our strategy is to simplify and strengthen in order to succeed. Capita’s business
model is based upon being a consulting, transformation and digital services organisation.
We deliver innovative solutions to simplify the connections between businesses and customers,
and between government and citizens. We partner with clients to transform their businesses and
services. A review of the development of the Group and its business activities during the year is
contained in the strategic report on pages 1 to 62. The operational and financial performance of its
divisions are detailed on pages 16 to 25.
Results and dividends
The Group’s reported profit before tax amounted to £285.6m from continued operations (2020:
£49.4m loss). As previously announced, the directors do not recommend the payment of a final
dividend (2020: nil). The total dividend for the year was nil (2020: nil). The employee benefit trust,
which holds shares for the purpose of satisfying employee share scheme awards, has waived its
right to receive future dividends on shares held within the trust.
Conflicts of interest
Under the Companies Act 2006, directors are under an obligation to avoid situations in which their
interests can or do conflict, or may possibly conflict, with those of the Company. A policy and
procedures are in place for identifying, disclosing, evaluating and managing conflicts so that Board
decisions are not compromised by a conflicted director. The Company’s Articles give the Board
power to authorise matters that give rise to actual or potential conflicts. Procedures are reviewed
annually to ensure they are operating effectively.
All conflicts of interest are reviewed annually by the Board and included in year-end attestations by
the directors. None of the directors of the Company has a material interest in any contract with the
Company or its subsidiary undertakings, other than their contracts of employment.
Major shareholders
At 31 December 2021, the Company had received notifications in accordance with the DTRs that
the following were interested in the Company’s shares:
Shareholder
Schroders plc
RWC Asset Management LLP
Marathon Asset MGMT Limited
River and Mercantile Asset Management
LLP
Veritas Asset Management LLP1
Ninety One UK Limited
BlackRock Inc.
Invesco Ltd
Veritas Funds PLC
Vanguard Group Inc.
Jupiter Asset Management Limited
1. Includes the holding of Veritas Funds PLC.
Number of
shares
309,357,054
269,397,809
126,900,867
85,996,707
83,131,892
76,779,117
74,230,358
70,883,236
55,009,900
54,711,874
53,573,060
% of
voting rights at
31 December
2021
Number of
shares direct
Number of
shares indirect
18.37
15.99
7.53
–
269,397,809
–
309,357,054
–
126,900,867
5.15
4.98
4.60
4.45
4.24
3.30
3.28
3.21
85,996,707
–
–
–
–
–
54,711,874
–
–
83,131,892
76,779,117
74,230,358
70,883,236
55,009,900
–
53,573,060
On 24 January 2022, notification in accordance with the DTRs was received from Schroders plc that it held indirectly 303,103,914 shares, being
17.99% of voting rights. On 24 February 2022, notification in accordance with the DTRs was received from River and Mercantile Asset
Management LLP that it held directly 12,087,565 shares, being 0.72% of voting rights. At 4 March 2022, no further notifications had been received
under the DTRs in relation to interests in the Company’s shares.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
76
Directors’ interests
Details of directors’ interests in the share capital of the Company are listed on page 114.
Share capital
At 4 March 2022, the number of ordinary shares of 21⁄15p each in issue, fully paid up and quoted on
the London Stock Exchange is detailed in the table below:
Number of
shares
% of issued
share capital
Going concern
The Group’s business activities, together with the factors likely to affect its future development,
performance and position are set out in the strategic report on pages 1 to 62. The financial position
of the Group, its cash flows, liquidity position and borrowing facilities are described on pages 26 to
34. In addition, section 4 in the financial statements on pages 179 to 192 includes the Group’s
objectives, policies and processes for managing its capital, its financial risk management
objectives, details of its financial instruments and hedging activities, and its exposures to credit
risk and liquidity risk.
Issued shares
Treasury shares
Total voting rights
Employee Benefit Trust (EBT) shares1
1,684,273,523
0
1,684,273,523
17,398,355
1. Shares held in the Employee Benefit Trust are used for satisfying employee share options.
In determining the appropriate basis of preparation of the financial statements for the year ending
31 December 2021, the directors are required to consider whether the Group can continue in
operational existence for the foreseeable future, being a period of at least 12 months from the date
of approval of the financial statements.
1.03%
During the year ended 31 December 2021, 13,000,000 new ordinary shares were issued, and
options exercised pursuant to the Company’s share schemes were satisfied by the transfer of
shares from treasury (2,299,955 shares) and the EBT (7,560,173 shares). 672,214 shares have
been allotted under the Company’s share option schemes since the end of the financial year to the
date of this report.
The share price at 31 December 2021 was 36.5p. The highest share price in the year was 55.98p
and the lowest was 31.85p.
The Company renewed its authority to repurchase up to 10% of its own issued share capital at the
AGM in May 2021. During the year, the Company did not purchase any shares (2020: nil).
Viability statement
This statement is detailed in full on page 62. The directors have assessed the viability of the Group
over the three-year period to 31 December 2024, taking into account the Group’s current position
and the potential impact of the principal risks set out in the strategic report. Based on this
assessment, the directors have a reasonable expectation that the Group and Parent Company
will be able to continue in operation and meet their liabilities as they fall due over the period of the
viability assessment.
The Board monitors closely the Group’s funding position throughout the year, including monitoring
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 Group’s financial projections for the foreseeable future, considering also the
committed facilities available to the Group. The Board has considered risks to the projections under
a severe but plausible downside. This includes adverse impacts arising from potential execution
challenges or financial exposures on customer contracts and the ongoing uncertainties arising in
the post-pandemic recovery period.
To mitigate these, the Board is focused on introducing significant new funds to the Group via a
continuation of the approved disposal programme and refinancing of debt maturities, including the
Group’s RCF which matures in August 2023. The Group has a strong track record of executing
major planned disposals and a successful history of securing effective refinancing. Therefore, after
careful consideration and reflecting also the Board’s confidence in the transformation, the Board
has concluded that the Group and Parent Company will continue to have adequate financial
resources to discharge their liabilities as they fall due over the going concern assessment period.
Accordingly, the directors have formed the judgement that it is appropriate to prepare the
consolidated financial statements on the going concern basis. The Board’s assessment is set out in
more detail in Section 1 of the consolidated financial statements.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
77
Auditor review
The auditor has reviewed:
• the statements regarding going concern (see page 76)
• the longer-term viability statement (see page 62)
• those parts of the statement of compliance with the Code relating to:
–directors’ and auditor’s responsibilities
–the ‘fair, balanced and understandable’ statement
–confirmation of robust risk assessment, and monitoring and review of effectiveness of risk
management and internal control systems
–Audit and Risk Committee composition, role and responsibilities.
Further details are in the auditor’s report (on pages 120 to 132).
Disabled persons
As part of the Group’s commitment to create a workplace that fully reflects the diversity of the
communities we serve, and a working environment in which no one feels excluded, full
consideration is given to all suitable applications for employment regardless of a candidate’s
disability, age, gender, religion or belief, sexual orientation or race. Colleagues who declare a
disability are supported with reasonable adjustments made throughout the hiring process, the
workplace or job content so no opportunity, including career development, is inaccessible.
Opportunities also exist for employees of the Group who become disabled to continue in their
employment with any reasonable adjustments being made or to be retrained for other positions in
the Group. Demonstrating our commitment to ensure that both applicants and colleagues with
disabilities and those with long-term health conditions have the opportunity to fulfil their potential
and realise their aspirations, the Group became a Disability Confident Employer (Level 2) on 7
December 2021. Further the Group will be submitting the submission for Level 3 status – Disability
Confident Leader – in early 2022.
The Board is focused on introducing significant
new funds to the Group via a continuation of the
approved disposal programme and refinancing of
debt maturities, including the Group’s RCF which
matures in August 2023.
Employee development and engagement
Actions taken during the year regarding the consultation of and provision of information to UK
employees are described in the people section on pages 35 to 39. Communication with employees
in relation to Capita’s financial performance is detailed in the remuneration report on page 100.
Capita has an established UK employee share purchase plan designed to promote employee share
ownership and to give employees the opportunity to participate in the future success of the
Company. An international share incentive plan is available to employees in Ireland.
Further information on employee development, consultation and engagement is included in the
people and responsible business sections on pages 35 to 39 and 42 to 49 and the section 172
statement on pages 40 and 41.
Political donations
The Group did not make any political donations or incur any political expenditure during the year
(2020: nil).
Greenhouse gas emissions
Details of the Group’s greenhouse gas (GHG) emissions, including metrics and methodology, are
set out in the table on page 78 and on page 47 of the strategic report.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
78
GHG emissions (tCO2e) and energy use (kWh) for period 1 January 2021 to 31 December 2021
Period
Region
Energy used to calculate emissions (kWh)
Gas and fuel
Electricity and district heat
Business travel, cars
Total energy used (kWh)
% of total energy used
Emissions from combustion of gas and fuel for heating tCO2e (Scope 1)
Emissions from combustion of fuel in company vehicles tCO2e (Scope 1)
Emissions from fugitive refrigerant gas tCO2e (Scope 1)
Emissions from purchased district heat tCO2e (Scope 2)
Emissions from purchased electricity (location-based) tCO2e (Scope 2)
Emissions from purchased electricity (market-based) tCO2e (Scope 2)
Emissions from business mileage, air, rail, tube, tram and light rail, taxi, bus, coach, ferry hotel, waste. tCO2e (Scope 3)
Total gross tCO2e Scope 1 and 2 (location based)
Total gross tCO2e emissions (location based)
Total gross tCO2e emissions (market based)
Intensity ratio: gross Scope 1 and 2 tCO2e (location-based) per £1m turnover
Intensity ratio: tCO2e gross Scope 1 and 2 (location-based) per headcount
Current reporting year 2021
Comparison reporting year 2020
UK and
offshore
Global
(excluding UK
and offshore)
63,491,651
80,477,379
12,502,976
156,472,005
84%
11,318
1,845
1,466
40
17,038
2,196
3,860
31,708
35,568
20,686
1,726,618
26,513,142
2,271,999
30,511,758
16%
320
71
0
157
6,853
8,132
640
7,401
8,042
9,163
Total
65,218,269
106,990,520
14,774,974
186,983,763
100%
11,639
1,916
1,466
198
23,891
10,328
4,500
39,109
43,609
29,849
31,708/£1m
UK revenue
2021
0.91
7,401/£1m
overseas
revenue 2021
0.39
39,109/£1m
total revenue
2021
0.73
UK and
offshore
Global
(excluding UK
and offshore)
73,668,847
81,491,440
46,912,511
202,072,798
90%
15,594
1,695
1,011
45
18,939
12,513
6,829
37,284
44,113
37,643
1,871,964
16,112,463
3,351,543
21,335,969
10%
592
86
0
137
9,239
11,009
1,052
10,055
11,107
12,740
Total
75,540,811
97,603,902
50,264,055
223,408,768
100%
16,186
1,782
1,011
181
28,178
23,552
7,881
47,338
55,220
50,383
11.2
1.01
3.0
0.54
14.2
0.85
Methodology: Carbon emissions have been calculated following the GHG protocol using the operational control approach. Estimated energy figures have been used for buildings where direct meter data is not available, using Cibse guide F benchmarks (or
previous years’ consumption outside UK if available). Any fuel figures provided in litres have been converted into kWh or tCO2e using Gov.UK and Defra conversion tables. Mileage provided has been converted into tCO2e using Defra conversions for the
relevant engine size and fuel type. kWh figures for air, rail, taxi and other public transport have been omitted as not practical to convert from passenger km or passenger fares but CO2e emissions have been calculated using Defra conversion factors.
Scope 1, Scope 2 and Scope 3 business travel are verified to ISAE 3000 by Corporate Citizenship
ISAE 3000
ISAE 3000
ISAE 3000
ISAE 3000
ISAE 3000
ISAE 3000
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
79
Energy efficiency action 2021
We invested in energy-efficiency measures across our estate and achieved significant emissions
reductions in 2021.
not contractually committed. The bank facilities and private placement loan notes all include
provisions that would require repayment in the event of a change of control, which are typical of
these arrangements.
Building plant upgrades and initiatives
Replacement LED lighting saving
Replacement chillers and air-conditioning units
Replacement of pumps and ventilation fans with high-efficiency units
Upgraded building management controls saving
Insulation
Replacement heating plant
Total tCO2e reduction
tCO2e reduction per annum
65.1
207.6
51.5
12.4
36.2
5.3
378.1
Our virtual meetings initiative resulted in further reductions in business travel CO2 equivalent
emissions reductions although emissions began to climb in Q4 of 2021 but still 75% lower than
pre-pandemic. We have set 2035 net zero targets to augment our short-term 1.5°C science-based
targets for greenhouse gas reduction. This target covers our full value chain and is being evaluated
by the SBTi. For 2022 our divisional executive officers have been tasked by the CEO to set net zero
targets for their functions and businesses to drive progress against our net zero milestones and plan.
Financial instruments
The main financial risks the Group is exposed to are: insufficient liquidity; significant increases in
interest rates; adverse movements in foreign exchange rates; and the insolvency of debtors (credit
risk). The management of each, and the related financial instruments, are described below.
Liquidity remains a key area of focus. The Group’s policy is to hold cash and undrawn committed
facilities at a level sufficient to fund the Group’s operations and its medium-term plans. The Group
monitors the risk of a liquidity shortage through its business plan and liquidity cycle forecasts and
analysis. The process considers the maturity of both the Group’s financial instruments and the
forecast cash flows from operations. The Group maintains a balance between continuity of funding
and flexibility through the use or availability of multiple sources of funding. To mitigate the risk of
needing to refinance in challenging conditions, these have been arranged with a spread of
maturities to November 2027.
The financial instruments providing core funding include US private placement loan notes, euro
fixed-rate bearer notes, and a euro Schuldschein loan (private placement loan notes).
The Group’s committed bank facilities provide liquidity for the cash fluctuations of the business
cycle and an allowance for contingencies. The Group does not rely on sources of funding that are
The current RCF expires on 31 August 2022 and a Forward Start RCF is in place that will cover the
year to 31 August 2023. The RCF was £40m drawn at 31 December 2021 (31 December 2020:
undrawn).
The size of the available commitment will be right-sized each time the Group either refinances,
raises funds through disposals, or raises equity. Both the current RCF and the Forward Start RCF
include mandatory cancellation mechanisms that determine the amount of the cancellation in each
case. The RCF commitment was £385.7m at 31 December 2021 (£452.0m at 31 December 2020).
The RCF was reduced to £377.5m on 7 January 2022 following receipt of proceeds from disposals.
The Forward Start RCF commitment is £300m and is also subject to partial mandatory
cancellations upon the occurrence of the above events, should a threshold of aggregate receipts be
reached. The commitments under both facilities are subject to a minimum value of £225m
regardless of the quantum of receipts.
In addition to the RCF, at the start of 2021 the Group held £150m in committed bank backstop
bridge facilities, which were cancelled on 1 February 2021 with the receipt of disposal proceeds.
In March 2022 the Group executed with one of its relationship banks a committed backstop bridge
facility. The facility provides £70m of additional liquidity and it incorporates provisions such that it
will be cancelled or will partially reduce in quantum as a consequence of specified transactions,
including on completion of the announced disposal of Trustmarque. The committed facility has an
expiry date of 31 August 2023 with an option for a further one year extension at the option of the
lender. The facility is subject to covenants, which are the same as the RCF. Finally, certain property
and assets used in the Group’s operations are funded by lease arrangements. From time to time,
the Group may act as lessor to third parties.
Various other financial instruments, such as trade debtors and trade creditors, arise directly from
the Group’s operations. In respect of trade creditors, the Group’s standard supplier payment terms
are to pay micro-businesses (less than 50 employees) within 14 days, SMEs (less than 250
employees) within 30 days, and larger organisations within 60 days. Suppliers are paid in line with
agreed contractual terms.
The Group’s customers are offered credit terms that are consistent with market practice. The Group
uses a non-recourse invoice discounting facility to mitigate the risk of late customer payment. The
value of invoices sold under the arrangement at 31 December 2021 was £3.9m (2020: £13.6m).
In addition, the Group’s German business uses an invoice discounting arrangement relating to a
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
80
specific customer contract, and the value of invoices sold under that arrangement at 31 December
2021 was £12.5m (2020: £8.5m). The Group aims to pay its suppliers on time in accordance
with agreed terms and does not seek to accelerate payments from customers beyond terms
previously agreed.
Powers of directors
The business of the Company is managed by the directors who are subject to the provisions of the
Companies Act 2006, the Articles of the Company and any directions given by special resolution,
including the Company’s power to repurchase its own shares.
As set out in note 6.2 (contingent liabilities), the Group has provided, through the normal course of
its business, £28.7m letters of credit, performance bonds and guarantees (2020: £55.8m) – £11.6m
of these were issued by our banks and, within this group, some are subject to security terms where
the bank can demand cash collateral in the event the guarantee facility is cancelled.
Exposure to movements in interest rates and foreign exchange rates arise through the Group’s
operations and where financial instruments are transacted at floating rates of interest or in non-
operational currencies. These exposures are managed through derivative transactions, primarily
interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts.
Some of the exposure to movements in the GBP-EUR exchange rate is hedged through borrowings
in EUR.
The Group is not generally exposed to significant foreign currency transaction risk. The principal
exceptions relate to service delivery based in India, and committed costs relating to the purchase of
cloud software services in USD. These exposures are managed through forward foreign exchange
contracts, including non-deliverable forward contracts, which fix the GBP cost of highly probable
forecast transactions denominated in INR and USD. Further details of the Group’s financial
instruments can be found in note 4.2 to the consolidated financial statements on pages 181 to 184.
In respect of credit risk, the Group trades only with parties that are expected to be creditworthy. It is
the Group’s policy that all clients who wish to trade on credit terms are subject to credit verification
procedures. In addition, receivable balances are monitored on an ongoing basis with the result that
the Group’s exposure to bad debt is not significant. Credit risk also arises from financial assets such
as cash, deposits, and the mark-to-market value of derivative instruments where positive. The risk
of default is managed by limits on the exposure to any counterparty, and with reference to the public
ratings of each.
Directors’ indemnities
As permitted by its Articles, the Company has indemnified each director in respect of certain
liabilities and costs they might incur in the execution of their duties as a director. Qualifying third-
party indemnity provisions (as defined in section 234 of the Companies Act 2006) were in force
during the year and continue to remain in force. The directors’ indemnities will be available for
inspection at the AGM together with directors’ service contracts.
The Company’s Articles may only be amended by a special resolution of the Company’s
shareholders.
Change of control
All the Company’s share schemes contain provisions in relation to a change of control. Outstanding
options and awards would normally vest and become exercisable on a change of control, subject to
the satisfaction of any performance conditions at that time.
Capita has borrowing facilities provided by banks and has issued loan notes to financial investors.
The borrowing facilities contain change of control provisions under which the banks may require
immediate repayment in full on a change of control of Capita plc. The loan notes issued by Capita
contain similar change of control provisions which are likely to require the Group to offer to prepay
the notes in full if there is a change in control of Capita plc.
There are a number of significant client agreements which contain provisions relating to change
of control, which in some cases could present a right of termination of the contract.
Rights and restrictions attaching to shares
Under the Company’s Articles, holders of ordinary shares are entitled to participate in the receipt
of dividends pro rata to their holding. The Board may propose and pay an interim dividend and
recommend a final dividend in respect of any accounting period out of the profits available for
distribution under English law. A final dividend may be declared by the shareholders in general
meeting by ordinary resolution, but no dividend may be declared in excess of the amount
recommended by the Board.
At any general meeting, a resolution put to vote shall be decided on a poll, and every member who
is present in person or by proxy shall have one vote for every share of which they are the holder.
No person holds securities in the Company carrying special rights with regard to control of the
Company. The Company is not aware of any agreements between holders of securities that may
result in restrictions on the transfer of securities or on voting rights.
Restrictions on transfer of shares
The Company’s Articles allow directors to, in their absolute discretion, refuse to register the transfer
of a share in certificated form unless the instrument of transfer is lodged, duly stamped, at the
registered office of the Company, or at such other place as the directors may appoint and (except in
the case of a transfer by a recognised person where a certificate has not been issued in respect of
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
81
the share) is accompanied by the certificate for the share to which it relates and such other
evidence as the directors may reasonably require to show the right of the transferor to make
the transfer. They may also refuse to register any such transfer where it is in favour of more than
four transferees or in respect of more than one class of shares.
The directors may refuse to register a transfer of a share in uncertificated form in any case where
the Company is entitled to refuse (or is exempted from the requirement) under the
Uncertificated Securities Regulations to register the transfer.
Annual general meeting
The 2022 AGM of the Company will be held at Linklaters LLP, One Silk Street, London EC2Y 8HQ
on 10 May 2022. Details of the meeting format and the resolutions to be proposed are set out in the
Notice of Meeting, which is sent to shareholders with the 2021 Annual Report and includes notes
explaining the business to be transacted. The Notice of Meeting is also available on the Company’s
website at www.capita.com.
In May 2021, shareholders granted authority for the Company to purchase up to 166,888,334
ordinary shares. This authority will expire at the conclusion of the 2022 AGM. No shares were
purchased during 2021. A resolution to renew this authority will be put to shareholders at the
2022 AGM.
The directors consider that each of the resolutions is in the best interests of the Company and the
shareholders as a whole, and recommend that shareholders vote in favour of all of the resolutions.
For other general meetings the notice given would be 14 clear working days.
Cross-references
For the purposes of LR 9.8.4R, the following information is located as set out below:
Listing Rule
9.8.4 (1)
9.8.4 (12–13)
Subject
Capitalisation of interest
Shareholder waiver of dividends
Page no.
187
75
Directors’ responsibilities in respect of the Annual Report and the financial
statements
The directors are responsible for preparing the Annual Report and the Group and Parent Company
financial statements, in accordance with applicable law and regulations.
Companies Act 2006 and in accordance with UK-adopted international financial reporting
standards (IFRSs) and the Disclosure Guidance and Transparency Rules of the UK’s Financial
Conduct Authority, and have elected to prepare the Parent Company financial statements
in accordance with UK Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice) including FRS 101 Reduced Disclosure Framework.
Under company law the directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company
and of their profit or loss for that period. In preparing each of the Group and Parent Company
financial statements, the directors are required to:
• Select suitable accounting policies and then apply them consistently.
• Make judgements and estimates that are reasonable and prudent.
• State, for the Group financial statements, whether they have been prepared in accordance with
UK-adopted IFRSs.
• State, for the Parent Company financial statements, whether applicable UK Accounting Standards
have been followed, subject to any material departures disclosed and explained in the Parent
Company financial statements.
• Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern.
• Use the going concern basis of accounting unless they intend either to liquidate the Group or the
Parent Company or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time
the financial position of the Parent Company and enable them to ensure that its financial statements
comply with the Companies Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a strategic
report, directors’ report, directors’ remuneration report and corporate governance statement that
comply with that law and those regulations.
Company law requires the directors to prepare Group and Parent Company financial statements for
each financial year. Under that law they are required to prepare the Group financial statements
in accordance with international accounting standards in conformity with the requirements of the
The directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation in other jurisdictions.
Corporate governanceCapita plc Annual Report 2021 Corporate governance statement
continued
82
Directors’ responsibility statement
We, the directors of the Company, confirm that to the best of our knowledge:
• The financial statements, prepared in accordance with the applicable set of accounting standards,
give a true and fair view of the assets, liabilities, financial position, and profit or loss of the
Company and the undertakings included in the consolidation taken as a whole.
• The strategic report includes a fair review of the development and performance of the business
and the position of the Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and uncertainties that they face.
• The Annual Report and Accounts, taken as whole, are fair, balanced and understandable, and
provide the information necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
The directors’ report (pages 1 to 119) has been approved by the Board.
On behalf of the Board.
Claire Denton
Chief General Counsel and Group Company Secretary
9 March 2022
Capita plc
Registered in England and Wales No. 2081330
Corporate governanceCapita plc Annual Report 2021 Committees
83
Terms of reference
Membership
The terms of reference for the Nomination, Remuneration, Audit and Risk, and Disclosure
committees are reviewed annually and updated, where required, to reflect updates in good
governance practices. They are summarised below and the Nomination, Remuneration and
Audit and Risk committee terms of reference are displayed in full in the investor centre at
www.capita.com/investors/corporate-governance, together with a summary of matters reserved
for the Board.
Terms of reference
Nomination
Committee
Audit and Risk Committee
Remuneration Committee
Disclosure
Committee
Brief description of responsibilities
• Reviews composition of the Board.
• Recommends appointment of new directors.
• Considers succession plans for Board and senior management positions.
• Oversees development of diverse pipeline for succession.
• Reviews accounting policies and contents of financial reports.
• Monitors internal control environment.
• Considers adequacy, effectiveness and scope of external and internal audit
programme.
• Oversees relationship with external auditor.
• Monitors risk profile and obtains assurance that principal risks have been
properly identified and appropriately managed.
• Sets policy for Board and senior management remuneration.
• Approves individual remuneration awards.
• Agrees changes to senior executive incentive plans.
• Responsible for the appropriate identification and management of inside
information, including any decision to delay public disclosure.
Membership of the Company’s standing committees at 31 December 2021 is shown below:
Sir Ian Powell
David Lowden
Matthew Lester
Georgina Harvey
John Cresswell
Neelam Dhawan
Lyndsay Browne
Joseph Murphy
(C) Chair
Nomination
Audit and Risk
Remuneration
C
X
X
X
X
X
X
C
X
X
X
X
X
X
C
X
X
X
Frequency of meetings and attendance
During 2021, the Nomination Committee met three times, the Remuneration Committee five
times and the Audit and Risk Committee seven times. Some directors were unable to attend
certain committee meetings due to prior commitments. Attendance of directors at committee
meetings is shown in the table on page 71.
Corporate governanceCapita plc Annual Report 2021 Nomination Committee report
84
Nomination
Committee report
The committee has focused on
achieving an appropriate balance and
continuity of skills on the Board.
Sir Ian Powell
Chair, Nomination
Committee
The committee met three times in 2021
and the members’ attendance record is
shown on page 71. The Chief General
Counsel and Group Company Secretary
acts as Secretary to the committee and is
available to assist committee members as
required, also ensuring the distribution
of timely and accurate information.
The committee reports and makes
recommendations to the Board in relation
to its activities. It is authorised under its
terms of reference to obtain the advice of
independent search consultants. The
committee’s terms of reference were
reviewed and updated during the year and
can be found on Capita’s website at
www.capita.com/investors/corporate-
governance.
Responsibilities and activities
Key responsibilities
• Identify and nominate appropriate
candidates for appointment to the Board,
having due regard to the provisions of the
2018 Code and, in particular, the balance
of skills, knowledge and experience on the
Board and the diversity of its composition.
• Keep the structure and size of the Board
and the leadership needs of the
organisation under review and ensure that
plans are in place for orderly succession
and appointment to the Board.
• Review the time commitment and
performance of non-executive directors.
• Oversee development of a diverse pipeline
for succession and review the Group’s
diversity objectives and strategies.
Activity in 2021
• Succession planning for the Board
generally and for other senior positions
below Board level.
• Recruitment and appointment of a
permanent CFO and a new non-executive
director, and commenced process to
recruit an additional non-executive director.
• Review of diversity and inclusion activities
and measures.
• Approval of John Cresswell’s term of
appointment as non-executive director
for a further three years.
Nomination Committee
time allocation (%)
4
3
2
1
1 42% Board appointments
2 28% Succession planning
3 28% Diversity
4 2% Governance
Corporate governanceCapita plc Annual Report 2021 Nomination Committee report
continued
85
Diversity and inclusion
Skills and experience
Capita’s diversity and inclusion policy, which encompasses the Board, is based on a commitment
to creating an environment where diversity is valued and respected. We believe that business
success is a direct result of the experience and quality of its people. Inherent within this approach
is an acceptance and embracing of diversity in all its forms and an endorsement that the entire
workforce, including the Board, be representative of the communities in which Capita operates.
Key aims of the policy are to ensure equality, diversity and inclusion in the workplace and to
promote a culture where everyone is treated with respect and dignity.
Further information on actions taken to address diversity, inclusion and wellbeing across the
workforce is on pages 35 to 39 and 42 to 49 of the strategic report.
Gender and ethnicity balance
Government-backed diversity reviews have recommended FTSE 350 board diversity targets on
gender (33% female representation) and ethnicity (at least one director of colour by the end of
2024). We have made progress on gender and ethnicity balance at both Board and senior
management levels but there is still more to do throughout the organisation.
At 31 December 2021, female representation on the Board and among senior management1 was
30% and 33% respectively. However, at 1 March 2022, female representation on the Board and
among senior management1 was 36% and 44% respectively. At 31 December 2021, female
representation among senior management1 and direct reports was 38%.
At 31 December 2021, ethnically diverse representation on the Board and among senior
management1 was 10% and 8% respectively. However, at 1 March 2022, ethnically diverse
representation was 18% and 22% respectively.
Appointment process
Board appointments are made on merit, taking account of the specific skills, experience,
knowledge and independence needed to ensure a rounded board, and the government-backed
recommendation for 33% female representation on boards. We ensure 40% female representation
on recruitment shortlists and, where appropriate, seek to include candidates who may not have
listed company experience but who possess suitable skills and qualities. We only engage
executive search firms that have signed up to the voluntary code of conduct on gender diversity
and best practice.
In January 2022, a Board skills matrix was debated to assist in ensuring the balance of skills and
experience of the Board matched the future needs of the business.
Succession planning and Board composition
A formal succession framework is in place for the CEO, CFO, Executive Committee and the
two management layers beneath. The purpose of the framework is to apply a fair, objective and
consistent methodology to identify future potential career paths for individuals within the Group.
Structured development plans are implemented to support individuals in improving their skills and
experience. The depth of the framework means talent can be identified and nurtured at an early
stage and, combined with the approach to Board appointments, means the pool of possible future
candidates for Board roles is sufficiently wide and diverse.
The committee aims to achieve an appropriate balance and continuity of skills on the Board. The
process for recruiting a permanent CFO focused on the need for a person with significant finance
and transformation experience, and with the appropriate skillset and seniority for the role.
Following her appointment by the Department for Work and Pensions to lead a review of the state
pension age, Baroness Lucy Neville-Rolfe stepped down from the Board on 14 December 2021.
Leaving the Board would enable Lucy to devote more time to the review and avoid any possible
perception of a conflict of interest.
The committee was keen to improve further the Board’s strength in technology and innovation, and
the appointment of Nneka Abulokwe, who has significant experience of business and technology
innovation, will benefit Capita’s progress as we develop and move forward to execute on our
growth strategy.
The external search agencies, Odgers Berndtson and Spencer Stuart were used respectively for
the appointments of Tim Weller and Nneka Abulokwe, and those firms have no other connection
with the Group or individual directors.
Board evaluation
Details of the annual board evaluation process are provided in my introduction to this corporate
governance section of the Annual Report on page 66.
1. The 2018 Code defines senior management as the Executive Committee and the Group Company Secretary.
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
86
Continued oversight
in a pivotal year
The committee continues to fulfil its role of supporting the
Board in its review of the integrity of the Group’s financial
reporting, monitoring the effectiveness of the Group’s
systems of risk management and internal controls, and
overseeing the activities of the Group’s internal audit
function and its external auditor.
Matthew Lester
Chair, Audit and
Risk Committee
The Audit and Risk Committee’s terms
of reference set out in full the role,
responsibilities and authority of the
committee and can be found on the
Company’s website at www.capita.com/
investors/corporategovernance.
The terms of reference are reviewed
annually and updated as required.
Role and responsibilities
The committee is responsible for carrying
out the audit functions as required by DTR
7.1.3R and assists the Board in fulfilling its
oversight responsibilities in respect of the
Company and the Group. The committee’s
key responsibilities are:
Internal audit
To approve the annual internal audit plan,
review the effectiveness of the internal
audit function and review all significant
recommendations, and ensure they are
addressed in a timely manner.
Financial reporting
To review the reporting of financial and
other information to the Company’s
shareholders and to monitor the integrity
of financial statements, including the
application of key judgements in determining
reported outcomes, to ensure they are fair,
balanced and understandable.
Risk management, internal control
and compliance
To review and assess the adequacy of
systems of internal control and risk
management, and monitor the risk profile
of the business.
External audit
To review the effectiveness and objectivity
of the external audit process, assess the
independence of the external auditor and
ensure appropriate policies and procedures
are in place to protect such independence.
Effectiveness
To report to the Board on how it has
discharged its responsibilities.
Audit and Risk Committee
time allocation (%)
5
4
3
2
1
1 40% Risk management
2 39% Financial reporting (incl. external audit)
3 9% Internal audit
4 9% Private meetings with auditors
5 3% Governance
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
continued
87
Risk and control framework
Committee membership and attendance
The Committee continued to monitor and navigate through the ongoing impact of Covid-19. In
addition, the reorganisation referred to in the CEO report initially presented challenges but
subsequently yielded real opportunities to enhance the effectiveness of risk management at Capita.
During the year, two principal risks were added to the Capita risk profile, around climate change and
the wellbeing, health and safety of our people, most of whom continued to work from home since
the pandemic began over two years ago.
Further progress was made on standardising some existing financial processes to drive efficiency
and control improvements and further enhancements are planned for 2022. As in the prior year, a
key control questionnaire process was completed across the Group where every business leader
attested to compliance with key controls. This enables management to focus attention on control
areas that need improvement. Work is ongoing to implement elements of an enhanced risk and
control framework.
Further detail on the risk management and internal control environment is set out later in this report
on page 94.
Transformation journey
2021 marked the culmination of the Group’s period of corporate transformation. The multi-year
transformation included the finance transformation and development of the Group risk and control
framework. These were disrupted by the pandemic but the committee continued to assess the
framework and its implementation regularly throughout 2021. A decision was taken at the end of the
year to focus on optimising the current finance reporting systems and not migrate to an entirely new
finance system. This followed careful consideration by the Board and the committee on investments
made to date and the disruption, effort and cost required to put in place an effective finance system
to support the finance transformation. The simplified operating model introduced in August 2021,
the ongoing programme to rationalise the overly complex legal structure, and commitment from the
Group’s finance reporting system supplier for continued support for existing IT platforms underlie
this decision. It led to an impairment of the previous investments in a new finance reporting system
but the revised plan will expedite completion of the much needed standardisation and automation of
Capita’s finance processes and a more robust control framework. Further improvements to the
Group risk and control framework, including financial controls, are planned for 2022, taking into
consideration the Government’s proposed audit and governance reforms, including the potential
adoption of a UK Sarbanes-Oxley regime.
The committee comprises all the independent non-executive directors and one of the employee
non-executive directors, Joseph Murphy. Although not considered independent under the UK
Corporate Governance Code 2018 (Code), Joseph brings valuable insights from the employee
perspective into committee discussions and the Board felt that it was important from an employee
engagement perspective for him formally to be a member of the committee despite his lack of
independence. I am considered to have recent and relevant financial experience for the purposes of
the Code.
To encourage effective communication, in addition to the above members, the Board Chairman,
CEO, CFO, Chief General Counsel and Director of Group Finance are invited to attend committee
meetings along with certain members of the senior management team, the Group Risk & Internal
Audit Director and representatives from KPMG, the Group’s external auditor. Opportunity exists at
the end of each committee meeting for the representatives of the internal and external audit teams
to meet with the committee in the absence of management and both have access to the committee
should they wish to voice any concerns outside formal meetings.
Committee performance was assessed as part of the externally facilitated Board evaluation (see
page 66 for more information). The Board is satisfied that the combined knowledge and experience
of its members is such that the committee discharges its responsibilities in an effective, informed
and challenging manner and that, as a whole, the committee has competence relevant to the sector
in which the Company operates. The Group Company Secretary, or their nominee, acts as
Secretary to the committee and is available to assist the members of the committee as required,
ensuring that timely and accurate information is distributed accordingly.
How the committee operates
The committee has an annual forward agenda to cover the key events in the financial reporting
cycle, specific risk matters identified by the committee and standing items that the committee is
required to consider in accordance with its terms of reference. The annual agenda is supported by
agenda setting meetings held in advance of each committee meeting, led by me and attended by
the CFO, members of the Group Finance team, the Chief General Counsel and the Director of Risk
and Group Internal Audit. Their purpose is to identify key issues impacting the business that may
require consideration by the committee. Reports are received from Group functions, including risk
and internal audit, as appropriate. New sales wins and their contract terms are reviewed from a risk
and accounting perspective as appropriate. Additional reports are provided as may be required.
I report to the Board the key matters of discussion and make any significant recommendations
as necessary.
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
continued
88
How the committee discharged its roles and responsibilities in 2021
The committee held seven scheduled meetings during the year and attendance at each meeting is
shown on page 71. Meetings are planned around the Company’s financial calendar.
Financial reporting
Accounting judgements and significant accounting matters
As part of the process of monitoring the integrity of the financial information presented in the
half-year results and the Annual Report and Accounts, the committee reviewed the key accounting
policies and judgements adopted by management to ensure that they were appropriate. The
significant areas of judgement identified by the committee, in conjunction with management and the
external auditor, together with a number of areas that the committee deemed significant in the
context of the financial statements, are set out in the tables on pages 89 to 92.
Fair, balanced and understandable
At the Board’s request, the committee considered whether the half-year results and the Annual
Report and Accounts were fair, balanced and understandable and whether the information provided
was sufficient for a reader of the statements to understand the Group’s position and performance,
business model and strategy. The committee reviewed both the narrative and financial sections of
the reports to ensure they were consistent and gave a balanced view of the performance of the
business in the year and that appropriate weight was given to both positive and negative aspects.
The committee also considered whether full-year and half-year results announcements were
presented clearly.
The committee considered whether the Annual Report and Accounts enables readers to
understand the Company’s financial position and prospects, as well as assess its going concern
status and longer-term viability.
During 2021, the Committee
maintained its oversight of
financial reporting, audit and
risk in a pivotal year for Capita’s
transformation.”
Communications with the Financial Reporting Council
In September 2021, the Company received a letter from the Financial Reporting Council (FRC)
following its review of the Company’s 2020 Annual Report and Accounts. The FRC requested
further information in relation to recoverability of investments in subsidiaries and amounts owed by
subsidiaries reported by the Parent Company.
Following provision of the information requested, the FRC closed its enquiry in November 2021. We
undertook to add further disclosures in relation to the impairment assessment for investments in
subsidiaries and these have been added Note 7.3.4 to the financial statements. Further disclosure
observations made by the FRC were given full consideration and additional disclosures are
included in the 2021 Annual Report and Accounts where material or relevant to do so.
The FRC’s review was based on the Annual Report and Accounts and did not benefit from detailed
knowledge of the business or an understanding of the underlying transactions entered into. It was,
however, conducted by FRC staff with an understanding of the relevant legal and accounting
framework. The review carried out by the FRC provides no assurance that the Annual Report and
Accounts were correct in all material respects; the FRC’s role is not to verify the information
provided but to consider compliance with reporting requirements.
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
continued
89
Significant issues in relation to the financial statements considered by the Audit and Risk Committee
Going concern and viability assessment
Matter considered
Consideration of the going concern assumption and viability of the Group and Parent Company is the
responsibility of the Board. The committee conducted an assessment as part of its support role, given the
inherent judgements required to assist the Board evaluate the resilience of the Group. This was a critical area
of focus for the committee, given the transformation and the unparalleled economic uncertainties introduced by
the global pandemic.
Action
The committee considered the projections within the business plan, agreed by the Board in February 2022, and
the key assumptions underpinning the future cash flow and profit forecasts. The committee received reports
from executive management and KPMG concerning the going concern and viability assessments, including the
key risks identified. These included details on the key assumptions, the forecasting process including historical
forecasting accuracy, the committed facilities available, and the mitigations within direct control of the Group.
The committee also considered the risks identified and appraised the severity and plausibility of these in setting
the downside scenario (see section 1 to the consolidated financial statements for details).
Revenue and profit recognition
Matter considered
There is significant risk on long-term contracts related to revenue recognised from variations or scope changes,
where significant judgement is required to be exercised by management. There is a risk that revenue may be
recognised even though it is not probable that consideration will be collected, which could be due to
uncertainties over contractual terms and ongoing negotiations with clients.
Judgement is also required when customers request scope changes to determine if there is a contract
modification or a contract termination followed by a new contract. Contract terminations can lead to the
immediate recognition of any deferred income being held for recognition in future periods.
Action
The committee received regular updates on all major contracts during the year and specifically reviewed the
material judgements as part of the half-year and year-end close process. The committee has also considered
the recognition of onerous provisions, where appropriate, and the lifetime profitability of contracts.
As alternatives to these operational mitigations, and to support the medium-term resilience of the Group, the
Board had assessed the disposal programme and refinancing agenda. The committee concurred with the
Board that the refinancing and disposal mitigations were preferable to the operational mitigations. The
committee judged the likelihood of these mitigation actions succeeding by considering the Group’s successful
track record of executing disposals in recent years and the Group’s history of securing effective refinancing.
The committee concurred with the Board’s assessment and confidence of the Group’s ability to complete the
planned disposals and refinancing agenda. The committee considered these mitigations as applicable both for
the going concern period to August 2023 and the viability period to 31 December 2024.
The committee recognised that any refinancing and future disposals would required third party agreements and
approvals. As these events are outside the direct control of the Company, they may give rise to material
uncertainties. The committee reviewed the disclosures presented in section 1 of the consolidated financial
statements together with the viability statement on page 62 to ensure there was sufficient detail provided to
explain the basis of preparation and the Board’s conclusion.
Outcome
The committee is satisfied that the analysis presented by executive management and KPMG provides enough
detail to allow a robust assessment of relevant risks and mitigations to be undertaken. This supported full
discussion of the severe but plausible downsides and allowed the committee to recommend to the Board that
the going concern assumption be applied and the viability statement be approved.
The committee is satisfied that section 1 to the consolidated financial statements and the viability statement on
page 62 include proportionate disclosures to inform users of the assessments undertaken by the Board.
To aid the reader, the company has included a detailed explanation of the Group’s accounting for long-term
contracts (see note 2.1 to the consolidated financial statements).
Outcome
The revenue recognition policy includes disclosure of the significant judgements and estimates in relation to its
application and the committee is satisfied that these have been properly disclosed. The committee is satisfied
that the disclosures given within the accounts are sufficient to gain a proper understanding of the methodology
of accounting for revenue across the Group, including the recognition of deferred income at the balance sheet
date. The committee reviewed the disclosure and concluded that these provide information that is helpful to
allow a fuller understanding of the application of IFRS 15 to the Group’s contracts.
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
continued
90
Contract fulfilment assets
Matter considered
The adoption of IFRS 15 led to the recognition of contract fulfilment assets (CFAs). Judgements are involved in
assessing whether the costs incurred on a contract or an anticipated contract meet the capitalisation criteria as
set out under the standard.
In addition, the amortisation of these assets involves estimation of the expected life of the contract, and when a
contract is in the early years post-inception and undergoing major transformation activities, the CFAs are at
heightened risk of impairment.
Action
The committee has considered and challenged the significant judgements and estimates involved in
determining the carrying value of CFAs.
As part of the review of all major contracts, the committee has also considered the recoverability of CFAs.
During the year, the committee discussed certain CFAs where their recoverability was in doubt.
Outcome
The committee is satisfied that appropriate judgements and estimates have been made in determining the
carrying value of CFAs and the extent of impairment of CFAs recognised in these statements is appropriate.
The committee is satisfied that the accounting policy note provides sufficient clarity as to the policy adopted
and that the disclosures provide information to allow a reader to understand the risks associated with different
stages of a typical long-term Capita contract.
Impairment of intangible assets, goodwill and Parent Company’s investment in subsidiaries, and recoverability of receivables from subsidiary undertakings in the Parent Company
Matter considered
The Group carries significant asset balances in respect of goodwill and intangible assets related to its
acquisition activity. In addition, the Parent Company carries a material balance of investment in, and
receivables from, subsidiaries in its financial statements. The impairment and recoverability assessments
require the application of judgement concerning future prospects and forecasts.
Action
The committee has reviewed the robustness of the impairment model and challenged the appropriateness of
assumptions used to calculate and determine the existence of impairment.
The committee has also reviewed the robustness of the assessment of recoverability of receivables from
subsidiary undertakings in the parent company, and challenged the appropriateness of assumptions used to
calculate and determine any provisions required.
Outcome
The committee is satisfied with the impairment of goodwill and intangibles recognised in these financial
statements which is in line with expectations given performance of certain areas of the business in the year in
the face of Covid-19 headwinds.
The committee is also satisfied that the assumptions, methodology and disclosure in notes 3.3 and 3.4 to the
consolidated financial statements are sufficient to give the reader an understanding of the action taken and the
sensitivities within the goodwill and intangible assets balance to any further impairment risk.
Of particular importance to the committee was the inclusion of sufficient disclosures to set out the events and
circumstances that have led to the impairment charges recorded in the year.
The committee also considered the level of detail included in the sensitivity analysis to ensure that this reflected
the stage of the transformation and associated execution risks.
The committee also considered the letter received from the FRC during the year in relation to Parent Company
investments (as referred to earlier in this report).
The committee also considered that any impairment of investment in subsidiaries, or any provision against
amounts receivable from subsidiaries, at the parent company level were appropriate and properly accounted for.
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
continued
Items excluded from adjusted results
91
Matter considered
As stated in its accounting policies, Capita separates its results between adjusted and reported to provide
useful disclosure to aid the understanding of the performance of the Group. The committee needs to ensure
a fair and balanced treatment of what is and is not included as an adjusting item.
Action
The committee reviewed the individual items excluded from adjusted results. The committee requested further
information concerning the origination of the items where it felt it was necessary to enable a conclusion to be
drawn as to whether the chosen presentation achieved the stated principle.
The committee considered the accounting policy by reference to guidance issued by the FRC and the need to
ensure any alternative performance measures are presented with equal prominence to reported figures and on
a consistent basis year on year.
The committee also considered the appropriate presentation to apply to provisions and impairments in respect
of two streams of related services in Experience. In prior years, such contract judgements have not been
adjusted, as they were considered to be in the normal course of business and not associated with the
transformation plan, However, due to the quantum of the charge, the committee concluded that such charges
should be excluded from adjusted results to highlight the impact on the in-year results.
In agreeing this presentation, the committee was mindful of the guidance issued by the FRC in November 2017
in terms of multi-year major ‘restructuring’ programmes. This directs boards to define the costs to be presented
separately, set borders to capture only relevant costs, and emphasises that disclosures to explain the costs
must be transparent and of high quality.
The committee considers that this guidance has been applied and note 2.4 to the consolidated financial
statements provides details of the costs incurred in 2021.
The committee considered the appropriate presentation to apply for costs associated with the transformation
plan which are presented as an ‘adjustment’ to the reported results. The plan is extensive and covers several
Capita-wide initiatives to address the cost competitiveness of the businesses and to simplify and strengthen
the Group.
Outcome
The committee concurs with management’s view that the presentation of items excluded from adjusted results
provides useful disclosure to aid the understanding of the performance of the Group and agrees that the items
excluded meet with the stated policy for recognition.
Categories of expenditure include costs typically associated with major restructuring such as severance
payments, but also include costs related to the offshoring of activities and the introduction of automation and
digital solutions, a Group-wide property rationalisation and functional transformation projects. To support these
activities, external professional fees are being incurred in addition to dedicated internal costs. Where such
costs are incremental and directly related to the transformation plan, the committee has concluded that such
costs should be included in the overall transformation costs that are separately presented. In 2021, this included
impairment of the elements of the new finance reporting system which are no longer expected to be utilised.
Note 2.4 to the consolidated financial statements sets out the items that are separately presented, and the
committee is satisfied that this provides sufficient information to inform a reader on each category presented.
The committee also notes that the approach is consistent with that used for the rights issue in 2018.
The committee continues to encourage management to provide transparency over items that impact the
results, both reported and adjusted. The CFO’s review within the strategic report provides details of each
significant item and those that are considered one-off in nature. The committee is satisfied that this provides
useful information to allow a reader to assess the performance for the year.
The committee will continue to review this policy in 2022 and beyond with a view to reducing the quantum of items
excluded from both adjusted profit and free cash flow. As 2021 marked the end of the Group’s period of corporate
transformation, any residual restructuring costs will be recorded with adjusted results from 1 January 2022.
Provisions and contingent liabilities
Matter considered
There is judgement applied in the level of provisioning across the Group. This involves assessing the size,
timing and probability of economic outflows due to the occurrence of a past event. It is therefore important to
understand the judgement being made as well as the estimate of any accompanying outflow of funds.
Action
The committee has reviewed the disclosure in the financial statements and, in particular, has challenged
management to justify provisioning levels where a range of outcomes has been identified.
The committee received regular updates from the Chief General Counsel on open claims and ongoing
litigation. This was used to inform the committee on any provisions required for possible future outflows.
The committee reviewed the final outcome of matters and compared this to the provision recognised
by management.
Outcome
The committee is satisfied with the fact patterns underlying the provisions, with both the treatment and levels
of provision being properly justified.
The committee is satisfied that the historical level of accuracy in management’s provisioning supports the
current level of provisions.
The committee reviewed the disclosures associated with the provisions recorded and also the contingent
liability note. It was satisfied that the disclosures provided proportionate details to inform a reader.
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
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Pensions
Matter considered
The measurement of the defined benefit liability in respect of defined benefit pension schemes operated within
the Group is a complex area, relying on assumptions on inflation, mortality, corporate bond yields, expectations
of returns on assets and several other key inputs. There is a risk that any one of these could lead to
misstatement of the Group’s liability in respect of pension obligations and the pension charge or movement
recognised in the income statement or statement of comprehensive income.
Other issues considered in relation to the financial statements
Materiality
Materiality is important in determining the risk attached to any judgement. The committee considers
the audit materiality set by the external auditor to ensure that the committee is informed of individual
items above a certain threshold that are most likely to have an impact on the financial statements.
The committee reviews the external auditor’s report and the individual items that breach the
materiality thresholds and assesses their relative impact on the reported statements. These are:
statement of comprehensive income; balance sheet; statement of changes in equity and cash flow;
as well as the notes to the accounts.
The committee requests further clarification from the external auditor, the CFO and Director of
Group Finance as to the nature of these items and also their relative importance in the financial
statements.
After having made such enquiries, the committee is satisfied that materiality has been applied
correctly in the accounts and that material items brought to its attention remain unadjusted where
its inclusion would not cause detriment to the overall reading of the financial statements.
Disclosure of information to the auditor
The directors who held office at the date of the approval of this directors’ report confirm that, so far
as they are each aware, there is no relevant audit information of which the Company’s auditor is
unaware; and each director has taken all steps that they ought to have taken as a director to make
themselves aware of any relevant audit information required for the audit and to establish that the
Company’s auditor is aware of that information.
Action
The committee reviewed the disclosure as presented in the accounts. The committee also challenged the key
assumptions and reviewed the sensitivity to changes in some of the key assumptions on a standalone basis as
well as in the context of defined benefit schemes across other external benchmarks.
Outcome
The committee is satisfied that the estimation of the Group’s pension liabilities and the narrative that
accompanies them gives the required level of information for a reader of the accounts to determine the impact
on the Group of its pension obligations.
Statutory auditor
The committee provides a forum for reporting by the Group’s auditor (KPMG) and it advises the
Board on the appointment, independence and objectivity of the auditor and on fees earned for
both statutory audit and audit-related work. The committee discusses the nature, scope and
timing of the statutory audit with the auditor and, in making a recommendation to the Board on
auditor reappointment, performs an annual, independent assessment of the auditor’s suitability
and performance.
The external auditor attends meetings of the committee and provides updates on statutory
reporting, audit-related services and fees, and ongoing audit items.
The auditor has the opportunity to raise concerns in private session with the committee and
separately with the chair. Specifically, the committee asks the auditor if discussion of business
performance in the strategic report is consistent with the auditor’s overall impression of Capita.
Any material discrepancies are discussed (refer to the independent auditor’s report).
Auditor independence
The committee has a responsibility to put in place safeguards to auditor objectivity and
independence and the key measures are:
• The CFO monitors the independence of the auditor as part of the Group’s assessment of auditor
effectiveness and reports to the committee accordingly.
• The CFO must approve all audit-related engagements – further details are set out in the section
below on audit-related services. The committee reviews audit-related fees twice a year and
considers the implications for auditor objectivity and independence.
• The auditor must confirm its independence to the committee every six months.
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Ensuring conflicts of interest are avoided is a fundamental criterion in the selection of any third-party
auditor. Such conflicts may arise across public and private sector clients, and in key supplier
relationships. They are a key factor in the award process for an external audit assignment.
Audit-related services and fees
The Company’s policy on auditor independence describes the services that may be procured from
the auditor, namely audit and audit-related services only. To avoid the perception of a conflict of
interest, the provision of non-audit services is not permitted. Audit-related services include those
required by laws and regulations, or where it is more practical for the external auditor to perform
the service (eg reporting accountant role related to certain public company transactions). KPMG
continues to perform the review of interim results which, although technically classified as a
non-audit service, relates closely to the audit.
Under the policy, which is reviewed annually, executive management has discretion to engage the
auditor for audit-related services but the nature of such assignments and associated fees must
be reported regularly to the committee. All assignments require approval from the CFO. Where
executive management has any concern that a proposed assignment might threaten the auditor’s
independence, this is discussed with the committee chair.
Total non-audit fees during the year were £1.5m, and related to the review of interim results and
services as reporting accountant for the disposal of AXELOS Limited. Further details are provided
in note 2.3.2 to the consolidated financial statements.
External auditor performance
The committee discussed regularly the performance of KPMG during the year and was satisfied
that the level of communication and reporting was appropriate. These discussions included a
review of the effectiveness and quality of the audit process, audit planning and a formal post-audit
evaluation.
The formal evaluation comprises separate assessments by both management and the committee
of the auditor’s role, activity and performance including:
• calibre and risk profile of the audit firm
• audit governance, independence and objectivity
• audit scope and strategy
• audit team and relations with management and business
• audit communications and resolution of audit issues.
Financial Reporting Council: audit quality inspections
Each year, the Audit Quality Review team (AQR) of the FRC issues a report that sets out the
principal findings arising from the audit quality inspections conducted in the previous calendar year
across a sample of audits for all major audit firms. The AQR’s objective is to monitor and promote
improvements in the quality of auditing. The reports highlight improvements required to promote
audit quality, and areas of good practice. The FRC publishes separate reports on the individual
firms, including KPMG.
The committee received a presentation from the KPMG lead audit partner on the findings from the
FRC Audit Quality Inspection Report for KPMG and the proposed improvement plans put forward
by KPMG in response, including details of the Audit Quality Transformation Programme initiated by
KPMG. The committee will closely monitor progress against these plans.
Audit partner rotation
The lead audit partner is the lynch pin of the relationship between the committee and the audit
team. Accordingly, I led the selection of the new audit partner and made the recommendation to
the Board, having interviewed alternative candidates. The committee would like to note their
appreciation of the hard work, expertise and professionalism shown by Robert Brent who rotates
off the audit this year.
External auditor reappointment
Following a robust and rigorous audit tender process in 2018, the committee and Board
recommended the reappointment of KPMG LLP as the Group’s auditor and this was approved by
shareholders at the 2019 AGM. KPMG was first appointed in 2010, initially as KPMG Audit plc.
The lead audit partner is rotated on a five-yearly basis. The current lead audit partner rotated onto
the audit at the conclusion of the 2016 audit and will rotate off the audit team following the
completion of the 2021 audit. There are no contractual obligations which restrict the committee’s
choice of auditor.
Under the requirements of the Statutory Audit Services Order and the EU Audit Directive and Audit
Regulation, the provision of audit services should be retendered every 10 years. The complex
nature of the Group requires that a knowledge base is built up year on year by the incumbent to
ensure that the external audit is conducted with a proper understanding of the Group’s operations
and the nature of the risks that it faces. This is an important factor in ensuring audit quality. The
Group has complied with the provisions of the Statutory Audit Services Order.
A resolution to reappoint KPMG as the external auditor of the Company will be put forward at the
forthcoming annual general meeting. If approved, KPMG will hold office from the conclusion of this
meeting until the conclusion of the next general meeting at which accounts are laid before the
Company, and its remuneration will be fixed by the committee.
Corporate governanceCapita plc Annual Report 2021 Audit and Risk Committee report
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94
Review of risk management and internal control
Responsibility for reviewing the effectiveness of the Group’s risk management and internal control
systems is delegated to the committee by the Board. The principal risks and risk management
processes are set out on pages 53 to 61.
Effectiveness and efficiency of risk management
During the year, the committee completed a robust assessment of the principal risks, including
deep-dive reviews on six of the 13 principal risks. The assessment also considered any emerging
risks that would threaten its business model, future performance, solvency or liquidity. The
assessment process included regular engagement with the Executive Committee members
accountable for the management of risk falling under their remit. As part of each deep dive, the
committee reviewed existing controls and further risk reduction actions to ensure they were valid
and effective in reducing the overall risk level.
The committee received reports on the following themes during the year:
• wellbeing, health and safety of our people
• cyber and information security
• IT resilience
• attracting, developing and retaining our people
• anti-bribery and corruption.
The enterprise risk management framework and control environment continues to be enhanced
and embedded across Capita in the revised operating model. The committee concluded that risk
management processes and the system of internal controls were adequate and there were no
material weaknesses requiring specific disclosure. The committee reported the conclusions to the
Board to support the annual confirmation that a robust assessment of the principal risks had been
carried out.
Effectiveness and efficiency of financial controls
Detail on the status of internal financial controls is in the internal control and risk management
section of this report and can be found on page 53. The committee concluded that, while these
were not appropriately efficient for a Group of the scale and complexity of Capita, overall, they could
be relied upon to be materially effective.
Internal audit
The Group internal audit function has an administrative reporting line to the CFO and an
independent reporting line to me as Chair of the committee. The function has in place a co-sourcing
arrangement which adds expertise and breadth to the work of the in-house audit team. The function
is led by the Director of Group Internal Audit who is also responsible for the Group’s unregulated
risk function. Regulated business risk remains the responsibility of the Chief General Counsel.
The committee approved a three-year plan in June 2021, which focuses on key business risks and
processes. Conducting audits over these risks and processes will provide better insight into how
risk is being managed and will provide comparison across business units. The three-year plan will
serve as a baseline for audit activity and the internal audit function will continue to reassess as the
plan progresses, to ensure it is delivered and adjusted in line with Capita’s changing risk profile.
Throughout the year, the Group internal audit function provides written reports to the committee on
the work carried out to date and the in-flight work to be completed. An oral update accompanies
each report submitted to the committee. An annual report is provided each year summarising the
key matters arising. Reports set out strengths and weaknesses identified during the work, together
with any recommendations for remedial action or further review.
Insights from 2021 audits have continued to identify consistent themes including: lack of defined
policy and procedures over key processes; risks being managed through the experience of our
people and existing knowledge; roles, responsibilities and accountabilities not always clear; and
lack of evidence to demonstrate monitoring and reporting of control activity. In all cases,
management responded with appropriate actions to mitigate the associated risks. There has been
continued focus by senior management to improve the control environment through the timely
closure of audit actions.
The committee reviews management’s response to the matters raised and ensures that any action
is commensurate with the level of risk identified, whether real or perceived.
Through regular interaction between the committee and the Director of Group Internal Audit, as well
as reports received from the function, the committee can assess and satisfy itself that the Group’s
provision of internal audit is effective.
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Anti-bribery and corruption
Capita has a Group-wide anti-bribery and corruption policy, which complies with the Bribery Act
2010. Procedures are reviewed periodically to ensure continued effective compliance in Group
businesses around the world.
Speak Up
Capita’s Speak Up policy provides a framework for concerns to be raised in a responsible and
effective manner. To ensure that concerns are addressed in a manner independent of a worker’s
business area, concerns can be raised through a facility provided by an independent third-party
provider. Where concerns are raised, they are escalated to named contact points within Capita for
further assessment and investigation. Oversight of these arrangements is a matter reserved to the
Board and it receives updates on the operation of the policy.
Privacy
Primary responsibility for divisional privacy compliance was transferred to the divisions on 2 August
2021. Each division has now appointed a Divisional Data Protection Officer or Lead who has
assumed responsibility for ensuring that divisions provide their own first and second level
assurance. This structure ensures that privacy is managed where data is created.
A central privacy team comprising the Data Protection Officer, Deputy Data Protection Officer and
Data Privacy Manager sets privacy policies and standards for the whole Group and provides
assurance at Group level and within Capita functions and shared services.
Privacy teams across Capita continue to provide privacy assurance, training and support to
business units in line with the requirements of data protection legislation. As part of the Future
Capita restructuring, the privacy function is undergoing a refresh to improve visibility of privacy-
related issues and requirements. Initiatives include the creation of a new privacy site (including
updated policies, guidance and standards), updated training, privacy communications and refresh
of Capita’s standard contractual data protection clauses.
Matthew Lester
Chair
Audit and Risk Committee
9 March 2022
Corporate governanceCapita plc Annual Report 2021 Directors’
remuneration report
This report is split into three sections:
• The annual statement summarises how
the committee discharged its roles and
responsibilities in respect of 2021 and the
proposed implementation of the directors’
remuneration policy for 2022.
• A summary of the directors’ remuneration
policy (the policy) which was approved by
shareholders at the 2021 annual general
meeting (AGM). No changes are proposed
for 2022.
• The annual report on remuneration sets out
the remuneration arrangements and incentive
outcomes for the year under review and
explains how the policy will be operated
for 2022.
The directors’ remuneration report, excluding the
policy, will be subject to an advisory shareholder
vote at the 2022 AGM.
96
Georgina Harvey
Chair, Remuneration
Committee
Our new remuneration policy
is working well in supporting
the continued progress
of the Group under a new,
simpler, more client-focused
divisional structure.”
Annual statement
Dear shareholder,
I am pleased to present the directors’ remuneration report for the year ended
31 December 2021.
As Capita emerges, like so many other companies, from the Covid pandemic and continues to
progress under a new, simpler, more client-focused divisional structure, the committee has
been focused on:
• Implementing our new policy, with the main change being a replacement of the long-term
incentive plan (LTIP) with restricted share awards (RSAs) (together with the introduction of the
associated new share plan rules); these changes were approved by shareholders at the
2021 AGM.
• Reintroducing the annual bonus plan for 2021, which was cancelled for 2020.
• Colleague wellbeing; receiving real living wage accreditation.
Details of the committee’s approach to remuneration in 2021, and the proposed implementation
of the policy for 2022, are set out below.
How the committee operates
The committee has an annual agenda covering the key planning and decision events in the
annual remuneration cycle. Each meeting is supported by an agenda-setting discussion held in
advance with the committee Chair, Chief People Officer and Group Reward Director, to identify
issues affecting remuneration that may require consideration by the committee. Regular reports,
including updates on corporate governance and regulatory developments, are received from the
Corporate governanceDirectors’ remuneration report Capita plc Annual Report 2021 Remuneration Committee time allocation (%)
7
6
1
5
2
4
3
1 22% Governance
2 17% Executive Directors’ and Executive Committee
members’ remuneration
3 12% MBP
4 15% LTIP/RSA
5 18% Wider workforce
6 6% Shareholder consultation/feedback
7 10% Committee time only
Remuneration
Committee membership
and attendance
All members of the committee are
independent non-executive directors, with
the exception of the non-executive
employee director. The number of formal
meetings held and the attendance by each
member is shown in the table on page 71.
The committee also held informal
discussions as required. The Company
Secretary acts as secretary to the
committee and is available to assist the
members of the committee as required,
ensuring that timely and accurate
information is distributed accordingly.
The committee’s terms of reference set
out the role, responsibilities and authority
of the committee and can be found on the
Company website at www.capita.com/
investors. These were reviewed and
updated where appropriate, on an
annual basis.
97
committee’s adviser. At each committee meeting the members may receive other reports and
presentations covering wider workforce arrangements which include the annual pay review,
incentive scheme arrangements, gender pay reporting, engagement on how executive
remuneration aligns with wider company pay policy, salary proposals for members of the senior
team and approval of remuneration packages for new members of the executive committee.
Committee activities
The key workstreams of the committee during the year included:
• Reviewing shareholder feedback following extensive consultation and agreeing the directors’
remuneration policy taken to the 2021 AGM.
• Agreeing the vesting percentage, including the exercise of negative discretion, in respect of the
2018 LTIP awards for the performance period ended 31 December 2020 (no bonus was operated
in 2020).
• Agreeing appropriate initial RSA levels under the new 2021 Capita Executive Plan.
• Agreeing the design and targets for the management bonus plan (MBP), renamed during the year
from the short-term incentive plan.
• Determining the remuneration arrangements for executive director and senior management
leavers/joiners.
• Consideration of executive pay arrangements and alignment with those for the wider workforce.
• Reviewing and agreeing the approach to workforce engagement in respect of executive
remuneration.
• Consideration of the project plan for a review of wider workforce strategy on pay and progression.
In addition, the committee has ensured that the remuneration policy and practices are consistent
with the six factors set out in Provision 40 of the 2018 UK Corporate Governance Code (the Code):
Clarity – Our policy is well understood by our senior management team and has been clearly
articulated to our major shareholders and representative bodies (both on an ongoing basis and
during the detailed consultation exercise in 2020/21 in respect of the last policy review).
Simplicity – The committee is mindful of the need to avoid overly complex remuneration structures,
which can be misunderstood and deliver unintended outcomes. A key objective of the committee is
to ensure our executive remuneration policies and practices are straightforward to communicate
and operate. The current policy, approved at the 2021 AGM, and its implementation has been
simplified significantly in respect of long-term incentive pay through the use of RSAs.
Risk – Our policy has been designed to ensure that inappropriate risk-taking is discouraged and will
not be rewarded via: (i) the balanced use of both short-term incentives and long-term share awards;
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued
98
(ii) the significant role played by equity in our incentive plans (together with in-employment and post-
cessation shareholding guidelines); and (iii) malus/clawback provisions and the committee’s ability
to use discretion to adjust vesting levels.
Predictability – Our incentive plans are subject to annual individual limits, with our share plans also
subject to a share dilution limit.
Proportionality – There is a clear link between individual awards, delivery of strategy and our
long-term performance through performance conditions or underpins applied to short- and long-
term variable pay. In addition, the significant role played by incentive/at-risk pay, together with
the structure of the executive directors’ service contracts, ensures that poor performance is
not rewarded.
Alignment to culture – Our executive pay policies are fully aligned to Capita’s culture, including
elements of fixed pay (executive director pension provision is aligned with the workforce) and
through the use of performance metrics that measure how we perform against our financial and
non-financial KPIs. RSAs further increase alignment to Capita’s responsible business strategy by
offering a narrower range of value outcomes.
Remuneration for 2021
As noted in the 2020 report, the committee was concerned that the existing policy, based on the
annual grant of LTIPs, was no longer working effectively. A detailed review of policy, which included
an extensive shareholder consultation exercise, was carried out by the committee in the circa six
months running up to the 2021 AGM with the main focus being a switch from LTIPs to RSAs (the
rationale for this is set out in detail in the 2020 report). The approach to 2021 remuneration, noting
the strong shareholder support received at the 2021 AGM, was as follows:
• The base salary level for the Chief Executive Officer (CEO) was maintained at £725,000 from
1 January 2020 (unchanged since his appointment in 2017).
• Tim Weller was appointed Chief Financial Officer (CFO) in May 2021 on a base salary of
£545,000. The committee’s rationale for Tim’s salary positioning is set out on page 116 in the
annual report on remuneration.
• Annual bonus potential was reintroduced for 2021 (the annual bonus plan for 2020 was withdrawn
before targets were set, in response to Covid-19) at a maximum of 200% of salary for the CEO
and 175% of salary for the CFO – unchanged from the previous policy levels. The bonus was
based on adjusted profit before tax (20%), adjusted free cash flow (40%), organic revenue growth
(20%) and strategic KPIs (20%).
• RSAs were granted under the Capita Executive Plan immediately after the 2021 AGM following
shareholder approval of the new remuneration policy and share plan.
Annual bonus for 2021
Following a review of performance by the committee post year end, annual bonuses of 24.8% of
maximum for the CEO and 25.8% of maximum for the CFO (pro-rated as a result of joining in year)
were awarded. While the threshold targets in respect of adjusted free cash flow and PBT were not
met, organic revenue performance (a key part of Capita’s transformation plan) was between
threshold and target and the strategic objectives were considered to have been met to a significant
extent. Consistent with the shareholder approved remuneration policy, 50% of the bonus awards
will be deferred into Capita plc shares for three years.
In considering the annual bonus awards for 2021, the committee also reviewed the broader
stakeholder experience and concluded that:
• the senior executive team, and in particular the CEO and CFO (from appointment), should be
rewarded for providing outstanding levels of leadership and continuing to deliver against the
corporate transformation strategy during another year of uncertainty and disruption;
• following the application of committee discretion to reduce the 2019 annual bonus to zero, and the
cancellation of the 2020 annual bonus plan in early 2020 before the targets had been set, any
further application of negative discretion for the executive directors in respect of the 2021 annual
bonus was not necessary or appropriate in the circumstances;
• while a small amount of furlough support was taken at the start of 2021 (c.£5m versus £21m in
2020) to protect a number of key roles, this was not considered to be material at c.0.3% of
Capita’s total salary bill for 2021, particularly noting the early action taken in respect of the 2020
annual bonus noted above and a number of other negative discretions applied over the last two
years; and
• the equal split between cash and deferred shares, as per our approved policy, remains
appropriate, noting that the RSA already provides a significant level of shareholder alignment and
retention and as such, further deferral was not considered necessary.
Accordingly, the committee believes that the annual bonus awards to the executive directors for
2021 are both proportionate and appropriate.
The 2019 LTIP awards held by Jon Lewis, which are due to vest in March 2022, will vest at 12.5%
of the maximum opportunity as a result of the strong performance on customer satisfaction targets
(which have been a key part of Capita’s transformation plan) over the three years to 31 December
2021. Further details in respect of this performance assessment and the value of the awards (which
are materially reduced from the value as at the original grant date following the fall in share price
since grant) are set out on page 113.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 99
The committee is satisfied that total remuneration paid to each of the executive directors in respect
of 2021 was appropriate when the progress against the transformation plan, and the stakeholder
experience more generally, are considered.
Use of discretion
The committee retains the right to exercise discretion to override formulaic outcomes and ensure
that the level of bonus and/or share award payable is appropriate. It may use its judgement to adjust
outcomes downwards to ensure that any payments made reflect overall Company performance and
stakeholder experiences more generally. Where exercised, the rationale for this discretion will be
fully disclosed to shareholders in the annual report. A summary of the discretion exercised by the
committee in respect of 2021 (and in respect of the prior year) is set out below:
2020
2021
Annual
bonus
In light of the impact of Covid-19, the annual bonus plan
was withdrawn for 2020 for the executive directors (plus
the executive committee and selected senior managers)
before the targets were agreed.
LTIPs
2020 LTIP award levels were reduced by around 70%
compared with normal grant levels. In addition, and to
reflect underlying financial and operational performance,
the committee applied downward discretion when
assessing the vesting of the 2018 LTIP.
Board changes in 2021
The committee did not consider further
application of downward discretion to be
necessary or appropriate in 2021 following a
review of Group and individual performance, the
general stakeholder experience and noting
discretion exercised in 2019 and 2020.
2021 RSA levels were reduced from the normal
policy grant level by around 17%.
On 12 May 2021, Gordon Boyd resigned from his position as interim CFO and Executive Director,
and Tim Weller was appointed as the new permanent CFO and Executive Director on the same
date. Details of the remuneration arrangements in respect of Gordon’s resignation and Tim’s
appointment are set out in the annual report on remuneration on page 116.
David Lowden and Neelam Dhawan were appointed as Non-Executive Directors on 1 January and
1 March 2021 respectively. David took over the role of Senior Independent Director with effect from
1 March 2021 following Gillian Sheldon’s resignation as a Non-Executive Director and the Senior
Independent Director on 28 February 2021. Andrew Williams and Baroness Lucy Neville-Rolfe
resigned as Non-Executive Directors on 11 May 2021 and 14 December 2021 respectively.
Remuneration policy for 2022
Following shareholder approval of the policy at the 2021 AGM, with a high level of shareholder
support, no policy changes are being proposed at the 2022 AGM. See pages 101 to 106 for
a summary of the current approved policy.
Implementing the policy for 2022
The committee’s intended approach to the implementation of the policy for 2022 is set out below.
Fixed remuneration: Jon Lewis’ salary was increased in line with the average increase for the
UK workforce from 1 January 2022 (his first salary increase since appointment in 2017) while
Tim Weller did not receive a salary increase, given his recent appointment to the Board. Executive
directors will continue to receive a workforce-aligned pension allowance (5% of salary, in line with
other employees).
2022 annual bonus: The annual bonus plan will operate for 2022 with maximum opportunities
continuing at 200% (CEO) and 175% (CFO) of salary. The financial performance metrics will be
based on reported revenue, reported profit before tax and reported free cash flow (all equally
weighted and totalling 80% of maximum bonus). The remaining 20% of maximum bonus will
be based on strategic/individual objectives incorporating environmental, social and governance
(ESG) targets.
2022 RSAs: The CEO was granted an RSA in 2021 over shares equal to 125% of salary and it was
the committee’s intention to move to 150% of salary RSA from 2022 onwards. In addition, the
committee had intended to adopt a more market consistent underpin for 2022 (in addition to an
underlying financial performance underpin, the committee also attached a total shareholder return
(TSR) growth underpin to the 2021 RSAs). However, reflecting the prevailing share price, the
committee has again agreed to grant the CEO’s 2022 RSAs at no more than 125% of salary level
(ie below the normal 150% of salary maximum) and apply the TSR underpin (ie TSR must be
positive over the three years ending 31 December 2024) to the CEO’s RSA for a second year.
In respect of the CFO’s 2022 RSA, the committee has agreed to grant this at no more than 100% of
salary albeit the TSR underpin will also be applied to his award. While this is higher than the 83% of
salary 2021 RSA, the committee wishes to ensure that the CFO remains appropriately retained and
incentivised, particularly in light of the application of the TSR underpin (which is currently
underwater given that it commenced on 1 January 2022) which was not originally intended to apply
when the CFO’s remuneration package was agreed in 2021.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 100
As such, the 2022 RSAs to be granted to executive directors in March 2022 will:
Employee engagement
• be set at a maximum of 125% of salary for the CEO and 100% of salary for the CFO (albeit
as noted below, the actual number of shares will not be determined until much closer to the
grant date);
• normally vest after three years from grant subject to: (i) continued employment; (ii) satisfactory
personal performance during the relevant vesting periods; and (iii) a positive assessment of
performance against two underpins (see below); and
• deliver shares that, once vested, may not normally be sold until at least six years from the grant
date (other than to pay relevant taxes).
In respect of the underpins for the 2022 awards:
• underpin 1: Capita’s TSR over the three years ending 31 December 2024 must be positive for any
RSAs granted to executive directors to vest; and
• underpin 2: the committee must be satisfied with the underlying performance of Capita and that
there have been no environmental, social or governance issues resulting in material reputational
damage. If this is not deemed to be met, the committee will consider a reduction to the final
vesting level of the RSAs (including to nil).
The actual number of shares under award will be determined just prior to the date of grant based
on the prevailing share price at that time and full details will be in the RNS issued immediately
following grant.
Shareholder views
In taking a new remuneration policy to the 2021 AGM, the committee carried out an extensive
consultation exercise with our major shareholders and the main representative bodies. Following a
review of the feedback received, the committee made two changes to the original proposals being:
(i) an extension to the post-vesting holding period from the two years originally proposed to three
years; and (ii) a reduction to the 2021 RSA levels from the normal policy levels. The committee
believes that the process reflected a genuine consultation exercise and was pleased with the level
of shareholder engagement and the support it received for both the new policy (97.13%) and the
adoption of the Capita Executive Plan (96.99%).
In 2021, Jon Lewis regularly communicated with all employees, including on our 2020 financial
results. Employees are able to submit any questions about the Company – including in relation to
the directors’ remuneration policy and report, pay and benefits – both online and during live
employee briefings. Lyndsay Browne, one of the employee non-executive directors, was appointed
to the Remuneration Committee in 2020 with the intention of ensuring a colleague perspective on
remuneration at the very top of the organisation.
The committee discussed the specific Code requirement to describe engagement with the
workforce on how executive remuneration aligns with wider company pay policy, and how best this
might be addressed at Capita. As committee Chair, I have initiated a programme of workforce
engagement sessions which are attended by a cross-section of employees from different levels,
divisions and territories within the Capita Group. These sessions cover the work of the committee,
how executive remuneration is linked to performance, strategy on workforce pay and progression
and how Capita executive pay policy links to wider company pay policy including how each element
of the remuneration package cascades down the business. These sessions provide an opportunity
for questions and answers and the provision of feedback is encouraged. Further workforce
engagement sessions are planned during 2022.
Concluding thoughts
As Capita continues to progress under our new, simpler, more client focused divisional structure,
the committee is satisfied that the new policy is operating as intended and will help to ensure that
the senior management team is appropriately retained and incentivised. The committee will
continue to listen to the views of our shareholders in respect of remuneration and, as such,
welcomes all input.
I hope you find this report to be clear and helpful in understanding our remuneration practices and
that you will be supportive of the advisory vote to approve the annual report on remuneration.
Finally, I would like to thank our shareholders for their ongoing support.
Georgina Harvey
Chair
Remuneration Committee
9 March 2022
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued Directors’ remuneration policy
This part of the remuneration report sets out a summary of our remuneration policy which was
approved by shareholders at, and took effect from, the 2021 AGM. The full policy approved by
shareholders at the 2021 AGM is presented in the Annual Report 2020. No changes to the policy
are proposed for 2022. The information provided in this section of the remuneration report is not
subject to audit.
Consideration of shareholder views
The Company is committed to maintaining good communications with shareholders. It considers
the AGM to be an opportunity to communicate with shareholders, giving them the opportunity to
raise any issues or concerns they may have. In addition, the committee seeks to engage directly
with major shareholders and the main representative bodies, should any material changes be
proposed to the policy.
Responsibilities and activities of the Remuneration Committee
Consideration of our people
101
When determining executive director remuneration policy and practices, the committee reviews
workforce remuneration and related policies and the alignment of incentives and rewards with
culture to ensure that workforce pay and conditions are taken into account when setting the pay of
executive directors and senior management.
The committee is responsible for determining and agreeing with the Board the remuneration policy
for the executive directors, executive committee members and the Group Company Secretary role,
including setting the overarching principles, parameters and governance framework and
determining each remuneration package. In addition, the committee reviews remuneration for
the wider workforce and related policies and the alignment of incentives and rewards with culture.
The committee also sets the Chairman’s fee.
In setting the remuneration policy for the executive directors, executive committee members
and the Group Company Secretary role, the committee ensures that the arrangements are in
the best interest of both the Group and its shareholders, by taking into account the following
general principles:
• To ensure total remuneration packages are simple and fair in design so that they are valued
by participants.
• To ensure that total remuneration strongly reflects performance.
• To balance performance-related pay between the achievement of financial performance
objectives and delivering sustainable performance; creating a clear connection between
performance and reward; and providing a focus on sustained improvements in profitability
and returns.
• To provide a significant proportion of remuneration in shares, allowing senior management to
build a significant shareholding in the business and, therefore, aligning management with
shareholders’ interests and the Group’s performance, without encouraging excessive risk taking.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 102
Remuneration policy table
The following table sets out the key aspects of the policy.
Base salary
Purpose and link to strategy
To attract and retain talent
by ensuring base salaries
are sufficiently
competitive.
Benefits
Purpose and link to strategy
Designed to be consistent
with benefits available
to employees in the
Group.
Pension
Purpose and link to strategy
Consistent with benefits
available to employees
in the Group.
Operation
Maximum opportunity
Performance framework
Normally reviewed annually in December, with any changes usually effective in
January. The committee may award salary increases at other times of the year if
it considers it to be appropriate. The review takes into account:
• Salaries in similar companies and comparably-sized companies
• Remuneration policy
• Economic climate
• Market conditions
• Group performance
• The role and responsibility of the individual director
• Employee remuneration across the broader workforce.
There is no prescribed maximum monetary annual
increase to base salaries. Any annual increase in
salaries is at the discretion of the committee, taking
into account the factors stated in this table and the
following principles:
• Salaries would typically be increased at a rate
consistent with the average salary increase (in
percentage of salary terms) for the broader
workforce.
• Larger increases may be considered appropriate in
certain circumstances (including, but not limited to,
a change in an individual’s responsibilities or in the
scale of their role or in the size and complexity of
the Group).
• Larger increases may also be considered
appropriate if a director has been initially appointed
to the Board at a lower than typical salary.
Individual and business performance are
considerations in setting base salaries.
Operation
Maximum opportunity
Benefits include car allowance, private medical insurance, travel and property
hire. Executive directors can also participate in all-employee share plans.
The committee has discretion to add additional benefits which are not currently
provided, such as relocation expenses.
Benefit provision varies between different executive
directors. While there is no maximum level set by the
committee, benefits provision will be set at a level the
committee considers appropriate and be based on
individual circumstances.
Participation in the Company’s HMRC-approved
all-employee share plan will be limited by the
maximum level prescribed by HMRC.
Performance framework
Not performance-related.
Operation
Pension contributions are paid into the Group’s defined contribution scheme
and/or as a cash allowance.
Maximum opportunity
5% of salary.
Performance framework
Not performance-related.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued Annual bonus
Purpose and link to strategy
Performance measures
are selected to focus
executives on delivery of
the Group business plan
for the financial year.
Operation
The bonus measures and targets are reviewed annually to ensure that bonus
opportunity and performance measures continue to support the business plan.
Stretching targets are set at the start of each financial year.
Performance against targets is reviewed following completion of the final
accounts for the period under review.
50% of any bonus earned (net of tax) is normally delivered in shares deferred for
three years, with the remainder delivered in cash or deferred shares at the
executive director’s discretion.
An additional payment may be made at the time of vesting in respect of
dividends that would have accrued on deferred shares during the deferral
period.
Malus and clawback provisions apply to all annual bonus and deferred bonus
share awards for a period of up to three years after the determination of the
annual bonus.
Restricted share awards
Purpose and link to strategy
Operation
Designed to reward and
retain executives over the
longer term while aligning
their interests with those of
shareholders.
To link reward to
longer-term performance.
To encourage share
ownership.
Awards will normally vest after three years from grant and, once vested, shares
may not normally be sold until at least six years from the grant date (other than
to pay relevant taxes).
Dividends or dividend equivalents may accrue over the vesting period and any
holding period but only to the extent awards vest.
Malus and clawback provisions apply to awards for a period up to the fifth
anniversary of grant.
Shareholding guidelines
Purpose and link to strategy
Operation
To align interests of
management and
shareholders and promote
a long-term approach to
performance and risk
management.
Shareholding guidelines require executive directors to reach a specified
shareholding. Executive directors are required to retain 100% of any shares
from deferred bonus awards, RSAs (or LTIPs as granted under the previous
policy) on vesting (net of tax) until the guideline level is achieved.
Post-cessation guidelines apply to share awards granted following the 2020
AGM. In determining the relevant number of shares to be retained post
cessation, shares acquired from own purchases, any buyout awards and share
awards granted prior to the 2020 AGM will not be counted.
Maximum opportunity
200% of salary.
Maximum opportunity
150% of salary.
103
Performance framework
Performance is normally measured over a one-year
period relative to challenging targets for selected
measures of Group financial, strategic and/or
individual performance.
The majority of the bonus will be determined by
measure(s) of Group financial performance.
A sliding scale is set for each Group financial measure:
50% of the bonus will be paid at target performance,
increasing to 100% for maximum performance.
Any bonus payout is ultimately at the discretion of the
committee, and the amount of any bonus that would
be determined based on performance may be
reduced if the committee believes this better reflects
the underlying performance of Capita over the
relevant period.
Performance framework
Vesting will be subject to: (i) continued employment;
(ii) satisfactory personal performance during the
relevant vesting periods; and (iii) a positive
assessment of performance against one or more
underpins.
In addition, the committee may reduce the extent to
which an award vests if it believes this better reflects
the underlying performance of Capita over the
relevant period.
Maximum opportunity
In employment: 300% of salary (CEO); 200% of
salary (CFO).
Post cessation: 100% of the relevant guideline
between cessation and the second anniversary of
cessation (or the actual shareholding if the guideline
has not been met at cessation).
Performance framework
Not performance-related.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 104
Performance framework
Not performance-related.
Maximum opportunity
As per the executive directors, there is no prescribed
maximum monetary annual increase.
Fees are limited to an aggregate annual sum of £1m
increased only to take account of the effect of
inflation as measured by the retail price index or such
index as the directors consider appropriate or such
other amount as the Company may by ordinary
resolution decide.
The committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions
available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the
payment were agreed: (i) before the policy set out above came into effect, provided that the terms of the payment were consistent with the
shareholder-approved directors’ remuneration policy in force at the time they were agreed; or (ii) at a time when the relevant individual was not a
director of the Company and, in the opinion of the committee, the payment was not in consideration for the individual becoming a director of the
Company. For these purposes payments includes the committee satisfying awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are ‘agreed’ at the time the award is granted. The committee retains discretion to make minor amendments to the
policy set out in this policy report (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation)
without obtaining shareholder approval for that amendment.
Non-executive director (NED) fees
Purpose and link to strategy
Operation
Market competitive fees
are set so as to attract and
retain non-executive
directors with required
skills, experience and
knowledge so that the
Board can effectively carry
out its responsibilities.
Reviewed periodically by the Board. Fee levels set by reference to market rates,
taking into account the individual’s experience, responsibilities, time
commitment and pay decisions for the broader workforce.
NED fees comprise payment of an annual basic fee and additional fees for
further Board responsibilities such as:
• Senior independent director
• Audit and Risk Committee chair
• Remuneration Committee Chair
• The Chairman of the Board receives an all-inclusive fee.
Additional fees/allowances may also be paid for intercontinental travel for
business purposes where appropriate.
No NED participates in the Group’s incentive arrangements or pension plan or
receives any other benefits other than where travel to the Company’s registered
office is recognised as a taxable benefit in which case a NED may receive
grossed-up costs of travel as a benefit.
The annual bonus performance measures are Group financial, strategic or individual measures which are selected annually to be consistent with
key priorities for the Group.
Targets are normally set on sliding scales that take account of internal strategic planning and external market expectations for the Company.
Only modest rewards are available for achieving threshold performance with maximum rewards requiring substantial outperformance of
challenging strategic plans approved at the start of each year.
The committee operates share-based arrangements for the executive directors in accordance with their respective scheme rules, the Listing
Rules and the HMRC rules where relevant. The committee, consistent with market practice and the scheme rules, retains discretion over a number
of areas relating to the operation and administration of the plans. These include (but are not limited to) the following:
• Who participates
• The form in which the award is granted and settled (eg shares, nil cost options, cash)
• The timing of the grant of award and/or payment
• The size of an award (up to individual and plan limits) and/or a payment
• Discretion relating to the measurement of any performance target/underpin and pro-rating of awards in the event of a ‘good leaver’ scenario or a
change of control or reconstruction of the Company
• Determination of whether or not a person is characterised as a good leaver (in addition to any specified categories) for incentive plan purposes
• Adjustments required in certain circumstances (eg share capital variation, rights issues, demerger, corporate restructuring, special dividends)
• The ability to vary or substitute any performance condition(s)/underpins if circumstances occur which cause it to determine that the original
condition(s) have ceased to be appropriate, provided that any such variation or waiver is fair, reasonable and not materially less difficult to
satisfy than the original condition (in its opinion). In the event that the committee were to make an adjustment of this sort, a full explanation
would be provided in the next remuneration report
• The ability to reduce the vesting level of awards (including to nil) where the Committee determines it is appropriate to do so.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 105
Malus and clawback
Directors’ recruitment and promotions
Malus and clawback provisions apply to all incentive awards granted to executive directors. These
provisions permit the committee to reduce or recover bonus awards (including deferred shares) for
up to three years after the determination of the annual bonus and to reduce or recover RSA awards
(and LTIP awards granted under the previous policy) up to the fifth anniversary of grant. The
potential circumstances in which malus or clawback provisions can be applied include:
• material misstatement of a Group company’s financial results
• a participant deliberately misleads relevant parties regarding financial performance
• serious misconduct or conduct which causes significant financial loss
• overpayments due to material abnormal write-offs of an exceptional basis
• an error was made, or inaccurate or misleading information was used to determine the value
of an award
• reputational damage
• material failure of risk management
• corporate failure or the occurrence of an insolvency event.
Application of our remuneration policy
When determining executive director remuneration policy and practices, the committee
reviews workforce remuneration and related policies, and the alignment of incentives and
rewards with culture.
Share awards are granted to senior management in order to encourage a high level of employee
share ownership albeit remuneration is more heavily weighted towards long-term variable pay for
executive directors than other employees. This is to ensure that there is a clear link between the
value created for shareholders and the remuneration received by the executive directors. The
committee did not consult with employees formally in respect of the design of the new policy,
although the two employee directors (one as a committee member and one by invitation to the
committee) were involved in the committee’s discussions.
The committee takes into account the need to attract, retain and motivate the best person for each
position, while at the same time ensuring a close alignment between the interests of shareholders
and management.
If a new executive director were to be appointed on a permanent basis, the committee would seek
to align their remuneration package with other executive directors in line with the policy table.
However, flexibility would be retained to make ‘buyout’ awards or payments in respect of
remuneration arrangements and contractual terms forfeited on leaving a previous employer. In such
circumstances, the committee would look to replicate the arrangements being forfeited as closely
as possible and, in doing so, would take account of relevant factors including the nature of the
remuneration and contractual terms, performance conditions and the time over which they would
have vested or been paid.
If appropriate, a new appointee’s incentives in their year of joining may be subject to different targets
than for other executive directors. The committee may also agree that the Company will meet
certain relocation and incidental expenses, as it considers appropriate.
The maximum level of variable remuneration which may be granted (excluding awards to
compensate for remuneration arrangements and contractual terms forfeited on leaving the previous
employer) to new executive directors in the year of recruitment shall be limited to 350% of salary
(the maximum limit permitted within the policy table).
The initial notice period for a service contract may be up to 24 months, which is longer than that
stated in the policy of a 12-month notice period, provided it reduces to 12 months within a short
space of time.
For an internal appointment or an appointment following the Company’s acquisition of or merger
with another company, any incentive amount awarded in respect of a prior role may be allowed
to vest on its original terms, or adjusted as relevant to take into account the appointment. Any
other ongoing remuneration obligations or terms and conditions existing prior to appointment
may continue.
The committee retains discretion to make appropriate remuneration decisions outside the standard
policy to meet the individual circumstances of recruitment when:
• An interim appointment is made to fill an executive director role on a short-term basis.
• Exceptional circumstances require that the Chairman or a non-executive director takes on an
executive function on a short-term basis.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 106
In the event of the appointment of a new non-executive director, remuneration arrangements will
normally be in line with the structure set out in the policy table for non-executive directors. However,
the committee (or the Board as appropriate) may include any element listed in the policy table or
any other element which the committee considers is appropriate given the particular circumstances
excluding any variable elements, with due regard to the best interests of shareholders.
Directors’ service agreements and payments for loss of office
The committee regularly reviews the contractual terms of the service agreement to ensure these
reflect best practice.
The service contracts for executive directors are for an indefinite period and provide for a 12-month
notice period. They do not include provisions for predetermined compensation on termination that
exceed 12-months’ salary, pension and benefits. There are no arrangements in place between the
Company and its directors that provide for compensation for loss of office following a takeover bid.
All directors are appointed for an indefinite period but are subject to annual re-election at the annual
general meeting.
In circumstances of termination on notice, the committee will determine an equitable compensation
package, having regard to the particular circumstances of the case. The committee reserves the
right to make payments in connection with a director’s cessation of office or employment where the
payments are made in good faith in discharge of an existing legal obligation (or by way of damages
for breach of such an obligation) or by way of a compromise or settlement of any claim arising in
connection with the cessation of a director’s office or employment. Any such payments may include,
but are not limited to, paying any fees for outplacement assistance and/or the director’s legal and/or
professional advice fees in connection with his cessation of office or employment. The committee
has discretion to require notice to be worked or to make payment in lieu of notice or to place the
director on garden leave for some or all of the notice period. Any payment in lieu of notice will be
reduced for any period of time worked post notice being given or received.
The annual bonus may be payable for a good leaver (as defined in the plan rules) in respect of the
period of the bonus plan year worked by the director; there is no provision for an amount in lieu of
bonus to be payable for any part of the notice period not worked. Bonus payments would normally
be paid at the normal payment date.
On cessation, an executive director’s share plan entitlements will be determined in accordance with
the rules of the relevant plan.
Unvested deferred share awards will normally lapse on the earlier of notice being given/received
and cessation. However, the committee has discretion to allow awards to instead continue to vest in
full on the normal vesting date (or earlier at the discretion of the committee) for a good leaver (as
defined in the relevant plan rules).
In respect of RSAs/LTIPs, unvested awards will normally lapse on the earlier of notice being given/
received and cessation. However, the committee has discretion to allow awards to instead continue
to vest on the normal vesting date (or earlier at the discretion of the committee) to the extent any
performance conditions/underpins attached to the relevant award are satisfied at vesting. In such
cases awards will, other than in exceptional circumstances, be scaled back on a time pro-rated
basis and post-vesting holding periods would normally apply.
In the event of a change of control, all unvested LTIP awards/RSAs would (unless rolled over)
vest, to the extent that any performance conditions/underpins attached to the relevant awards
have been achieved. Awards would normally be subject to time pro-rating (unless the committee
determines otherwise).
Unvested deferred share awards would vest in the event of a change of control (unless rolled over).
Shares held within the share ownership plan will be removed from the plan or exchanged for
replacement shares in accordance with the scheme rules and HMRC guidelines.
Non-executive directors’ terms of engagement
Non-executive directors are appointed by letter of appointment for an initial period of three years.
Each appointment is terminable by three months’ notice on either side. At the end of the initial period,
the appointment may be renewed by mutual consent, subject to annual re-election at the AGM.
Non-executive employee directors’ terms of engagement
Non-executive employee directors are appointed by letter of appointment for an initial period of two
to three years. Each appointment is terminable by one month’s written notice on either side. At the
end of the initial period, the appointment may be renewed by mutual consent, subject to annual
re-election at the AGM.
Inspection of service agreements/letters of appointment
The service agreements and non-executive directors’ letters of appointment are available for
inspection during normal business hours at the Company’s registered office, and available for
inspection at the AGM.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued Annual report on remuneration
This part of the remuneration report has been prepared in accordance with The Large and Medium-
sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) and
paragraphs 9.8.6R and 9.8.8 of the Listing Rules. The annual report on remuneration will be put to
an advisory shareholder vote at the 2022 AGM. The information on pages 107 to 119 has been
audited as indicated.
FIT Remuneration LLP was appointed by the committee during 2020 to provide independent advice
on executive remuneration matters. During the year, the committee received independent and
objective advice from FIT primarily on market practice, governance updates, the introduction and
operation of the new remuneration policy, joiners and leavers and remuneration-related disclosure
within the accounts. FIT’s fees were £87,000 (excluding VAT) during 2021 for its services (charged
on a time plus expenses basis). The fees were considered appropriate for the work undertaken. No
other services were provided to the Group by FIT.
FIT is a founding member of the Remuneration Consultants Group and, as such, operates
voluntarily under the code of conduct in relation to executive remuneration consulting in the UK. The
committee considers FIT’s advice on remuneration to be independent and objective, and there is no
connection with the Company or individual directors.
The committee also consulted with the CEO, CFO, the Chief People Officer and the Group Reward
Director to provide further information to the committee on the performance and proposed
remuneration for the executive directors and other senior management, but not in relation to their
own remuneration.
The work of the Remuneration Committee is detailed in the annual statement.
107
Shareholder voting at the AGM
The 2021 directors’ remuneration report will be presented to shareholders at the 2022 AGM. At the
2021 AGM, the actual voting in respect of the ordinary resolution to approve the remuneration
report for the year ended 31 December 2020 and the vote on the 2021 remuneration policy is set
out below.
Directors’ remuneration report, other than the part containing the
Directors’ remuneration policy, for the year ended 31 December
2020
Votes
cast for
Votes cast
against
Abstentions1
1,289,055,937
634,509
2,242,816
99.95%
0.05%
–
Directors’ remuneration policy (2021 AGM)
1,254,719,423
37,105,242
108,597
97.13%
2.87%
1. A vote abstained is not a vote in law and is not counted in the calculation of the proportion of votes ‘for’ and ‘against’ a resolution.
Policy implementation for 2022
The committee’s intended approach to the implementation of the policy for 2022 is set out below.
Fixed remuneration: Jon Lewis’ salary was increased in line with the average increase for the UK
workforce from 1 January 2022 (his first salary increase since appointment in 2017) while Tim
Weller did not receive a salary increase, given his recent appointment to the Board. Executive
directors will continue to receive a workforce-aligned pension allowance (5% of salary, in line with
other employees).
2022 annual bonus: The annual bonus plan will operate for 2022 with maximum opportunities
continuing at 200% (CEO) and 175% (CFO) of salary. The financial performance metrics will be
based on reported revenue, reported profit before tax and reported free cash flow (all equally
weighted and totalling 80% of maximum bonus). The remaining 20% of maximum bonus will be
based on strategic/individual objectives incorporating environmental, social and governance (ESG)
targets.
2022 RSAs: The CEO was granted an RSA in 2021 over shares equal to 125% of salary and it was
the committee’s intention to move to 150% of salary RSA from 2022 onwards. In addition, the
committee had intended to adopt a more market consistent underpin for 2022 (in addition to an
underlying financial performance underpin, the committee also attached a TSR growth underpin to
the 2021 RSAs). However, reflecting the prevailing share price, the committee has again agreed to
grant the CEO’s 2022 RSAs at no more than 125% of salary level (ie below the normal 150% of
salary maximum) and apply the TSR underpin (ie TSR must be positive over the three years ending
31 December 2024) to the CEO’s RSA for a second year.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 108
Fees for the Chairman, senior independent director, non-executive directors and
employee non-executive directors
A summary of the fees for 2022, which are unchanged from 2021 levels are as follows:
Sir Ian Powell, Chairman
David Lowden, Senior Independent Director
Matthew Lester, Audit and Risk Committee Chair
Georgina Harvey, Remuneration Committee Chair
Nneka Abulokwe1
John Cresswell
Neelam Dhawan
Lyndsay Browne
Joseph Murphy
1 Nneka Abulokwe joined the Board on 1 February 2022.
Annual fee from 1 January 2022
£325,000
£75,000
£75,000
£75,000
£64,500
£64,500
£64,500
£64,500
£64,500
In respect of the CFO’s 2022 RSA, the committee has agreed to grant this at no more than 100% of
salary albeit the TSR underpin will also be applied to his award. While this is higher than the 83% of
salary 2021 RSA, the committee wishes to ensure that the CFO remains appropriately retained and
incentivised, particularly in light of the application of the TSR underpin (which is currently
underwater given that it commenced on 1 January 2022) which was not originally intended to apply
when the CFO’s remuneration package was agreed in 2021.
As such, the 2022 RSAs to be granted to executive directors in March 2022 will:
• be set at a maximum of 125% of salary for the CEO and 100% of salary for the CFO (albeit
as noted below, the actual number of shares will not be determined until much closer to the
grant date);
• normally vest after three years from grant subject to: (i) continued employment; (ii) satisfactory
personal performance during the relevant vesting periods; and (iii) a positive assessment of
performance against two underpins (see below); and
• deliver shares that, once vested, may not normally be sold until at least six years from the grant
date (other than to pay relevant taxes).
In respect of the underpins for the 2022 awards:
• underpin 1: Capita’s TSR over the three years ending 31 December 2024 must be positive for any
RSAs granted to executive directors to vest; and
• underpin 2: the committee must be satisfied with the underlying performance of Capita and that
there have been no environmental, social or governance issues resulting in material reputational
damage. If this is not deemed to be met, the committee will consider a reduction to the final
vesting level of the RSAs (including to nil).
The actual number of shares under award will be determined just prior to the date of grant based
on the prevailing share price at that time and full details will be in the RNS issued immediately
following grant.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued Directors’ remuneration earned in 2021 – single-figure table (audited)
The table below summarises directors’ remuneration received in 2021 (with prior year comparators).
109
Sir Ian Powell
Jon Lewis3
Tim Weller4
David Lowden5
Matthew Lester
Georgina Harvey
John Cresswell
Neelam Dhawan6
Lyndsay Browne7
Joseph Murphy7
Former Directors
Gordon Boyd8
Patrick Butcher9
Gillian Sheldon10
Andrew Williams11
Baroness Lucy Neville-Rolfe12
Base salary
and fees1
£
325,000
284,375
725,000
634,375
299,337
–
75,000
–
75,000
65,829
75,000
65,625
64,500
56,438
53,750
–
64,500
56,438
64,500
56,438
513,010
152,381
–
322,058
13,750
65,625
23,292
56,438
62,163
56,438
Benefits2
Pension
Annual bonus
£
£
£
LTIP
£
RSA
£
Total
remuneration
Total fixed
remuneration
Total variable
remuneration
£
£
£
–
–
18,837
17,928
9,588
–
–
–
–
–
–
–
–
–
4,000
–
–
–
–
–
1,309
–
905
15,252
896
–
902
–
–
–
–
–
36,250
36,250
14,967
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,790
–
–
–
–
–
–
–
–
359,020
–
135,296
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
98,811
508,029
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
325,000
284,375
1,237,918
1,196,582
459,188
–
75,000
–
75,000
65,829
75,000
65,625
64,500
56,438
57,750
–
64,500
56,438
64,500
56,438
514,320
152,381
905
356,101
14,646
65,625
24,193
56,438
62,163
56,438
325,000
284,375
780,087
688,553
323,892
–
75,000
–
75,000
65,829
75,000
65,625
64,500
56,438
57,750
–
64,500
56,438
64,500
56,438
514,320
–
905
362,875
14,646
65,625
24,193
56,438
62,163
56,438
0
0
457,831
508,029
135,296
–
0
–
0
0
0
0
0
0
0
0
0
0
0
0
0
0
–
0
0
0
0
0
0
0
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 110
1. As part of Capita’s response to Covid-19, the executive and non-executive directors agreed to take a 25% reduction in salary/fees for six
months, effective from 1 April 2020. The salary/fees shown above reflect this voluntary reduction.
2. Benefits include all taxable benefits as defined by paragraph 11(1) of the regulations. This includes private medical insurance, company car
allowance, work travel and the value of matching share awards under the UK all-employee share scheme.
3. Details of the performance assessment and vesting of the 2019 LTIP award held by Jon Lewis are set out on page 113. The impact of share
price movements on his awards, based on the average three-month share price to 31 December 2021 (44.34p), is as follows:
Face value of awards expected to vest, based on the share price at grant (1,782,786 shares x 12.5% x 122p)
Expected value of awards at vesting (1,782,786 shares x 12.5% vesting x 44.34p)
Impact of share price movements on vesting values
£271,875
£98,811
£173,064
Annual bonus for 2021 (audited)
The annual bonus for 2021 was operated at normal levels (200% maximum for the CEO and 175%
of salary for the CFO) based on a combination of Group financial measures (adjusted free cash
flow, adjusted PBT and organic revenue) and strategic targets. 25% of bonus was payable for
achieving the threshold target; 50% was payable for achieving target performance; with 100% of the
bonus payable for achieving the maximum target. Details of performance against the financial and
strategic targets are set out below.
The 2018 LTIP awards have been restated in the table above in respect of the prior year from £423,772 (based on a 3 month average share price
to 31 December 2020 of 35.8p) to £508,029 (based on a share price of 42.92p as at the 24 April 2021 vesting date). RSAs granted to Jon Lewis
and Tim Weller in May 2021 with performance underpins, will be disclosed in the year ending just prior to the normal vesting date.
4. Tim Weller was appointed CFO on 12 May 2021 following Gordon Boyd’s resignation on the same date. Tim Weller’s remuneration is shown
from the date of his appointment to 31 December 2021, albeit reflecting a period of unpaid leave.
5. David Lowden was appointed as a non-executive director on 1 January 2021 and took up the position of senior independent director on
1 March 2021 following Gillian Sheldon’s resignation from the Board.
6. Neelam Dhawan was appointed as a non-executive director on 1 March 2021. Fees for 2021 are shown from 1 March 2021 to 31 December 2021.
Neelam is based outside the UK and receives an allowance for physical attendance at a Board meeting. This is shown in the benefits column.
7. Lyndsay Browne and Joseph Murphy are employee directors. In addition to their fee as a non-executive employee director, both received
earnings from the Group as an employee amounting to £102,922 for Lyndsay Browne and £70,086 for Joseph Murphy for the period 1 January
2021 to 31 December 2021. As part of their participation in the Capita Share Ownership Scheme Lyndsay Browne received 630 matching
shares (£270) and Joseph Murphy received 630 matching shares (£270). The value of the matching shares is the sum of the cost of purchase
over the period 1 January 2021 to 31 December 2021.
8. Gordon Boyd was appointed interim CFO on 16 November 2020 and stepped down from the Board on 12 May 2021 following the appointment
of Tim Weller. Reflecting the interim nature of Gordon’s role, he received a base salary (£100,000 per month). He was not eligible for any
variable remuneration and did not receive pension contributions. The figures disclosed for 2021 are for the period 1 January 2021 to the date
he stepped down, 12 May 2021 and include an element of accrued holiday pay.
9. Patrick Butcher’s base salary, benefits and pension are shown for the period 1 January 2020 to the date he stepped down from the Board on
16 November 2020.
10. Gillian Sheldon stepped down from the Board on 28 February 2021. Fees disclosed for 2021 are for the period from 1 January 2021 to
28 February 2021 and include an element of accrued holiday pay.
11. Andrew Williams stepped down from the Board on 11 May 2021. Fees disclosed for 2021 are for the period from 1 January 2021 to
11 May 2021.
12. Baroness Lucy Neville-Rolfe stepped down from the Board on 14 December 2021. Fees disclosed for 2021 are for the period from 1 January
2021 to 14 December 2021.
Financial targets (80% of the bonus)
Threshold target
Target
Weighting
(25% vests)
(50% vests)
Stretch
(100% vests)
Actual
performance1
Achievement
against financial
performance
weighting
40%
20%
20%
£101m
£103m
£112m
£114m
£124m
£126m
£73m
£80m
£2,832m
£3,147m
£3,462m
£3,009m
0%
0%
39%
7.8%
Adjusted free
cash flow
Adjusted PBT
Organic revenue2
Financial measures
bonus payout
1. Actual performance in the table above takes into account items which have been disallowed for the purposes of calculating bonus performance.
2. Organic revenue excludes revenue from acquisitions and business exits.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued
111
Strategic objectives (20% of the bonus)
Achievement against the strategic and personal objectives represented 20% of the total annual bonus opportunity for each executive director. The objectives were focused on delivery of Future Capita
(new corporate structure and operating model) and net zero strategies, securing long-term financing, improving financial and key non-financial controls, and development of a Group-wide finance function
transformation project.
Jon Lewis
Objectives
Develop a net zero
emissions strategy
Weighting
(% of salary)
Assessment
13.33%
This target required the CEO to develop a detailed net zero emissions (NZE) strategy during 2021 including targets and timescales for achievement.
In assessing this target, the committee noted that an executable and costed plan to achieve net zero by 2035 was defined and approved by the Board in
September 2021 (including net zero emissions targets to be part of strategic objectives for the bonus plan in 2022).
The net zero plan was accredited by the Science Based Targets initiative, prior to Board approval. Supplementary internal and external communication
campaigns ran to raise awareness.
In addition, Capita was rated green for NZE strategy in the annual Cabinet Office strategic supplier review and rated first of five complex outsourcing
suppliers and eighth of all 40 strategic suppliers on mean carbon emissions reduction.
Implement Future Capita
strategy
13.33%
The committee deemed this objective to be met in full.
This target required the implementation of Future Capita strategy including a new operating model.
In assessing this target, the committee noted that redesign of the Future Capita strategy (six divisions down to two core and one non-core) was delivered on
time, within budget, and in accordance with design principles, with no major challenges impacting reputation, colleagues or customers.
All related systems were rewired in conjunction with this go-live.
The planned second wave of actions were executed in October, including an entire rewrite of the operating model ‘Blue Book’ and subsequent cascade
throughout the organisation.
The cost competitiveness targets were exceeded, associated with operating model changes,
Further, prudent operating model changes made to Executive Committee in Q4, resulting in £50m added cost saved.
Given the change programme, some regression in employee NPS was to be expected but the outcome was nevertheless disappointing, after progress
made prior to 2021. Importantly, customer NPS remains strong.
Score
(% of salary)
13.33%
11.33%
Resolution of legacy
contracts delivery
issues
13.33%
In light of the disappointing result on employee NPS, the committee considers this objective to be partially met.
This target required the CEO to focus on resolving legacy contract delivery issues.
In assessing this target, the committee noted that:
• Transformational elements of all legacy contracts were completed by end Q4 2021 to client satisfaction
• Contractual SLA KPIs (at 31 December 2021) were as follows: Green – 90%, Amber – 9%, Purple – 1%
• Legacy contract resolution was achieved with no major issues affecting reputation, clients or colleagues
• There was a marked change in Governmental support and feedback for Capita, including positive feedback from our Crown Representative (including in
our strategic supplier annual review), the Mayor of London, and the CEO of The Pension Regulator.
While significant progress was made in respect of the legacy contract position, the committee considers this objective to be partially met.
9.33%
34%
(85% of maximum)
Total
40%
• Resolution of legacy contracts delivery issues
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 112
Tim Weller (from 12 May 2021)
Objectives
Development of
financial and key
non-financial controls
improvements across
the Group
Development of
Group-wide finance
function transformation
project
Weighting
(% of salary)
Assessment
17.5%
The target required the CFO to lead the implementation of the project in the second half of 2021, focused on:
Score
(% of salary)
17.5%
• Principal risk to process mapping to identify gaps and control weaknesses, with findings to be reported to the Audit and Risk Committee by the end of
2021; and
• Carrying out an internal controls over financial reporting (ICFR) review to identify gaps and control weaknesses arising from implementation of minimum
controls standards (MCS) in finance processes across the Group. Report findings to the Audit and Risk Committee by the end of 2021/early 2022.
In assessing this target, the committee noted that the principal risk to business process mapping exercise was launched in July 2021, with the financial
controls improvement programme now an inherent part of the re-engineering of current finance systems and processes. Findings were reported to the
Audit and Risk Committee in its December 2021 meeting. The programme continues to progress well as the finance function looks to build on the Group’s
robust key controls questionnaire process to provide a monitoring mechanism to deliver control improvement in 2022.
17.5%
The committee deemed this objective to be met in full.
The target required the implementation of the overall project to have commenced by 31 December 2021 and specifically have:
14%
• Delivered the first phase of revised CEO-3 organisation design and wider finance team structure to be implemented by Q4 2021
• Delivered significant progress towards presenting an S/4HANA business case for approval by the Board
• Presented the overall finance transformation project at the November 2021 Board
In assessing this target, the committee noted that finance organisation design changes to support Future Capita, and to establish a more efficient and
effective central finance team structure, were implemented by 31 December 2021. Key finance leadership roles have been populated and the team is now
focussing on continuous improvement in system and process. The S/4HANA implementation was terminated in December 2021 recognising that the
solution was no longer fit for purpose given the simplified structure of the Group and the SAP ECC will remain supported until at least 2030. The committee
noted that this decision is expected to avoid a significant amount of further investment.
The committee deemed this objective to be partially met as, while significant progress has been made in respect of the Group-wide finance function
transformation, some modifications have been required as a result of the decision to terminate the S/4HANA implementation.
Total
35%
Summary of total 2021 bonus awards
Total financial
Strategic/personal
Total (%)
Total bonus (£)
Jon Lewis
Tim Weller
% of maximum
% of salary
% of maximum
% of salary
7.8%
17%
24.8%
15.6%
34.0%
49.6%
7.8%
18.0%
25.8%
13.7%
31.5%
45.2%
£359,020
£135,2961
1. Calculated on a pro-rata basis from start date, albeit reflecting a period of unpaid leave.
31.5%
(90% of maximum)
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 113
Following a review of performance by the committee post year end, annual bonuses of 49.6% of
salary for the CEO and 45.2% of salary for the CFO (pay out determined on a pro-rata basis) were
awarded. While the threshold targets in respect of adjusted free cash flow and PBT were not met,
organic revenue performance (a key part of Capita’s transformation plan) was between threshold
and target and the strategic objectives were considered to have been met to a significant extent.
Consistent with the shareholder approved remuneration policy, 50% of the bonus awards will be
deferred into Capita plc shares for three years. Details on the committee’s review against the
broader stakeholder experience is set out in the Annual Statement on page 117.
progress made against Capita’s transformation plan and the performance against the underpin
more generally.
Based on the above outcomes, the estimated vesting of the long-term incentive for Jon Lewis in
2022 is:
Shares vesting based
on performance
Awards granted
(12.5% of maximum)
Dividend equivalent
shares1
Total shares
expected to vest
Estimated value
at vesting2
Jon Lewis
1,782,786
222,848
–
222,848
£98,811
Long-term incentive awards due to vest in 2022 based on performance to
31 December 2021 (audited)
1. No dividend equivalent shares are payable on the 2019 LTIP award.
2. Based on the average three-month share price to 31 December 2021 of 44.34p.
The performance assessment in respect of the 2019 LTIP awards held by Jon Lewis is as follows:
RSAs granted in 2021 (audited)
Performance metric
Weighting
(25% vests)
(50% vests)
Threshold
Target
Free cash flow
EBIT margin
Organic revenue growth2
25%
25%
25%
Customer satisfaction
12.5%
Employee engagement
Total vesting
12.5%
£190m
9%
£3,900m
6 point
positive
swing in
NPS
6 point
positive
swing in
NPS
£210m
10%
£3,950m
8 point
positive
swing in
NPS
8 point
positive
swing in
NPS
Stretch
(100% vests)
£250m
12%
£4,050m
12 point
positive
swing in
NPS
12 point
positive
swing in
NPS
Result1
£2m
4.1%
£3,009m
13 point
positive
swing in
NPS
1 point
negative
swing in
NPS
12.5%
0%
12.5%
1. Result in the table above takes into account items which have been disallowed for the purposes of calculating performance.
2. Organic revenue excludes revenue from acquisitions and business exits.
For the three years ended 31 December 2021, performance against the financial metrics did not
meet the threshold targets. In addition, while employee engagement was tracking well, it fell below
threshold during 2021. However, performance against the customer NPS targets (considered to be
a genuinely stretching target which remains a critical driver of the performance and improvement of
the business) was very strong over the performance period with a 13 point positive swing delivering
full vesting of this element. Based on this excellent customer performance, albeit noting that the
share price performance has eroded the value of the shares that are due to vest significantly, the
committee believes that the 12.5% vesting out of the total is appropriate due to the considerable
work involved and progress made in improving customer satisfaction scores over the period and
Vesting –
% of max
0%
0%
0%
Following approval of the Capita Executive Plan at the 2021 AGM, no further awards will be granted
under the LTIP. The 2021 RSAs granted to Jon Lewis and Tim Weller represented a reduction of
around 17% in the number of shares that would otherwise be awarded as part of their normal
annual grant under the newly approved remuneration policy. The share price at grant was 41.78
pence.
Name of director
Jon Lewis
Tim Weller
Number of shares
awarded
2,169,100
1,082,695
Face value of
RSA
£906,250
£452,350
Percentage
of salary
125%
83%
RSAs granted to executive directors in 2021 will normally vest after three years from grant subject
to: (i) continued employment; (ii) satisfactory personal performance during the relevant vesting
periods; and (iii) a positive assessment of performance against two underpins (see below). Once
vested, shares received may not normally be sold until at least six years from the grant date (other
than to pay relevant taxes).
The underpins for the 2021 awards are as follows:
• underpin 1: Capita’s TSR over the three years ending 31 December 2023 must be positive for any
RSAs granted to executive directors to vest; and
• underpin 2: the committee must be satisfied with the underlying performance of Capita and that
there have been no environmental, social or governance issues resulting in material reputational
damage. If this is not deemed to be met, the committee will consider a reduction to the final
vesting level of the RSAs (including to nil).
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 114
Directors’ interests and shareholding guidelines (audited)
Executive directors are expected to hold 200% (300% for the CEO) of salary in shares in the
Company. The guidelines include shares held beneficially and also shares within the deferred
annual bonus (DAB) plan that have been deferred over the three-year period, RSA awards which
are not subject to performance conditions/performance underpins and share awards which have
vested but not yet been exercised. Any shares in the DAB, RSA awards which are not subject to
performance conditions/performance underpins and vested but unexercised LTIP awards used
for this are calculated net of tax. Share awards that are subject to performance conditions are
not included.
The remuneration policy adopted in 2021 incorporated post cessation shareholding guidelines
which require executive directors to retain 100% of the relevant guideline (or the actual shareholding
if lower at cessation) until the second anniversary of the date of cessation.
Beneficially
held interests at
Beneficially
held interests at
Interests in share
incentive schemes,
awarded without
performance
conditions at
31 December 2021
31 December 2020
31 December 2021
Interests in share
incentive schemes,
awarded without
performance
conditions at
31 December 2020
Interests in share
incentive schemes,
awarded subject
to performance
conditions/underpins at
Interests in share
incentive schemes,
awarded subject
to performance
conditions at
Interests in share
option schemes
where performance/
vesting conditions
have been met but
not exercised at
Interests in share
option schemes
where performance/
vesting conditions
have been met but
not exercised at
Percentage of
Shareholding target
requirement at
31 December 2021
31 December 2020
31 December 2021
31 December 2020
31 December 2021
Sir Ian Powell
Jon Lewis
Tim Weller
David Lowden
Matthew Lester
Georgina Harvey
John Cresswell
Neelam Dhawan
Lyndsay Browne
Joseph Murphy
Gordon Boyd2
Gillian Sheldon3
Andrew Williams4
Baroness Lucy
Neville-Rolfe5
100,000
795,303
262,854
75,000
49,186
6,000
20,500
–
11,240
11,379
–
12,500
100,000
30,000
458,624
–
–
49,168
6,000
20,500
–
6,416
6,555
–
12,500
100,000
–
516,029
–
–
–
–
–
–
–
–
–
–
–
–
516,029
–
–
–
–
–
–
–
–
–
–
–
–
5,721,886
1,082,695
–
–
–
–
–
–
–
–
–
–
–
5,525,562
–
–
–
–
–
–
–
–
–
–
–
–
1,183,666
–
–
–
–
–
–
–
–
–
–
–
–
1,183,666
–
–
–
–
–
–
–
–
–
–
–
13,842
13,842
–
–
–
–
–
–
–
28%
9%
–
–
–
–
–
–
–
–
–
–
–
1. Calculated using the closing share price on 31 December 2021 (36.5p).
2. Gordon Boyd’s beneficially held interests are shown at the date of his resignation on 11 May 2021.
3. Gillian Sheldon’s beneficially held interests are shown at the date of her resignation on 28 February 2021.
4. Andrew Williams’ beneficially held interests are shown at the date of his resignation on 11 May 2021.
5. Baroness Lucy Neville-Rolfe’s beneficially held interests are shown at the date of her resignation on 14 December 2021.
Between the end of the 2021 financial year and 9 March 2022, Jon Lewis, Tim Weller and Joseph Murphy acquired 5,264 shares under the Capita share ownership plan, increasing their beneficial interest
in ordinary shares of the Company to 797,058, 264,608 and 13,134 respectively. Although Capita does not have a formal policy on hedging shares, executive and non-executive directors attest annually
they have not pledged any shares held in the Company.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued Share plans (audited)
DAB plan
A deferred award is the deferred element of an individual’s annual bonus. Any deferral is made
on a gross basis into deferred shares or as a (net of tax) restricted share award. The deferred
shares are held for a period of three years from the date of award. This part is not subject to
performance conditions.
Unvested DAB deferred/restricted awards at 31 December 2021
Name of director
Jon Lewis1
Tim Weller1
2019 award2
516,029
n/a
Total
516,029
n/a
1. Jon Lewis and Tim Weller joined Capita on 1 December 2017 and 12 May 2021 respectively. Tim Weller was, therefore, not eligible for a bonus
in 2019 (in respect of 2018 performance). As a result of no bonus award for 2019 performance and no bonus operated for 2020, there have
been no further deferred bonus awards.
2. The value of the 2019 deferred award awarded on 21 March 2019 was included in the annual bonus value in the 2018 single-figure table. This
award is due to vest on 21 March 2022.
Unvested LTIP awards
Name of director
Jon Lewis
2019 award
2020 award
1,782,786
1,770,000
Details of the performance targets and expected vesting in respect of the 2019 awards are set out
on page 115.
The performance targets and underpin for the 2019 and 2020 LTIP awards are as follows:
115
2020 awards:
Performance underpin
Assessment of the
underlying financial
and operational
performance of Capita
over the performance
period
Performance
measure
Weighting
Threshold
(25% vests)
Target
(50% vests)
Stretch
(100% vests)
Relative TSR 75%
Median TSR
performance
vs the
constituents of
the FTSE 250
(excluding
investment
trusts)
Pro-rating
vesting
between
median and
upper quartile
performance on
a straight line
basis between
25% and 100%
Upper quartile
TSR
performance vs
the constituents
of the FTSE 250
(excluding
investment trusts)
Responsible business scorecard:
Client
10%
3 point positive
swing in NPS
3 point positive
swing in NPS
–
Employee
10%
5%
Suppliers
adherence
to prompt
payment code
Unvested restricted share awards
Name of director
Jon Lewis
Tim Weller
6 point positive
swing in NPS
6 point positive
swing in NPS
Maintain
current
9 point positive
swing in NPS
9 point positive
swing in NPS
Exceed current
2021 award
2,169,100
1,082,695
2019 awards:
Performance underpin
Assessment of the
underlying financial and
operational performance
of Capita over the
performance period
Performance
metric
Weighting
Free cash flow 25%
25%
EBIT margin
25%
Organic
revenue growth
Customer
satisfaction
Employee
engagement
12.5%
12.5%
Threshold
(25% vests)
£190m
9%
£3,900m
Target
(50% vests)
£210m
10%
£3,950m
Stretch
(100% vests)
£250m
12%
£4,050m
6 point positive
swing in NPS
6 point positive
swing in NPS
8 point positive
swing in NPS
8 point positive
swing in NPS
12 point positive
swing in NPS
12 point positive
swing in NPS
There are no performance targets attached to the RSAs. However, vesting is subject to: (i)
continued employment; (ii) satisfactory personal performance during the relevant vesting periods;
and (iii) a positive assessment of performance against two underpins (see below).
The underpins for the 2021 awards are as follows:
• underpin 1: Capita’s TSR over the three years ending 31 December 2023 must be positive for any
RSAs granted to executive directors to vest; and
• underpin 2: the committee must be satisfied with the underlying performance of Capita and that
there have been no environmental, social or governance issues resulting in material reputational
damage. If this is not deemed to be met, the committee will consider a reduction to the final
vesting level of the RSAs (including to nil).
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 116
Satisfaction of options
Board changes
When satisfying awards made under its share plans, the Company uses newly issued, treasury or
purchased shares as appropriate.
Dilution
All awards are made under plans that incorporate the overall dilution limit of 10% in 10 years. The
estimated dilution from existing awards, including executive and all-employee share awards, was
approximately 2.6% of the Company’s share capital at 31 December 2021.
Executive directors’ service agreements
Executive directors
Date of joining the Company
Jon Lewis
Tim Weller
1 December 2017
12 May 2021
Notice period
12 months
12 months
Non-executive directors’ terms of engagement
Non-executive directors
Date of joining the Board
Expiry date of current appointment
Sir Ian Powell
David Lowden
Matthew Lester
Georgina Harvey
Nneka Abulokwe
John Cresswell
Neelam Dhawan
Baroness Lucy Neville-Rolfe1
1 September 2016
1 January 2021
1 March 2017
1 October 2019
1 February 2022
17 November 2015
1 March 2021
6 December 2017
31 December 2022
31 December 2023
28 February 2023
30 September 2022
31 January 2025
16 November 2024
29 February 2024
14 December 2021
1. Baroness Lucy Neville-Rolfe stepped down from the Board on 14 December 2021.
As per the announcement on 11 May 2021, Gordon Boyd stepped down from his position as interim
CFO and Executive Director with immediate effect. Gordon Boyd was appointed on a short-term
contract of £100,000 per month. He therefore received his base salary only up to the date of leaving
(12 May 2021) and was not entitled to any further remuneration in respect of pension, bonus, share
awards or termination payments.
Tim Weller was appointed as CFO and Executive Director on 12 May 2021 on a base salary of
£545,000. While the Committee is conscious that this is higher than his predecessor’s salary at
Capita (£430,000), the Committee believes that the salary positioning is appropriate for the following
reasons:
• Board experience: Tim is a seasoned board director and with 20 years’ experience as a CFO. At
his previous employer, Tim was CFO from 2016 to 2021.
• Market alignment: in order to recruit Tim, it was essential to offer a market aligned joining salary
reflecting the size and complexity of the role. The market assessment was confirmed during the
recruitment process.
• Previous remuneration: Tim joined from G4S where he received a significantly higher base salary
(around £660k) and pension provision. While the on-target bonus and long-term incentives were
broadly comparable to Capita in £ terms, the total value of Tim’s previous remuneration package
at on-target and maximum levels was significantly greater than the package at Capita.
Payments to former directors (audited)
No payments were made to former directors.
External appointments for executive directors
During the year Jon Lewis served as a non-executive director for Equinor ASA. He received and
retained fees of NOK 604,826 for the period 1 December 2020 – 30 November 2021. Tim Weller is
a non-executive director of The Carbon Trust for which he receives an annual salary of £17,000.
The committee acknowledges these roles can benefit Capita through broadening Jon’s and Tim’s
knowledge and experience.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 117
Percentage change in remuneration levels
CEO pay ratio
The table below shows change in base compensation, benefits and annual bonus for the Board
directors in the 2021 and 2020 financial years, compared with the average for all employees of the
Company (Capita plc):
The table below compares the single total figure of remuneration for the CEO with that of the
Group’s employees who are paid at the 25th percentile (lower quartile), 50th percentile (median)
and 75th percentile (upper quartile) of its UK employee population.
Executive directors1
Jon Lewis
Tim Weller3
Gordon Boyd4
Patrick Butcher5
Non-executive directors1
Sir Ian Powell
David Lowden6
Matthew Lester
Georgina Harvey
John Cresswell
Neelam Dhawan6
Lyndsay Browne7
Joseph Murphy7
Gillian Sheldon8
Andrew Williams8
Baroness Lucy Neville-Rolfe8
Employee population9
Base
salary/fees
14.3%
–
0%
–
14.3%
–
13.9%
14.3%
14.3%
–
14.3%
14.3%
14.3%
14.3%
14.3%
2.8%
2021
Taxable
benefits10
5.1%
–
100%
-100%
–
–
–
–
–
–
–
–
100%
100%
–
4.4%
Annual
bonus
Base
salary/fees
100%2
–
–
–
–
–
–
–
–
–
–
–
–
123.2%
-12.5%
–
–
-12.5%
-12.5%
–
-12.5%
-12.5%
-12.5%
–
-12.5%
-12.5%
-12.5%
-12.5%
-12.5%
5.5%
2020
Taxable
benefits
-36.9%
–
–
-10.8%
-100%
–
–
–
–
–
–
–
–
–
–
20.6%
Annual
bonus
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-35.2%
1. The percentage change shown for the directors is based on the single figure information disclosed on page 109. The increase in salary/fees
for 2021 is due to the voluntary reduction taken by executive and non-executive directors in 2020 in response to Covid-19.
2. Jon Lewis did not receive a bonus in 2020 as the bonus plan was cancelled in response to Covid-19. The increase is therefore shown as 100%.
3. Tim Weller was appointed to the Board on 12 May 2021. Comparative figures are therefore unavailable.
4. Gordon Boyd was appointed interim CFO on 16 November 2020 and stepped down on 12 May 2021. He received a base salary of £100,000 a
month and was not eligible for any variable remuneration or pension contribution. On an annualised basis his salary therefore did not change
between 2020 and 2021.
5. Patrick Butcher stepped down from the Board on 16 November 2020. He therefore received no base salary/fees in 2021. Taxable benefits
reduced from £15,252 in 2020 to £905 in 2021.
6. David Lowden and Neelam Dhawan were appointed to the Board during 2021. Comparative figures are therefore unavailable.
7. Percentage change numbers shown relate to fees as a non-executive employee director.
8. Gillian Sheldon, Andrew Williams and Baroness Lucy Neville-Rolfe stepped down from the Board during 2021. For comparative purposes,
their 2021 fees have been annualised to show the percentage change since 2020.
9. The employee population information shown is for UK employees employed in the Capita plc entity.
10. Taxable benefits were £0 in 2020 but £1,309, £896 and £902 for Gordon Boyd, Gillian Sheldon and Andrew Williams respectively in 2021.
The increase is therefore shown as 100%.
Year
2021
20201
2019
Method
Option B
Option B
Option B
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
51:1
61:1
41:1
40:1
44:1
25:1
25:1
29:1
14:1
1. In accordance with the regulations, the 2020 CEO single figure has been updated to reflect the value of the LTIP based on the share price at
the vesting date. The 2020 pay ratio figures have therefore been adjusted accordingly
The 2021 remuneration figures for the employee at each quartile were determined with reference to
the financial year ending 31 December 2021. Due to the complexity of Capita’s corporate and
workforce structure, Option B was used to calculate these figures. The committee believes that this
approach provides a fair representation of the CEO to employee pay ratios and is appropriate in
comparison to alternative methods, balancing the need for statistical accuracy with internal
operational constraints.
A full-time and full-year equivalent total pay and benefits figure for 2021 was calculated for each
quartile point employee using the single figure methodology. This was also sense checked against
a sample of employees with hourly pay rates either side of the identified individuals to ensure that
the appropriate representative employee was selected. No adjustments were made to the total pay
and benefits figures (other than the approximate up-rating of pay elements where appropriate to
achieve full-time and full-year equivalent values) and no components of pay have been omitted.
The table below sets out the 2021 full-time equivalent salary and total pay and benefits for the three
identified quartile point employees:
2021
Salary
Total pay and benefits
25th percentile (P25)
Median (P50)
75th percentile (P75)
£18,251
£24,386
£29,457
£31,040
£39,833
£48,997
The committee recognises that the 2021 ratios are slightly lower than last year. The CEO’s single
figure of remuneration for 2021 is marginally higher than the figure for 2020 (c3.4% increase) for the
following reasons:
• The value of the 2019 LTIP vesting outcome (included in the 2021 single figure) is significantly
lower than the 2018 LTIP (included in the 2020 single figure).
• The impact of the LTIP is partially offset by:
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 118
– an increase in the reported salary figure for the CEO (and other directors) for 2021, as the 2020
Performance graph and CEO pay
figure included a voluntary 25% reduction in salary/fees for six months as part of Capita’s
response to Covid-19 – no reduction applied to the CEO (or other directors) during 2021; and
– the 2021 single figure includes an annual bonus of £359,020 (24.8% of maximum), whereas the
CEO (and wider workforce) received no annual bonus in respect of 2020.
The pay ratios have fluctuated since reporting commenced in 2019, primarily as a result of
variability in incentive outcomes for the CEO.
Capita is committed to offering its employees a competitive remuneration package. Base salaries
for employees, including our executive directors, are determined with reference to a range of factors
including market practice, experience and performance in role. Due to the nature of his role, the
CEO’s remuneration package has higher weighting on performance-related pay (including the
annual bonus and historical LTIP) compared to the majority of the workforce. This means the pay
ratios are likely to fluctuate depending on the outcomes of incentive plans in each year. The
committee also recognises that, due to the nature of the Company’s business and the flexibility
permitted within the regulations for identifying and calculating the total pay and benefits for
employees, the ratios reported above may not be comparable to those reported by other
companies, as reflected by the change in ratio from 2020 to 2021. For these reasons, the
committee considers that the median CEO pay ratio is representative of the UK employee base.
Gender pay gap reporting
The Company’s 2021 gender pay gap data will be available on the government website
https://gender-pay-gap.service.gov.uk from April 2022.
Relative importance of the spend on pay
The table below shows the spend on employee costs in the 2021 and 2020 financial years,
compared with dividends:
Employee costs
Dividends
2021
£m
1,767.1
–
2020
£m
1,794.8
–
% change
-1.5%
–
The following chart compares the value of an investment of £100 in the Company’s shares with an
investment of the same amount in the FTSE All-Share Index and the FTSE 350 Support Services
Index over the last 10 years, assuming that all dividend income is reinvested. The FTSE 350
Support Services has been chosen as the appropriate comparator as Capita is a constituent of this
index.
0
0
1
t
a
d
e
s
a
b
e
r
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
£400
£350
£300
£250
£200
£150
£100
£50
£0
01 Jan 12
31 Dec 12
31 Dec 13
31 Dec 14
31 Dec 15
31 Dec 16
31 Dec 17
31 Dec 18
31 Dec 19
31 Dec 20
31 Dec 21
Capita Group
FTSE All Share Index
FTSE 350 Support Services Index
The total remuneration figures for the CEO for 2021 and the previous nine years are shown in the
table below based on the single figure methodology.
The annual bonus payout and LTIP award vesting level as a percentage of the maximum
opportunity are also shown for this year.
RSA vesting percentages will be shown in respect of the estimated/actual value at vesting in
respect of the year ending just prior to the vest date.
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued
119
Year
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
CEO – single
figure of total
remuneration
£1,237,918
£1,196,582
£789,678
£2,014,209
£741,376
£682,958
£2,520,428
£2,558,998
£2,326,250
£2,038,233
Annual bonus
(vs max
opportunity)
Long-term
incentive (vs max
opportunity)
24.8%
0%
0%
85%
0%
0%
50%
100%
75%
100%
12.5%
60%
0%
0%
0%
0%
71.4%
67.2%
54.5%
47.8%
Note: the vesting percentages for the long-term incentives are averaged between the LTIP and the
DAB vesting rates for 2012–2013 and 2015. For 2014, this is the actual vesting for the LTIP as there
is no DAB maturity in 2014. Note: figures for 2012–2013 are based on remuneration for Paul Pindar.
Figures for 2014–2016 are based on remuneration for Andy Parker. Figures for 2017 are based on
remuneration paid to Andy Parker as CEO until 15 September 2017, to Nick Greatorex as interim
CEO from 16 September 2017 to 30 November 2017, and to Jon Lewis as CEO from 1 December
2017. In accordance with the regulations, the 2020 CEO single figure has been updated to reflect
the value of the LTIP based on the share price at the vesting date (rather than an estimate of the
share price at vesting).
Approval of the directors’ remuneration report
The directors’ remuneration report was approved by the Board on 9 March 2022.
Georgina Harvey
Chair
Remuneration Committee
9 March 2022
Corporate governanceCapita plc Annual Report 2021Directors’ remuneration report continued 120
Independent
auditor’s report
to the members of Capita plc
1 Our opinion is unmodified
We have audited the financial statements of Capita plc (the
Company”) for the year ended 31 December 2021 which comprise
the consolidated income statement, consolidated statement of
comprehensive income, consolidated balance sheet, consolidated
statement of changes in equity, consolidated cash flow statement,
company balance sheet, company statement of changes in equity,
and the related notes, including the accounting policies in sections 1
to 6 to the Group financial statements and section 7 to the Parent
Company Financial statements.
In our opinion
— The financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
31 December 2021 and of the Group’s profit for the year
then ended;
— The Group financial statements have been properly prepared
in accordance with UK-adopted international accounting
standards;
— The Parent Company financial statements have been properly
prepared in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework; and
— The financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion. Our audit opinion is consistent with our report to the
Audit and Risk Committee.
We were first appointed as auditor by the Directors on 18 August
2010. The period of total uninterrupted engagement is for the 12
financial years ended 31 December 2021. We have fulfilled our
ethical responsibilities under, and we remain independent of the
Group in accordance with, UK ethical requirements including the
FRC Ethical Standard as applied to listed public interest entities. No
non-audit services prohibited by that standard were provided.
Overview
Materiality:
Group financial
statements as a
whole
£6m (2020: £7m)
0.2% of normalised Group revenue (2020: 4.4%
of normalised Group profit before tax)
Coverage
86% (2020: 86%) of total Group revenue
86% (2020: 74%) of total profits and losses
before tax
90% (2020: 88%) of total Group assets
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
Risks of material misstatement vs 2020
Recurring risks for the Group
Going concern
Revenue and profit recognition
Impairment of goodwill
Items excluded from adjusted profit
Capitalisation and recoverability of contract fulfilment assets
Provisions and contingent liabilities
Pensions obligations
Recurring risks for the
Parent Company
Recoverability of the Parent Company’s investment in, and amounts due from, its subsidiaries
121
◄►
◄►
▲
◄►
◄►
►
◄►
◄►
In the prior year we reported a material risk in respect of the recoverability of intangible assets acquired in business combinations alongside the
recoverability of goodwill. The carrying value of intangible assets have decreased significantly following the completion of business disposals and
asset retirements in the year. Therefore the level of our audit focus has reduced and accordingly the risk has been removed from our audit report
for 2021.
2 Material uncertainty related to going concern
The risk
Going concern
Refer to section 1 and the viability statement on page 62 and the Audit
and Risk Committee report (pages 86 - 95).
We draw attention to note 1 to the financial statements which indicates
that the Board requires the completion of its planned business disposals
programme and a refinancing to support the going concern assumption.
Both require agreements and consents from third parties which are not
within the direct control of the Company and accordingly these events
and conditions constitute material uncertainties that may cast significant
doubt on the Group’s and the Parent Company’s ability to continue as a
going concern and, therefore, that the Group and parent Company may
be unable to realise their assets and discharge their liabilities in the
normal course of business.
Our opinion is not modified in this respect of these matters.
Disclosure quality
The financial statements explain how the Board has formed a judgement
that it is appropriate to adopt the going concern basis of preparation for
the Group and Parent Company.
That judgement is based on an evaluation of the inherent risks to the
Group’s and Parent Company’s business model and how those risks
might affect the Group’s and Parent Company’s financial resources or
ability to continue operations over a period to 31 August 2023 from the
date of approval of these financial statements (the ‘going concern
period’).
There is little judgement involved in the Directors’ conclusion that the
mitigations required to address the risks and circumstances, described
in note 1 to the financial statements, represent material uncertainties
over the ability of the Group and Parent Company to continue as a going
concern. This is because the mitigations are not within the direct control
of the Company.
Clear and full disclosure of the facts and the Directors’ rationale for the
use of the going concern basis of preparation, including that there are
related material uncertainties, is a key financial statement disclosure
and so was the focus of our audit in this area. Auditing standards require
that to be reported as a key audit matter.
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
122
Our response
Assessing transparency: We assessed the completeness and
accuracy of the matters covered in the going concern disclosure, to
confirm whether they sufficiently explain the judgements made, and
risks considered by the Directors in assessing whether the basis of
preparation is appropriate. In addition, we assessed the overall balance
presented in the basis of preparation and viability statements, and the
clarity provided by the Board in relation to the mitigations required to
support the going concern assumption of the Group and Parent
Company.
We responded to the risks considered by critically evaluating the
Board’s assessment of both the base case and severe but plausible
downside scenario. The focus of our audit covered the following
key areas:
Our sector experience: We assessed the projections and assumptions
by reference to our knowledge of the business and general market
conditions including the potential risk of management bias. In addition
to execution risk associated with the transformation plan, we critically
assessed any prolonged impact of COVID-19, along with the risks and
uncertainties associated with the Group’s customers, suppliers and
workforce. We formed our views based on our understanding of the
business and the end markets the Group serves and how these have
been impacted by the global pandemic.
We considered the risk factors as set out by the Board in the Principal
Risks section of the annual report and accounts, and where relevant
ensured that these featured in the projections prepared to support the
base case and the risks applied.
Test of detail: We used our modelling specialists to test the integrity of
the financial model used by the Board to assess the base case
projections and the various scenarios, including the severe but
plausible downside forecasts.
We critically assessed the cash flow forecasts by considering the
appropriateness of key assumptions used in preparing those
projections, with a specific focus on the revenue growth assumptions
and cost reduction plans. We evaluated these via enquiries with each of
the divisional Executive Officers and Finance Directors, the Chief
Executive Officer and Chief Financial Officer, and inspected the Board’s
plans and associated papers.
Historical comparisons: We assessed the ability of the Group to
accurately forecast by comparing historical results to forecasts for key
metrics. We assessed the most recent years’ performance against
budget, including sales growth and cost reductions and challenged the
assumptions over the going concern period based on historical
performances. We also assessed the actual performance in recent
years vs the base case and downside case for the relevant year to
challenge the quantum of risks applied in the forecasts.
Funding assessment: We reviewed the lender agreements, including
the Revolving Credit facility (RCF) and the backstop bridge facility, to
understand the terms including covenant requirements and any
restrictions in the use of funds. We re-performed calculations, for 30
June 2022 and 2023 and 31 December 2022, prepared to assess
compliance with the key financial covenant and tested for mathematical
accuracy.
We considered the adjustments made in the adjusted EBITDA for the
covenant calculations, considering the appropriateness compared to
the loan agreements and historical accepted practice with the current
lenders. In addition, we inspected the correspondence between the
Company and the private placement lenders that set out the proposed
items to be excluded in the adjusted EBITDA definition and compared
these against the items included in the covenant calculations.
Sensitivity analysis: We assessed the downside sensitivities to
ensure that these represented severe but plausible scenarios based on
our knowledge of the business, the associated risk exposure and we
considered the most recent trading results to form a holistic view of the
Group. We assessed those risks and challenged whether the risks
applied reflected progress to date in delivering the transformation
programme and the ongoing effects from COVID-19 based on the
impacts experienced by the Group since 2020. We assessed identified
risk assumptions to ensure that they reflected a more likely than not
chance of occurring under the downside scenarios. We also assessed
the mitigating actions, to identify whether these were reasonable and
within the direct control of the Group.
Our findings: We found the going concern disclosure including the
related material uncertainties to be proportionate (2020: disclosure
finding with material uncertainties: proportionate).
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
123
3 Other key audit matters: our assessment
of risks of material misstatement
Key audit matters are those matters that, in our professional judgement,
were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by us, including those which had
the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. Going concern is a significant key audit matter and is described
in section 2 of our report. We summarise below the other key audit
matters (unchanged from 2020 with the exception of the risk associated
with the recoverability of intangible assets which has been removed
from our audit report as described in section 1), in decreasing order of
audit significance, in arriving at our audit opinion above, together with
our key audit procedures to address those matters and our findings
from those procedures in order that the Company's members as a
body, may better understand the process by which we arrived at our
audit opinion. These matters were addressed, and our findings are
based on procedures undertaken, in the context of, and solely for the
purpose of, our audit of the financial statements as a whole, and in
forming our opinion thereon, and consequently are incidental to that
opinion, and we do not provide a separate opinion on these matters.
The risk
Revenue and profit recognition
The Group has reported revenues
from continued operations of
£3,182.5 million (2020: £3,324.8
million) and reported profit before
tax of £287.1 million (2020: loss
£49.4 million)
Refer to sections 2.1 and 2.2 and
to the Audit and Risk Committee
report (pages 86 – 95).
Accounting treatment
Professional standards require us to make a rebuttable presumption that the fraud risk associated with
revenue recognition is a significant risk.
The incentive/pressures on management to achieve bonus targets and/or market consensus increase the risk
of fraudulent revenue and profit recognition.
Subjective estimate
There is a risk that revenue may be recognised even though it is not probable (i.e. not more likely than not)
that consideration will be collected, which could be due to uncertainties over contractual terms and ongoing
negotiations with customers.
For long-term contracts, the contractual arrangements can be complex regarding variable consideration and
service performance measures. This can involve significant judgments that may impact the recognition of
revenue and contract profits including, among others, those over:
— The interpretation of contract terms concerning future obligations;
— The allocation of revenue to performance obligations;
— The assessment of whether the contract performance obligations satisfy the requirements to apply the
series guidance;
— The consideration of onerous contract conditions and associated loss provisions; and
— Where changes in the scope of work are agreed, the assessment of whether the new services are
distinct or not.
The execution risk associated with the successful transformation on an outsourcing contract requires
judgment to be applied concerning costs to complete and the overall estimation of profit over the lifetime of the
contract. There is a risk that potential difficulties are not identified fully resulting in excessive profits being
recognised or the lack of consideration of contract loss provisions. This risk was heightened due to the impact
of COVID-19 on the delivery of performance obligations, and the economic uncertainties the pandemic
introduced that may continue to impact assumptions concerning future performance metrics.
In situations where customers terminate, or partially terminate a contract, the cessation may trigger the
recognition of deferred income associated with outstanding performance obligations which will no longer be
recognised in future periods. Judgment is required to determine the effective date of the termination, and
particularly where services are being handed back or across to another provider.
The effect of these matters is that, as part of our risk assessment, we determined that revenue and profit
recognised from long-term contracts has a high degree of estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many
times that amount.
Disclosure quality
There is a risk that the disclosures presented are not sufficient to explain the revenue and profit recognition
accounting policies and the key judgments applied.
Our response
We performed the detailed tests below rather than seeking to rely on
any of the Group's controls because our knowledge of the related IT
controls indicated that we would be unlikely to obtain the required
evidence in order to be able to support the effective operation of the
controls.
Tests of detail: We obtained and inspected a sample of the contractual
agreements to understand the contract terms and conditions that
underpin the revenue and the profit recognition assumptions and to
identify conditions under which variable revenue can arise. For the
major contracts selected through our scoping exercise, where relevant,
we also assessed the accounting papers prepared by the Company that
set out the key judgments to apply.
Where contract negotiations are ongoing in relation to variable
consideration, we made enquiries on the current status with those
involved in the discussions and by reference to the associated signed
contract or any variation amendments. Where significant variable
consideration had been recognised, we obtained and inspected the
contractual agreements to understand the contract terms and
conditions that underpin the revenue recognition assumptions. Where
relevant we inspected correspondence with customers or other
supporting documentation in relation to the variations or scope change.
We considered the assumptions within the business plans and lifetime
assessments, checking that onerous conditions had been recognised
appropriately, particularly on contracts that have had a poor
performance in the current year and those contracts that are in a pre-
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
124
inflection phase of transformation. We assessed any ongoing impact of
COVID-19 on the key assumptions, together with any contract
modifications agreed with the customer in response to the pandemic.
In determining whether onerous contract provisions should be recorded,
we assessed contract profitability forecasts by analysing historic
performance relative to contractual commitments over its full term. This
included assessing critically the assumptions over future costs including
projected savings and the actions required to achieve these by
comparison to historical cost savings achieved on similar projects. Our
assessment considered the levels of uncertainty contained in the
forecasts, the extent to which Company actions alone could mitigate
risks and any dependencies on the customer or other third parties. This
assessment covered a sample of contracts including those identified by
the Board as being high risk and comprising the major contracts in a
pre-inflection phase.
In situations where there has been a termination or partial termination,
we assessed the contract terms including any correspondence from the
customer, to challenge the effective date of the termination. We also
challenged the judgments applied as to whether, in the case of a partial
termination, any deferred income should be recognised immediately or
spread forward by assessing the inter dependencies of the performance
obligations, and the initial contractual terms.
We challenged whether the key contract judgments made by the Board
are appropriate based on the underlying contractual terms and
evidence obtained.
Assessing transparency: We considered the disclosures in the
financial statements to check that these were comprehensive and
provided proportionate detail of the revenue and profit recognition
policies and of the key judgments applied. This included an assessment
of whether sections 2.1 and 2.2 clearly set out the impacts arising from
the accounting policies applied in relation to the long-term contracts
provided by the Group.
Our findings: In determining the treatment of revenue and profit
recognition, the Group has applied accounting policies based on the
requirements of IFRS15. In applying these policies there is room for
judgement and we found that within that the Group's judgement was
balanced (2020 finding: balanced).
We found the disclosures associated with the IFRS15 policies to be
ample (2020 finding: ample).
The risk
Impairment of Goodwill
The Group records goodwill of
£951.7 million as at 31 December
2021 (2020: £1,120.5 million) –
see sections 3.4.
Refer to the Audit and Risk
Committee report on
pages 86 – 95
Forecast-based valuation
As part of our risk assessment we considered the carrying value of goodwill and the risk over potential
impairment to be a significant audit risk because of the inherent uncertainty involved in forecasting and
discounting future cash flows. The Group has revised its Cash Generating Unit (CGU) structure as a result of
the Future Capita re-organisation. This introduced judgement with regards to the reallocation of goodwill to
each new CGU Group.
COVID-19 introduced unprecedented economic uncertainties and this led to increased judgement in
forecasting future financial performance. The high level of uncertainty as to how the economy might recover
from the pandemic and how the transformation programme might deliver over the remainder of 2022 and into
2023 and beyond, and the impact these may have on the Group’s activities and performance, continues to
render precise forecasting challenging. There is a high degree of uncertainty in making the key judgements
and assumptions that underpin the Group’s financial forecasts.
There is a risk that the Board have not adequately assessed the factors that could impact the future forecasts
and performance of the business, including the execution risk associated with the delivery of the
transformation plan and the economic uncertainties as economies recover from the pandemic. This could
impact the assessment over the carrying value of goodwill, and the quantum of any impairment charges that
may need to be recorded.
We determined that the recoverable amount of goodwill has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater than our materiality for the financial statements as a whole,
and possibly many times that amount. The financial statements (section 3.4) disclose the sensitivity estimated
by the Board.
Disclosure quality
There is a risk that the disclosures presented are not sufficient to explain the key assumptions that drive
the valuations, and the key sensitivities that the Board has considered. This is particularly important given
the completion of the transformation programme, the impacts that COVID-19 has introduced, and the
relevance of the assumed growth assumptions to the sensitivities that are relevant when considering the
carrying value of goodwill.
Our response
We performed the tests below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Comparing valuations: We compared the sum of the discounted cash
flows to the Group’s market capitalisation and assessed the rationale
for the differences. We also compared the implied share price derived
from the recoverable amount at the year end to the Company’s share
price throughout 2021 and assessed the reasonableness of the factors
identified by the Board to explain the differences. Our assessment
considered the impact of COVID-19 on the share prices of many listed
entities during 2021, and the sectors and end markets that the Group is
involved with.
Tests of detail: We tested the principles and integrity of the Group’s
discounted cash flow model. We compared the cash flows used in the
impairment model to the output of the Group’s budgeting process and
against the understanding we obtained about the business areas
through our audit and assessed if these cash flows were reasonable.
We assessed and challenged the goodwill reallocation approach
applied by the Group following the reorganisation of the Group’s
reporting structure..
Historical comparison: We assessed the historical accuracy of the
forecasts used in the Group’s impairment model by considering actual
performance against prior year budgets, recognising the impacts that
COVID-19 introduced. We also assessed the forecast revenue growth
with reference to the most recent results for 2020 and 2021.
Benchmarking assumptions: We used external data and our own
internal valuation specialists to evaluate the key inputs and
assumptions for growth and discount rates.
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125
Sensitivity analysis: We performed sensitivity and break-even
analyses for the key inputs and assumptions and identified those cash-
generating units we considered most sensitive to impairment.
Assessing transparency: We evaluated the adequacy of the
disclosures related to the estimation uncertainty, judgments made and
assumptions over the recoverability of goodwill, checking that the
sensitivity disclosures provided enough detail and proportionate
information to inform a reader of the accounts.
Our findings: We found that the Group's cash flow forecasts and
discount rates, when considered together, were optimistic (2020 finding:
mildly optimistic), reflecting the dependency on the successful delivery
of the transformation program objectives and the continuing economic
uncertainties introduced by COVID-19.
We found the Group's disclosures to be proportionate (2020 finding:
proportionate) in their description of the assumptions and estimates
made by the Group and the sensitivity of the valuation of goodwill to
changes in those assumptions and estimates.
The risk
Items excluded from
adjusted profit
The Group has reported a profit
before tax of £287.1 million for the
year ended 31 December 2021
(2020: loss £49.4 million) and
corresponding adjusted profit
before tax of £93.5 million
(2020: £5.4 million)
Section 2.4 details items excluded
from adjusted profit. Refer to the
Audit and Risk Committee report
on pages 86 – 95.
Presentation appropriateness
The Group presents separately adjusted measures including operating profit and profit before tax as a note to
the consolidated income statement and in section 2.4. In addition, adjusted free cash flow measures are
presented in section 2.10. The Company’s financial highlights and commentary refers to ‘adjusted’ measures
as well as those derived on an adopted IFRS basis. The reasoning behind this presentation is set out in notes
to the financial statements.
Items excluded from adjusted profit are not defined by IFRSs and therefore a policy decision is required by the
Directors to identify such items and to maintain the comparability of results with previous years in accordance
with the Group’s accounting policy, and there is a risk of management bias. Failure to disclose clearly the nature
and impact of items excluded from adjusted profit may distort the reader’s view of the financial result in the year.
There is a risk that items excluded from the reported GAAP measures are inappropriate and not in
accordance with the accounting policy approved by the Board.
The key covenants that are relevant for the Company’s compliance with the terms of the debt and loans are
based on EBITDA that is adjusted for items excluded from reported profits. This introduces a risk of
management override and bias to ensure compliance is achieved.
Disclosure quality
The disclosures need to include relevant and appropriate explanation of the items adjusted to ensure these
are transparent and understandable and can be reconciled easily back to equivalent reported GAAP
measures. There is a risk that the information provided is unclear and does not provide enough detail on the
accounting policy approved by the Board, and in the case of restructuring does not set out the boundaries
applied to determine which costs should be excluded from the reported measures.
Our response
We performed the tests below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Assessing principles: We communicated our consideration on the
classification of items excluded from adjusted profit to the Audit and Risk
Committee to inform the debate on the Board’s assessment of the policy
decision to present adjusted measures in addition to the reported metrics.
We examined the presentation of adjusted measures in the front half of
the Annual Report and Accounts (‘ARA’) and considered this against
applicable guidelines including the FRC publications on the
presentation of alternative performance measures. This included the
publications issued by the FRC during 2020 in response to COVID-19
with guidance provided on how listed entities should use the narrative
to explain the effects of the pandemic on the Group’s activities and
performance, as well as the FRC Thematic Review on Alternative
Performance Measures (APMs) issued in October 2021 which sets out
an expectation of good quality disclosures around the use of APMs.
Assessing balance: We considered whether there are any items
included in the adjusted measures that it would be more appropriate to
exclude from these measures and vice versa.
We tested on a sample basis items recorded as adjustments to source
documentation to assess the appropriateness of classification.
As part of this consideration, we assessed the consistency of
application of the Group’s accounting policy for the classification of
items excluded from adjusted profit year-on-year.
We reviewed the terms of the debt and loan agreements to understand
the items that can be adjusted for the purpose of preparing the
covenant calculations.
We evaluated the items adjusted with a consideration to the factors
above to assess management override and bias.
Assessing transparency: We assessed whether the basis of the
adjusted financial information is clearly and accurately described and
consistently applied and that all alternative performance measures,
together with reconciliations to the adopted IFRS position, are shown
with sufficient prominence in the ARA. We assessed the narrative and
commentary within the ARA with reference to the relevant FRC
guidance.
Our findings: The Board identified several items that individually had
affected profit for the year (or prior year) and that required appropriate
disclosure in the ARA to enable stakeholders to assess the Group’s
performance. This included items presented within the reported
measures, and those excluded to arrive at the adjusted measures. We
found that proportionate disclosure of these items had been provided in
the ARA taken as a whole (2020 finding: proportionate).
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
126
The risk
Capitalisation and
recoverability of contract
fulfilment assets (‘CFA’)
The Group reported CFAs that as
at 31 December 2021 totalled
£286.7 million
(2020: £294.8 million)
Refer to sections 2.1, 2.3 and
3.1.3, and to the Audit and Risk
Committee report on
pages 86 – 95.
Accounting application
IFRS15 requires that certain costs incurred on a contract, or an anticipated contract, that generate or enhance
the resources of an entity to deliver the performance obligations, and meet the relevant criteria set out in the
standard, should be capitalised and amortised over the expected contract life.
Subjective estimate
Section 2.1 sets out the outsourcing model operated by the Group and explains how typically the early stages
of a contract (‘pre-inflection’) will reflect a period when the contract fulfilment assets are created as the
contract delivery is established. Judgment is required in applying the Group’s accounting policy to assess
whether the costs incurred will enhance the future economic benefits from the contract. Where contracts are
at the pre-inflection stage, there is greater risk of recoverability as during this phase the CFA is being
developed. This compares to contracts post inflection and in a ‘business as usual’ stage where the risk is
reduced as the CFA has been proven and is being used to deliver the performance obligations, with
amortisation over the expected contract life.
Where a contract is not performing as expected, the costs capitalised may not be recoverable and an
impairment of the CFA may need to be recorded.
The effect of these matters is that, as part of our risk assessment, we determined that the recoverable amount
of contract assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes
greater than our materiality for the financial statements as a whole.
Disclosure quality
There is a risk that the disclosures presented are not adequate to explain the capitalisation criteria that are
used to assess whether items of expense should be recorded as a contract asset.
Our response
We performed the tests below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Tests of detail: We tested on a sample basis the costs capitalised as
CFAs by reference to the criteria set out in the Group’s accounting
policy. For the costs sampled we obtained third party support, or for
internally generated time we obtained the relevant costing rates and
records, to support the basis of capitalisation.
We assessed on a sample basis the useful economic lives applied to
the CFAs and evaluated the expected contract life by reference to the
contract terms or where appropriate any agreed extensions to the
original contract.
Sensitivity analysis: Where a contract has performed below budget and
expectations, we assessed whether there was uncertainty regarding the
recoverability of the CFA through future contract profitability.
Assessing transparency: We considered the disclosures in the
financial statements to assess whether these provided sufficient detail
of the criteria used to evaluate whether expense items should be
recorded as a CFA.
Our findings: We found the assumptions and estimates used to
assess the CFAs to be recognised, and to determine the estimated
useful lives, to be balanced (2020 finding: balanced).
We found that the Group’s disclosures in section 3.1.3 to be proportionate
(2020 finding: proportionate). Section 2.1 highlights the CFAs that are at
higher risk due to the pre-inflection stage of the contract.
The risk
Provisions and
Contingent Liabilities
See section 3.6 for details of the
claim and litigation provisions
totalling £15.8 million as at 31
December 2021 (2020: £41.7
million) and section 6.2 for a
discussion on the contingent
liabilities identified.
Also refer to the Audit and Risk
Committee report on
pages 86 – 95.
Subjective estimates
Significant judgment is required to assess whether actual or potential claims, litigation or fines arising from
regulatory oversight, or from ongoing disputes, should be recognised as provisions within the financial
statements or warrant disclosing as contingent liabilities.
In the normal course of business, potential exposures may arise from the Group’s activities in prior years, for
example in relation to design authority roles related to property constructions and acting as administrator for
pension schemes and arrangements.
Dispute outcome
The amounts involved are potentially significant, and the application of accounting standards to determine the
amount, if any, to be provided as a liability, is inherently subjective due to the nature of the claims, litigation,
fines and disputes. There is a risk that the estimate is incorrect, and any provision is materially misstated.
The effect of these matters is that, as part of our risk assessment, we determined that the litigation liability has
a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole, and possibly many times that amount. The financial
statements (note 6.2) disclose the contingent liabilities that the Board has assessed.
Disclosure quality
Where the impact of any present obligations is not probable or not reliably measurable, and thus no provision
is recorded, failure to adequately disclose the nature of these circumstances within the financial statements
may distort the reader’s view as to the potential risks faced by the Group.
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
127
Our response
We performed the tests below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Personnel interviews: We enquired of the Executives and the Chief
General Counsel and inspected Board minutes for actual and potential
claims arising in the year based on any external communications with
the Group and assessed whether provisions are required for these
claims. Our enquiries were included as standard questions in all our
meetings with those responsible for preparing the financial statements
including the divisional Finance Directors, heads of functions at
Group and corporate level, the Executive Directors and the Audit and
Risk Committee.
Tests of detail: We obtained an understanding and status of existing
claims and litigations via enquiries, examining any relevant
correspondence and assessing the matters reported to the ARC for
discussion and consideration. This included assessing critically
managements’ assessment regarding the likelihood of the existence of
obligations, and the basis used to measure any provisions.
We compared the estimate of the risk and impact of these claims and
litigations to third party evidence, where available.
We reviewed the legal expenses incurred in the year to identify any
material spend with external legal advisors that may indicate an
ongoing claim and made enquiries to ensure the completeness of all
claims and litigation assessed by the Board.
Enquiry of lawyers: On the significant legal cases, we requested and
obtained formal confirmations from external counsel and inspected any
relevant correspondence with external counsel and the claimant to
assess the reasonableness of the estimated liability.
Assessing transparency: We evaluated the adequacy of the
Group’s provisions and contingent liability disclosures in the financial
statements in accordance with accounting standards, and the
disclosure of the estimation uncertainty and quantification of that
uncertainty where appropriate.
Our findings: We found that the assumptions and estimates were
mildly cautious (2020 finding: mildly cautious) given the historic nature
of many of the open claims.
We found that section 6.2 provides proportionate (2020 finding:
proportionate) disclosure of the contingent liabilities in respect of
potential litigation or claims.
The risk
Pensions obligations
The Group reported a net pension
surplus of £5.8 million as at
31 December 2021 (2020: deficit
liability £252.1 million)
See section 5.2 for details of
the Group pension schemes and
their obligations as at
31 December 2021.
Also refer to the Audit and
Risk Committee report on
pages 86 – 95.
Significant estimates are made in estimating the Group’s defined benefit pension obligations and small
changes in assumptions and estimates used may have a significant effect on the amounts recorded. There is
a risk that the assumptions applied are not appropriate in the context of the pension scheme arrangements.
The effect of these matters is that, as part of our risk assessment, we determined that the valuation of pension
obligations has a high degree of estimation uncertainty, as a small change in key assumptions can lead to
material changes in the obligations. This can result with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a whole, and possibly many times that amount. The
financial statements (note 5.2) disclose the sensitivity estimated by the Group.
Disclosure quality
There is a risk that the disclosures presented are not sufficient to explain the key assumptions that the Board
has adopted for the purpose of valuing the pension obligations.
Our response
We performed the tests below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Methodology choice: We used our internal actuarial specialists to
consider and assess critically the methodologies applied.
Assessing the valuer’s credentials: We evaluated the competence
and independence of the external actuaries who are engaged by the
Company to estimate the pension scheme obligations for the purpose
of the financial statements.
Comparing valuations: We benchmarked the key assumptions
applied in determining the Group’s defined benefit obligations, being the
discount rate, inflation rate and mortality/life expectancy. This included
a comparison of these key assumptions against externally derived data.
Assessing transparency: We evaluated the adequacy of the
disclosures in respect of the sensitivity of the obligations to
these assumptions.
Our findings: We found that the assumptions and estimates were
balanced (2020 finding: balanced) and the Group’s disclosures in
section 5.2 to be proportionate (2020 finding: proportionate) in their
description of the assumptions and estimates made and the sensitivities
of the valuation of the pension obligations to changes in those
assumptions and estimates.
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128
Low risk, high value
The carrying amount of the Parent Company’s investment in, and amounts due from, its subsidiaries
represent 25.1% and 70.7% (2020: 17.6% and 75.9%) of its total assets respectively. Their recoverability is
not at a high risk of significant misstatement or subject to significant judgement. However due to its materiality
in the context of the Parent Company financial statements, this is considered to be the area that had the
greatest effect overall on our Parent Company audit.
The risk
Recoverability of the Parent
Company’s investment in, and
amounts due from, its
subsidiaries
Investment carrying value
£947.3million (2020: £683.3
million) and amounts due from
subsidiaries £2,667.6 million
(2020: £2,946.9 million). Refer to
section 7.3.1 (accounting policies)
and section 7.3.4 (Investments)
and Parent Company
Balance Sheet
Our response
We performed the tests below rather than seeking to rely on any of the
Group's controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Tests of detail: We compared the carrying amount of the investment,
and the amounts due from subsidiaries, with the relevant subsidiary’s
draft statutory balance sheet to identify whether its net assets, being an
approximation of its minimum recoverable amount, was in excess of its
carrying amount and assessed whether the subsidiary has historically
been profit-making.
Where impairment indicators were identified, we compared the cash
flows used in the impairment model to the output of the Group’s
budgeting process and against the understanding we obtained about
the business areas through our audit and assessed if these cash flows
were reasonable.
Sensitivity analysis: We performed sensitivity analyses for the
key inputs and assumptions and identified those individual
investments and amounts due from subsidiaries we considered
most sensitive to impairment.
Assessing transparency: We evaluated the adequacy of the
disclosures related to the estimation uncertainty, judgments made and
assumptions over the recoverability of the Parent Company’s
investment in, and amounts due from, its subsidiaries, checking that the
sensitivity disclosures provided enough detail and proportionate
information to inform a reader of the accounts.
Our findings: We found the Parent Company’s assessment of the
recoverability of the investment in, and amounts due from, subsidiaries
to be balanced (2020 finding: balanced). We found the Company’s
disclosures of the recoverability of investment held by the Parent
Company in, and amounts due from, subsidiaries to be proportionate
(2020 finding: proportionate).
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
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4 Our application of materiality and an
overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £6.0
million (2020: £7.0 million), determined with reference to a benchmark of
Group revenue of £3,182.5 million normalised by excluding revenue in
relation to business exits of £174.0 million, as disclosed in note 2.8, of
which it represents 0.2%. We changed the benchmark from 2020, when
we applied Group profit before tax from continuing operations (PBTCO)
normalised by excluding certain items which do not represent the normal,
continuing operations of the business, and by averaging over three years.
In 2020, normalised PBTCO was £157.4 million, and materiality
represented 4.4% of the benchmark. We changed the benchmark from
PBTCO to revenue due to the ongoing volatility introduced by the
pandemic on the normalised profits. We determined that total revenue
provided a more stable measure year on year than Group PBTCO.
Materiality for the Parent Company financial statements as a whole was
set at £5.5 million (2020: £6.5 million), by reference to component
materiality. This is lower than the materiality we would otherwise have
determined by reference to total Company assets and represents
0.15% of the Company's total assets (2020: 0.17%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold,
performance materiality, so as to reduce to an acceptable level the risk that
individually immaterial misstatements in individual account balances add up
to a material amount across the financial statements taken as a whole.
Performance materiality for the Group and the Parent Company was set
at 65% (2020: 65%) of materiality for the financial statements as a
whole, which equates to £3.9 million (2019: £4.5 million) for the Group
and £3.6 million (2019: £4.2 million) for the Parent Company. We
applied this percentage in our determination of performance materiality
based on the number and level of identified misstatements and control
deficiencies during the prior period.
We reported to the Audit and Risk Committee any corrected or
uncorrected identified misstatements of at least £0.30 million (2020:
£0.35 million) with the exception of classification misstatements for
which we reported all identified misstatements of at least £1.0 million
(2020: £1.0 million), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Audits for Group reporting purposes were performed by component
auditors at 22 key reporting components in the United Kingdom,
Switzerland, Germany, and by the Group audit team over 1 key
components in the United Kingdom, including the Parent Company (2020:
23 in the United Kingdom, Switzerland, Germany, and by the Group audit
team over 2 key components in the United Kingdom, including the Parent
Company). For the remaining components, we performed analysis at an
aggregated Group level to re-examine our assessment that there were no
significant risks of material misstatement within these. These procedures
covered approximately 86% of total Group revenue (2020: 86%); 86% of
the total profits and losses that made up Group profit before tax (2020:
74%); and 90% of total Group assets (2020 : 88%).
The Group audit team, with the assistance of the component auditors
where appropriate, performed procedures on the items excluded from
normalised Group revenue.
The Group audit team approved the component materiality levels,
which ranged from £0.4 million to £5.5 million (2020: £0.4 million to £5.6
million), having regard to the mix of size and risk profile of the Group
across the components.
The scope of the audit work performed was predominately substantive as
we placed limited reliance upon the Group’s internal control over financial
reporting. This is primarily driven by the fact that the finance
transformation, as part of the multi-year transformation programme and
designed to introduce greater rigour and standardisation of processes
and controls, remains in progress. The programme was disrupted in 2020
by the continuing COVID-19 pandemic, with plans approved to complete
the programme over the coming years (see Audit and Risk Committee
report on pages 86 – 95).
We performed the detailed tests over the key audit matters, as set out
in section 3 of our report, rather than seeking to rely on the Group's and
Parent Company’s controls because our knowledge of the related
controls indicated that we would be unlikely to obtain the required
evidence in order to be able to support the effective operation of the
controls.
Detailed audit instructions were sent to the component auditors. These
instructions covered the significant audit areas that should be covered
by these audits (which included the relevant risks of material
misstatement detailed above) and set out the information required to be
reported back to the Group audit team. Due to the continuing COVID-19
and the related travel restrictions, we were unable to perform physical
site visit to overseas components for the current year audit. To replace
these, senior members of the Group audit team held regular virtual
meetings with component auditors throughout the audit and in the
United Kingdom, Germany and Switzerland. At these virtual meetings,
the findings reported to the Group audit team were discussed in more
detail, and any further work required by the Group audit team was then
performed by the component auditor. The Group audit team routinely
reviewed the audit documentation of all component audits through
various stages of their audits.
5 The impact of climate change
on our audit
We have considered the potential impacts of climate change on the
financial statements as part of planning our audit. This included the
business sectors the Group operates in, the assets the Group holds on
its balance sheet, the ways in which the Group maintains and develops
its client relations and supplier engagement and manages its people.
As part of our audit we have made enquiries of management to
understand the extent of the potential impact of climate change risk on
the Group’s financial statements. We have performed a risk
assessment of how the impact of climate change may affect the
financial statements and our audit. We held discussions with our own
climate change professionals to challenge our risk assessment. Our
assessment is that the climate related risks to the Group’s business,
strategy and financial planning did not have a significant impact on our
key audit matters.
We have also read the Board’s Task Force on Climate-related Financial
Disclosure (TCFD) in the front half of the annual report and considered
consistency with the financial statements and our audit knowledge.
6 Going concern basis of preparation
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Group or the Parent
Company, or to cease their operations, and as they have concluded
that the Group and the Parent Company’s financial position means that
this is realistic for at least 18 months from the date of approval of the
financial statements (“the going concern period”). As stated in section 2
of our report, they have also concluded that there are material
uncertainties related to going concern.
An explanation of how we evaluated management’s assessment of
going concern is set out in section 2 of our report.
Our conclusions based on this work:
— We consider that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
— We have nothing material to add or draw attention to in relation to the
Directors’ statement in Note 1 to the financial statements on the use of
the going concern basis of accounting, and their identification therein of
material uncertainties over the Group and Parent Company’s ability to
continue to use that basis for the going concern period; and
— The related statement under the Listing Rules set out on page 76
is materially consistent with the financial statements and our
audit knowledge.
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7 Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we
assessed events or conditions that could indicate an incentive or
pressure to commit fraud or provide an opportunity to commit fraud. Our
risk assessment procedures included:
— Enquiring of Directors, the Audit and Risk Committee, internal audit
and inspection of policy documentation as to the Group’s high-level
policies and procedures to prevent and detect fraud, including the
internal audit function, and the Group’s channel for
“whistleblowing”, as well as whether they have knowledge of any
actual, suspected or alleged fraud;
— Reading Board and Audit and Risk Committee meeting minutes;
— Considering remuneration incentive schemes and performance
targets for management and Directors including the short-term
incentive plan and long-term incentive plan for management
remuneration;
— Using analytical procedures to identify any unusual or unexpected
relationships; and
— Using our own forensic specialists to assist us in identifying fraud
risks. This included attending the Risk Assessment and Planning
Discussion, holding a discussion with the engagement partner and
engagement manager, and assisting with designing relevant audit
procedures to respond to the identified fraud risks. They also
attended meetings with management to discuss key fraud risk areas.
We communicated identified fraud risks throughout the audit team and
remained alert to any indications of fraud throughout the audit. This
included communication from the Group audit team to full scope
component audit teams of relevant fraud risks identified at the Group
level and request to full scope component audit teams to report to the
Group audit team any instances of fraud that could give rise to a
material misstatement at Group level.
As required by auditing standards, and taking into account possible
pressures to meet profit targets and market consensus and using our
overall knowledge of the control environment, the reintroduction of
bonus targets, and the significant restructurings undertaken as a result
of Future Capita, we perform procedures to address the risk of
management override of controls and the risk of fraudulent revenue and
profit recognition, in particular:
— The risk that Group and component management may be in a
position to make inappropriate accounting entries for long-term
contracts; and
— he risk of bias in accounting estimates and judgements such as
contract modifications and terminations.
We also identified fraud risks related to inappropriate impairment of
goodwill, inappropriate capitalisation and recoverability of contract
fulfilment assets and inappropriate classification of items excluded from
adjusted profit in response to possible pressures to meet profit targets.
Further detail in respect of revenue and profit recognition, impairment of
goodwill, capitalisation and recoverability of contract fulfilment assets,
and items excluded from adjusted profit is set out in the key audit
matter disclosures in section 3 of this report.
In determining the audit procedures, we took into account the results of
our evaluation of some of the Group-wide fraud risk management
controls which are set out in the Audit and Risk Committee report within
the Corporate Governance section of the Group’s annual report.
We also performed procedures including:
— Identifying journal entries and other adjustments to test for all full
scope components based on risk criteria and comparing the
identified entries to supporting documentation. These included
those posted by senior finance management, those posted and
approved by the same user, and those posted to unusual and
unrelated accounts.
— Assessing whether the judgement made in accounting estimates
are indicative of a potential bias.
Identifying and responding to risks of material misstatement
related to compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements from our
general commercial and sector experience, and through discussion with
the Directors and other management (as required by auditing
standards), and from inspection of the Group’s regulatory and legal
correspondence and discussed with the Directors and other
management the policies and procedures regarding compliance with
laws and regulations.
As some of the Group’s subsidiaries are regulated, our assessment of
risks involved gaining an understanding of the control environment
including these entities’ procedures for complying with regulatory
requirements.
We communicated identified laws and regulations throughout our team
and remained alert to any indications of non-compliance throughout the
audit. This included communication from the Group audit team to full-
scope component audit teams of relevant laws and regulations
identified at the Group level, and a request for full scope component
auditors to report to the Group audit team any instances of non-
compliance with laws and regulations that could give rise to a material
misstatement at Group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect
the financial statements including financial reporting legislation
(including related companies legislation), distributable profits legislation,
and taxation legislation and we assessed the extent of compliance with
these laws and regulations as part of our procedures on the related
financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation or the loss of some
of the Group’s subsidiaries’ license to operate. We identified the
following areas as those most likely to have such an effect: health and
safety, anti-bribery, data protection, employment law, regulatory capital
and liquidity and certain aspects of company legislation recognising the
financial and regulated nature of the Group’s activities in the Life &
Pensions and Employee Benefits sectors. Auditing standards limit the
required audit procedures to identify non-compliance with these laws
and regulations to enquiry of the Directors and other management and
inspection of regulatory and legal correspondence, if any. Therefore, if
a breach of operational regulations is not disclosed to us or evident
from relevant correspondence, an audit will not detect that breach.
Further detail in respect of provisions and contingent liabilities is set out
in the key audit matter disclosures in section 3 of this report.
Context of the ability of the audit to detect fraud or breaches of
law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable
risk that we may not have detected some material misstatements in the
financial statements, even though we have properly planned and
performed our audit in accordance with auditing standards. For
example, the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures required by
auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-
detection of fraud, as these may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls. Our
audit procedures are designed to detect material misstatement. We are
not responsible for preventing non-compliance or fraud and cannot be
expected to detect non-compliance with all laws and regulations.
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
131
8 We have nothing to report on the other
information in the Annual Report and
Accounts
The Directors are responsible for the other information presented in the
Annual Report and Accounts together with the financial statements. Our
opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except as
explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
— We have not identified material misstatements in the Strategic
Report and the Directors’ Report;
— In our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— In our opinion those reports have been prepared in accordance
with the Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and
longer-term viability
We are required to perform procedures to identify whether there is a
material inconsistency between the Directors’ disclosures in respect
of emerging and principal risks and the viability statement, and the
financial statements and our audit knowledge.
Based on those procedures, other than the material uncertainties
related to going concern and viability referred to in section 2 of this
report, we have nothing further material to add or draw attention to
in relation to:
— The Directors’ confirmation within the Viability Statement on page
62 that they have carried out a robust assessment of the emerging
and principal risks facing the Group, including those that would
threaten its business model, future performance, solvency and
liquidity;
— The risk management and internal control disclosures describing
these risks and how emerging risks are identified, and explaining
how they are being managed and mitigated; and
— The Directors’ explanation in the Viability Statement of how they
have assessed the prospects of the Group, over what period they
have done so and why they considered that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the Viability Statement set out on page
62 under the Listing Rules. Based on the above procedures, we have
concluded that the above disclosures are materially consistent with the
financial statements and our audit knowledge.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot
predict all future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of anything to
report on these statements is not a guarantee as to the Group’s and
Parent Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a
material inconsistency between the Directors’ corporate governance
disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and our
audit knowledge:
— The Directors’ statement that they consider that the Annual Report
and Accounts, and financial statements, taken as a whole is fair,
balanced and understandable, and provides the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy;
— The section of the Annual Report and Accounts describing the
work of the Audit and Risk Committee, including the significant
issues that the Committee considered in relation to the financial
statements, and how these issues were addressed; and
— The section of the Annual Report and Accounts that describes the
review of the effectiveness of the Group’s risk management and
internal control systems.
We are required to review the part of the Corporate Governance
Statement relating to the Group’s compliance with the provisions of the
UK Corporate Governance Code specified by the Listing Rules for our
review. We have nothing to report in this respect.
9 We have nothing to report on the other
matters on which we are required to
report by exception
Under the Companies Act 2006, we are required to report to you if, in
our opinion:
— Adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
— The Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
— Certain disclosures of Directors’ remuneration specified by law are
not made; or
— We have not received all the information and explanations we
require for our audit.
We have nothing to report in these respects.
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
132
10 Respective responsibilities
Directors’ responsibilities
11 The purpose of our audit work and to
whom we owe our responsibilities
As explained more fully in their statement set out on page 81, the
Directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal
control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error; assessing the Group and Parent Company’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 they either intend to liquidate the Group or the
Parent Company or to cease operations, or have no realistic alternative
but to do so.
This report is made solely to the Company's members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and
the terms of our engagement by the Company. Our audit work has
been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's report,
and the further matters we are required to state to them in accordance
with the terms agreed with the Company, 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 and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue our opinion in an auditor’s
report. Reasonable assurance is a high level of assurance but does not
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud, other irregularities or error and are considered
material if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Robert Brent (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square,
London, E14 5GL
9 March 2022
Financial statementsCapita plc Annual Report 2021Independent auditor’s report
Strategic report
Strategic report
Corporate governance
Corporate governance
Financial statements
Financial statements
100
100
133
Structure of the financial statements
Structure of the financial statements
Consolidated income statement
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of changes in equity
Consolidated cash flow statement
Consolidated cash flow statement
Notes to the consolidated financial statements
Notes to the consolidated financial statements
Section 1
Section 1
Basis of preparation
Basis of preparation
Section 2
Section 2
Results for the year
Results for the year
2.1
2.1
2.2
2.2
2.3
2.3
2.4
2.4
2.5
2.5
2.6
2.6
2.7
2.7
2.8
2.8
2.9
2.9
Contract accounting
Contract accounting
Revenue including segmental revenue
Revenue including segmental revenue
Operating profit
Operating profit
Adjusted operating profit and adjusted profit before tax
Adjusted operating profit and adjusted profit before tax
Segmental information
Segmental information
Taxation
Taxation
Earnings/(loss) per share
Earnings/(loss) per share
Business exits and assets held-for-sale
Business exits and assets held-for-sale
Discontinued operations
Discontinued operations
Section 5
Section 5
Employee benefits
Employee benefits
5.1
5.1
5.2
5.2
5.3
5.3
Share-based payment plans
Share-based payment plans
Pensions
Pensions
Employee benefit expense
Employee benefit expense
Section 6
Section 6
Other supporting notes
Other supporting notes
6.1
6.1
6.2
6.2
6.3
6.3
Related-party transactions
Related-party transactions
Contingent liabilities
Contingent liabilities
Post balance sheet events
Post balance sheet events
Company financial statements
Company financial statements
Section 7
Section 7
7.1
7.1
7.2
7.2
7.3
7.3
Company balance sheet
Company balance sheet
Company statement of changes in equity
Company statement of changes in equity
Notes to the Company financial statements
Notes to the Company financial statements
Additional information
Additional information
Section 8
Section 8
8.1
8.1
8.2
8.2
Shareholder information
Shareholder information
Alternative performance measures
Alternative performance measures
2.10
2.10
Cash flow information
Cash flow information
Section 3
Section 3
Operating assets and liabilities
Operating assets and liabilities
3.1
3.1
Working capital
Working capital
3.1.1
3.1.1
Trade and other receivables
Trade and other receivables
3.1.2
3.1.2
Trade and other payables
Trade and other payables
3.1.3 Contract fulfilment assets
3.1.3 Contract fulfilment assets
3.2
3.2
3.3
3.3
3.4
3.4
3.5
3.5
3.6
3.6
Property, plant and equipment
Property, plant and equipment
Intangible assets
Intangible assets
Goodwill
Goodwill
Right-of-use assets
Right-of-use assets
Provisions
Provisions
Section 4
Section 4
Capital structure and finance costs
Capital structure and finance costs
4.1
4.1
4.2
4.2
4.3
4.3
4.4
4.4
4.5
4.5
4.6
4.6
4.7
4.7
Net debt, capital and capital management
Net debt, capital and capital management
Financial risk
Financial risk
Net finance costs
Net finance costs
Leases
Leases
Financial instruments and the fair value hierarchy
Financial instruments and the fair value hierarchy
Issued share capital
Issued share capital
Group composition and non-controlling interests
Group composition and non-controlling interests
Financial statementsCapita plc Annual Report 2021Consolidated financial statements Strategic report
Corporate governance
Financial statements
101
Consolidated income statement
For the year ended 31 December 2021
Continuing operations:
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
Share of results in associates and investment gains
Net finance expense
Gain on business disposal
Profit/(loss) before tax
Income tax (charge)/credit
Profit/(loss) for the year from continuing operations
Discontinued operations:
Profit for the year
Total profit for the year
Attributable to:
Owners of the Company
Non-controlling interests
Earnings/(loss) per share
Continuing:
Total operations:
– basic
– diluted
– basic
– diluted
Adjusted operating profit
Adjusted profit before tax
Adjusted earnings per share
Adjusted and diluted earnings per share
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Total profit for the year
Other comprehensive expense
Items that will not be reclassified subsequently to the income statement
Actuarial gain/(loss) on defined benefit pension schemes
Tax effect on defined benefit pension schemes
Gain/(loss) on fair value of investments
Items that will or may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations
Exchange differences realised on business disposals
Gain/(loss) on cash flow hedges
Cash flow hedges recycled to the income statement
Tax effect on cash flow hedges
Other comprehensive income/(expense) for the year net of tax
Total comprehensive income/(expense) for the year net of tax
Attributable to:
Owners of the Company
Non-controlling interests
The accompanying notes are an integral part of these consolidated financial statements.
Notes
2.2
2.3, 2.4, 2.8
2.3, 2.4, 2.8
134
2021
£m
2020
£m
3,182.5
(2,506.7)
675.8
(762.4)
(86.6)
(0.6)
(46.9)
419.7
285.6
(61.5)
224.1
3,324.8
(2,640.6)
684.2
(716.2)
(32.0)
0.8
(49.6)
31.4
(49.4)
47.6
(1.8)
3.1
227.2
224.7
2.5
227.2
13.33 p
13.15 p
13.52 p
13.33 p
139.1
93.5
1.61 p
1.59 p
20.8
19.0
14.0
5.0
19.0
(0.41) p
(0.41) p
0.85 p
0.85 p
51.1
5.4
2.41 p
2.41 p
2021
£m
227.2
2020
£m
19.0
109.4
(18.1)
0.1
3.0
(2.8)
1.3
0.6
2.2
95.7
322.9
320.5
2.4
322.9
(32.1)
10.9
(0.7)
(9.0)
—
(1.6)
(4.5)
1.1
(35.9)
(16.9)
(21.9)
5.0
(16.9)
4.3
2.8
2.4
2.6
2.9
4.7
2.7
2.4
2.4
2.7
2.7
Notes
5.2
2.6
4.2.4
4.2.4
2.6
4.7
Financial statementsCapita plc Annual Report 2021Consolidated financial statements
Strategic report
Corporate
governance
Financial statements
#
135
Consolidated balance sheet
At 31 December 2021
Non-current assets
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Investments in associates and joint ventures
Contract fulfilment assets
Financial assets
Deferred tax assets
Employee benefits
Trade and other receivables
Current assets
Financial assets
Disposal group assets held-for-sale
Trade and other receivables
Cash
Income tax receivable
Total assets
Current liabilities
Trade and other payables
Deferred income
Overdrafts
Lease liabilities
Disposal group liabilities held-for-sale
Finance liabilities
Provisions
Non-current liabilities
Trade and other payables
Deferred income
Lease liabilities
Financial liabilities
Deferred tax liabilities
Provisions
Employee benefits
Total liabilities
Net assets/(liabilities)
Capital and reserves
Share capital
Share premium
Employee benefit trust and treasury shares
Capital redemption reserve
Other reserves
Retained deficit
Equity/(deficit) attributable to owners of the Company
Non-controlling interests
Total equity/(deficit)
Notes
3.2
3.3
3.4
3.5
3.1.3
4.5
2.6
5.2
3.1.1
4.5
2.8
3.1.1
4.5.4
3.1.2
4.5.4
4.4,4.5
2.8
4.5
3.6
3.1.2
4.4,4.5
4.5
2.6
3.6
5.2
4.6
4.6
4.6
4.7
2021
£m
2020
£m
129.0
147.3
951.7
287.9
0.7
286.7
107.2
176.0
13.3
15.7
2,115.5
17.5
138.8
547.1
317.6
5.9
1,026.9
3,142.4
542.2
669.8
231.9
61.6
81.1
286.3
126.6
1,999.5
15.4
124.9
386.8
291.9
5.9
14.0
7.5
846.4
2,845.9
296.5
34.8
1,145.5
(8.0)
1.8
(9.0)
(890.6)
274.5
22.0
296.5
157.2
265.0
1,120.5
342.1
5.1
294.8
117.0
242.8
3.1
22.1
2,569.7
32.1
114.6
551.0
460.9
2.9
1,161.5
3,731.2
635.0
822.2
332.7
77.5
53.9
347.8
107.0
2,376.1
23.6
153.0
426.0
554.3
6.7
17.4
255.2
1,436.2
3,812.3
(81.1)
34.5
1,143.3
(11.2)
1.8
(13.4)
(1,289.5)
(134.5)
53.4
(81.1)
The accompanying notes are an integral part of these consolidated financial statements.
These consolidated financial statements were approved by the Board of directors on 9 March 2022 and signed on its behalf by:
Jon Lewis
Chief Executive Officer
Tim Weller
Chief Financial Officer
Company registered number: 02081330
Financial statementsCapita plc Annual Report 2021Consolidated financial statements
Strategic report
Corporate governance
Financial statements
103
136
Consolidated statement of changes in equity
For the year ended 31 December 2021
At 1 January 2020
Profit for the year
Other comprehensive expense
Total comprehensive (expense)/income for the
year
Share-based payment net of tax effects (note 2.6;
note 5.1)
Dividends paid1
Movement in put-options held by non-controlling
interests
Share
capital
£m
Share
premium
£m
34.5 1,143.3
Employee
benefit
trust and
treasury
shares
£m
(11.2)
Capital
redemption
reserve
£m
1.8 (1,295.8)
Retained
deficit
£m
Other
reserves
£m
0.6
Total
attributable
to the
owners of
the parent
£m
(126.8)
Non-
controlling
interests
£m
62.8
Total
(deficit)/
equity
£m
(64.0)
—
—
—
—
—
—
—
14.0
—
14.0
5.0
19.0
—
(21.9)
(14.0)
(35.9)
—
(35.9)
—
—
—
—
(7.9)
(14.0)
(21.9)
5.0
(16.9)
—
—
—
—
—
—
—
—
5.2
—
—
—
5.2
—
5.2
—
(14.4)
(14.4)
—
—
—
—
9.0
—
9.0
—
9.0
At 1 January 2021
34.5 1,143.3
(11.2)
1.8 (1,289.5)
(13.4)
(134.5)
53.4
(81.1)
Profit for the year
Other comprehensive income/(expense)
Total comprehensive (expense)/income for the
year
Share-based payment net of tax effects (note 2.6;
note 5.1)
Reclassification
Elimination of non-controlling interest at disposal
(note 2.8.1)
Exercise of share options under employee long
term incentive plans (note 4.6; note 5.1)
Shares issued (note 4.6)
VAT refund on rights issue issuance costs
(note 4.6)
Dividends paid1
Movement in put-options held by non-controlling
interests2
—
—
—
—
—
—
— 224.7
91.4
—
— 224.7
95.8
4.4
2.5 227.2
95.7
(0.1)
—
—
—
— 316.1
4.4 320.5
2.4 322.9
—
—
—
—
—
—
—
—
1.6
(6.4)
—
—
1.6
(6.4)
—
6.4
1.6
—
—
—
—
—
—
—
—
(3.4)
(3.4)
—
0.3
—
—
3.5
(0.3)
—
—
2.2
—
—
—
—
—
—
—
(3.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
2.2
—
2.2
—
(36.8)
(36.8)
—
—
—
—
91.1
—
91.1
—
91.1
At 31 December 2021
34.8 1,145.5
(8.0)
1.8 (890.6)
(9.0) 274.5
22.0 296.5
1. Of the dividends to non-controlling interests totalling £36.8m (2020: £14.4m), the majority were from AXELOS Limited (2021: £36.6m; 2020: £14.1m) who paid £10.7m (2020: £14.1m) in
cash with the remainder settled by the purchaser when AXELOS Limited was sold (see note 2.8). No dividends were declared, paid or proposed in 2021 or 2020 on the Parent Company’s
ordinary shares.
2. The option to acquire the non-controlling interest in AXELOS Limited expired without being exercised on 28 February 2021, and the related liability of £96.5m was de-recognised. See
note 4.5 for further details.
Share capital – The balance classified as share capital is the nominal proceeds on issue of the Parent Company’s equity share capital,
comprising 2 1/15p ordinary shares.
Share premium – The amount paid to the Parent Company by shareholders, in cash or other consideration, over and above the nominal value
of shares issued to them less issuance costs.
Employee benefit trust and treasury shares – Shares that have been bought back by the Parent Company which are available for retirement
or resale; shares held in the employee benefit trust have no voting rights and no entitlement to a dividend.
Capital redemption reserve – The Parent Company can redeem shares by repaying the market value to the shareholder, whereupon the
shares are cancelled. Redemption must be from distributable profits. The Capital redemption reserve represents the nominal value of the
shares redeemed.
Retained deficit – Net (losses)/profits accumulated in the Group after dividends are paid.
Other reserves – This consists of the foreign currency translation reserve deficit of £8.3m (2020: £8.6m deficit) and the cash flow hedging
reserve deficit of £0.7m (2020: £4.8m deficit).
Non-controlling interests (NCI) – This represents the equity in subsidiaries that is not attributable directly or indirectly to the Parent Company.
The accompanying notes are an integral part of these consolidated financial statements.
Financial statementsCapita plc Annual Report 2021Consolidated financial statements
Strategic report
Corporate governance
Financial statements
103
104
Capita plc Annual Report 2021
Consolidated statement of changes in equity
For the year ended 31 December 2021
Consolidated cash flow statement
For the year ended 31 December 2021
Cash generated from operations
Cash generated from discontinued operations
Income tax paid
Net interest paid
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment/intangible assets
Additions to investments in associates
Additions to investments held at fair value through profit and loss
Capital repayment from investments at fair value through other comprehensive income
Proceeds from sale of investments held at fair value through profit and loss
Contingent consideration paid
Subsidiary partnership payment
Capital element of lease rental receipts
Net proceeds on disposal of subsidiary undertakings
Cash disposed of with subsidiary undertakings
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Dividends paid to non-controlling interests
Capital element of lease rental payments
Proceeds from issue of share capital (net of issuance costs)
Repayment of private placement loan notes
Proceeds from credit facilities
Proceeds from cross-currency interest rate swaps
Debt financing arrangement costs paid
Notes
2.10
3.2
3.3
2.3, 3.2, 3.3
2.8
2.8
2.10.3
2.10.3
2.10.3
2.10.3
2.10.3
2021
£m
(121.3)
—
(17.7)
(40.1)
(179.1)
(25.6)
(32.5)
0.1
—
(0.1)
0.3
—
—
(4.7)
0.5
483.1
(25.9)
395.2
(10.8)
(82.6)
2.2
(232.3)
46.0
19.7
(1.9)
137
2020
£m
434.2
18.6
(8.8)
(47.7)
396.3
(40.8)
(46.6)
13.5
(0.6)
(0.3)
—
3.9
(4.9)
(9.4)
2.8
51.3
(3.2)
(34.3)
(14.4)
(98.0)
—
(242.9)
—
24.5
(0.5)
—
—
—
—
91.1
—
91.1
—
91.1
Net cash outflow from financing activities
(259.7)
(331.3)
At 31 December 2021
34.8 1,145.5
(8.0)
1.8 (890.6)
(9.0) 274.5
22.0 296.5
1. Of the dividends to non-controlling interests totalling £36.8m (2020: £14.4m), the majority were from AXELOS Limited (2021: £36.6m; 2020: £14.1m) who paid £10.7m (2020: £14.1m) in
cash with the remainder settled by the purchaser when AXELOS Limited was sold (see note 2.8). No dividends were declared, paid or proposed in 2021 or 2020 on the Parent Company’s
2. The option to acquire the non-controlling interest in AXELOS Limited expired without being exercised on 28 February 2021, and the related liability of £96.5m was de-recognised. See
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at 31 December
Employee benefit trust and treasury shares – Shares that have been bought back by the Parent Company which are available for retirement
or resale; shares held in the employee benefit trust have no voting rights and no entitlement to a dividend.
Total
Capital redemption reserve – The Parent Company can redeem shares by repaying the market value to the shareholder, whereupon the
shares are cancelled. Redemption must be from distributable profits. The Capital redemption reserve represents the nominal value of the
Adjusted cash generated from operations
Adjusted free cash flows
The accompanying notes are an integral part of these consolidated financial statements.
Cash and cash equivalents comprise:
Cash
Overdrafts
Cash, net of overdrafts, included in disposal group assets and liabilities held-for-sale
(43.6)
141.1
4.0
101.5
4.5.4
4.5.4
2.8
317.6
(231.9)
15.8
30.7
119.3
(8.9)
141.1
460.9
(332.7)
12.9
101.5
141.1
2.10
2.10
185.4
78.1
295.2
170.3
Other comprehensive expense
Total comprehensive (expense)/income for the
year
Share-based payment net of tax effects (note 2.6;
Movement in put-options held by non-controlling
At 1 January 2020
Profit for the year
note 5.1)
Dividends paid1
interests
At 1 January 2021
Profit for the year
year
note 5.1)
Reclassification
(note 2.8.1)
(note 4.6)
Dividends paid1
interests2
Other comprehensive income/(expense)
Total comprehensive (expense)/income for the
Share-based payment net of tax effects (note 2.6;
Elimination of non-controlling interest at disposal
Exercise of share options under employee long
term incentive plans (note 4.6; note 5.1)
Shares issued (note 4.6)
VAT refund on rights issue issuance costs
Movement in put-options held by non-controlling
Capital
redemptio
Employee
benefit
trust and
treasury
shares
£m
Share
capital
£m
Share
premium
£m
n
Retained
reserve
£m
deficit
£m
Other
reserves
owners of
the parent
controlling
interests
£m
£m
£m
34.5 1,143.3
(11.2)
1.8 (1,295.8)
0.6
(126.8)
62.8
(64.0)
Total
(deficit)/
equity
£m
Total
attributable
to the
Non-
—
—
—
—
—
—
—
14.0
—
14.0
5.0
19.0
—
(21.9)
(14.0)
(35.9)
—
(35.9)
—
—
—
—
(7.9)
(14.0)
(21.9)
5.0
(16.9)
—
—
—
—
—
—
—
—
5.2
—
—
—
5.2
—
5.2
—
(14.4)
(14.4)
—
—
—
—
9.0
—
9.0
—
9.0
34.5 1,143.3
(11.2)
1.8 (1,289.5)
(13.4)
(134.5)
53.4
(81.1)
—
—
—
—
—
—
— 224.7
— 224.7
2.5 227.2
—
91.4
4.4
95.8
(0.1)
95.7
—
—
—
— 316.1
4.4 320.5
2.4 322.9
—
—
—
—
—
—
—
—
1.6
(6.4)
—
—
1.6
(6.4)
—
6.4
1.6
—
—
—
—
—
—
—
—
(3.4)
(3.4)
—
0.3
—
—
3.5
(0.3)
—
—
2.2
—
—
—
—
—
—
—
(3.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
2.2
—
2.2
—
(36.8)
(36.8)
ordinary shares.
note 4.5 for further details.
comprising 2 1/15p ordinary shares.
of shares issued to them less issuance costs.
Share capital – The balance classified as share capital is the nominal proceeds on issue of the Parent Company’s equity share capital,
Share premium – The amount paid to the Parent Company by shareholders, in cash or other consideration, over and above the nominal value
shares redeemed.
Retained deficit – Net (losses)/profits accumulated in the Group after dividends are paid.
Other reserves – This consists of the foreign currency translation reserve deficit of £8.3m (2020: £8.6m deficit) and the cash flow hedging
reserve deficit of £0.7m (2020: £4.8m deficit).
Non-controlling interests (NCI) – This represents the equity in subsidiaries that is not attributable directly or indirectly to the Parent Company.
The accompanying notes are an integral part of these consolidated financial statements.
Financial statementsCapita plc Annual Report 2021Consolidated financial statements
Notes to the consolidated financial statements
138
Strategic report
Corporate governance
Financial statements
105
Section 1: Basis of preparation
This section sets out the Group’s accounting policies relating to these consolidated financial statements as a whole. Where an accounting
policy is specific to one note, the policy is described in the note to which it relates.
In this section you will also find details of new accounting standards, amendments and interpretations including their effective dates and
explanation on the expected impact to the financial position and performance of the Group.
For ease of reference, this symbol has been used to denote any accounting policies included within the notes:
AP
Denotes accounting policies
These financial statements consolidate those of Capita plc (the Company or the Parent Company) and all of its subsidiaries (the Group).
Capita plc is a public limited company incorporated in England and Wales whose shares are publicly traded. The principal activities of the
Group are given in the strategic report on pages 16 to 25.
These consolidated financial statements of Capita plc for the year ended 31 December 2021 were authorised for issue in accordance with a
resolution of the directors on 9 March 2022.
These consolidated financial statements are presented in British pounds sterling and all values are rounded to the nearest tenth of a million
(£m) except where otherwise indicated.
Statement of compliance
These consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and with UK-adopted International Financial Reporting Standards (IFRSs) and the Disclosure and
Transparency Rules of the UK's Financial Conduct Authority.
Basis of consolidation
These consolidated financial statements comprise the financial statements of the Group at 31 December each year. Subsidiaries are
consolidated from the date on which control is transferred to the Group until control is transferred out of the Group. Where there is a loss of
control of a subsidiary, these consolidated financial statements include the results for that part of the reporting year during which Capita plc had
control and the profit or loss on disposal is calculated as the difference between the fair value of the consideration received and the carrying
amount of the net assets (including goodwill) disposed of. Losses applicable to the non-controlling interests in subsidiaries are attributed to the
non-controlling interests even if that results in the non-controlling interests having a deficit balance.
Investments in associates are accounted for using the equity method. Under the equity method, the investment in the entity is stated as a one
line item at cost plus the investor’s share of retained post-acquisition profits or losses and other changes in net assets less any impairment.
Going concern
In determining the appropriate basis of preparation of the financial statements for the year ended 31 December 2021, the Board is required to
consider whether the Group and Parent Company can continue in operational existence for the foreseeable future. The Board has concluded
that it is appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties
and sensitivities, as set out below.
Accounting standards require that ‘the foreseeable future’ for going concern assessment covers a period of at least twelve months from the
date of approval of these financial statements, although those standards do not specify how far beyond twelve months a Board should
consider. In its going concern assessment, the Board has considered the period from the date of approval of these financial statements to
31 August 2023, which is just less than eighteen months from the date of approval of these financial statements ('the going concern period')
and which aligns with the expiry of the revolving credit facility (RCF). The Board has also considered any material committed outflows beyond
this period in forming their assessment, including the extension of the RCF which is a key consideration as set out below.
The base case financial forecasts used in the going concern assessment are derived from the 2022-2023 business plans as approved by the
Board in February 2022.
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 existing committed RCF was £385.7m at 31 December 2021 and it expires on 31 August 2022. In June 2021
the Group entered into a second RCF of £300m covering the period from 31 August 2022 to 31 August 2023 with certain lenders party to the
existing RCF. The second RCF will replace the existing RCF when the latter expires. The two RCFs incorporate provisions such that they will
partially reduce in quantum as a consequence of specified transactions, and subsequent to the year end, the first RCF reduced to £377.5m
following the receipt of disposal proceeds. In March 2022, the Group executed with one of its relationship banks a committed backstop bridge
facility. The facility provides £70m of additional liquidity and it incorporates provisions such that it will be cancelled or will partially reduce in
quantum as a consequence of specified transactions, including completion of the disposal of Trustmarque announced on 28 January 2022. The
committed facility has an expiry date of 31 August 2023 with an option, by the lender, for a further one year extension. The facility is subject to
covenants, which are the same as the RCF.
Financial position at 31 December 2021
The Group had net debt of £879.8m at 31 December 2021 (2020: £1,077.1m) and adjusted net debt of £502.0m (2020: £616.4m). Adjusted
EBITDA was £295.1m for the year ended 31 December 2021 (2020: £228.4m). The Group was in compliance with all debt covenants at
31 December 2021 (see note 8.2). The Group had liquidity of £392.4m at 31 December 2021 as detailed further in the Chief Financial Officer’s
review in the strategic report.
Board assessment
Base case scenario
Under the base case scenario, completion of the Group’s transformation programme has simplified and strengthened the business and
facilitates further efficiency savings enabling sustainable growth in revenue, profit and cash flow over the medium term. This enables the
generation of positive free cash flows, and when combined with available committed facilities allows the Group to manage scheduled debt
repayments. The base case financial forecasts demonstrate liquidity headroom and compliance with all covenant measures throughout the
going concern period to 31 August 2023.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements Notes to the consolidated financial statements
Notes to the consolidated financial statements
139
Strategic report
Corporate governance
Financial statements
105
106
Capita plc Annual Report 2021
Section 1: Basis of preparation
This section sets out the Group’s accounting policies relating to these consolidated financial statements as a whole. Where an accounting
policy is specific to one note, the policy is described in the note to which it relates.
In this section you will also find details of new accounting standards, amendments and interpretations including their effective dates and
explanation on the expected impact to the financial position and performance of the Group.
For ease of reference, this symbol has been used to denote any accounting policies included within the notes:
Denotes accounting policies
These financial statements consolidate those of Capita plc (the Company or the Parent Company) and all of its subsidiaries (the Group).
Capita plc is a public limited company incorporated in England and Wales whose shares are publicly traded. The principal activities of the
Group are given in the strategic report on pages 16 to 25.
These consolidated financial statements of Capita plc for the year ended 31 December 2021 were authorised for issue in accordance with a
These consolidated financial statements are presented in British pounds sterling and all values are rounded to the nearest tenth of a million
resolution of the directors on 9 March 2022.
(£m) except where otherwise indicated.
Statement of compliance
These consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and with UK-adopted International Financial Reporting Standards (IFRSs) and the Disclosure and
Transparency Rules of the UK's Financial Conduct Authority.
Basis of consolidation
These consolidated financial statements comprise the financial statements of the Group at 31 December each year. Subsidiaries are
consolidated from the date on which control is transferred to the Group until control is transferred out of the Group. Where there is a loss of
control of a subsidiary, these consolidated financial statements include the results for that part of the reporting year during which Capita plc had
control and the profit or loss on disposal is calculated as the difference between the fair value of the consideration received and the carrying
amount of the net assets (including goodwill) disposed of. Losses applicable to the non-controlling interests in subsidiaries are attributed to the
non-controlling interests even if that results in the non-controlling interests having a deficit balance.
Investments in associates are accounted for using the equity method. Under the equity method, the investment in the entity is stated as a one
line item at cost plus the investor’s share of retained post-acquisition profits or losses and other changes in net assets less any impairment.
Going concern
In determining the appropriate basis of preparation of the financial statements for the year ended 31 December 2021, the Board is required to
consider whether the Group and Parent Company can continue in operational existence for the foreseeable future. The Board has concluded
that it is appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties
and sensitivities, as set out below.
Accounting standards require that ‘the foreseeable future’ for going concern assessment covers a period of at least twelve months from the
date of approval of these financial statements, although those standards do not specify how far beyond twelve months a Board should
consider. In its going concern assessment, the Board has considered the period from the date of approval of these financial statements to
31 August 2023, which is just less than eighteen months from the date of approval of these financial statements ('the going concern period')
and which aligns with the expiry of the revolving credit facility (RCF). The Board has also considered any material committed outflows beyond
this period in forming their assessment, including the extension of the RCF which is a key consideration as set out below.
The base case financial forecasts used in the going concern assessment are derived from the 2022-2023 business plans as approved by the
Board in February 2022.
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 existing committed RCF was £385.7m at 31 December 2021 and it expires on 31 August 2022. In June 2021
the Group entered into a second RCF of £300m covering the period from 31 August 2022 to 31 August 2023 with certain lenders party to the
existing RCF. The second RCF will replace the existing RCF when the latter expires. The two RCFs incorporate provisions such that they will
partially reduce in quantum as a consequence of specified transactions, and subsequent to the year end, the first RCF reduced to £377.5m
following the receipt of disposal proceeds. In March 2022, the Group executed with one of its relationship banks a committed backstop bridge
facility. The facility provides £70m of additional liquidity and it incorporates provisions such that it will be cancelled or will partially reduce in
quantum as a consequence of specified transactions, including completion of the disposal of Trustmarque announced on 28 January 2022. The
committed facility has an expiry date of 31 August 2023 with an option, by the lender, for a further one year extension. The facility is subject to
The Group had net debt of £879.8m at 31 December 2021 (2020: £1,077.1m) and adjusted net debt of £502.0m (2020: £616.4m). Adjusted
EBITDA was £295.1m for the year ended 31 December 2021 (2020: £228.4m). The Group was in compliance with all debt covenants at
31 December 2021 (see note 8.2). The Group had liquidity of £392.4m at 31 December 2021 as detailed further in the Chief Financial Officer’s
covenants, which are the same as the RCF.
Financial position at 31 December 2021
review in the strategic report.
Board assessment
Base case scenario
Under the base case scenario, completion of the Group’s transformation programme has simplified and strengthened the business and
facilitates further efficiency savings enabling sustainable growth in revenue, profit and cash flow over the medium term. This enables the
generation of positive free cash flows, and when combined with available committed facilities allows the Group to manage scheduled debt
repayments. The base case financial forecasts demonstrate liquidity headroom and compliance with all covenant measures throughout the
going concern period to 31 August 2023.
Section 1: Basis of preparation continued
As previously announced, the Board’s plan is to establish an optimal capital structure to support the execution of the Group’s strategy and to
dispose of businesses that do not align with that strategy. The disposal programme requires agreement from third parties, and major disposals
may be subject to shareholder and lender approval. Such agreements and approvals, and also any refinancing, are outside the direct control of
the Company and as such, the inclusion of the effect of any potential future disposals or uncommitted financing in the Group’s projections is
inappropriate for going concern assessment purposes in accordance with IAS 1 Presentation of Financial Statements.
The base case projections used for going concern assessment purposes reflect business disposals completed up to the date of approval of
these financial statements but do not reflect the benefit of any further disposals that are in the pipeline. 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 assumes an improved financial position for the Group as a result of the realisation of the benefits from completion of the
transformation plan. The key sensitivity to the base case is the execution associated with delivering revenue growth.
Severe but plausible downside
In considering severe but plausible downside scenarios, the Board has taken account of trading downside risks, which assume the Group is not
successful in delivering the anticipated levels of revenue growth and sustainable free cash flows. The downside scenario used for the going
concern assessment also includes potential adverse financial impacts due to additional inflationary pressure which cannot be passed on to
customers, not achieving targeted margins on new or major contracts, unforeseen operational issues leading to contract losses and cash
outflows, and unexpected potential financial penalties and losses linked to incidents such as data breaches and/or cyber-attacks.
Absent any mitigating actions, liquidity headroom shown in the Group’s financial forecasts under this severe but plausible downside scenario
over the going concern period reduces substantially such that there is a risk of insufficient liquidity.
There are mitigations, under the direct control of the Group, that could be implemented to address any immediate shortfalls. These include
reductions in variable pay rises, setting aside any bonus payments and limiting discretionary spend. While these are available as possible
short-term mitigations and would be actioned if required to ensure sufficient liquidity, the Board is mindful that such restrictions may be
detrimental to the longer-term success of the Group. In addition, such actions would not necessarily address potential liquidity requirements
beyond the going concern period should all the downside risks materialise. As noted earlier, a key consideration for the Board is the expiry of
the RCF on 31 August 2023, immediately following the going concern period.
The principal mitigation to the possibility of insufficient liquidity is the continuation of the Board approved disposal programme which covers
businesses that do not align with the Group’s longer-term strategy. The Group has a strong track record of executing major disposals. In 2021,
the Board targeted to achieve £700m of disposal proceeds by 30 June 2022 and will exceed this target on the completion of the announced
disposal of Trustmarque and Speciality Insurance businesses. The disposal programme continues, with further disposal processes launched in
early 2022. The Board is confident that the disposal programme will be delivered, thereby introducing substantial net cash proceeds to the
Group, albeit with a corresponding removal of consolidated profits and cash flows associated with the disposal businesses.
In addition to the ongoing disposal programme, the Group may seek to mitigate the liquidity risks which might arise in the downside scenario by
seeking further sources of financing beyond its existing committed funding facilities. The Board has been successful in obtaining new and
extended financing facilities in recent years and an immediate mitigating action includes the extension of the current RCF which currently
expires on 31 August 2023.
Material uncertainties
The Board recognises that the disposal programme requires agreement from third parties and that major disposals may be subject to
shareholder and, potentially, lender approval. Similarly, any new refinancing, including the extension of the RCF, requires agreement with
lenders. Such agreements and approvals are outside the direct control of the Company. Therefore, given that some of the mitigating actions
which might be taken to strengthen the Group's liquidity position in the severe but plausible downside scenario are outside the control of the
Group, this gives rise to material uncertainties, as defined in accounting standards, relating to events and circumstances which may cast
significant doubt about the Group’s ability to continue as a going concern and to realise its assets and discharge its liabilities in the normal
course of business.
Adoption of going concern basis
Reflecting the Board’s confidence in the benefits expected from the completion of the transformation programme and execution of the approved
disposal programme coupled with the potential to obtain further financing beyond its existing committed funding facilities, the Group continues
to adopt the going concern basis in preparing these financial statements. The Board has concluded that the Group and Parent Company will be
able to continue in operation and meet their liabilities as they fall due over the period to 31 August 2023. Consequently, these financial
statements do not include any adjustments that would be required if the going concern basis of preparation were to be inappropriate.
Foreign currency translation
The functional and presentation currency of Capita plc and its United Kingdom (UK) subsidiaries is the British pound sterling (£). Transactions
in foreign currencies are initially recorded at the functional currency exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional currency exchange rate ruling at the balance sheet date. All
differences are taken to the consolidated income statement with the exception of differences on foreign currency borrowings that provide a
hedge against a net investment in a foreign operation. These are taken directly to equity until the disposal of the net investment, at which time
they are recognised in the consolidated income statement.
Tax charges and credits attributable to exchange differences on those borrowings are also taken directly to equity. Non-monetary items that are
measured at historical cost in a foreign currency are translated using the exchange rate at the date of initial transaction. Non-monetary items
measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
The functional currencies of overseas operations include the euro, Indian rupee, South African rand, and the US dollar. At the reporting date,
the assets and liabilities of the overseas operations are retranslated into the presentation currency of Capita plc at the exchange rate ruling at
the balance sheet date and their income statements are translated at the weighted average exchange rate for the year.
The exchange differences arising on the retranslation are taken directly to a separate component of equity. On disposal of a foreign operation,
the deferred cumulative foreign currency translation difference recognised in equity relating to that particular foreign operation is recognised in
the consolidated income statement.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 107
Capita plc Annual Report 2021
Notes to the consolidated financial statements
140
Section 1: Basis of preparation continued
Recoverable amount of non-current assets
At each reporting date, the Group assesses whether there is any indication that a non-current asset may be impaired. Where an indicator of
impairment exists, the Group makes a formal estimate of the asset’s recoverable amount. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount is the higher of
an asset’s, or cash-generating unit’s, fair value less costs to sell and its value in use, and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other assets or groups of assets.
Significant accounting judgements, estimates and assumptions
The preparation of financial statements in accordance with generally accepted accounting principles requires the directors to make judgements
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements
and the reported income and expense during the presented periods. Although these judgements and assumptions are based on the directors’
best knowledge of the amount, events or actions, actual results may differ.
The potential impact of Covid-19 on the Group has been considered in the preparation of these consolidated financial statements, including
management’s evaluation of critical accounting estimates and judgements. The impact on the Group has varied by business.
Covid-19 has introduced unprecedented economic uncertainties and has led to increased judgement particularly in forecasting future financial
performance. There have also been direct impacts on revenue and costs arising from: new contracts helping customers respond to the
pandemic; costs of setting up colleagues to work remotely; and, utilisation of the Government’s Coronavirus Job Retention Scheme. The Board
has not reported these items separately, but where there is an impact this is captured in the divisional performance reviews.
The Board has continued with a policy to separately identify items such as restructuring, where the plans were advanced and adapted in
response to Covid-19 and these are set out in note 2.4. The Board has also considered the impact on the provisions recorded at 31 December
2021, with no significant adjustments recorded, and the valuation of the defined benefit pension scheme.
As described in note 2.1, given the level of judgement and estimation involved in assessing the future profitability of contracts, it is reasonably
possible that outcomes within the next financial year may be different from management’s assumptions and could require a material adjustment
to the carrying amounts of contract assets and, customer and onerous contract provisions.
In determining the Group’s recognition of deferred tax (note 2.6.2), management assess the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases
used in the computation of taxable profit. Deferred tax assets are recognised to the extent that taxable temporary differences exist, and it is
considered probable that future taxable profits will be available against which the assets can be utilised before their expiry. The availability of
future profits must be assessed against forecasts and other supporting evidence. This determination of future forecasts is based on
management’s judgement. It requires judgement regarding whether future profit forecasts are considered ‘more likely than not’ as supporting
evidence for deferred tax asset recognition. The new corporate structure has simplified the internal reporting and, together with the
advancement of the Board approved disposal programme, has provided increased clarity over the composition of future forecasts of taxable
profits. Accordingly, management have applied a methodology based on a probability weighted assessment of the available future profits to
determine the deferred tax asset to recognise. In prior years, preceding the new simplified corporate structure, a shorter forecast timeframe for
unwind of assets, with no probability weighting, was considered more appropriate. The modification in methodology has been reflected as a
change in estimation in accordance with IAS 8, with the adjustment (£84.2m) to the carrying value of the deferred tax asset recorded as a
current year charge in 2021.
The impact of climate change has been considered in the preparation of these financial statements across a number of areas, including our
evaluation of the critical accounting estimates and judgements which are detailed below, consistent with the risks and opportunities set out in
the strategic report on pages 50 to 52. None of these risks had a material effect on the critical accounting estimates or on the consolidated
financial statements of the Group. The Group will continue developing its assessment of the impact that climate change may have on the
assets and liabilities recognised and presented in its financial statements.
The key sources of uncertainty that have a significant risk of causing material adjustments 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:
• Contract accounting (note 2.1)
– Impairment of contract fulfilment assets
– Customer and onerous contract provisions
• Impairment of goodwill (note 3.4)
• Measurement of defined benefit obligations (note 5.2)
The key areas where significant accounting judgements have been made are summarised below and set out in more detail in the related note:
• Capitalisation of contract fulfilment assets (note 3.1)
• Measurement of goodwill (note 3.4)
• Measurement of provisions (note 3.6) and contingent liabilities (note 6.2)
For ease of reference, this symbol has been used to denote significant accounting judgements and estimates where they occur within the note:
J
Denotes significant accounting judgements, estimates and assumptions
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 107
Capita plc Annual Report 2021
108
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Notes to the consolidated financial statements
141
Section 1: Basis of preparation continued
Recoverable amount of non-current assets
At each reporting date, the Group assesses whether there is any indication that a non-current asset may be impaired. Where an indicator of
impairment exists, the Group makes a formal estimate of the asset’s recoverable amount. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount is the higher of
an asset’s, or cash-generating unit’s, fair value less costs to sell and its value in use, and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other assets or groups of assets.
Significant accounting judgements, estimates and assumptions
The preparation of financial statements in accordance with generally accepted accounting principles requires the directors to make judgements
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements
and the reported income and expense during the presented periods. Although these judgements and assumptions are based on the directors’
best knowledge of the amount, events or actions, actual results may differ.
The potential impact of Covid-19 on the Group has been considered in the preparation of these consolidated financial statements, including
management’s evaluation of critical accounting estimates and judgements. The impact on the Group has varied by business.
Covid-19 has introduced unprecedented economic uncertainties and has led to increased judgement particularly in forecasting future financial
performance. There have also been direct impacts on revenue and costs arising from: new contracts helping customers respond to the
pandemic; costs of setting up colleagues to work remotely; and, utilisation of the Government’s Coronavirus Job Retention Scheme. The Board
has not reported these items separately, but where there is an impact this is captured in the divisional performance reviews.
The Board has continued with a policy to separately identify items such as restructuring, where the plans were advanced and adapted in
response to Covid-19 and these are set out in note 2.4. The Board has also considered the impact on the provisions recorded at 31 December
2021, with no significant adjustments recorded, and the valuation of the defined benefit pension scheme.
As described in note 2.1, given the level of judgement and estimation involved in assessing the future profitability of contracts, it is reasonably
possible that outcomes within the next financial year may be different from management’s assumptions and could require a material adjustment
to the carrying amounts of contract assets and, customer and onerous contract provisions.
In determining the Group’s recognition of deferred tax (note 2.6.2), management assess the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases
used in the computation of taxable profit. Deferred tax assets are recognised to the extent that taxable temporary differences exist, and it is
considered probable that future taxable profits will be available against which the assets can be utilised before their expiry. The availability of
future profits must be assessed against forecasts and other supporting evidence. This determination of future forecasts is based on
management’s judgement. It requires judgement regarding whether future profit forecasts are considered ‘more likely than not’ as supporting
evidence for deferred tax asset recognition. The new corporate structure has simplified the internal reporting and, together with the
advancement of the Board approved disposal programme, has provided increased clarity over the composition of future forecasts of taxable
profits. Accordingly, management have applied a methodology based on a probability weighted assessment of the available future profits to
determine the deferred tax asset to recognise. In prior years, preceding the new simplified corporate structure, a shorter forecast timeframe for
unwind of assets, with no probability weighting, was considered more appropriate. The modification in methodology has been reflected as a
change in estimation in accordance with IAS 8, with the adjustment (£84.2m) to the carrying value of the deferred tax asset recorded as a
current year charge in 2021.
The impact of climate change has been considered in the preparation of these financial statements across a number of areas, including our
evaluation of the critical accounting estimates and judgements which are detailed below, consistent with the risks and opportunities set out in
the strategic report on pages 50 to 52. None of these risks had a material effect on the critical accounting estimates or on the consolidated
financial statements of the Group. The Group will continue developing its assessment of the impact that climate change may have on the
assets and liabilities recognised and presented in its financial statements.
The key sources of uncertainty that have a significant risk of causing material adjustments 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:
• Contract accounting (note 2.1)
– Impairment of contract fulfilment assets
– Customer and onerous contract provisions
• Impairment of goodwill (note 3.4)
• Measurement of defined benefit obligations (note 5.2)
• Capitalisation of contract fulfilment assets (note 3.1)
• Measurement of goodwill (note 3.4)
• Measurement of provisions (note 3.6) and contingent liabilities (note 6.2)
For ease of reference, this symbol has been used to denote significant accounting judgements and estimates where they occur within the note:
Denotes significant accounting judgements, estimates and assumptions
Section 1: Basis of preparation continued
New standards and interpretations adopted
The accounting policies adopted are consistent with those of the previous financial year. In addition, the Group has adopted the new
amendments to standards detailed below but they do not have a material effect on the Group’s consolidated financial statements.
New amendments or interpretation
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
Effective date
1 January 2021
The Group has initially adopted Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
from 1 January 2021. The Group applied the Phase 2 amendments retrospectively. However, in accordance with the exceptions permitted in
the Phase 2 amendments, the Group has elected not to restate comparatives for the prior periods to reflect the application of these
amendments. Since the Group had no transactions for which the benchmark rate had been replaced with an alternative benchmark rate as at
31 December 2020, there is no impact on opening equity balances as a result of retrospective application.
Specific policies applicable from 1 January 2021 for interest rate benchmark reform
The Phase 2 amendments provide practical relief from certain requirements in IFRS Standards. These reliefs relate to modifications of financial
instruments and lease contracts or hedging relationships triggered by a replacement of a benchmark interest rate in a contract with a new
alternative benchmark rate.
If the basis for determining the contractual cash flows of a financial asset or financial liability measured at amortised cost changed as a result of
interest rate benchmark reform, then the Group updated the effective interest rate of the financial asset or financial liability to reflect the change
that is required by the reform. A change in the basis for determining the contractual cash flows is required by interest rate benchmark reform if
the following conditions are met:
• the change is necessary as a direct consequence of the reform; and
• the new basis for determining the contractual cash flows is economically equivalent to the previous basis – ie the basis immediately before
the change.
When changes were made to a financial asset or financial liability in addition to changes to the basis for determining the contractual cash flows
required by interest rate benchmark reform, the Group first updated the effective interest rate of the financial asset or financial liability to reflect
the change that is required by interest rate benchmark reform. After that, the Group applied the policies on accounting for modifications to the
additional changes.
The amendments also provide an exception to use a revised discount rate that reflects the change in interest rate when remeasuring a lease
liability because of a lease modification that is required by interest rate benchmark reform.
Finally, the Phase 2 amendments provide a series of temporary exceptions from certain hedge accounting requirements when a change
required by interest rate benchmark reform occurs to a hedged item and/or hedging instrument that permits the hedging relationship to be
continued without interruption. The Group applied the relief by amending the designation of a hedging relationship to reflect changes that were
required by the reform without discontinuing the hedging relationship.
The details of the accounting policies are disclosed in note 4.5. Also see Section 4 for related disclosures about risks, financial assets and
financial liabilities indexed to LIBOR and hedge accounting.
New standards and interpretations not yet adopted
The International Accounting Standards Board (IASB) has issued the following standards, amendments and interpretations with an effective
date after the date of these consolidated financial statements. These are effective for annual reporting periods beginning on or after the date
indicated:
The key areas where significant accounting judgements have been made are summarised below and set out in more detail in the related note:
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
Definition of Accounting Estimates (Amendments to IAS 8)
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
International Accounting Standards (IAS/IFRS)
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
Annual Improvements to IFRS Standards 2018–2020
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
Reference to the Conceptual Framework (Amendments to IFRS 3)
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts
Effective date
1 January 2022
1 January 2022
1 January 2022
1 January 2022
1 January 2023
1 January 2023
1 January 2023
1 January 2023
1 January 2023
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the
contract is onerous. The amendments apply for annual reporting periods beginning on or after 1 January 2022 to contracts existing at the date
when the amendments are first applied. At the date of initial application, the cumulative effect of applying the amendments is recognised as an
opening balance adjustment to retained earnings or other components of equity, as appropriate. The comparatives are not restated.
The Group is in the advanced stages of the assessment of the amended standard and based on its current assessment, it is expected to result
in an increase of c.£16m to the Group’s onerous contract provisions and c.£3m impairment of contract related assets.
All other standards, amendments and interpretations that have been issued by the IASB but not yet effective were not applicable or not material
to the Group.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 142
109
109
Capita plc Annual Report 2021
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Notes to the consolidated financial statements
109
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Section 2: Results for the year
Section 2: Results for the year
This section contains notes related to the financial performance of the Group. These include:
This section contains notes related to the financial performance of the Group. These include:
Section 2: Results for the year
2.1 Contract accounting
2.1 Contract accounting
This section contains notes related to the financial performance of the Group. These include:
2.2 Revenue including segmental revenue
2.2 Revenue including segmental revenue
Segmental information
Segmental information
Adjusted operating profit and adjusted profit before tax
Adjusted operating profit and adjusted profit before tax
2.3 Operating profit
2.3 Operating profit
2.1 Contract accounting
2.4
2.4
2.2 Revenue including segmental revenue
2.5
2.5
2.3 Operating profit
Taxation
Taxation
2.6
2.6
Adjusted operating profit and adjusted profit before tax
2.4
Earnings/(loss) per share
2.7
Earnings/(loss) per share
2.7
Segmental information
2.5
Business exits and assets held-for-sale
2.8
Business exits and assets held-for-sale
2.8
Taxation
2.6
2.9 Discontinued operations
2.9 Discontinued operations
Earnings/(loss) per share
2.7
2.10 Cash flow information
2.10 Cash flow information
2.8
Business exits and assets held-for-sale
Denotes accounting policies
Denotes accounting policies
2.9 Discontinued operations
AP
2.10 Cash flow information
J
Denotes significant accounting judgements, estimates and assumptions
Denotes significant accounting judgements, estimates and assumptions
Denotes accounting policies
Denotes significant accounting judgements, estimates and assumptions
Key highlights
Key highlights
Reported free cash flow
Reported free cash flow
Reported revenue
Reported revenue
Key highlights
Reported revenue
£3,182.5m £(237.1)m
£3,182.5m £(237.1)m
£3,182.5m £(237.1)m
Reported free cash flow
(2020: £3,324.8m)
(2020: £3,324.8m)
(2020: £303.8m)
(2020: £303.8m)
(2020: £3,324.8m)
Reported profit before tax
Reported profit before tax
Reported earnings per share
Reported earnings per share
(2020: £303.8m)
(EPS) – continuing operations
(EPS) – continuing operations
Reported profit before tax
£285.6m 13.33p
£285.6m 13.33p
£285.6m 13.33p
Reported earnings per share
(EPS) – continuing operations
(2020: loss £(49.4)m)
(2020: loss £(49.4)m)
(2020: (0.41)p)
(2020: (0.41)p)
(2020: loss £(49.4)m)
Adjusted revenue1
Adjusted revenue1
Adjusted free cash flow1
Adjusted free cash flow1
(2020: (0.41)p)
Aim: Achieve sustainable, long-term
Aim: Achieve sustainable, long-term
free cash flow growth
free cash flow growth
Adjusted revenue1
£3,008.5m £78.1m
£3,008.5m £78.1m
£3,008.5m £78.1m
Adjusted free cash flow1
Aim: Achieve sustainable, long-term
free cash flow growth
(2020: £2,995.5m)
(2020: £2,995.5m)
(2020: £170.3m)
(2020: £170.3m)
Adjusted profit before tax1
Adjusted profit before tax1
(2020: £2,995.5m)
Aim: achieve long-term growth in profit
Aim: achieve long-term growth in profit
Adjusted earnings per share (EPS)1
Adjusted earnings per share (EPS)1
(2020: £170.3m)
Aim: achieve long-term growth in EPS
Aim: achieve long-term growth in EPS
Adjusted profit before tax1
Aim: achieve long-term growth in profit
£93.5m
£93.5m
£93.5m
(2020: profit £5.4m)
(2020: profit £5.4m)
Adjusted earnings per share (EPS)1
Aim: achieve long-term growth in EPS
1.61p
1.61p
1.61p
(2020: 2.41p)
(2020: 2.41p)
(2020: profit £5.4m)
(2020: 2.41p)
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
109
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Section 2: Results for the year
This section contains notes related to the financial performance of the Group. These include:
Adjusted operating profit and adjusted profit before tax
2.1 Contract accounting
2.2 Revenue including segmental revenue
2.3 Operating profit
2.4
2.5
2.6
2.7
2.8
Segmental information
Taxation
Earnings/(loss) per share
Business exits and assets held-for-sale
2.9 Discontinued operations
2.10 Cash flow information
Denotes accounting policies
Denotes significant accounting judgements, estimates and assumptions
Key highlights
Reported revenue
Reported free cash flow
£3,182.5m £(237.1)m
(2020: £3,324.8m)
(2020: £303.8m)
Reported profit before tax
£285.6m 13.33p
Reported earnings per share
(EPS) – continuing operations
(2020: loss £(49.4)m)
(2020: (0.41)p)
Adjusted free cash flow1
Aim: Achieve sustainable, long-term
free cash flow growth
Adjusted revenue1
£3,008.5m £78.1m
(2020: £2,995.5m)
(2020: £170.3m)
Adjusted profit before tax1
Aim: achieve long-term growth in profit
Adjusted earnings per share (EPS)1
Aim: achieve long-term growth in EPS
£93.5m
1.61p
(2020: profit £5.4m)
(2020: 2.41p)
Notes to the consolidated financial statements
Notes to the consolidated financial statements
Strategic report
Corporate governance
Financial statements
Strategic report
Corporate governance
Financial statements
110
110
143
Section 2: Results for the year continued
Section 2: Results for the year continued
In 2021 the Group’s adjusted revenue1 marginally increased year on year. Adjusted profit before tax1 significantly improved year on year from
the delivery of cost savings. The higher level of profit was more than offset by a cash outflow from movements in working capital and a
In 2021 the Group’s adjusted revenue1 marginally increased year on year. Adjusted profit before tax1 significantly improved year on year from
reduction in capital expenditure, resulting in adjusted free cash inflow1 of £78.1m (2020: £170.3m inflow).
the delivery of cost savings. The higher level of profit was more than offset by a cash outflow from movements in working capital and a
reduction in capital expenditure, resulting in adjusted free cash inflow1 of £78.1m (2020: £170.3m inflow).
The Group had additional cash inflow of £315.2m (2020: £133.5m inflow), primarily arising on the disposal of the ESS and AXELOS businesses
in the year, offset by outflows arising from VAT repayments under the Governments VAT deferral scheme of £104.1m (2020: inflow £118.8m),
The Group had additional cash inflow of £315.2m (2020: £133.5m inflow), primarily arising on the disposal of the ESS and AXELOS businesses
restructuring of £68.6m (2020: £64.1m) and pension deficit payments of £155.5m (2020: £29.5m. This resulted in headline net debt decreasing
in the year, offset by outflows arising from VAT repayments under the Governments VAT deferral scheme of £104.1m (2020: inflow £118.8m),
to £879.8m (2020: £1,077.1m).
restructuring of £68.6m (2020: £64.1m) and pension deficit payments of £155.5m (2020: £29.5m. This resulted in headline net debt decreasing
to £879.8m (2020: £1,077.1m).
Revenue
Adjusted revenue1 increased by 0.4% year-on-year. For additional information, which does not form part of these consolidated financial
Revenue
statements, the Chief Financial Officer’s review in the strategic report includes a bridge of drivers of the movement.
Adjusted revenue1 increased by 0.4% year-on-year. For additional information, which does not form part of these consolidated financial
statements, the Chief Financial Officer’s review in the strategic report includes a bridge of drivers of the movement.
The adjusted revenue increased as a result of the following:
The adjusted revenue increased as a result of the following:
•
Contract losses halving year-on-year reflecting sustained focus on retention and service delivery;
•
•
•
•
Contract losses halving year-on-year reflecting sustained focus on retention and service delivery;
Ongoing contract scope and volume reduction reflecting pandemic related work in 2020 and projects in Capita Experience which did not
repeat in 2021;
Ongoing contract scope and volume reduction reflecting pandemic related work in 2020 and projects in Capita Experience which did not
repeat in 2021;
Transactional revenue growth mainly driven by Capita Public Service and to a lesser extent Capita Portfolio;
•
•
•
•
•
Transactional revenue growth mainly driven by Capita Public Service and to a lesser extent Capita Portfolio;
the benefit of a number of notable contract wins including the commencement of the Royal Navy training contract and the Job Entry
Targeted Support (JETS) contract which commenced in February combined with the annualised impact of the Defence Fire and Rescue
the benefit of a number of notable contract wins including the commencement of the Royal Navy training contract and the Job Entry
Project (DFRP) contract in Capita Public Service and smaller wins within Capita Experience; and
Targeted Support (JETS) contract which commenced in February combined with the annualised impact of the Defence Fire and Rescue
Project (DFRP) contract in Capita Public Service and smaller wins within Capita Experience; and
In 2021, one-off benefits similar to 2020, of £34.2m, related to the release of deferred income and compensation arising on earlier than
planned contract terminations and modifications.
In 2021, one-off benefits similar to 2020, of £34.2m, related to the release of deferred income and compensation arising on earlier than
planned contract terminations and modifications.
The difference of £174.0m between adjusted revenue of £3,008.5m and reported revenue of £3,182.5m is related to business exits in the year
(refer to note 2.8).
The difference of £174.0m between adjusted revenue of £3,008.5m and reported revenue of £3,182.5m is related to business exits in the year
(refer to note 2.8).
Profit before tax
Adjusted profit before tax1 increased by 1,631.5% year-on-year. For additional information, which does not form part of these consolidated
Profit before tax
financial statements, the Chief Financial Officer’s review in the strategic report includes a bridge of drivers of the movement.
Adjusted profit before tax1 increased by 1,631.5% year-on-year. For additional information, which does not form part of these consolidated
The adjusted profit before tax1 increased as a result of the profit impact of the following:
financial statements, the Chief Financial Officer’s review in the strategic report includes a bridge of drivers of the movement.
The adjusted profit before tax1 increased as a result of the profit impact of the following:
•
to ensure a like-with-like starting point, the 2020 one-offs, which included contract asset impairments and contract provisions, are adjusted
for;
to ensure a like-with-like starting point, the 2020 one-offs, which included contract asset impairments and contract provisions, are adjusted
for;
the margin effect of contract losses, scope and volume, transactional changes and contract wins were a net £26.9m negative, with new
wins not yet offsetting the impact of contract losses and scope and volume reductions;
the margin effect of contract losses, scope and volume, transactional changes and contract wins were a net £26.9m negative, with new
wins not yet offsetting the impact of contract losses and scope and volume reductions;
unplanned contractual one-offs in 2021, including the release of deferred income and write-off of contract assets arising from contract
terminations, settlements and modifications, and provisions recognised on onerous contracts. These resulted in net gains of £7.5m in
unplanned contractual one-offs in 2021, including the release of deferred income and write-off of contract assets arising from contract
Public Service and £4.7m in Experience which have not been excluded from adjusted results as they are considered to be in the normal
terminations, settlements and modifications, and provisions recognised on onerous contracts. These resulted in net gains of £7.5m in
course of business.
Public Service and £4.7m in Experience which have not been excluded from adjusted results as they are considered to be in the normal
course of business.
the transformation programme continued to deliver substantial savings in 2021 with a £123.3m year-on-year benefit;
the transformation programme continued to deliver substantial savings in 2021 with a £123.3m year-on-year benefit;
other cost movements primarily from general inflation; and
•
•
•
•
•
•
•
•
•
•
•
other cost movements primarily from general inflation; and
the year-on-year impact of the reinstatement of the employee bonus scheme this year with £31.2m expensed in 2021 including £17.3m
accrued at 31 December 2021 compared with the release of the 2019's £16.5m accrual in the first half of 2020, was partially off-set by a
the year-on-year impact of the reinstatement of the employee bonus scheme this year with £31.2m expensed in 2021 including £17.3m
reduction in holiday pay accrual.
accrued at 31 December 2021 compared with the release of the 2019's £16.5m accrual in the first half of 2020, was partially off-set by a
Adjusted profit before tax1 excludes a number of specific items so users of these consolidated financial statements can more clearly understand
reduction in holiday pay accrual.
the financial performance of the Group. Reported profit before tax was £285.6m (2020: loss £49.4m). A reconciliation of the adjusted profit
Adjusted profit before tax1 excludes a number of specific items so users of these consolidated financial statements can more clearly understand
before tax1 to reported loss before tax is detailed in note 2.4.
the financial performance of the Group. Reported profit before tax was £285.6m (2020: loss £49.4m). A reconciliation of the adjusted profit
before tax1 to reported loss before tax is detailed in note 2.4.
Reported operating loss for the year was £86.6m (2020: loss £32.0m). Details of items charged/credited in arriving at the operating loss can be
found in note 2.3.
Reported operating loss for the year was £86.6m (2020: loss £32.0m). Details of items charged/credited in arriving at the operating loss can be
found in note 2.3.
Taxation
The income tax charge of £64.8m on adjusted profit before tax1 of £93.5m (2020: credit of £25.3m on adjusted profit before tax of £5.4m) differs
Taxation
from the notional tax charge at the UK corporation tax rate of 19%, mainly due to the impact of the anticipated tax rate change on deferred tax
The income tax charge of £64.8m on adjusted profit before tax1 of £93.5m (2020: credit of £25.3m on adjusted profit before tax of £5.4m) differs
assets, and adjustments in the carrying value of recognised deferred tax assets.
from the notional tax charge at the UK corporation tax rate of 19%, mainly due to the impact of the anticipated tax rate change on deferred tax
assets, and adjustments in the carrying value of recognised deferred tax assets.
Earnings per share (EPS)
The movement in reported basic earnings per share and adjusted basic earnings per share1 for continuing operations was as a result of the
Earnings per share (EPS)
performance explained above.
The movement in reported basic earnings per share and adjusted basic earnings per share1 for continuing operations was as a result of the
performance explained above.
Dividend
The Board is not recommending the payment of a final dividend (2020: £nil). However, the Board recognises the importance of regular dividend
Dividend
payments to investors in forming part of their total shareholder return and will consider the payment of dividends when the Group is generating
The Board is not recommending the payment of a final dividend (2020: £nil). However, the Board recognises the importance of regular dividend
sufficient sustainable free cash flow.
payments to investors in forming part of their total shareholder return and will consider the payment of dividends when the Group is generating
sufficient sustainable free cash flow.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
111
Capita plc Annual Report 2021
Notes to the consolidated financial statements
144
Section 2: Results for the year continued
Adjusted free cash flow1
Adjusted free cash flow1 was lower in 2021 due to the improvement in adjusted operating profit1 being offset by working capital outflows.
Adjusted operating profit to adjusted free cash flow1
Adjusted operating profit1
Add: depreciation/amortisation and impairment property, plant and equipment and intangible assets
Adjusted EBITDA
Working capital
Other
Adjusted cash generated from operations1
Net capital expenditure
Interest / tax paid
Adjusted free cash flow1
2021
£m
139.1
156.0
295.1
(123.5)
13.8
185.4
(51.3)
(56.0)
78.1
2020
£m
51.1
177.3
228.4
34.3
32.5
295.2
(68.3)
(56.6)
170.3
Adjusted cash generated from operations1, which decreased to £185.4m (2020: £295.2m), benefited from the improvement in adjusted profit
before tax1 explained above, offset by a material working capital outflow compared with an inflow in 2020.
The working capital outflow of £123.5m (2020: inflow £34.3m) was due to:
•
•
•
A large reduction in trade and other receivables. In 2020, the cash flow benefited from shorter public sector payment cycles as part of the
Covid-19 response and advanced payments from a small number of major clients at 31 December 2020. As expected, 2021 has been
impacted by the unwind of these advanced receipts together with the natural expansion in working capital as the Group transitions to
growth. The reductions also highlight the increased volumes in transactional business when compared with 2020 driving a higher level of
trade debtors;
A increased deferred income outflow of £92.8m, largely from unwinding of deferred transformation revenue on a contract with a telecom
customer, and also on full and partial contract terminations in both Capita Public Service and Capita Experience. This is offset by
continued transformation spend on DFRP increasing deferred income for this contract; and
A contract fulfilment asset outflow of £40.3m, mostly from an increase in additions on Capita Public Service contracts, the most significant
being on the TfL Road User & Emissions Charging contract, offset by contract asset impairments and derecognitions in Capita
Experience.
Net capital expenditure reduced year-on-year following the 2020 completion of a number of transformation-related projects.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
111
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
112
145
Section 2: Results for the year continued
Adjusted free cash flow1
Adjusted free cash flow1 was lower in 2021 due to the improvement in adjusted operating profit1 being offset by working capital outflows.
Section 2: Results for the year continued
2.1 Contract accounting
At 31 December 2021, the Group had the following results and balance sheet items related to long-term contracts:
Add: depreciation/amortisation and impairment property, plant and equipment and intangible assets
Adjusted operating profit to adjusted free cash flow1
Adjusted operating profit1
Adjusted EBITDA
Working capital
Other
Net capital expenditure
Interest / tax paid
Adjusted free cash flow1
Adjusted cash generated from operations1
2021
£m
139.1
156.0
295.1
(123.5)
13.8
185.4
(51.3)
(56.0)
78.1
2020
£m
51.1
177.3
228.4
34.3
32.5
295.2
(68.3)
(56.6)
170.3
Adjusted cash generated from operations1, which decreased to £185.4m (2020: £295.2m), benefited from the improvement in adjusted profit
before tax1 explained above, offset by a material working capital outflow compared with an inflow in 2020.
The working capital outflow of £123.5m (2020: inflow £34.3m) was due to:
A large reduction in trade and other receivables. In 2020, the cash flow benefited from shorter public sector payment cycles as part of the
Covid-19 response and advanced payments from a small number of major clients at 31 December 2020. As expected, 2021 has been
impacted by the unwind of these advanced receipts together with the natural expansion in working capital as the Group transitions to
growth. The reductions also highlight the increased volumes in transactional business when compared with 2020 driving a higher level of
A increased deferred income outflow of £92.8m, largely from unwinding of deferred transformation revenue on a contract with a telecom
customer, and also on full and partial contract terminations in both Capita Public Service and Capita Experience. This is offset by
continued transformation spend on DFRP increasing deferred income for this contract; and
A contract fulfilment asset outflow of £40.3m, mostly from an increase in additions on Capita Public Service contracts, the most significant
being on the TfL Road User & Emissions Charging contract, offset by contract asset impairments and derecognitions in Capita
•
•
•
trade debtors;
Experience.
Net capital expenditure reduced year-on-year following the 2020 completion of a number of transformation-related projects.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2.
Long-term contractual adjusted revenue
Non-current and current deferred income
Non-current contract fulfilment assets
Non-current and current onerous contract provision
Notes
2020
2021
£m
£m
2.2 2,156.9 2,178.6
975.2
794.7
294.8
286.7
16.5
45.8
3.1.3
Background
The Group operates diverse businesses. The majority of the Group’s revenue is from contracts greater than two years in duration (long-term
contractual), being 72% of Group adjusted revenue in 2021 (2020: 73%).
These long-term contracts can be complex in nature given the breadth of solutions the Group offers and the transformational activities involved.
Typically, Capita takes a customer’s process and transforms it into a more efficient and effective solution which is then operated for the
customer. The outcome is a high quality solution that addresses a customer’s needs and is delivered consistently over the life of the contract.
The Group recognises revenue on long-term contracts as the value is delivered to the customer, which is generally evenly over the contract
term, regardless of any restructuring and transformation activity. Capita will often incur greater costs during the transformation phase with costs
diminishing over time as the target operating model is implemented and efficiencies realised. This results in lower profits or losses in the early
years of contracts and potentially higher profits in later years as the transformation activities are successfully completed and the target
operating model fully implemented (the business as usual (BAU) phase). The inflection point is when the contract becomes profitable.
Contract fulfilment assets are recognised for those costs qualifying for capitalisation. The utilisation of these assets is recognised over the
contract term. The timing of cash receipts from customers typically matches when the costs are incurred to transform, restructure and run the
service. This results in income being deferred and released as the Group continues to deliver against its obligation to provide services and
solutions to its customers.
An example, showing the revenue, cost, profit and cash profit of a typical long-term contract lifecycle is as follows:
J
Significant accounting judgements, estimates and assumptions
Due to the size and complexity of some of the Group’s contracts, there are significant judgements to be applied, specifically in assessing: (i) the
recoverability of contract fulfilment assets; and (ii) the completeness of the customer and onerous contract provisions. These judgements are
dependent on assessing the contract’s future profitability and give rise to a key source of estimation uncertainty. It is possible that outcomes
within the next financial year may be different from management’s assumptions and could require a material adjustment to the carrying
amounts of contract assets and onerous contract provisions.
It should be noted that while management must make judgements in relation to applying the revenue recognition policy and recognition of
related balance sheet items (trade receivables; deferred income; and accrued income) these are not considered significant judgements (refer to
note 2.2 for the Group’s policies).
Contract lifetime profitIFRS 15 revenueCash receivedValueOperating model at service commencement paTarget operating modelDeferred incomeRestructuringTransformation phaseBAU phaseInflection pointInitial lossTimeHigher level of uncertainty in lifetime profitability Reduced level of uncertainty in lifetime profitability Operating costsFixed asset depreciation and contract fulfilment asset utilisationFinancial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
113
Capita plc Annual Report 2021
Notes to the consolidated financial statements
146
Section 2: Results for the year continued
2.1 Contract accounting continued
Assessing contract profitability
In assessing a contract’s future lifetime profitability, management must estimate forecast revenue and costs to both transform and run the
service over the remaining contract term. The ability to accurately forecast the outcomes involves estimates in respect of: costs to be incurred;
cost savings to be achieved; future performance against any contract-specific key performance indicators (KPIs) that could trigger variable
consideration or service credits; and the outcome of any commercial negotiations.
The level of uncertainty in the estimated future profitability of a contract is directly related to the stage of the life-cycle of the contract and the
complexity of the performance obligations. Contracts in the transformation stage and pre-inflection stages are considered to have a higher level
of uncertainty because of:
• the ability to accurately estimate the costs to deliver the transformed process;
• the dependency on the customer to agree to the specifics of the transformation: for example, where they are involved in certifying that the
new process or the new technical solution designed by Capita meets their specific requirements; and
• the assumptions made to forecast expected savings in the target operating model.
Those contracts which are post-inflection and in BAU stage tend to have a much lower level of uncertainty in estimating future profitability.
Recoverability of contract fulfilment assets and completeness of onerous contract provisions
Management first assesses whether the 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 in
respect of the Group’s major contracts, including comparison against previous forecasts. Major contracts include those that are material in size
or risk to the Group’s results. Other contracts are reported to the Audit and Risk Committee as deemed appropriate. These contracts are
collectively referred to as ‘major contracts’ in the remainder of this note.
The major contracts contributed £2.0 billion (2020: £1.5 billion) or 68% (2020: 47%) of Group adjusted revenue. Non-current contract fulfilment
assets at 31 December 2021 were £286.7m, of which £184.1m (2020: £152.7m) relates to major contracts with on-going transformational
activities. The remainder relates to contracts post transformation and includes non-major contracts.
The major contracts, both pre- and post-transformation, are rated according to their financial risk profile, which is linked to the level of
uncertainty over future assumptions. For those that are in the high and medium rated risk categories the associated non-current contract
fulfilment assets were, in aggregate, £6.6m at 31 December 2021 (2020: £44.5m). The recoverability of these assets is dependent on no
significant adverse change in the key contract assumptions arising in the next financial year. The deferred income associated with these
contracts was £89.5m at 31 December 2021 (2020: £232.3m) 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 £45.8m at 31 December
2021 (2020: £15.7m).
Following these reviews, and reviews of smaller contracts across the business, as outlined in note 3.1.3, contract fulfilment asset impairment of
£7.3m (2020: £17.5m) were identified and recognised within adjusted cost of sales, of which £nil (2020: £2.0m) relate to contract fulfilment
assets added during the period, and net onerous contract provisions of £32.0m (2020: £10.4m) were identified out of which £3.3m was
recognised within adjusted cost of sales.
Given the quantum of the relevant contract assets and liabilities, and the nature of the estimates noted above, management has concluded that
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, £184.1m
of non-current contract fulfilment assets relates to major contracts with on-going transformational activities and £6.6m of non-contract fulfilment
assets and £45.8m 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 of the major transformation contracts have key milestones during the next twelve months and inability to meet these key milestones
could lead to reduced profitability and a risk of impairment of the associated contract assets. These contracts include DFRP and Royal Navy
training.
Additional information, which does not form part of these consolidated financial statements, on the results and performance of the underlying
divisions including the outlook on certain contracts is set out in the divisional performance review.
2.2 Revenue including segmental revenue
AP
Accounting policies
Revenue
The Group generates revenue largely in the UK and Europe. The Group operates a diverse range of businesses and accordingly applies a
variety of methods for revenue recognition, based on the principles set out in IFRS 15.
The revenue and profits recognised in any period are based on the delivery of performance obligations and an assessment of when control is
transferred to the customer.
Revenue is recognised either when the performance obligation in the contract has been performed (‘point-in-time’ recognition) or ‘overtime’ as
control of the performance obligation is transferred to the customer.
For all contracts, the Group determines if the arrangement with a customer creates enforceable rights and obligations. This assessment results
in certain Master Service Agreements (MSA) or Frameworks not meeting the definition of a contract under IFRS 15 and as such the individual
call-off agreements, linked to the MSA, are treated as individual contracts.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 113
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Notes to the consolidated financial statements
147
Strategic report
Corporate governance
Financial statements
114
Section 2: Results for the year continued
2.1 Contract accounting continued
Assessing contract profitability
In assessing a contract’s future lifetime profitability, management must estimate forecast revenue and costs to both transform and run the
service over the remaining contract term. The ability to accurately forecast the outcomes involves estimates in respect of: costs to be incurred;
cost savings to be achieved; future performance against any contract-specific key performance indicators (KPIs) that could trigger variable
consideration or service credits; and the outcome of any commercial negotiations.
The level of uncertainty in the estimated future profitability of a contract is directly related to the stage of the life-cycle of the contract and the
complexity of the performance obligations. Contracts in the transformation stage and pre-inflection stages are considered to have a higher level
of uncertainty because of:
• the ability to accurately estimate the costs to deliver the transformed process;
• the dependency on the customer to agree to the specifics of the transformation: for example, where they are involved in certifying that the
new process or the new technical solution designed by Capita meets their specific requirements; and
• the assumptions made to forecast expected savings in the target operating model.
Those contracts which are post-inflection and in BAU stage tend to have a much lower level of uncertainty in estimating future profitability.
Recoverability of contract fulfilment assets and completeness of onerous contract provisions
Management first assesses whether the 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 in
respect of the Group’s major contracts, including comparison against previous forecasts. Major contracts include those that are material in size
or risk to the Group’s results. Other contracts are reported to the Audit and Risk Committee as deemed appropriate. These contracts are
collectively referred to as ‘major contracts’ in the remainder of this note.
The major contracts contributed £2.0 billion (2020: £1.5 billion) or 68% (2020: 47%) of Group adjusted revenue. Non-current contract fulfilment
assets at 31 December 2021 were £286.7m, of which £184.1m (2020: £152.7m) relates to major contracts with on-going transformational
activities. The remainder relates to contracts post transformation and includes non-major contracts.
The major contracts, both pre- and post-transformation, are rated according to their financial risk profile, which is linked to the level of
uncertainty over future assumptions. For those that are in the high and medium rated risk categories the associated non-current contract
fulfilment assets were, in aggregate, £6.6m at 31 December 2021 (2020: £44.5m). The recoverability of these assets is dependent on no
significant adverse change in the key contract assumptions arising in the next financial year. The deferred income associated with these
contracts was £89.5m at 31 December 2021 (2020: £232.3m) 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 £45.8m at 31 December
2021 (2020: £15.7m).
Following these reviews, and reviews of smaller contracts across the business, as outlined in note 3.1.3, contract fulfilment asset impairment of
£7.3m (2020: £17.5m) were identified and recognised within adjusted cost of sales, of which £nil (2020: £2.0m) relate to contract fulfilment
assets added during the period, and net onerous contract provisions of £32.0m (2020: £10.4m) were identified out of which £3.3m was
recognised within adjusted cost of sales.
Given the quantum of the relevant contract assets and liabilities, and the nature of the estimates noted above, management has concluded that
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, £184.1m
of non-current contract fulfilment assets relates to major contracts with on-going transformational activities and £6.6m of non-contract fulfilment
assets and £45.8m 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 of the major transformation contracts have key milestones during the next twelve months and inability to meet these key milestones
could lead to reduced profitability and a risk of impairment of the associated contract assets. These contracts include DFRP and Royal Navy
training.
Additional information, which does not form part of these consolidated financial statements, on the results and performance of the underlying
divisions including the outlook on certain contracts is set out in the divisional performance review.
2.2 Revenue including segmental revenue
Accounting policies
Revenue
transferred to the customer.
The Group generates revenue largely in the UK and Europe. The Group operates a diverse range of businesses and accordingly applies a
variety of methods for revenue recognition, based on the principles set out in IFRS 15.
The revenue and profits recognised in any period are based on the delivery of performance obligations and an assessment of when control is
Revenue is recognised either when the performance obligation in the contract has been performed (‘point-in-time’ recognition) or ‘overtime’ as
control of the performance obligation is transferred to the customer.
For all contracts, the Group determines if the arrangement with a customer creates enforceable rights and obligations. This assessment results
in certain Master Service Agreements (MSA) or Frameworks not meeting the definition of a contract under IFRS 15 and as such the individual
call-off agreements, linked to the MSA, are treated as individual contracts.
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
The Group enters into contracts which contain extension periods, where either the customer or both parties can choose to extend the contract
or there is an automatic annual renewal, and/or termination clauses that could impact the actual duration of the contract. Judgement is applied
to assess the impact that these clauses have when determining the appropriate contract term. The term of the contract impacts both the period
over which revenue from performance obligations may be recognised and the period over which contract fulfilment assets and capitalised costs
to obtain a contract are expensed.
For contracts with multiple components to be delivered such as transformation, transitions and the delivery of outsourced services,
management applies judgement to consider whether those promised goods and services are:
(i) distinct – to be accounted for as separate performance obligations;
(ii) not distinct – to be combined with other promised goods or services until a bundle is identified that is distinct; or,
(iii) part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.
At a contract’s inception the total transaction price is estimated, being the amount to which the Group expects to be entitled and has rights to
under the contract. This includes an assessment of any variable consideration where the Group’s performance may result in additional
revenues based on the achievement of agreed KPIs. Such amounts are only included based on the expected value, or the most likely outcome
method, and only to the extent that it is highly probable that no revenue reversal will occur.
The transaction price does not include estimates of consideration resulting from change orders for additional goods and services unless these
are already agreed.
Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative
standalone selling prices and recognises revenue when (or while) those performance obligations are satisfied.
The Group infrequently sells standard products with observable standalone prices due to the specialised services required by customers,
consequently the Group applies judgement to determine an appropriate standalone selling price. More frequently, the Group sells customers
bespoke solutions, and in these cases the Group typically uses the expected cost-plus margin or a contractually stated price approach to
estimate the standalone selling price of each performance obligation.
The Group may offer price step downs during the life of a contract, but with no change to the underlying scope of services to be delivered. In
general, any such variable consideration, price step down or discount is included in the total transaction price to be allocated across all
performance obligations unless it relates to only one performance obligation in a contract.
For each performance obligation to be recognised overtime, the Group applies a revenue recognition method that faithfully depicts the Group’s
performance in transferring control of the goods or services to the customer. This decision requires assessment of the real nature of the goods
or services that the Group has promised to transfer to the customer. The Group applies the relevant output or input method consistently to
similar performance obligations in other contracts.
When using the output method, the Group recognises revenue on the basis of direct measurements of the value to the customer of the goods
and services transferred to date relative to the remaining goods and services under the contract. Where the output method is used, in particular
for long-term service contracts where the series guidance is applied, the Group often uses a method of time elapsed which requires minimal
estimation. Certain long-term contracts use output methods based upon estimations of: user numbers; service activity levels; or fees collected.
If performance obligations in a contract do not meet the overtime criteria, the Group recognises revenue at a point-in-time when the service or
good is delivered.
Contract modifications
The Group’s contracts are often amended for changes in contract specifications and requirements. Contract modifications exist when the
amendment either creates new, or changes existing, enforceable rights and obligations. The effect of a contract modification on the transaction
price and the Group’s measure of progress for the performance obligation to which it relates, is recognised as an adjustment to revenue in one
of the following ways:
a) prospectively as an additional separate contract;
b) prospectively as a termination of the existing contract and creation of a new contract;
c) as part of the original contract using a cumulative catch up; or,
d) as a combination of (b) and (c).
In respect of contracts for which the Group has decided there is a series of distinct goods and services that are substantially the same and
have the same pattern of transfer where revenue is recognised over time, the modification will always be treated under either (a) or (b); (d) may
arise when a contract has a part-termination and a modification of the remaining performance obligations.
The facts and circumstances of any contract modification are considered individually as the types of modifications will vary contract by contract
and may result in different accounting outcomes.
Judgement is applied in relation to the accounting for such modifications where the final terms or legal contracts have not been agreed prior to
the period end because management needs to determine if a modification has been approved and if it either creates new, or changes existing,
enforceable rights and obligations of the parties. Depending upon the outcome of such negotiations, the timing and amount of revenue
recognised may be different in the relevant accounting periods. Modification and amendments to contracts are undertaken through an agreed
formal process. For example, if a change in scope has been approved but the corresponding change in price is still being negotiated,
management uses judgement to estimate the change in total transaction price. Importantly, any variable consideration is only recognised to the
extent that it is highly probable that no revenue reversal will occur.
Principal versus agent
The Group has arrangements with some of its customers whereby it needs to determine if it acts as a principal or an agent because more than
one party is involved in providing the goods and services to the customer. The Group is a principal if it controls a promised good or service
before transferring that good or service to the customer. The Group is an agent if its role is to arrange for another entity to provide the goods or
services. Factors considered in making this assessment are most notably: the discretion the Group has in establishing the price for the
specified good or service; whether the Group has inventory risk; and whether or not the Group is primarily responsible for fulfilling the promise
to deliver the service or good.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 115
Capita plc Annual Report 2021
Notes to the consolidated financial statements
148
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
This assessment of control requires judgement particularly in relation to certain service contracts. An example is the provision of certain
recruitment and learning services where the Group may be assessed to be agent or principal dependent upon the facts and circumstances of
the arrangement and the nature of the services being delivered.
Where the Group is acting as a principal, revenue is recorded on a gross basis. Where the Group is acting as an agent, revenue is recorded on
a net basis, recognising only the commission or fee earned as revenue.
Licences
Software licences delivered by the Group can either be right to access (active) or right to use (passive) licences, which determines the timing of
revenue recognition. The assessment of whether a licence is active or passive involves judgement.
The key determinant of an active licence is whether or not the Group is required to undertake continuing activities that significantly affect the
licensed intellectual property (or the customer has a reasonable expectation that it will do so) and the customer is, therefore, exposed to
positive (or negative) impacts resulting from those changes. Where the Group is responsible for any maintenance, continuing support, updates
and upgrades, and accordingly the sale of the initial software is not distinct. All other licences which have significant standalone functionality
are treated as passive licences.
When software upgrades are sold as part of the software licence agreement (ie software upgrades are promised to the customer), the Group
applies judgement to assess whether the software upgrades are distinct from the licence (ie a separate performance obligation). If the
upgrades are considered fundamental to the ongoing use of the software by the customer, the upgrades are not considered distinct and not
accounted for as a separate performance obligation.
For each contract that includes a separate licence performance obligation, the Group considers all the facts and circumstances in determining
whether the licence revenue is recognised overtime (active) or at a point-in-time (passive) from the go-live date of the licence.
Deferred and accrued income
The Group’s customer contracts include a diverse range of payment schedules dependent upon the nature and type of goods and/or services
being provided. This can include performance-based payments or progress payments as well as regular monthly or quarterly payments for
ongoing service delivery. Payments for transactional goods and services may be at delivery date, in arrears or part payment in advance. The
long-term service contracts tend to have higher cash flows early in the contract to cover transformational activities.
Where payments received are greater than the revenue recognised up to the reporting date, the Group recognises a deferred income contract
liability for this difference. Where payments received less than the revenue recognised up to the reporting date, the Group recognises an
accrued contract income asset for this difference.
At each reporting date, the Group assesses whether there is any indication that accrued contract income assets may be impaired by
considering whether or not any revenue reversal could occur. Where an indicator of impairment exists, the Group makes a formal estimate of
the asset’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and
is written down to its recoverable amount.
Contract types
The Group disaggregates revenue from contracts with customers by contract type, because management believe this best depicts how the
nature, amount, timing, and uncertainty of the Group’s revenue and cash flows are affected by economic factors. Categories are: long-term
contractual – greater than two years; short-term contractual – less than two years; and transactional. The years being measured from the
service commencement date.
Long-term contractual – greater than two years
The Group provides a range of services in the majority of its reportable segments under contracts with a duration of more than two years. The
nature of contracts or performance obligations within this revenue type includes:
(i)
(ii) active software licence arrangements.
long-term outsourced service arrangements in the public and private sectors; and
The majority of long-term contractual agreements form part of a series of distinct goods and services because they are substantially the same
service; and have the same pattern of transfer, since the series constitutes services provided in distinct time increments (eg daily, monthly,
quarterly or annually), and therefore treats the series as one performance obligation.
Short-term contractual – less than two years
The nature of contracts or performance obligations within this revenue type includes:
(i) short-term outsourced service arrangements in the public and private sectors; and
(ii) software maintenance contracts.
The Group has assessed that maintenance and support (ie on-call support, remote support) for software licences is a performance obligation
that can be considered capable of being distinct and separately identifiable in a contract if the customer has a passive licence. These recurring
services are substantially the same because the nature of the promise is for the Group to ‘stand ready’ to perform maintenance and support
when required by the customer. Each day of ‘standing ready’ is distinct from each subsequent day and is transferred in the same pattern to the
customer.
Transactional (point-in-time) contracts
The Group delivers a range of goods or services in all reportable segments that are transactional services for which revenue is recognised at
the point-in-time when control of the goods or services has transferred to the customer. This may be at the point of physical delivery of goods or
services and acceptance by the customer or when the customer obtains control of an asset or service in a contract with customer-specified
acceptance criteria.
The nature of contracts or performance obligations within this revenue type includes:
(i) provision of IT hardware goods;
(ii) passive software licence agreements;
(iii) commission received as agent from the sale of third-party software; and
(iv) fees received in relation to the delivery of professional services.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 115
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
116
149
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
2.2.1 Segmental revenue
The Group’s operations are managed separately according to the nature of the services provided, with each segment representing a strategic
business division offering a different package of client outcomes across the markets the Group serves. Capita plc is a reconciling item and not
an operating segment. A description of the service provision for each segment can be found in the strategic report on pages 16 to 25.
The tables below present revenue for the Group’s business segments. The new organisational structure, announced in March 2021, became
operational in the second half of the year and the disclosures below represent the new structure as reported to the Chief Operating Decision
Maker. Under the new structure, the Group comprises of two core trading divisions - Capita Public Service and Capita Experience - and a third
division - Capita Portfolio - which comprises of non-core businesses that the Group intends to exit in due course. Comparative information has
been re-presented accordingly.
Adjusted revenue, excluding results from businesses exited in both years (adjusting items), was £3,008.5m (2020: £2,995.5m), an increase of
0.4% (2020: decline 9.7%).
Capita
Public
Service
£m
Notes
Capita
Experience
£m
Capita
Portfolio
£m
Capita
plc
£m
Total
adjusted
£m
Adjusting
items
£m
Total
reported
£m
Year ended
31 December 2021
Continuing operations
Long-term contractual
Short-term contractual
Transactional (point-in-time)
1,223.9
122.2
64.3
894.3
236.7
53.7
Total segment revenue
1,410.4
1,184.7
Trading revenue
Inter-segment revenue
Total adjusted segment
revenue
1,449.3
1,219.6
(38.9)
(34.9)
1,410.4
1,184.7
Business exits – trading
2.8
—
—
Total segment revenue
1,410.4
1,184.7
Year ended
31 December 2020
Continuing operations
Long-term contractual
Short-term contractual
Transactional (point-in-time)
Total segment revenue
Trading revenue
Inter-segment revenue
Total adjusted segment
revenue
1,084.4
1,019.9
29.9
158.7
239.2
48.6
1,273.0
1,307.7
1,306.4
1,361.2
(33.4)
(53.5)
1,273.0
1,307.7
Business exits – trading
2.8
—
—
Total segment revenue
1,273.0
1,307.7
Geographical location
The table below presents revenue by geographical location.
38.7
143.5
231.2
413.4
557.4
(144.0)
413.4
174.0
587.4
74.3
155.3
185.2
414.8
697.4
(282.6)
414.8
329.3
744.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,156.9
146.3
2,303.2
502.4
349.2
27.6
0.1
530.0
349.3
3,008.5
174.0
3,182.5
3,226.3
(217.8)
—
—
3,226.3
(217.8)
3,008.5
—
3,008.5
—
3,008.5
174.0
174.0
174.0
3,182.5
2,178.6
264.7
2,443.3
424.4
392.5
65.1
(0.5)
489.5
392.0
2,995.5
329.3
3,324.8
3,365.0
(369.5)
—
—
3,365.0
(369.5)
2,995.5
—
2,995.5
—
2,995.5
329.3
329.3
329.3
3,324.8
Revenue
2021
2020
United
Kingdom
£m
2,882.4
Other
£m
Total
£m
300.1 3,182.5
United
Kingdom
£m
3,011.0
Other
£m
Total
£m
313.8 3,324.8
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
This assessment of control requires judgement particularly in relation to certain service contracts. An example is the provision of certain
recruitment and learning services where the Group may be assessed to be agent or principal dependent upon the facts and circumstances of
the arrangement and the nature of the services being delivered.
Where the Group is acting as a principal, revenue is recorded on a gross basis. Where the Group is acting as an agent, revenue is recorded on
a net basis, recognising only the commission or fee earned as revenue.
Licences
Software licences delivered by the Group can either be right to access (active) or right to use (passive) licences, which determines the timing of
revenue recognition. The assessment of whether a licence is active or passive involves judgement.
The key determinant of an active licence is whether or not the Group is required to undertake continuing activities that significantly affect the
licensed intellectual property (or the customer has a reasonable expectation that it will do so) and the customer is, therefore, exposed to
positive (or negative) impacts resulting from those changes. Where the Group is responsible for any maintenance, continuing support, updates
and upgrades, and accordingly the sale of the initial software is not distinct. All other licences which have significant standalone functionality
are treated as passive licences.
When software upgrades are sold as part of the software licence agreement (ie software upgrades are promised to the customer), the Group
applies judgement to assess whether the software upgrades are distinct from the licence (ie a separate performance obligation). If the
upgrades are considered fundamental to the ongoing use of the software by the customer, the upgrades are not considered distinct and not
accounted for as a separate performance obligation.
For each contract that includes a separate licence performance obligation, the Group considers all the facts and circumstances in determining
whether the licence revenue is recognised overtime (active) or at a point-in-time (passive) from the go-live date of the licence.
Deferred and accrued income
The Group’s customer contracts include a diverse range of payment schedules dependent upon the nature and type of goods and/or services
being provided. This can include performance-based payments or progress payments as well as regular monthly or quarterly payments for
ongoing service delivery. Payments for transactional goods and services may be at delivery date, in arrears or part payment in advance. The
long-term service contracts tend to have higher cash flows early in the contract to cover transformational activities.
Where payments received are greater than the revenue recognised up to the reporting date, the Group recognises a deferred income contract
liability for this difference. Where payments received less than the revenue recognised up to the reporting date, the Group recognises an
accrued contract income asset for this difference.
At each reporting date, the Group assesses whether there is any indication that accrued contract income assets may be impaired by
considering whether or not any revenue reversal could occur. Where an indicator of impairment exists, the Group makes a formal estimate of
the asset’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and
The Group disaggregates revenue from contracts with customers by contract type, because management believe this best depicts how the
nature, amount, timing, and uncertainty of the Group’s revenue and cash flows are affected by economic factors. Categories are: long-term
contractual – greater than two years; short-term contractual – less than two years; and transactional. The years being measured from the
is written down to its recoverable amount.
Contract types
service commencement date.
Long-term contractual – greater than two years
The Group provides a range of services in the majority of its reportable segments under contracts with a duration of more than two years. The
nature of contracts or performance obligations within this revenue type includes:
(i)
long-term outsourced service arrangements in the public and private sectors; and
(ii) active software licence arrangements.
The majority of long-term contractual agreements form part of a series of distinct goods and services because they are substantially the same
service; and have the same pattern of transfer, since the series constitutes services provided in distinct time increments (eg daily, monthly,
quarterly or annually), and therefore treats the series as one performance obligation.
Short-term contractual – less than two years
The nature of contracts or performance obligations within this revenue type includes:
(i) short-term outsourced service arrangements in the public and private sectors; and
(ii) software maintenance contracts.
The Group has assessed that maintenance and support (ie on-call support, remote support) for software licences is a performance obligation
that can be considered capable of being distinct and separately identifiable in a contract if the customer has a passive licence. These recurring
services are substantially the same because the nature of the promise is for the Group to ‘stand ready’ to perform maintenance and support
when required by the customer. Each day of ‘standing ready’ is distinct from each subsequent day and is transferred in the same pattern to the
customer.
Transactional (point-in-time) contracts
The Group delivers a range of goods or services in all reportable segments that are transactional services for which revenue is recognised at
the point-in-time when control of the goods or services has transferred to the customer. This may be at the point of physical delivery of goods or
services and acceptance by the customer or when the customer obtains control of an asset or service in a contract with customer-specified
acceptance criteria.
The nature of contracts or performance obligations within this revenue type includes:
(i) provision of IT hardware goods;
(ii) passive software licence agreements;
(iii) commission received as agent from the sale of third-party software; and
(iv) fees received in relation to the delivery of professional services.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
117
Capita plc Annual Report 2021
Notes to the consolidated financial statements
150
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
2.2.2 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 start of the service
commencement date. The figures represent the aggregate amount of currently contracted transaction price allocated to the performance
obligations that are wholly or partially unsatisfied.
Order book
31 December 2021
Long-term contractual
Short-term contractual
Total
Order book
31 December 2020
Long-term contractual
Short-term contractual
Total
Capita
Public
Service
£m
3,112.7
173.6
3,286.3
Capita
Public
Service
£m
2,665.3
71.3
2,736.6
Capita
Experience
£m
2,249.3
22.5
2,271.8
Capita
Experience
£m
2,399.4
29.3
2,428.7
Capita
Portfolio
£m
478.7
78.6
557.3
Capita
Portfolio
£m
589.7
95.7
685.4
Capita
plc
£m
—
—
—
Capita
plc
£m
—
—
—
The table below shows the expected timing of revenue to be recognised on long-term contractual orders at 31 December 2021:
Time bands of expected revenue recognition from
long-term contractual orders
< 1 year
1–5 years
> 5 years
Total
Capita
Public
Service
£m
711.6
1,610.6
790.5
3,112.7
Capita
Experience
£m
799.2
1,150.4
299.7
2,249.3
Capita
Portfolio
£m
145.4
199.7
133.6
478.7
Capita
plc
£m
—
—
—
—
Total
£m
5,840.7
274.7
6,115.4
Total
£m
5,654.4
196.3
5,850.7
Total
£m
1,656.2
2,960.7
1,223.8
5,840.7
Prior year comparative information is not presented for the expected timing of revenue recognition because it is a forward looking disclosure
and therefore management does not believe that such disclosure provides meaningful information to a user of the 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, new wins, scope changes and anticipated contract extensions. These elements have been excluded from the above tables
because they are not contracted. Additionally, revenue from contract extensions is excluded from the order book unless they are pre-priced
extensions whereby the Group has a legally binding obligation to deliver the performance obligations during the extension period. The total
revenue related to pre-priced extensions that has been included in the tables above amounted to £668.0m (2020: £800.7m). The amounts
presented do not include orders for which neither party has performed, and each party has the unilateral right to terminate a wholly
unperformed contract without compensating the other party.
Of the £5.8 billion (2020: £5.7 billion) revenue to be earned on long-term contracts, £4.3 billion (2020: £3.8 billion) relates to major contracts.
This amount excludes revenue that will be derived from frameworks (transactional ‘point-in-time’ contracts), non-contracted volumetric revenue,
non-contracted scope changes and future unforeseen volume changes from these major contracts, which together are anticipated to contribute
an additional £2.3 billion (2020: £2.1 billion) of revenue to the Group over the life of these contracts.
The Group performs various services for a number of UK Government ministerial departments and considers these individual ministerial
departments to be separate customers due to the limited economic integration between each ministerial department. No single customer
makes up more than 10% of the Group’s revenues.
2.2.3 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 £941.1m (2020: £998.7m).
Movements in the deferred income balances were driven by transactions entered into by the Group within the normal course of business in the
year, other than the accelerated revenue recognised of £23.1m on early termination of contracts in Capita Experience and agreed reduction in
scope on a contract in Capita Public Service (2020: £17.5m in Capita Experience).
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
117
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
118
151
Section 2: Results for the year continued
2.2 Revenue including segmental revenue continued
2.2.2 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 start of the service
commencement date. The figures represent the aggregate amount of currently contracted transaction price allocated to the performance
obligations that are wholly or partially unsatisfied.
Order book
31 December 2021
Long-term contractual
Short-term contractual
Total
Order book
31 December 2020
Long-term contractual
Short-term contractual
Total
Time bands of expected revenue recognition from
long-term contractual orders
< 1 year
1–5 years
> 5 years
Total
Capita
Public
Service
£m
3,112.7
173.6
3,286.3
Capita
Public
Service
£m
2,665.3
71.3
2,736.6
Capita
Public
Service
£m
711.6
1,610.6
790.5
3,112.7
Capita
Experience
£m
2,249.3
22.5
2,271.8
Capita
Experience
£m
2,399.4
29.3
2,428.7
Capita
Experience
£m
799.2
1,150.4
299.7
2,249.3
Capita
Portfolio
£m
478.7
78.6
557.3
Capita
Portfolio
£m
589.7
95.7
685.4
Capita
Portfolio
£m
145.4
199.7
133.6
478.7
Capita
plc
£m
—
—
—
Capita
plc
£m
—
—
—
Capita
plc
£m
—
—
—
—
Total
£m
5,840.7
274.7
6,115.4
Total
£m
5,654.4
196.3
5,850.7
Total
£m
1,656.2
2,960.7
1,223.8
5,840.7
The table below shows the expected timing of revenue to be recognised on long-term contractual orders at 31 December 2021:
Prior year comparative information is not presented for the expected timing of revenue recognition because it is a forward looking disclosure
and therefore management does not believe that such disclosure provides meaningful information to a user of the 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, new wins, scope changes and anticipated contract extensions. These elements have been excluded from the above tables
because they are not contracted. Additionally, revenue from contract extensions is excluded from the order book unless they are pre-priced
extensions whereby the Group has a legally binding obligation to deliver the performance obligations during the extension period. The total
revenue related to pre-priced extensions that has been included in the tables above amounted to £668.0m (2020: £800.7m). The amounts
presented do not include orders for which neither party has performed, and each party has the unilateral right to terminate a wholly
unperformed contract without compensating the other party.
Of the £5.8 billion (2020: £5.7 billion) revenue to be earned on long-term contracts, £4.3 billion (2020: £3.8 billion) relates to major contracts.
This amount excludes revenue that will be derived from frameworks (transactional ‘point-in-time’ contracts), non-contracted volumetric revenue,
non-contracted scope changes and future unforeseen volume changes from these major contracts, which together are anticipated to contribute
an additional £2.3 billion (2020: £2.1 billion) of revenue to the Group over the life of these contracts.
The Group performs various services for a number of UK Government ministerial departments and considers these individual ministerial
departments to be separate customers due to the limited economic integration between each ministerial department. No single customer
makes up more than 10% of the Group’s revenues.
2.2.3 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 £941.1m (2020: £998.7m).
Movements in the deferred income balances were driven by transactions entered into by the Group within the normal course of business in the
year, other than the accelerated revenue recognised of £23.1m on early termination of contracts in Capita Experience and agreed reduction in
scope on a contract in Capita Public Service (2020: £17.5m in Capita Experience).
Section 2: Results for the year continued
2.3 Operating profit
2.3.1 Items charged/(credited) to reported operating profit
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Impairment of property, plant and equipment
Impairment of right-of-use assets
Amortisation of intangible assets
Impairment of intangible assets
Impairment of goodwill
Impairment of disposal group assets held-for-sale
(Gain)/loss on sale of property, plant and equipment and intangibles
Foreign exchange differences
Restructuring costs
Contract fulfilment asset utilisation, impairment and derecognition
Contract termination gains
The net of: accelerated deferred income unwind, and contract fulfilment asset utilisation
Onerous contract provisions
Notes
3.2
3.5
3.2
3.5
3.3
3.3
3.4
2.8
2.10.1
2.4
3.1.3
2021
£m
48.6
68.2
1.9
13.3
57.7
58.7
16.1
44.1
0.7
(0.2)
148.3
107.8
(4.7)
(7.5)
32.0
2020
£m
50.9
88.2
10.3
22.2
74.6
2.6
—
11.7
17.1
(1.0)
109.0
105.0
—
(15.4)
10.4
Contract fulfilment asset utilisation, impairment and derecognition: the Group continually monitors and reviews its major contracts to
identify any indicators of impairment of contract fulfilment assets. During the year, management made provisions against costs capitalised as
contract fulfilment assets totalling £7.3m (2020: £17.5m) within cost of sales.
Contract termination gains: customer contracts usually contain provisions to compensate the Group for exit costs and future profits in the
event of early termination. In-year customer contract terminations in Capita Experience for customer convenience have led to associated exit
fees earned by Capita of £4.7m (2020: £nil) being recorded as income in-year.
The net of: accelerated deferred income unwind and contract fulfilment asset utilisation: in 2021 the Group recognised a gain of £7.5m
(2020: gain £15.4m) related to the net of accelerated deferred income unwinds and contract fulfilment asset utilisation. In 2021, this primarily
related to a contract in Capita Experience where a contract was terminated earlier than planned and the agreed reduction in scope of a contract
in Capita Public Service. In 2020 the gains primarily related to partial termination of a contract in Capita Experience, and hand backs of various
services in contracts in Capita Public Service.
Onerous contract provisions: in 2021 the Group recognised a net loss of £32.0m (2020: £10.4m loss) related to onerous contract provisions,
£28.7m of which were excluded from adjusted results and relate to two streams of related services in Capita Experience (refer to note 2.4 for
further details).
2.3.2 Fees payable to auditors
The amounts included in the table below relate to fees payable to KPMG LLP and its associates:
Audit and audit-related services
The audit of the Parent Company and Group’s consolidated financial statements
The audit of the financial statements of subsidiaries of the Group
Total audit and audit-related services
Non-audit services
Other assurance services
Total non-audit services
Total audit and non-audit services
2021
£m
2020
£m
5.1
1.9
7.0
1.5
1.5
8.5
4.3
1.9
6.2
1.4
1.4
7.6
The non-audit fees in respect of 2021 related to the review of interim results, and services as reporting accountant for the disposal AXELOS
Limited. In respect of 2020, the non-audit fees related to the review of interim results, services as reporting accountant for the disposal of the
Education Software Solutions (ESS) business, and a refinancing which had to be aborted due to the impact of Covid-19 on debt markets.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
119
Capita plc Annual Report 2021
Notes to the consolidated financial statements
152
Section 2: Results for the year continued
2.4 Adjusted operating profit and adjusted profit before tax
AP
Accounting policies
IAS 1 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 year under review and against which the Group’s performance is assessed internally. In the Board’s judgement, these need to be
disclosed separately by virtue of their nature, size and/or incidence, for users of the consolidated financial statements to obtain an
understanding of the financial information and the underlying in-year performance of the Group. Accordingly, these items are also excluded
from the discussion of divisional performance in the strategic report. This policy is kept under review by the Board and the Audit and Risk
Committee and is discussed in the committee’s report on pages 86 to 95.
The items below are excluded from the adjusted results:
Reported
Amortisation and impairment of acquired intangibles
Impairment of goodwill
Litigation and claims
Net finance costs
Business exit
Business exit - on-hold disposal costs
Contract-related provisions and impairments
Significant restructuring
Adjusted
Operating
profit/(loss)
Profit/(loss)
before tax
Notes
3.3
3.4
4.3
2.8
3.6
2021
£m
(86.6)
12.0
11.5
(9.3)
—
20.1
—
43.1
148.3
139.1
2020
£m
(32.0)
26.4
—
0.7
—
(60.5)
7.5
—
109.0
51.1
2021
£m
285.6
12.0
11.5
(9.3)
1.4
(399.1)
—
43.1
148.3
2020
£m
(49.4)
26.4
—
0.7
1.5
(90.3)
7.5
—
109.0
93.5
5.4
1. Adjusted operating profit increased by 172.2% (2020: decreased 56.4%) and adjusted profit before tax increased by 1,631.5% (2020: decreased 67.0%). Adjusted operating profit of
£139.1m (2020: profit £51.1m) was generated on adjusted revenue of £3,008.5m (2020: £2,995.5m) resulting in an adjusted operating margin of 4.6% (2020: 1.7%).
2. The tax charge on adjusted profit before tax is £64.8m (2020: £25.3m credit) resulting in adjusted profit after tax of £28.7m (2020: £30.7m profit).
3. The adjusted operating profit and adjusted profit before tax for 2020 have been restated for the impact of business exits during 2021. This has resulted in adjusted operating profit
decreasing from £111.0m to £51.1m and adjusted profit before tax decreasing from £65.2m to £5.4m.
Amortisation and impairment of acquired intangible assets: the Group recognised acquired intangible amortisation of £12.0m (2020:
£24.8m) and impairment of £nil (2020: £1.6m).
Impairment of goodwill: goodwill is subject to annual impairment testing and any impairment charges are reported separately.
Litigation and claims: the Group received an insurance settlement of £5.0m in respect of an historical legal claim that was settled in the
period. The legal claim, which was fully provided at 31 December 2020, was excluded from adjusted results when provided due to its historical
nature and size, and accordingly the insurance receipt has also been excluded from adjusted results. Further, the Group has recognised a gain
of £3.2m from net movements in historical provisions that were excluded from adjusted results when provided.
Net finance costs: net finance costs excluded from adjusted profits includes movements in the mark-to-market valuation of certain financial
instruments.
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. Individual businesses within the Portfolio Division will be treated as held-for-sale (and therefore a business exit)
when the disposal is highly probable and expected to complete within twelve months of the balance sheet date.
Business exits - on-hold disposal cost: the costs incurred in respect of business exit activities where the anticipated disposal was primarily
put on hold due to the impact of Covid-19 pandemic had on the underlying businesses, are excluded from the Group’s adjusted results but
disclosed separately from other business exits given their materiality. These costs include professional fees in respect of legal and financial due
diligence, and separation planning costs.
Contract-related provisions and impairments: the new corporate structure has simplified internal reporting, which has highlighted those
businesses that represent a drag on the Group cash resources. This includes the Life & Pensions business that provides outsourced
administration services for the associated closed pension books which we maintain on behalf of a small number of clients.
The Group has highlighted in prior reporting the structural challenges associated with the closed book Life & Pensions contracts. These
provided for upfront cash inflows to support initial transformation activities with a much lower level of cash inflows once the transformation
phase was completed. Under the Group’s long-term contract accounting policy (see note 2.1), the cash flow profile of these contracts has
resulted in deferral of profit into future years which is not backed by net cash flows (because the relevant cash receipts arose in the early years
of contract execution). Additionally, some of the contracts contain evergreen clauses allowing the customers to extend the contracts indefinitely
until the run-off of the underlying pension books is complete.
The Life & Pensions business has remained in structural decline as some customers, with legacy IT systems, have switched to suppliers who
can provide a single digital platform for all their books. The Group has sought to drive efficiencies to mitigate this fall off in volumes, while
supporting customers who have selected new outsource providers or taken the activities back in-house.
The closed books and contractual dynamics have led to onerous conditions to service these contracts. The Board has been required to assess
the likely length of the remaining contracts, given the pattern and experience of contract terminations while also recognising the evergreen
clauses. Accordingly, management has in prior years provided for the onerous contract conditions based on the best estimate of the remaining
contract terms. The contingent liability note has highlighted that should the contracts end earlier or extend for longer this may result in a
material reduction or increase in the provision recorded.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
119
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
120
153
Section 2: Results for the year continued
2.4 Adjusted operating profit and adjusted profit before tax
Accounting policies
IAS 1 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 year under review and against which the Group’s performance is assessed internally. In the Board’s judgement, these need to be
disclosed separately by virtue of their nature, size and/or incidence, for users of the consolidated financial statements to obtain an
understanding of the financial information and the underlying in-year performance of the Group. Accordingly, these items are also excluded
from the discussion of divisional performance in the strategic report. This policy is kept under review by the Board and the Audit and Risk
Committee and is discussed in the committee’s report on pages 86 to 95.
The items below are excluded from the adjusted results:
Operating
profit/(loss)
Profit/(loss)
before tax
Amortisation and impairment of acquired intangibles
Reported
Impairment of goodwill
Litigation and claims
Net finance costs
Business exit
Business exit - on-hold disposal costs
Contract-related provisions and impairments
Significant restructuring
Adjusted
(86.6)
(32.0)
285.6
(49.4)
Notes
2021
£m
3.3
3.4
4.3
2.8
3.6
12.0
11.5
(9.3)
—
20.1
—
43.1
148.3
139.1
2020
£m
26.4
—
0.7
—
7.5
—
109.0
51.1
2021
£m
12.0
11.5
(9.3)
1.4
—
43.1
148.3
93.5
2020
£m
26.4
—
0.7
1.5
7.5
—
109.0
5.4
(60.5)
(399.1)
(90.3)
1. Adjusted operating profit increased by 172.2% (2020: decreased 56.4%) and adjusted profit before tax increased by 1,631.5% (2020: decreased 67.0%). Adjusted operating profit of
£139.1m (2020: profit £51.1m) was generated on adjusted revenue of £3,008.5m (2020: £2,995.5m) resulting in an adjusted operating margin of 4.6% (2020: 1.7%).
2. The tax charge on adjusted profit before tax is £64.8m (2020: £25.3m credit) resulting in adjusted profit after tax of £28.7m (2020: £30.7m profit).
3. The adjusted operating profit and adjusted profit before tax for 2020 have been restated for the impact of business exits during 2021. This has resulted in adjusted operating profit
decreasing from £111.0m to £51.1m and adjusted profit before tax decreasing from £65.2m to £5.4m.
Amortisation and impairment of acquired intangible assets: the Group recognised acquired intangible amortisation of £12.0m (2020:
£24.8m) and impairment of £nil (2020: £1.6m).
Impairment of goodwill: goodwill is subject to annual impairment testing and any impairment charges are reported separately.
Litigation and claims: the Group received an insurance settlement of £5.0m in respect of an historical legal claim that was settled in the
period. The legal claim, which was fully provided at 31 December 2020, was excluded from adjusted results when provided due to its historical
nature and size, and accordingly the insurance receipt has also been excluded from adjusted results. Further, the Group has recognised a gain
of £3.2m from net movements in historical provisions that were excluded from adjusted results when provided.
Net finance costs: net finance costs excluded from adjusted profits includes movements in the mark-to-market valuation of certain financial
instruments.
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. Individual businesses within the Portfolio Division will be treated as held-for-sale (and therefore a business exit)
when the disposal is highly probable and expected to complete within twelve months of the balance sheet date.
Business exits - on-hold disposal cost: the costs incurred in respect of business exit activities where the anticipated disposal was primarily
put on hold due to the impact of Covid-19 pandemic had on the underlying businesses, are excluded from the Group’s adjusted results but
disclosed separately from other business exits given their materiality. These costs include professional fees in respect of legal and financial due
diligence, and separation planning costs.
Contract-related provisions and impairments: the new corporate structure has simplified internal reporting, which has highlighted those
businesses that represent a drag on the Group cash resources. This includes the Life & Pensions business that provides outsourced
administration services for the associated closed pension books which we maintain on behalf of a small number of clients.
The Group has highlighted in prior reporting the structural challenges associated with the closed book Life & Pensions contracts. These
provided for upfront cash inflows to support initial transformation activities with a much lower level of cash inflows once the transformation
phase was completed. Under the Group’s long-term contract accounting policy (see note 2.1), the cash flow profile of these contracts has
resulted in deferral of profit into future years which is not backed by net cash flows (because the relevant cash receipts arose in the early years
of contract execution). Additionally, some of the contracts contain evergreen clauses allowing the customers to extend the contracts indefinitely
until the run-off of the underlying pension books is complete.
The Life & Pensions business has remained in structural decline as some customers, with legacy IT systems, have switched to suppliers who
can provide a single digital platform for all their books. The Group has sought to drive efficiencies to mitigate this fall off in volumes, while
supporting customers who have selected new outsource providers or taken the activities back in-house.
The closed books and contractual dynamics have led to onerous conditions to service these contracts. The Board has been required to assess
the likely length of the remaining contracts, given the pattern and experience of contract terminations while also recognising the evergreen
clauses. Accordingly, management has in prior years provided for the onerous contract conditions based on the best estimate of the remaining
contract terms. The contingent liability note has highlighted that should the contracts end earlier or extend for longer this may result in a
material reduction or increase in the provision recorded.
Section 2: Results for the year continued
2.4 Adjusted operating profit and adjusted profit before tax continued
During 2021, the Group has continued to support a major customer on the transfer of services to another supplier. This is taking significantly
longer than initially expected. Management has reassessed the lifetime estimate to include not only the onerous contract terms but also the
period and likely costs to support the final handover of services. This assessment has extended across all contracts that contain evergreen
clauses, including those where there are ongoing discussions regarding either termination or transfer of services. This reassessment,
reflecting by the developments in the latter half of 2021, provides cover for contracts to extend out to 2026. This has resulted in an increase
to the contract provision and impairment of contract assets totalling £43.1m which has been reported as an adjusting item. In prior years the
financial impacts of such contract judgements have not been shown as adjusting items they were considered to be normal course of
business, not material in the context of the Group results and not associated with the transformation plan. However, due to the quantum of
the charge arising from the 2021 reassessment, the Board consider it appropriate to separately disclose this as an adjusted item to highlight
the impact on the results in the period.
Significant restructuring: in January 2018, the Group announced a multi-year transformation plan. In 2021 a charge of £148.3m (2020:
£109.0m) was recognised in relation to the cost of the transformation plan. The costs include the following:
• Cost to realise cost savings and efficiencies from the transformation plan £74m (2020: £65m): including significant reductions in
overheads, the elimination of duplicate roles and management layers, and the Group's operational excellence programme which will improve
the consistency of the Group’s operations, reduce spans and layers, increasing the use of off-shoring and automation, adopting lean
methodologies and working smarter. As the Group continues to rationalise its property estate, costs associated with onerous property
commitments and dilapidation liabilities, and impairment of property right-of-use assets and fixtures and fittings, are captured and presented
as part of the transformation adjustments.
• Professional fees £8m (2020: £3m): including in 2021 fees paid to consultants in relation to the development and delivery of the corporate
reorganisation.
• Transformation of central Group functions £66m (2020: £15m): investment in programmes to improve the Group’s central functions,
including: finance; sales; human resources; and information technology. All costs associated with these programmes are recorded separately,
and exclude any costs capitalised as part of the investment and the ongoing depreciation and amortisation of such assets.
The transformation programme included planned improvements to the Group’s financial reporting systems. New financial systems were due
to go live in the second half of 2019, and while progress was made, a decision was taken to defer the go-live as more work was required on
the core processes and procedures before the system could be effectively implemented. Several interim activities were progressed during
both 2020 and 2021 and the technical asset including the IT infrastructure, software and codebase were preserved.
The new system was deemed necessary to provide effective functionality across the then six reporting divisions, supported by the central
functions and covering a multifaceted legal entity structure. In addition, the decision to invest in a new financial reporting systems was
predicated on the fact that the Group’s existing ERP platform would not be supported by the relevant supplier beyond 2025.
During 2021, the Group simplified its divisional and management organisation structure with ongoing programmes to streamline the legal
entity structure of the Group. As a result, the Board concluded in late 2021 that continued investment in a new system was not critical to
support the finance transformation. This coincided with confirmation from the supplier that the Group’s existing ERP platform will be
supported until at least 2030.
These developments allowed management to reconsider the technical imperative to move onto a new ERP platform and to assess the extent
to which the Group would be better served continuing to use its existing platform. It has become clear that it is feasible to use the existing
platform and, in doing so, avoid the disruption, additional cost and risk of a transition to a new platform. The simplified operating model makes
possible a continuation of the systems already available with more limited investment to achieve the required functionalities that will deliver
the prime objectives of standardisation, automation and improved quality of information.
Therefore, the Board approved a revised approach at the end of 2021 to focus on optimising the current finance reporting systems and not
migrating to an entirely new finance system. As such, an impairment of £53.5m was recognised at 31 December 2021 representing the book
value of the elements of the new finance system which are no longer expected to be utilised.
• Cost of accelerating savings to mitigate the financial impact of Covid-19 £nil (2020: £26m): these are incremental to those planned to
be incurred as part of the transformation plan and include accelerated property estate rationalisation and severance costs.
The cumulative significant restructuring expense recognised since the commencement of the group-wide transformation in 2018 is £526.7m.
2021 is the final year of major investments in the transformation plan where the costs are excluded from adjusted results. From 1 January
2022, any residual restructuring will be recorded within adjusted results.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
121
Capita plc Annual Report 2021
Notes to the consolidated financial statements
154
Section 2: Results for the year continued
2.5 Segmental information
The Group’s operations are managed separately according to the nature of the services provided, with each segment representing a strategic
business division offering a different package of client outcomes across the markets the Group serves. Capita plc is a reconciling item and not
an operating segment. A description of the services provided by each segment can be found in the strategic report on pages 16 to 25.
The tables below present profit for the Group’s business segments. The new organisational structure, announced in March 2021, became
operational in the second half of the year and the below disclosure represents the new structure as reported to the Chief Operating Decision
Maker. Comparative information has been re-presented accordingly. For segmental reporting, the costs of the central functions have been
allocated to the segments using appropriate drivers such as adjusted revenue, adjusted profit or headcount.
Information on segmental revenue can be found in note 2.2.
Year ended
31 December 2021
Adjusted operating profit
Restructuring
Business exits – trading
Total trading result
Non-trading items:
Business exits – non-trading
Other adjusting items
Operating profit/(loss)
Year ended
31 December 2020
Adjusted operating profit
Restructuring
Business exits – trading
Total trading result
Non-trading items:
Business exits – non-trading
Other adjusting items
Operating profit/(loss)
Notes
2.4
2.4
2.8
2.8
2.4
Notes
2.4
2.4
2.8
2.8
2.4
Capita
Public
Service
£m
98.3
(5.1)
—
93.2
Capita
Experience
£m
69.1
(12.0)
—
57.1
Capita
Portfolio
£m
23.8
(3.2)
50.8
71.4
Capita
plc
£m
(52.1)
(128.0)
—
Total
adjusted
£m
139.1
—
—
(180.1)
139.1
Adjusting
items
£m
—
Total
reported
£m
139.1
(148.3)
(148.3)
50.8
(97.5)
50.8
41.6
—
—
(70.9)
(57.3)
139.1
(225.7)
(70.9)
(57.3)
(86.6)
12.9
(8.6)
—
4.3
80.9
(11.6)
—
69.3
14.2
(4.4)
111.0
120.8
(56.9)
(84.4)
—
51.1
—
—
(141.3)
51.1
—
51.1
(109.0)
(109.0)
111.0
2.0
111.0
53.1
—
—
51.1
(50.5)
(34.6)
(83.1)
(50.5)
(34.6)
(32.0)
Geographical location
The table below presents the carrying amount of non-current assets (excluding deferred tax, financial assets and employee benefits) by the
geographical location of those assets.
Non-current assets
2021
2020
United
Kingdom
£m
1,791.3
Other
£m
Total
£m
27.7 1,819.0
United
Kingdom
£m
2,168.4
Other
£m
Total
£m
38.4 2,206.8
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
121
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
122
155
Section 2: Results for the year continued
2.5 Segmental information
The Group’s operations are managed separately according to the nature of the services provided, with each segment representing a strategic
business division offering a different package of client outcomes across the markets the Group serves. Capita plc is a reconciling item and not
an operating segment. A description of the services provided by each segment can be found in the strategic report on pages 16 to 25.
The tables below present profit for the Group’s business segments. The new organisational structure, announced in March 2021, became
operational in the second half of the year and the below disclosure represents the new structure as reported to the Chief Operating Decision
Maker. Comparative information has been re-presented accordingly. For segmental reporting, the costs of the central functions have been
allocated to the segments using appropriate drivers such as adjusted revenue, adjusted profit or headcount.
Information on segmental revenue can be found in note 2.2.
Year ended
31 December 2021
Adjusted operating profit
Restructuring
Business exits – trading
Total trading result
Non-trading items:
Business exits – non-trading
Other adjusting items
Operating profit/(loss)
Year ended
31 December 2020
Adjusted operating profit
Restructuring
Business exits – trading
Total trading result
Non-trading items:
Business exits – non-trading
Other adjusting items
Operating profit/(loss)
Geographical location
Notes
2.4
2.4
2.8
2.8
2.4
Notes
2.4
2.4
2.8
2.8
2.4
Capita
Public
Service
£m
98.3
(5.1)
—
93.2
Capita
Experience
£m
Capita
Portfolio
£m
69.1
(12.0)
—
57.1
23.8
(3.2)
50.8
71.4
Capita
plc
£m
(52.1)
(128.0)
—
Total
adjusted
£m
139.1
—
—
(180.1)
139.1
Adjusting
items
£m
—
(148.3)
50.8
(97.5)
Total
reported
£m
139.1
(148.3)
50.8
41.6
(70.9)
(57.3)
(86.6)
—
—
(70.9)
(57.3)
139.1
(225.7)
12.9
(8.6)
—
4.3
80.9
(11.6)
—
69.3
14.2
(4.4)
111.0
120.8
(56.9)
(84.4)
—
51.1
—
—
(141.3)
51.1
—
51.1
(109.0)
(109.0)
111.0
2.0
111.0
53.1
—
—
51.1
(50.5)
(34.6)
(83.1)
(50.5)
(34.6)
(32.0)
The table below presents the carrying amount of non-current assets (excluding deferred tax, financial assets and employee benefits) by the
geographical location of those assets.
United
Kingdom
£m
Other
£m
United
Kingdom
£m
Other
£m
2021
Total
£m
2020
Total
£m
Non-current assets
1,791.3
27.7 1,819.0
2,168.4
38.4 2,206.8
Section 2: Results for the year continued
2.6 Taxation
AP
Accounting policies
Tax on the profit or loss for the year comprises current tax and deferred tax. Tax is recognised in the consolidated income statement except to
the extent that it relates to items recognised directly in the consolidated statement of changes in equity or the consolidated statement of
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted
at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences except:
• where the deferred tax liability arises from the initial recognition of goodwill;
• where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination
•
and at the time of the transaction, affects neither the accounting profit/loss nor taxable profit/loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where
the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in
the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused
tax assets and unused tax losses can be utilised, except where the deferred tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
2.6.1 Income tax charge
The income tax charge of £61.5m on reported profit before tax of £285.6m (2020: income tax credit of £47.6m on loss of £49.4m) is reconciled
to the standard UK rate of 19% below. The most significant reconciling items are due to changes in anticipated tax rate on deferred tax assets,
movement in unrecognised deferred tax assets, non-taxable profit on disposal and non-deductible goodwill impairment. The tax rate change
and the movement in unrecognised deferred tax also applies to the adjusted tax charge on adjusted profit before tax1, also shown below.
The major components of income tax charge/(credit) are set out below:
Consolidated income statement
Current income tax
Current income tax charge
Adjustment in respect of prior years
Deferred tax
On origination and reversal of temporary differences
Effect of changes in tax rate on deferred tax balances
Adjustment in respect of prior years
Total
2021
2020
Total
reported
£m
Included in
adjusted profit
£m
Not included in
adjusted profit
£m
Total
reported
£m
Included in
adjusted profit
£m
Not included in
adjusted profit
£m
27.2
3.8
76.1
(39.0)
(6.6)
61.5
27.8
3.8
78.8
(39.0)
(6.6)
64.8
(0.6)
—
(2.7)
—
—
14.1
0.2
(24.5)
(17.5)
(19.9)
(3.3)
(47.6)
14.6
0.2
(16.0)
(19.7)
(4.4)
(25.3)
(0.5)
—
(8.5)
2.2
(15.5)
(22.3)
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
123
Capita plc Annual Report 2021
Notes to the consolidated financial statements
156
Section 2: Results for the year continued
2.6 Taxation continued
Consolidated statement of comprehensive income and consolidated statement of changes in equity
Current income tax movement on cash flow hedges
Deferred tax movement on cash flow hedges
Deferred tax movement in relation to actuarial changes on defined benefit pension schemes
Current income tax movement on defined benefit pension scheme contributions
Effect of rate change on deferred tax on defined benefit pension schemes
Deferred tax movement in relation to share-based payments
Current income tax deduction on the exercise of share options
2021
£m
(2.0)
(0.2)
32.2
(11.5)
(2.6)
—
(0.4)
2020
£m
(1.1)
—
(5.9)
—
(5.0)
1.2
—
15.5
(10.8)
The reconciliation between the total tax charge/(credit) and the accounting profit multiplied by the UK corporation tax rate is as follows:
Profit/(loss) before tax from continuing operations
Notional charge/(credit) at UK corporation tax rate of 19%
Adjustments in respect of current income tax of prior years
Adjustments in respect of deferred tax of prior years
Non-deductible expense/(non-taxable income) – adjusted
Non-deductible expenses – business exit
Non-deductible expense/(non-taxable income) – specific items
Profit on disposal
Non-deductible goodwill impairment
Tax provided on unremitted earnings
Attributable to different tax rates in overseas jurisdictions
Movement in deferred tax unrecognised
Fixed asset timing differences
Current tax impact on other timing differences
Carry forward/(utilisation) of losses in current period
Total tax
2020
£m
2021
£m
Current tax
2021
£m
2020
£m
285.6
(49.4)
285.6
(49.4)
54.3
(9.4)
54.3
(9.4)
a
b
c
d*
e*
3.8
0.2
(6.6)
(19.9)
3.7
1.5
(1.1)
3.5
5.6
2.0
3.8
—
3.7
1.5
(1.1)
0.2
—
3.5
5.6
2.0
f*
(51.7)
(6.4)
(51.7)
(6.4)
g*
11.4
0.6
11.4
h
1.1
i
(0.1)
(7.6)
(0.7)
0.6
—
1.9
—
3.2
(0.1)
(0.1)
note 2.6.2
84.2
2.0
—
2.0
—
—
—
—
—
—
(2.0)
12.4
0.2
7.8
7.1
(5.1)
j
Difference in rate recognition of temporary differences
note 2.6.2
(39.0)
(17.5)
At the effective total tax rate of 21.5% (2020: 96.4%) and the effective current tax rate of
10.9% (2020: (28.9)%)
Tax (credit)/charge reported in the income statement
k
61.5
(47.6)
31.0
14.3
61.5
(47.6)
31.0
14.3
* The £(39.9)m (2020: £1.8m) of reconciling items relate to reported tax charge only, with no impact on the adjusted tax charge. Further details are given (*) below.
a The £3.8m prior year charge adjustment includes: (i) a £1.7m release of uncertain tax positions due to expiry of statute of limitation or conclusion of enquiries, (ii) a £6.6m charge with
corresponding deferred tax prior year credits; and, (iii) a £1.1m credit to adjust for finalisation of submitted tax returns.
b Adjustments in respect of deferred tax of prior years of £6.6m reflects credits which have a corresponding prior year current income tax impact.
c Relates mainly to different jurisdictional tax treatment of a cross border connected party debt write off.
d* Business exit: relates to non-deductible closure costs associated with the businesses detailed in note 2.8.
e* Specific items: relates to the non-taxable release of a legal claim provision detailed in note 2.4
f* Relates to the application of the UK tax exemption on substantial shareholdings in relevant disposals in note 2.8.
g* Relates to the non-deductible intangible asset impairments included in note 3.4.
h Movement in the deferred tax liability recognised on the unremitted earnings of those subsidiaries affected by withholding taxes, resulting from additional earnings in those subsidiaries
during 2021.
i Relates to the difference between tax payable at higher rates in India and South Africa, and tax payable at lower rates in other trading jurisdictions (Poland, Isle of Man and UAE).
j Relates to the (utilisation)/carry forward of tax losses, and the reactivation of deferred interest, in the current period.
k The 2021 current tax charge of £31.0m (2020: £14.3m results in an effective current tax rate of 10.9%,, which is different from the UK statutory rate of tax of 19% predominantly due to tax
impact of non-taxable profits on disposals, non-deductible goodwill impairment and losses carried forward. The impact of differing overseas tax rates is minimal and covered in footnote i.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
123
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
124
157
Section 2: Results for the year continued
2.6 Taxation continued
Consolidated statement of comprehensive income and consolidated statement of changes in equity
Current income tax movement on cash flow hedges
Deferred tax movement on cash flow hedges
Deferred tax movement in relation to actuarial changes on defined benefit pension schemes
Current income tax movement on defined benefit pension scheme contributions
Effect of rate change on deferred tax on defined benefit pension schemes
Deferred tax movement in relation to share-based payments
Current income tax deduction on the exercise of share options
The reconciliation between the total tax charge/(credit) and the accounting profit multiplied by the UK corporation tax rate is as follows:
2021
£m
(2.0)
(0.2)
32.2
(11.5)
(2.6)
—
(0.4)
2020
£m
(1.1)
—
(5.9)
—
(5.0)
1.2
—
15.5
(10.8)
Total tax
2020
£m
2021
£m
Current tax
2021
£m
2020
£m
285.6
(49.4)
285.6
(49.4)
54.3
(9.4)
54.3
(9.4)
a
b
c
d*
e*
3.8
0.2
(6.6)
(19.9)
3.7
1.5
(1.1)
3.5
5.6
2.0
3.8
—
3.7
1.5
(1.1)
—
3.2
0.2
—
3.5
5.6
2.0
0.6
—
1.9
f*
(51.7)
(6.4)
(51.7)
(6.4)
g*
11.4
0.6
11.4
h
1.1
(0.1)
(7.6)
(0.7)
(0.1)
(0.1)
note 2.6.2
84.2
2.0
—
2.0
—
—
—
—
—
—
(2.0)
12.4
0.2
7.8
7.1
(5.1)
i
j
Profit/(loss) before tax from continuing operations
Notional charge/(credit) at UK corporation tax rate of 19%
Adjustments in respect of current income tax of prior years
Adjustments in respect of deferred tax of prior years
Non-deductible expense/(non-taxable income) – adjusted
Non-deductible expenses – business exit
Non-deductible expense/(non-taxable income) – specific items
Profit on disposal
Non-deductible goodwill impairment
Tax provided on unremitted earnings
Attributable to different tax rates in overseas jurisdictions
Movement in deferred tax unrecognised
Fixed asset timing differences
Current tax impact on other timing differences
Carry forward/(utilisation) of losses in current period
Difference in rate recognition of temporary differences
note 2.6.2
(39.0)
(17.5)
At the effective total tax rate of 21.5% (2020: 96.4%) and the effective current tax rate of
10.9% (2020: (28.9)%)
Tax (credit)/charge reported in the income statement
k
61.5
(47.6)
31.0
14.3
61.5
(47.6)
31.0
14.3
* The £(39.9)m (2020: £1.8m) of reconciling items relate to reported tax charge only, with no impact on the adjusted tax charge. Further details are given (*) below.
a The £3.8m prior year charge adjustment includes: (i) a £1.7m release of uncertain tax positions due to expiry of statute of limitation or conclusion of enquiries, (ii) a £6.6m charge with
corresponding deferred tax prior year credits; and, (iii) a £1.1m credit to adjust for finalisation of submitted tax returns.
b Adjustments in respect of deferred tax of prior years of £6.6m reflects credits which have a corresponding prior year current income tax impact.
c Relates mainly to different jurisdictional tax treatment of a cross border connected party debt write off.
d* Business exit: relates to non-deductible closure costs associated with the businesses detailed in note 2.8.
e* Specific items: relates to the non-taxable release of a legal claim provision detailed in note 2.4
f* Relates to the application of the UK tax exemption on substantial shareholdings in relevant disposals in note 2.8.
g* Relates to the non-deductible intangible asset impairments included in note 3.4.
h Movement in the deferred tax liability recognised on the unremitted earnings of those subsidiaries affected by withholding taxes, resulting from additional earnings in those subsidiaries
during 2021.
1. Definitions of the alternative performance measures and related KPIs can be found in section 8.2
Section 2: Results for the year continued
2.6 Taxation continued
2.6.2 Deferred tax
A change to the main UK corporation tax rate was substantively enacted on 24 May 2021. The rate applicable from 1 April 2023 increases from
19% to 25%. The net UK deferred tax asset at 31 December 2021 has been calculated based on this rate, resulting in a £39.0m tax credit to
the income statement in 2021. This is made up of a £75.7m credit on brought forward deferred tax assets (2020: approximation of £75m in note
2.6.6), and a £36.7m charge on the current year unwind, or derecognition, of assets. The total net deferred tax charge in the period is a result
of the above, offset by movements in unrecognised deferred tax (explained further below).
Deferred tax relates to the following:
Deferred tax assets
Fixed assets which qualify for tax relief
Deferred income
Provisions and other timing differences
Pension schemes
Share-based payments
Tax losses1
Jurisdictional netting
Net deferred tax assets
Deferred tax liabilities
Acquired intangibles
Contract fulfilment assets
Unremitted earnings
Jurisdictional netting
Net deferred tax liabilities
Net deferred tax
Credited/(charged) to
At
1 January
£m
Income
statement
£m
OCI and
changes in
equity
£m
Other
movements2
£m
At
31 December
£m
72.8
4.5
11.7
51.6
1.6
111.2
253.4
(10.6)
242.8
(2.2)
(9.4)
(5.7)
(17.3)
10.6
(6.7)
0.6
(4.2)
3.0
(2.2)
2.2
(36.1)
(36.7)
—
—
0.2
(29.6)
—
—
3.9
(0.4)
(0.2)
—
—
(11.8)
77.3
(0.1)
14.7
19.8
3.8
63.3
(29.4)
(8.5)
178.8
(2.8)
(36.7)
(29.4)
(8.5)
176.0
1.2
2.8
2.1
6.1
—
—
—
—
0.3
2.2
—
2.5
6.1
—
2.5
(0.7)
(4.4)
(3.6)
(8.7)
2.8
(5.9)
236.1
(30.6)
(29.4)
(6.0)
170.1
1. Mainly trading losses available to shelter future profits and deferred interest
2. Other movements includes transfers to disposal group assets/liabilities held-for-sale and business disposals
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 for 2021 has been based on the forecast accounting profits in the 2022-2024 business plans (BP)
approved by the Board. This is the same plan used to derive forecast cash flows for the goodwill impairment test, per note 3.4. A long-term
growth rate of 1.7%, as used for impairment test purposes, has been applied to years beyond 2024. The profits associated with businesses that
are held for sale at the balance sheet date have been disregarded. A reducing probability factor has also been applied to future profits for the
potential decrease in reliability of forecasts extrapolated for later years, such that profits beyond seven years of the balance sheet date have
not been considered probable for the purpose of assessing deferred tax asset recognition.
Historic tax losses make up the majority of the deferred tax assets. These losses mainly arose due to the adoption of IFRS 15, Covid-19 related
downward pressures on the profits, and tax-deductible restructuring costs in previous years. Based on the above adjusted forecasts,
management decided that some of the deferred tax assets are not recognisable due to uncertainty in their recoverability. The impact of this
decision is an adjustment to recognised deferred tax assets of £84.2m.
i Relates to the difference between tax payable at higher rates in India and South Africa, and tax payable at lower rates in other trading jurisdictions (Poland, Isle of Man and UAE).
j Relates to the (utilisation)/carry forward of tax losses, and the reactivation of deferred interest, in the current period.
k The 2021 current tax charge of £31.0m (2020: £14.3m results in an effective current tax rate of 10.9%,, which is different from the UK statutory rate of tax of 19% predominantly due to tax
impact of non-taxable profits on disposals, non-deductible goodwill impairment and losses carried forward. The impact of differing overseas tax rates is minimal and covered in footnote i.
Deferred tax asset recognition is dependent on the accuracy of the BP profit forecasts. A sensitivity analysis has been applied to the forecasts
to consider a severe but plausible downside scenario. Under the sensitivity scenario, there would be a further potential reduction in recognised
deferred tax assets of up to c£50m.
Further disposals, planned as part of the simplification agenda, could also have an impact on the recognised deferred tax asset in future
periods.
The Group has unrecognised tax losses of £542.9m (2020: £208.6m) and other temporary differences of £114.5m (2020: £55.4m) that are
available for offset against future taxable profits of the companies in which the losses or other temporary differences arose, but have not been
recognised because their recoverability is uncertain. These are made up as follows:
(i) UK assets: £597.7m (2020: £184.2m) with no time expiry. The losses are subject to enacted UK tax loss relief legislation which could result
in restricted utilisation in the future. £50.7m (2020: £77.2m) of the losses were incurred by companies acquired by the Group and are not a
result of the Group’s trading performance.
(ii) Overseas assets: £59.7m (2020: £79.9m), some of which are subject to specific loss restriction rules but have no time expiry. Losses
incurred by acquired companies reduced to nil (2020: £6.7m) due to planned business disposals.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
125
Capita plc Annual Report 2021
Notes to the consolidated financial statements
158
Section 2: Results for the year continued
2.6 Taxation continued
Dividends received from subsidiaries are largely exempt from UK tax but may be subject to dividend withholding taxes levied by the overseas
tax jurisdictions in which the subsidiaries operate. The gross temporary differences of those subsidiaries affected by such potential taxes is
£42.8m (2020: £62.6m). A deferred tax liability of £3.6m (2020: £5.7m) has been recognised on the unremitted earnings of those subsidiaries
affected by such potential taxes since the Group is able to control the timing of reversal and it is anticipating dividends to be distributed. The
earnings remitted during the year resulted in a reduction of the closing deferred tax liability.
2.6.3 Uncertain tax positions
The Group files income tax returns in several jurisdictions and some of these returns are open to, or subject to, tax authority audits or
examinations. Tax returns contain matters that could be subject to differing interpretations of applicable tax laws and regulations; and, the
resolution of tax positions, through negotiations with relevant tax authorities or through litigation, can take several years. Tax uncertainties are
assessed throughout the year and specifically at the year-end, with any associated provisions recognised considering the specific
circumstances of each risk, including the merits of technical aspects, previous experience with tax authorities, recent tax law and, if relevant,
external specialist advice. The Group applies judgement in quantifying uncertainties over income tax treatments in accordance with these
criteria.
Income tax receivable of £5.9m at 31 December 2021 is net of a £4.1m (2020: £5.8m) liability in relation to uncertain tax positions. During 2021
the Group released £1.7m (2020: £15.1m) of uncertain tax positions relating to tax risks which are no longer considered likely to arise, due to
the expiry of the statute of limitations and conclusion of enquiries. The release is disclosed as a current income tax prior year adjustment.
Expiry of statute of limitations, or conclusion of tax audits could result in a further release of the provision in the next financial year. While it is
difficult to predict the ultimate outcome in some cases, and there are a range of different outcomes, the Group does not currently anticipate that
there will be any material impact on the Group’s financial position or results of operations in the next financial year.
2.6.4 Capita’s responsible approach to taxation
Capita has an open and positive working relationship with HMRC, has a designated customer compliance manager, and is committed to
prompt disclosure and transparency in all dealings with HMRC and overseas tax authorities. The Group does not have a complex tax structure,
nor does it pursue aggressive tax avoidance activities. The Group has a low-risk rating from HMRC, recently reassessed in 2021, and has been
awarded the Fair Tax Mark for its tax disclosures from 2018 to 2020. 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 approach to tax can be found on the Policies & Principles area of the Capita website (https://www.capita.com/our-company/about-
capita/policies-and-principles).
Capita contributed £163.4m (2020: £181.1m) in taxes from its UK operations in the year. This consisted of a net repayment of £0.5m (2020: net
payment of £2.6m) of UK corporation tax; £18.1m (2020: £19.3m) incurred in irrecoverable VAT; £125.5m (2020: £128.0m) in employer NIC;
and £19.3m (2020: £31.2m) in other levies including business rates, import duties, the apprenticeship levy and environmental taxes.
Additionally, the Group’s UK VAT contribution was £318.7m (2020: £336.2m). A further £104.1m VAT was remitted in 2021 as part of the UK
Government’s Covid-19 VAT deferral measures. The Group also collected £287.8m (2020: £288.0m) of Capita UK employee PAYE and NIC.
Capita entities in overseas jurisdictions paid £15.0m (2020: £4.9m) corporation tax, which mainly covers corporate income tax on local profits
and withholding tax on dividend repatriations.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 125
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
126
159
Section 2: Results for the year continued
2.6 Taxation continued
Dividends received from subsidiaries are largely exempt from UK tax but may be subject to dividend withholding taxes levied by the overseas
tax jurisdictions in which the subsidiaries operate. The gross temporary differences of those subsidiaries affected by such potential taxes is
£42.8m (2020: £62.6m). A deferred tax liability of £3.6m (2020: £5.7m) has been recognised on the unremitted earnings of those subsidiaries
affected by such potential taxes since the Group is able to control the timing of reversal and it is anticipating dividends to be distributed. The
earnings remitted during the year resulted in a reduction of the closing deferred tax liability.
2.6.3 Uncertain tax positions
The Group files income tax returns in several jurisdictions and some of these returns are open to, or subject to, tax authority audits or
examinations. Tax returns contain matters that could be subject to differing interpretations of applicable tax laws and regulations; and, the
resolution of tax positions, through negotiations with relevant tax authorities or through litigation, can take several years. Tax uncertainties are
assessed throughout the year and specifically at the year-end, with any associated provisions recognised considering the specific
circumstances of each risk, including the merits of technical aspects, previous experience with tax authorities, recent tax law and, if relevant,
external specialist advice. The Group applies judgement in quantifying uncertainties over income tax treatments in accordance with these
criteria.
Income tax receivable of £5.9m at 31 December 2021 is net of a £4.1m (2020: £5.8m) liability in relation to uncertain tax positions. During 2021
the Group released £1.7m (2020: £15.1m) of uncertain tax positions relating to tax risks which are no longer considered likely to arise, due to
the expiry of the statute of limitations and conclusion of enquiries. The release is disclosed as a current income tax prior year adjustment.
Expiry of statute of limitations, or conclusion of tax audits could result in a further release of the provision in the next financial year. While it is
difficult to predict the ultimate outcome in some cases, and there are a range of different outcomes, the Group does not currently anticipate that
there will be any material impact on the Group’s financial position or results of operations in the next financial year.
2.6.4 Capita’s responsible approach to taxation
Capita has an open and positive working relationship with HMRC, has a designated customer compliance manager, and is committed to
prompt disclosure and transparency in all dealings with HMRC and overseas tax authorities. The Group does not have a complex tax structure,
nor does it pursue aggressive tax avoidance activities. The Group has a low-risk rating from HMRC, recently reassessed in 2021, and has been
awarded the Fair Tax Mark for its tax disclosures from 2018 to 2020. 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 approach to tax can be found on the Policies & Principles area of the Capita website (https://www.capita.com/our-company/about-
capita/policies-and-principles).
Capita contributed £163.4m (2020: £181.1m) in taxes from its UK operations in the year. This consisted of a net repayment of £0.5m (2020: net
payment of £2.6m) of UK corporation tax; £18.1m (2020: £19.3m) incurred in irrecoverable VAT; £125.5m (2020: £128.0m) in employer NIC;
and £19.3m (2020: £31.2m) in other levies including business rates, import duties, the apprenticeship levy and environmental taxes.
Additionally, the Group’s UK VAT contribution was £318.7m (2020: £336.2m). A further £104.1m VAT was remitted in 2021 as part of the UK
Government’s Covid-19 VAT deferral measures. The Group also collected £287.8m (2020: £288.0m) of Capita UK employee PAYE and NIC.
Capita entities in overseas jurisdictions paid £15.0m (2020: £4.9m) corporation tax, which mainly covers corporate income tax on local profits
and withholding tax on dividend repatriations.
Section 2: Results for the year continued
2.7 Earnings/(loss) per share
AP
Accounting policies
Basic earnings/(loss) per share are calculated by dividing net profit for the period attributable to ordinary equity holders of the Parent Company
by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings/(loss) per share are calculated by dividing the net profit for the period attributable to ordinary equity holders of the Parent
Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary
shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
– adjusted
– reported
– adjusted
– reported
2021
Continuing
operations
p
1.61
13.33
1.59
13.15
Total
operations
p
1.61
13.52
1.59
13.33
Continuing
operations
p
2.41
(0.41)
2.41
(0.41)
2020
Total
operations
p
2.41
0.85
2.37
0.85
The following tables show the earnings and share data used in the basic and diluted earnings/(loss) per share calculations:
Adjusted profit before tax for the period
Income tax credit/(charge)
Adjusted profit for the period
Less: Non-controlling interest
Adjusted profit attributable to shareholders
Reported profit/(loss) before tax for the period
Income tax credit/(charge)
Reported profit/(loss) for the period
Less: Non-controlling interest
Total profit/(loss) attributable to shareholders
2.4
2.6.1
Continuing
operations
£m
93.5
(64.8)
28.7
(1.9)
26.8
2021
Total
operations
£m
93.5
(64.8)
28.7
(1.9)
26.8
Continuing
operations
£m
5.4
25.3
30.7
9.2
39.9
2020
Total
operations
£m
5.4
25.3
30.7
9.2
39.9
2.6
285.6
(61.5)
224.1
(2.5)
221.6
288.7
(61.5)
227.2
(2.5)
224.7
(49.4)
47.6
(1.8)
(5.0)
(6.8)
(28.6)
47.6
19.0
(5.0)
14.0
Weighted average number of ordinary shares (excluding trust and treasury shares) for basic earnings per share
Dilutive potential ordinary shares:
Employee share options
2021
m
2020
m
1,661.9 1,656.1
23.9
27.4
Weighted average number of ordinary shares (excluding trust and treasury shares) adjusted for the effect of dilution
1,685.8 1,683.5
At 31 December 2021 nil (2020: 27,447,210) options were excluded from the diluted weighted average number of ordinary shares used in the
reported continuing operations earnings per share calculation because their effect would have been anti-dilutive. Under IAS 33 Earnings per
Share, potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per
share or increase loss per share from continuing operations.
The earnings per share figures are calculated based on earnings attributable to ordinary equity holders of the Parent Company, and therefore
exclude non-controlling interest. The earnings per share is calculated on an adjusted and total reported basis. The earnings per share for
business exits and specific items are bridging items to adjusted and total reported earnings per share.
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date on which
these consolidated financial statements were authorized for issue.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
127
Capita plc Annual Report 2021
Notes to the consolidated financial statements
160
Section 2: Results for the year continued
2.8 Business exits and assets held-for-sale
AP
Accounting policies
Business exits
Business exits are businesses that have been disposed of, or exited during the year; or, are in the process of being disposed of, or exited.
None of these business exits meet the definition of ‘discontinued operations’ as stipulated by IFRS 5, which requires comparative financial
information to be restated where the relative size of a disposal or business closure is significant, which is normally understood to mean a
reported segment.
However, the trading result of these business exits, 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 2020 comparatives have been re-presented to exclude the business exits
that occurred during 2021.
Assets held-for-sale
The Group classifies a non-current asset (or disposal group) as held-for-sale if its carrying amount will be recovered principally through a sale
transaction rather than continued use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.
For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and
an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively
marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for
recognition as a completed sale within one year from the date of classification. Consequently, individual businesses within the Portfolio Division
will only be treated as held-for-sale where the disposal is highly probable and expected to complete within twelve months of the balance sheet
date.
2021 business exits
Business exits during the year ended 31 December 2021 comprised:
•
•
•
•
the ESS business whose disposal was completed on 1 February 2021;
the Life Insurance and Pensions Servicing business in Ireland whose disposal was completed on 1 March 2021;
the AXELOS joint venture with the UK Government whose disposal was completed on 29 July 2021;
the AMT Sybex software, Secure Solutions and Services (SSS) and Speciality Insurance businesses which were in the process of being
sold and which met the held-for-sale criteria. Accordingly, these businesses were treated as disposal groups held-for-sale at this date. The
disposal of both the AMT Sybex software and SSS businesses completed subsequently in 2022 (refer to note 6.3 for further details);
a software business in Capita Portfolio that the Group has decided to exit; and
the exit costs relating to further planned disposals, including professional fees and separation planning costs.
•
•
Further disposals are planned as part of the simplification agenda. Since these disposals did not meet the definition of business exits or assets
held-for-sale at 31 December 2021, their trading results were included within adjusted results. This includes the Trustmarque business whose
disposal was announced on 28 January 2022 and is subject to certain consents (refer to note 6.3 for further details).
Income statement impact
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Net finance costs
Gain on business disposal
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Trading
£m
174.0
(92.7)
81.3
(30.5)
50.8
(0.4)
—
50.4
(9.5)
40.9
Non-trading
£m
—
—
—
(70.9)
(70.9)
(0.1)
419.7
348.7
(25.4)
323.3
2021
Total
£m
174.0
(92.7)
81.3
(101.4)
(20.1)
(0.5)
419.7
399.1
(34.9)
364.2
Trading
£m
329.3
(163.5)
165.8
(54.8)
111.0
(0.1)
—
110.9
(21.0)
89.9
Non-trading
£m
—
—
—
(50.5)
(50.5)
(1.5)
31.4
(20.6)
17.7
(2.9)
2020
Total
£m
329.3
(163.5)
165.8
(105.3)
60.5
(1.6)
31.4
90.3
(3.3)
87.0
Trading revenue and costs represent the current year trading performance of those businesses up to the point of being disposed or exited.
Trading expenses primarily comprise payroll costs of £79.3m (2020: £139.6m) and IT costs of £24.9m (2020: £48.6m).
Included within non-trading administrative expenses is £4.9m (2020: £7.5m) of amortisation of acquired intangibles which, in accordance with
the Group’s policy, were excluded from the Group’s adjusted results in both the current and prior periods and have been reclassified to
Business exits because they relate to businesses disposed of or being exited. Other non-trading administrative expenses include: asset
impairments of £53.1m (2020: £10.1m); disposal project costs of £8.9m (2020: £31.9m); and other costs of £4.1m (2020: £3.3m), which are
offset by provision releases of £nil (2020: £2.3m).
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
127
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
128
161
Section 2: Results for the year continued
2.8 Business exits and assets held-for-sale
Accounting policies
Business exits
reported segment.
that occurred during 2021.
Assets held-for-sale
date.
2021 business exits
Business exits are businesses that have been disposed of, or exited during the year; or, are in the process of being disposed of, or exited.
None of these business exits meet the definition of ‘discontinued operations’ as stipulated by IFRS 5, which requires comparative financial
information to be restated where the relative size of a disposal or business closure is significant, which is normally understood to mean a
However, the trading result of these business exits, 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 2020 comparatives have been re-presented to exclude the business exits
The Group classifies a non-current asset (or disposal group) as held-for-sale if its carrying amount will be recovered principally through a sale
transaction rather than continued use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.
For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and
an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively
marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for
recognition as a completed sale within one year from the date of classification. Consequently, individual businesses within the Portfolio Division
will only be treated as held-for-sale where the disposal is highly probable and expected to complete within twelve months of the balance sheet
Business exits during the year ended 31 December 2021 comprised:
the ESS business whose disposal was completed on 1 February 2021;
•
•
•
•
•
•
the Life Insurance and Pensions Servicing business in Ireland whose disposal was completed on 1 March 2021;
the AXELOS joint venture with the UK Government whose disposal was completed on 29 July 2021;
the AMT Sybex software, Secure Solutions and Services (SSS) and Speciality Insurance businesses which were in the process of being
sold and which met the held-for-sale criteria. Accordingly, these businesses were treated as disposal groups held-for-sale at this date. The
disposal of both the AMT Sybex software and SSS businesses completed subsequently in 2022 (refer to note 6.3 for further details);
a software business in Capita Portfolio that the Group has decided to exit; and
the exit costs relating to further planned disposals, including professional fees and separation planning costs.
Further disposals are planned as part of the simplification agenda. Since these disposals did not meet the definition of business exits or assets
held-for-sale at 31 December 2021, their trading results were included within adjusted results. This includes the Trustmarque business whose
disposal was announced on 28 January 2022 and is subject to certain consents (refer to note 6.3 for further details).
Income statement impact
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Net finance costs
Gain on business disposal
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Non-trading
Non-trading
Trading
£m
174.0
(92.7)
81.3
(30.5)
50.8
(0.4)
—
50.4
(9.5)
40.9
£m
—
—
—
(70.9)
(70.9)
(0.1)
419.7
348.7
(25.4)
323.3
2021
Total
£m
174.0
(92.7)
81.3
(101.4)
(20.1)
(0.5)
419.7
399.1
(34.9)
364.2
Trading
£m
329.3
(163.5)
165.8
(54.8)
111.0
(0.1)
—
110.9
(21.0)
89.9
£m
—
—
—
(50.5)
(50.5)
(1.5)
31.4
(20.6)
17.7
(2.9)
2020
Total
£m
329.3
(163.5)
165.8
(105.3)
60.5
(1.6)
31.4
90.3
(3.3)
87.0
Trading revenue and costs represent the current year trading performance of those businesses up to the point of being disposed or exited.
Trading expenses primarily comprise payroll costs of £79.3m (2020: £139.6m) and IT costs of £24.9m (2020: £48.6m).
Included within non-trading administrative expenses is £4.9m (2020: £7.5m) of amortisation of acquired intangibles which, in accordance with
the Group’s policy, were excluded from the Group’s adjusted results in both the current and prior periods and have been reclassified to
Business exits because they relate to businesses disposed of or being exited. Other non-trading administrative expenses include: asset
impairments of £53.1m (2020: £10.1m); disposal project costs of £8.9m (2020: £31.9m); and other costs of £4.1m (2020: £3.3m), which are
offset by provision releases of £nil (2020: £2.3m).
Section 2: Results for the year continued
2.8 Business exits and assets held for sale continued
2.8.1 Disposals
During 2021 the Group disposed of three businesses: ESS; Life Insurance and Pensions Servicing in Ireland; and the AXELOS joint venture
with the UK Government.
During 2020 the Group disposed of three businesses: Eclipse Legal Services; Capita Workplace Technology; and Employee Benefits.
The assets and liabilities disposed of and the related gain on disposal are as follows.
Property, plant and equipment
Intangible assets
Goodwill
Contract fulfilment assets
Trade and other receivables
Prepayments
Cash and cash equivalents
Disposal group assets held-for-sale
Income and deferred tax
Trade and other payables
Accruals
Deferred income
Deferred consideration payable
Loans payable2
Disposal group liabilities held-for-sale
Net identifiable assets/(liabilities) disposed of
Non-controlling interests
Cash consideration received
Less: costs of disposal
Net proceeds
Realisation of cumulative currency translation difference
Gain on business disposals
Net cash inflow
Net proceeds
less: (cash)/overdrafts disposed of1
Total net cash inflow
2021
£m
0.2
19.9
65.7
0.1
2.6
0.1
8.2
120.2
(4.3)
(28.8)
(5.1)
(2.9)
(22.8)
(26.0)
(57.5)
69.6
(3.4)
66.2
508.6
(25.5)
483.1
2.8
419.7
483.1
(25.9)
457.2
2020
£m
0.6
3.2
12.1
—
2.3
—
3.2
4.3
(0.3)
(6.5)
—
(0.4)
—
—
(1.2)
17.3
—
17.3
58.1
(9.4)
48.7
—
31.4
48.7
(3.2)
45.5
1 (Cash)/overdrafts disposed of comprise (cash)/overdrafts in the balance sheet of £(8.2)m (2020: £(3.2)m), and (cash)/overdrafts within disposal group assets and liabilities held-for-sale of
£(17.7)m (2020: £nil).
2 The loan payable represents an interest bearing loan payable by AXELOS Limited to HM Government in connection with a dividend payable by this company. The loan is subject to interest
at 6% and was settled on completion of the disposal on 29 July 2021.
Disposal costs of £21.2m, relating to businesses disposed of in the year, were recognised in prior years and are excluded from the above gain
on business disposals.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
129
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.8 Business exits and assets held for sale continued
2.8.2 Disposal group assets and liabilities held-for-sale
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Contract fulfilment assets
Trade and other receivables
Accrued income
Prepayments
Cash and cash equivalents
Income tax receivable and deferred tax assets
Disposal group assets held-for-sale
Trade and other payables
Other taxes and social security
Accruals
Deferred income
Lease liabilities
Income tax payable and deferred tax liabilities
Provisions
Disposal group liabilities held-for-sale
162
2020
£m
0.1
44.4
45.3
4.5
3.1
2.9
0.6
0.7
12.9
0.1
2021
£m
0.4
14.4
44.2
—
32.6
10.7
5.1
5.2
15.8
10.4
138.8
114.6
1.6
1.6
3.4
69.8
—
2.3
2.4
81.1
1.5
0.1
3.5
40.3
4.6
3.5
0.4
53.9
Business exit cash flows
Businesses exited and being exited generated net operating cash inflows of £50.9m (2020: cash inflows of £123.2m).
2.9 Discontinued operations
Capita completed the disposal of its Asset Services businesses, including Capita Financial Managers Limited (CFM), to the Link Group on
3 November 2017. The disposal met the definition of a discontinued operation as stipulated by IFRS 5.
In 2021 the income of £3.1m related to a reduction in provisions following reassessments of the likely future costs to be incurred by the Group.
In 2020 the credit of £20.8m related to additional payments received in connection with the sale of the Asset Services businesses arising from
the return of redress payments made to the Financial Conduct Authority (FCA) regarding the Connaught Income Series 1 Fund. Cash flows
generated from discontinuing operations in 2020 of £18.6m related to the above return of redress payments made to the FCA less previously
accrued amounts paid in connection with the sale of the Asset Services business.
The earnings per share impact from discontinued operations is 0.19p (2020: 1.26p) on basic earnings per share and 0.18p (2020: 1.24p) on
diluted earnings per share.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
Section 2: Results for the year continued
2.8 Business exits and assets held for sale continued
2.8.2 Disposal group assets and liabilities held-for-sale
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Contract fulfilment assets
Trade and other receivables
Accrued income
Prepayments
Cash and cash equivalents
Income tax receivable and deferred tax assets
Disposal group assets held-for-sale
Trade and other payables
Other taxes and social security
Accruals
Deferred income
Lease liabilities
Provisions
Income tax payable and deferred tax liabilities
Disposal group liabilities held-for-sale
Business exit cash flows
2.9 Discontinued operations
2021
£m
0.4
14.4
44.2
—
32.6
10.7
5.1
5.2
15.8
10.4
1.6
1.6
3.4
69.8
—
2.3
2.4
81.1
2020
£m
0.1
44.4
45.3
4.5
3.1
2.9
0.6
0.7
12.9
0.1
1.5
0.1
3.5
40.3
4.6
3.5
0.4
53.9
138.8
114.6
Businesses exited and being exited generated net operating cash inflows of £50.9m (2020: cash inflows of £123.2m).
Capita completed the disposal of its Asset Services businesses, including Capita Financial Managers Limited (CFM), to the Link Group on
3 November 2017. The disposal met the definition of a discontinued operation as stipulated by IFRS 5.
In 2021 the income of £3.1m related to a reduction in provisions following reassessments of the likely future costs to be incurred by the Group.
In 2020 the credit of £20.8m related to additional payments received in connection with the sale of the Asset Services businesses arising from
the return of redress payments made to the Financial Conduct Authority (FCA) regarding the Connaught Income Series 1 Fund. Cash flows
generated from discontinuing operations in 2020 of £18.6m related to the above return of redress payments made to the FCA less previously
accrued amounts paid in connection with the sale of the Asset Services business.
The earnings per share impact from discontinued operations is 0.19p (2020: 1.26p) on basic earnings per share and 0.18p (2020: 1.24p) on
diluted earnings per share.
129
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
130
163
Section 2: Results for the year continued
2.10 Cash flow information
AP
Accounting policies
Cash and short-term deposits in the balance sheet comprise cash at bank and in-hand and short-term deposits with an original maturity of three
months or less. In the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term deposits net of outstanding
bank overdrafts and include cash and overdrafts within disposal group assets and liabilities held-for-sale. Cash at bank earns interest at fixed
and floating rates based on prevailing bank deposit rates.
2.10.1 Additional cash flow information
Adjusted cash flow from operating activities decreased year-on-year due to movements in working capital, in particular a large reduction in
trade and other receivables. 2020 benefited from shorter public sector payment cycles as part of the Covid-19 response and advanced
payments from a small number of major clients at the year end. 2021 has been impacted by the unwind of these advanced receipts together
with the natural expansion in working capital as the Group transitions to growth. In addition, there was an increased deferred income outflow
largely from the unwinding of deferred transformation revenue on a contract with a telecom customer, and also on full and partial contract
terminations. Reported cash flow from operating activities were impacted by the repayment of VAT deferred under the Government scheme,
and pension deficit contributions.
Cash flows from operating activities:
Operating profit/(loss)
Adjustments for non-cash items:
Depreciation
Amortisation of intangible assets
Share-based payment expense
Employee benefits
Loss on sale of property, plant and equipment / intangible assets
Impairment of disposal group assets
Impairment of non-current assets
Other adjustments:
Movement in provisions
Pension deficit contribution
Other contributions into pension schemes
Movements in working capital:
Trade and other receivables
Non-recourse trade receivables financing
Trade and other payables
VAT deferral
Deferred income
Contract fulfilment assets (non-current)
Cash generated from operations
Adjustments for free cash flows:
Income tax paid
Net interest paid
Net cash flows from operating activities
Note
Adjusted
£m
Reported
£m
Adjusted1
£m
2021
2020
Reported
£m
2.4
139.1
(86.6)
51.1
(32.0)
3.2, 3.5
3.3
5.1
5.2
2.3
116.3
36.8
1.2
8.9
0.7
—
2.9
117.1
57.7
1.2
8.9
0.7
44.1
90.0
137.0
36.8
6.4
13.1
2.4
—
3.5
139.1
74.6
6.4
13.1
17.1
11.7
32.2
11.4
—
(8.4)
21.9
(155.5)
(8.4)
30.1
—
(19.5)
44.0
(29.5)
(19.5)
(7.1)
—
16.7
—
(92.8)
(40.3)
(1.2)
(9.7)
44.2
(104.1)
(116.9)
(24.7)
148.4
—
(56.1)
—
(26.1)
(31.9)
172.7
13.6
(58.4)
118.8
(46.8)
(22.9)
185.4
(121.3)
295.2
434.2
(15.5)
(40.5)
129.4
(17.7)
(40.1)
(179.1)
(8.8)
(47.8)
238.6
(36.1)
(42.7)
10.5
(8.8)
(47.7)
377.7
(40.8)
(46.6)
13.5
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment / intangible assets
3.2
3.3
(18.9)
(32.5)
0.1
(25.6)
(32.5)
0.1
Free cash flow
78.1
(237.1)
170.3
303.8
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
131
Capita plc Annual Report 2021
Notes to the consolidated financial statements
164
Section 2: Results for the year continued
2.10 Cash flow information continued
2.10.2 Adjusted free cash flow and cash generated from operations
Reported
Pension deficit contributions
Significant restructuring
Litigation and claims
Business exits
Business exits - on hold disposal costs
Non-recourse trade receivables financing
VAT deferral
Other
Adjusted
Free cash flow
Cash generated/(used) by
operations
2021
£m
(237.1)
155.5
68.6
18.5
(41.2)
—
9.7
104.1
—
2020
£m
303.8
29.5
64.1
—
(102.2)
7.5
(13.6)
(118.8)
—
2021
£m
(121.3)
155.5
68.6
18.5
(49.7)
—
9.7
104.1
—
2020
£m
434.2
29.5
64.1
—
(106.2)
7.5
(13.6)
(118.8)
(1.5)
78.1
170.3
185.4
295.2
A reconciliation of net cash flow to movement in net debt is included in note 2.10.3.
Pension deficit contributions: in 2012, the Group established the Capita Scotland (Pension) Limited Partnership (the ‘Partnership’) with the
Scheme. Under this arrangement, intellectual property rights (IPR) in specific Group software were transferred to the partnership and the rights
to use, develop and exploit this IPR was licensed back to the Group in return for an annual fee. The Scheme’s interest in the Partnership
entitles it to an annual distribution of £8.0m for 15 years from inception. However, at 31 December 2020, the Scheme's interest in the
Partnership ceased and in return the Scheme received a special contribution of £50.1m in February 2021 (for 31 December 2020: distributions
of £8.0m were received).
In June 2021, the Group agreed a deficit recovery plan with the Trustee of the Capita Pension and Life Assurance Scheme (the “Scheme”)
following completion of the full actuarial valuation as at 31 March 2020. The payments under the agreed recovery plan total £124m to be paid
between July 2021 and December 2023. In addition to this, the Group agreed to make additional, non-statutory, contributions of £15m each
year in 2024, 2025 and 2026 to meet a secondary funding target.
As part of the 2017 funding agreement, additional monthly contributions of £4.16m were triggered from July 2020 until the 31 March 2020
valuation was finalised in June 2021. The Trustee Board and the Group agreed that these contributions would be paid into an escrow account
(instead of the scheme), with the escrow account being released to the scheme later. The amounts held in escrow at 31 December 2021
(£5.0m) are included in the pension deficit contributions figures above and are recognised within current other receivables in the consolidated
balance sheet.
During 2021, in addition to the £5.0m held in escrow, the Group paid £145.7m (this includes the following main items: (i) £59m paid in
accordance with the June 2021 agreement, (ii) the special contribution received from ceasing interest in the Partnership (£50.1m as above) and
(iii) contributions (£35.7m) agreed in November 2018 following completion of the full actuarial valuation as at 31 March 2017) to the Scheme
(2020: £36.8m including the distributions received from the Partnership (£8m as above)).
In addition, £4.8m in deficit contributions were paid to other schemes that Capita participates in during 2021 (2020: £0.5m).
These payments have been excluded from adjusted cash flows because the Group treats them like debt.
Significant restructuring: in April 2018, the Group announced a multi-year transformation plan. In the period to 31 December 2021, a cash
outflow of £68.6m (2020: £64.1m) was incurred in relation to the cost of the transformation plan and restructuring costs relating to Capita’s
previously announced cost reduction plan. The difference between the 2021 income statement charge of £148.3m and the cash flow of £68.6m
is principally the impairment of the new financial reporting system (£53.5m) and impairment of right of use assets arising on rationalisation of
the Group’s property portfolio (£13.3m).
The cumulative significant restructuring cash outflows since the commencement of the group-wide transformation in 2018 is £385.4m. 2021 is
the final year of major investments in the transformation plan where the costs are excluded from adjusted results. From 1 January 2022, any
residual restructuring will be recorded within adjusted results.
Litigation and claims: the Group settled a legal claim, that had been fully provided for in a prior year and received an insurance settlement in
respect of the same claim. The claim was excluded from adjusted results when provided due to its historical nature and size, and accordingly
the insurance receipt has also been excluded from adjusted results. In addition, the Group paid the cash element of an agreed liability relating
to past services received under supplier software licence agreements which had been fully provided for in the prior year. This was excluded
from adjusted results because it related to services received in prior periods and is not reflective of current trading.
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 2020 results have been restated for those businesses exited, or in the process of being exited during 2021 to enable
comparability of the adjusted results.
Business exits - on hold disposal costs: these are costs incurred in respect of business exit activities where the anticipated disposal was put
on hold due to the impact that the Covid-19 pandemic had on the underlying businesses. They are excluded from the Group's adjusted results
but disclosed separately given their materiality.
Non-recourse trade receivables financing: a Group non-recourse trade receivables financing facility was put in place to mitigate the risk of
customer receipts slippage resulting from the impact of the Covid-19 pandemic. The amounts excluded from adjusted cash flows do not include
the Group’s German business trade receivables financing facility as this was entered into in the normal course of business.
VAT deferral: utilisation of the Government's VAT deferral scheme. Refer to note 2.6.4 for further details.
Other: includes the cash flows related to other items excluded from adjusted profit.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
131
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
132
165
Section 2: Results for the year continued
2.10 Cash flow information continued
2.10.2 Adjusted free cash flow and cash generated from operations
Section 2: Results for the year continued
2.10 Cash flow information continued
2.10.3 Reconciliation of net cash flow to movement in net debt
Free cash flow
Cash generated/(used) by
operations
2020
£m
2021
£m
303.8
(121.3)
434.2
29.5
64.1
—
155.5
68.6
18.5
2020
£m
29.5
64.1
—
2021
£m
(237.1)
155.5
68.6
18.5
(41.2)
(102.2)
(49.7)
(106.2)
—
9.7
7.5
(13.6)
—
9.7
7.5
(13.6)
104.1
(118.8)
104.1
(118.8)
—
—
—
(1.5)
78.1
170.3
185.4
295.2
Year ended 31 December 2021
Cash, cash equivalents and overdrafts
Other loan notes
Credit facilities
Private placement loan notes1
Cross-currency interest rate swaps1
Interest rate swaps1
Lease liabilities
Total net liabilities from financing activities
Deferred consideration
Net debt
Net debt at
1 January
£m
141.1
Cash flow
movements
£m
(43.6)
Non-cash
movement2
£m
4.0
Net debt at
31 December
£m
101.5
(2.3)
—
(765.1)
57.5
0.5
(508.1)
1.0
(46.0)
234.2
(19.7)
—
82.6
—
—
(1.3)
(46.0)
18.0
(512.9)
(9.8)
(0.5)
28.0
—
(22.9)
(448.4)
Note
4.5.4
4.5
4.5
4.5
4.5
4.4
(1,217.5)
252.1
(15.2)
(980.6)
4.5
(0.7)
—
—
(0.7)
4.1.1
(1,077.1)
208.5
(11.2)
(879.8)
1. The sum of these items equates to the fair value of the Group’s private placement loan note’s debt of £484.9m (2020: £707.1m). Cash flow movement in private placement loan notes
includes both repayment of private placement loan notes of £232.3m (2020: £242.9m) and finance arrangement costs of £1.9m (2020: £0.5m).
2. Non-cash movement relates to: the effect of changes in foreign exchange on cash; fair value changes on the swaps; amortisation of loan notes issue costs; amortisation of the discount on
the euro debt; and additions and terminations and foreign exchange rate effects on the Group’s leases.
Year ended 31 December 2020
Cash, cash equivalents and overdrafts
Other loan notes
Private placement loan notes
Cross-currency interest rate swaps
Interest rate swaps
Lease liabilities
Total net liabilities from financing activities
Deferred consideration
Net debt
Net debt at
1 January
£m
119.3
(0.5)
(990.5)
77.3
1.0
(562.6)
Cash flow
movements
£m
27.2
Non-cash
movement
£m
(5.4)
Net debt at
31 December
£m
141.1
—
(1.8)
(2.3)
243.4
(24.5)
—
98.0
(18.0)
(765.1)
4.7
(0.5)
57.5
0.5
(43.5)
(508.1)
Note
4.5.4
4.5
4.5
4.5
4.5
4.4
(1,475.3)
316.9
(59.1)
(1,217.5)
4.5
(0.7)
—
—
(0.7)
4.1.1
(1,356.7)
344.1
(64.5)
(1,077.1)
Reported
Pension deficit contributions
Significant restructuring
Litigation and claims
Business exits
Business exits - on hold disposal costs
Non-recourse trade receivables financing
VAT deferral
Other
Adjusted
A reconciliation of net cash flow to movement in net debt is included in note 2.10.3.
Pension deficit contributions: in 2012, the Group established the Capita Scotland (Pension) Limited Partnership (the ‘Partnership’) with the
Scheme. Under this arrangement, intellectual property rights (IPR) in specific Group software were transferred to the partnership and the rights
to use, develop and exploit this IPR was licensed back to the Group in return for an annual fee. The Scheme’s interest in the Partnership
entitles it to an annual distribution of £8.0m for 15 years from inception. However, at 31 December 2020, the Scheme's interest in the
Partnership ceased and in return the Scheme received a special contribution of £50.1m in February 2021 (for 31 December 2020: distributions
of £8.0m were received).
In June 2021, the Group agreed a deficit recovery plan with the Trustee of the Capita Pension and Life Assurance Scheme (the “Scheme”)
following completion of the full actuarial valuation as at 31 March 2020. The payments under the agreed recovery plan total £124m to be paid
between July 2021 and December 2023. In addition to this, the Group agreed to make additional, non-statutory, contributions of £15m each
year in 2024, 2025 and 2026 to meet a secondary funding target.
As part of the 2017 funding agreement, additional monthly contributions of £4.16m were triggered from July 2020 until the 31 March 2020
valuation was finalised in June 2021. The Trustee Board and the Group agreed that these contributions would be paid into an escrow account
(instead of the scheme), with the escrow account being released to the scheme later. The amounts held in escrow at 31 December 2021
(£5.0m) are included in the pension deficit contributions figures above and are recognised within current other receivables in the consolidated
balance sheet.
During 2021, in addition to the £5.0m held in escrow, the Group paid £145.7m (this includes the following main items: (i) £59m paid in
accordance with the June 2021 agreement, (ii) the special contribution received from ceasing interest in the Partnership (£50.1m as above) and
(iii) contributions (£35.7m) agreed in November 2018 following completion of the full actuarial valuation as at 31 March 2017) to the Scheme
(2020: £36.8m including the distributions received from the Partnership (£8m as above)).
In addition, £4.8m in deficit contributions were paid to other schemes that Capita participates in during 2021 (2020: £0.5m).
These payments have been excluded from adjusted cash flows because the Group treats them like debt.
Significant restructuring: in April 2018, the Group announced a multi-year transformation plan. In the period to 31 December 2021, a cash
outflow of £68.6m (2020: £64.1m) was incurred in relation to the cost of the transformation plan and restructuring costs relating to Capita’s
previously announced cost reduction plan. The difference between the 2021 income statement charge of £148.3m and the cash flow of £68.6m
is principally the impairment of the new financial reporting system (£53.5m) and impairment of right of use assets arising on rationalisation of
the Group’s property portfolio (£13.3m).
The cumulative significant restructuring cash outflows since the commencement of the group-wide transformation in 2018 is £385.4m. 2021 is
the final year of major investments in the transformation plan where the costs are excluded from adjusted results. From 1 January 2022, any
residual restructuring will be recorded within adjusted results.
Litigation and claims: the Group settled a legal claim, that had been fully provided for in a prior year and received an insurance settlement in
respect of the same claim. The claim was excluded from adjusted results when provided due to its historical nature and size, and accordingly
the insurance receipt has also been excluded from adjusted results. In addition, the Group paid the cash element of an agreed liability relating
to past services received under supplier software licence agreements which had been fully provided for in the prior year. This was excluded
from adjusted results because it related to services received in prior periods and is not reflective of current trading.
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 2020 results have been restated for those businesses exited, or in the process of being exited during 2021 to enable
comparability of the adjusted results.
Business exits - on hold disposal costs: these are costs incurred in respect of business exit activities where the anticipated disposal was put
on hold due to the impact that the Covid-19 pandemic had on the underlying businesses. They are excluded from the Group's adjusted results
but disclosed separately given their materiality.
Non-recourse trade receivables financing: a Group non-recourse trade receivables financing facility was put in place to mitigate the risk of
customer receipts slippage resulting from the impact of the Covid-19 pandemic. The amounts excluded from adjusted cash flows do not include
the Group’s German business trade receivables financing facility as this was entered into in the normal course of business.
VAT deferral: utilisation of the Government's VAT deferral scheme. Refer to note 2.6.4 for further details.
Other: includes the cash flows related to other items excluded from adjusted profit.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
133
Capita plc Annual Report 2021
Notes to the consolidated financial statements
166
Section 3: Operating assets and liabilities
This section shows the operating assets and liabilities used to generate the Group’s trading performance. Liabilities relating to
the Group’s financing activities are contained in Section 4. Current tax and deferred tax assets and liabilities are shown in
note 2.6. Deferred income is shown in note 2.1.
In this section you will find disclosures about:
3.1
Working capital
3.1.1 Trade and other receivables
3.1.2 Trade and other payables
3.1.3 Contract fulfilment assets
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Provisions
Denotes accounting policies
Denotes significant accounting judgements, estimates and assumptions
3.2
3.3
3.4
3.5
3.6
AP
J
Key highlights
Working capital
Trade and other receivables
Trade and other payables
Deferred income
Contract fulfilment assets
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Provisions
Note
3.1
3.1.1
3.1.2
2.1
3.1.3
3.2
3.3
3.4
3.5
3.6
2021
£m
(502.8)
562.8
(557.6)
(794.7)
286.7
129.0
147.3
951.7
287.9
(140.6)
2020
£m
(765.9)
573.1
(658.6)
(975.2)
294.8
157.2
265.0
1,120.5
342.1
(124.4)
Year on year
movement
£m
263.1
(10.3)
101.0
180.5
(8.1)
(28.2)
(117.7)
(168.8)
(54.2)
(16.2)
The decrease in trade and other receivables is primarily driven by a reduction in trade receivables (£18.5m) and prepayments (£12.0m). The
reduction in trade receivable partially reflects the classification of businesses as held-for-sale at year end. This was offset by an increase in
current contract fulfilment assets (£14.7m) as a result of timing differences.
During 2020 a non-recourse receivables facility was put in place to mitigate the risk of customer receipts slippage resulting from the impact of
the Covid-19 pandemic. The outstanding invoices sold under this facility at 31 December 2021 was £3.9m (2020: £13.6m).
The decrease in trade and other payables was primarily as a result of the repayment of VAT under the Governments VAT deferral scheme
(£104.1m) and a reduction in the level of accruals (£21.4m). This was offset by increases in both trade payables (£22.6m) and other payables
(£7.3m).
The decrease in deferred income was as a result of the normal reduction in deferred income balances as well as one-off releases on contract
terminations and modifications, partially offset by increases from advanced receipts and higher activity levels on contracts such as DFRP,
where cash has been received in 2021 in respect of transformation activity.
Contract fulfilment assets increased as a result of additions of £132.2m predominantly in Capita Public Service (£107.4m) on contracts
including DFRP, TfL - Road User & Emissions Charging and the Royal Navy training contract. This was offset by a utilisation of £83.9m mainly
within Capita Public Service (£49.7m) and Capita Experience (£19.5m), as well as an impairment of £7.3m across a number of contracts.
Property, plant and equipment decreased primarily as additions of £25.6m were offset by depreciation of £48.1m.
Intangible assets decreased primarily due to the impairment of a new finance reporting system as detailed in note 2.4 (£53.5m), amortisation of
£36.8m and the impact of £14.4m of assets transferred to assets held for sale in respect of businesses being exited, which were offset by
£32.5m of additions relating primarily to investment in capitalised software.
Goodwill decreased primarily as a result of the disposal of AXELOS in the year (£65.7m), transfers to assets held for sale (£88.3m) in respect
of Secure Solutions and Services, the Specialist Insurance business and AMT Sybex, and impairment of the Travel cash generating unit in the
Capita Portfolio division (£11.5m).
The increase in provisions of £16.2m during the year was predominantly due to new provisions totalling £116.2m with the largest increases
being restructuring provisions (£24.6m), legal provisions (£7.1m), additional customer contract provisions (£62.5m) and business exit provisions
(£8.3m). This was offset by releases and utilisations totalling £97.6m.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 133
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
134
167
Section 3: Operating assets and liabilities
This section shows the operating assets and liabilities used to generate the Group’s trading performance. Liabilities relating to
the Group’s financing activities are contained in Section 4. Current tax and deferred tax assets and liabilities are shown in
note 2.6. Deferred income is shown in note 2.1.
In this section you will find disclosures about:
3.1
Working capital
3.1.1 Trade and other receivables
3.1.2 Trade and other payables
3.1.3 Contract fulfilment assets
Property, plant and equipment
3.2
3.3
3.4
3.5
3.6
Intangible assets
Goodwill
Right-of-use assets
Provisions
Denotes accounting policies
Key highlights
Working capital
Trade and other receivables
Trade and other payables
Deferred income
Contract fulfilment assets
Property, plant and equipment
Intangible assets
Goodwill
Right-of-use assets
Provisions
Denotes significant accounting judgements, estimates and assumptions
Note
3.1
3.1.1
3.1.2
2.1
3.1.3
3.2
3.3
3.4
3.5
3.6
2021
£m
(502.8)
562.8
(557.6)
(794.7)
286.7
129.0
147.3
951.7
287.9
(140.6)
2020
£m
(765.9)
573.1
(658.6)
(975.2)
294.8
157.2
265.0
1,120.5
342.1
(124.4)
Year on year
movement
£m
263.1
(10.3)
101.0
180.5
(8.1)
(28.2)
(117.7)
(168.8)
(54.2)
(16.2)
The decrease in trade and other receivables is primarily driven by a reduction in trade receivables (£18.5m) and prepayments (£12.0m). The
reduction in trade receivable partially reflects the classification of businesses as held-for-sale at year end. This was offset by an increase in
current contract fulfilment assets (£14.7m) as a result of timing differences.
During 2020 a non-recourse receivables facility was put in place to mitigate the risk of customer receipts slippage resulting from the impact of
the Covid-19 pandemic. The outstanding invoices sold under this facility at 31 December 2021 was £3.9m (2020: £13.6m).
The decrease in trade and other payables was primarily as a result of the repayment of VAT under the Governments VAT deferral scheme
(£104.1m) and a reduction in the level of accruals (£21.4m). This was offset by increases in both trade payables (£22.6m) and other payables
(£7.3m).
The decrease in deferred income was as a result of the normal reduction in deferred income balances as well as one-off releases on contract
terminations and modifications, partially offset by increases from advanced receipts and higher activity levels on contracts such as DFRP,
where cash has been received in 2021 in respect of transformation activity.
Contract fulfilment assets increased as a result of additions of £132.2m predominantly in Capita Public Service (£107.4m) on contracts
including DFRP, TfL - Road User & Emissions Charging and the Royal Navy training contract. This was offset by a utilisation of £83.9m mainly
within Capita Public Service (£49.7m) and Capita Experience (£19.5m), as well as an impairment of £7.3m across a number of contracts.
Property, plant and equipment decreased primarily as additions of £25.6m were offset by depreciation of £48.1m.
Intangible assets decreased primarily due to the impairment of a new finance reporting system as detailed in note 2.4 (£53.5m), amortisation of
£36.8m and the impact of £14.4m of assets transferred to assets held for sale in respect of businesses being exited, which were offset by
£32.5m of additions relating primarily to investment in capitalised software.
Goodwill decreased primarily as a result of the disposal of AXELOS in the year (£65.7m), transfers to assets held for sale (£88.3m) in respect
of Secure Solutions and Services, the Specialist Insurance business and AMT Sybex, and impairment of the Travel cash generating unit in the
Capita Portfolio division (£11.5m).
The increase in provisions of £16.2m during the year was predominantly due to new provisions totalling £116.2m with the largest increases
being restructuring provisions (£24.6m), legal provisions (£7.1m), additional customer contract provisions (£62.5m) and business exit provisions
(£8.3m). This was offset by releases and utilisations totalling £97.6m.
Section 3: Operating assets and liabilities continued
3.1 Working capital
3.1.1 Trade and other receivables
AP
Accounting policies
Trade receivables: Trade receivables are initially recognised at cost (being the same as fair value) and subsequently at amortised cost less
any provision for impairment, to ensure the amounts recognised represent their recoverable amount.
Impairment: For trade receivables, the Group applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised
and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses. Where the carrying
amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
The Group monitors the level of trade receivables on a monthly basis, continually assessing the risk of default by any counterparty. Each
customer has an external credit score which determines the level of credit provided.
Derecognition: A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised
(ie removed from the Group’s consolidated balance sheet) when (i) the rights to receive the cash flows from the asset have expired; or, (ii) the
Group has transferred its right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without
material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risk and
rewards of the asset; or, (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
Trade receivables that are sold without recourse are derecognised at the point of sale when the risks and rewards of the receivables have been
fully transferred.
Accrued income: Accrued income in relation to contract assets is recognised when payments received from customers are less than the
revenue recognised by the reporting date.
Trade receivables
Other receivables1
Current contract fulfilment assets2
Accrued income
Prepayments
2021
£m
232.0
43.4
23.7
169.5
78.5
Current
2020
£m
250.5
40.9
9.0
164.6
86.0
2021
£m
—
4.0
—
2.7
9.0
547.1
551.0
15.7
Non-current
2020
£m
—
5.7
—
2.9
13.5
22.1
1. Other receivables includes £1.6m (2020: £4.1m) of accrued interest on cross-currency interest rate swaps.
2. Refer to note 3.1.3 for non-current contract fulfilment assets.
Trade receivables are non-interest bearing and are generally on 30-day terms.
The Group’s accrued income balances solely relate to revenue from contracts with customers. Movements in the accrued income balances
were driven by transactions entered into by the Group in the normal course of business during the year.
Movements in the loss allowance made against receivables were as follows:
At 1 January
Utilised
Provided in the year
Business disposal
Transfer to disposal group assets held-for-sale
At 31 December
2021
£m
11.3
(6.7)
15.2
—
(0.4)
19.4
2020
£m
4.9
(4.7)
11.7
(0.6)
—
11.3
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
135
Capita plc Annual Report 2021
Notes to the consolidated financial statements
168
Section 3: Operating assets and liabilities continued
3.1 Working capital continued
There are no customers who represent more than 10% of the total balance of trade receivables.
Ageing of trade receivables
Not due
Overdue by less than three months
Overdue between three and six months
Overdue between six and twelve months
Overdue more than twelve months
Allowance for doubtful debts
2021
£m
203.3
29.8
6.6
11.4
0.3
(19.4)
2020
£m
225.2
29.2
3.9
3.5
—
(11.3)
232.0
250.5
Non-recourse trade receivables facilities
The value of the outstanding invoices sold under non-recourse trade receivable facilities was £3.9m at 31 December 2021 (2020: £13.6m). The
costs of selling such invoices £0.6m (2020: £0.3m) was included in administrative expenses in the consolidated income statement.
3.1.2 Trade and other payables
Trade payables
Other payables
Other taxes and social security
Accruals
Trade payables are non-interest bearing and are settled on terms agreed with the suppliers.
2021
£m
153.7
26.7
122.9
238.9
Current
2020
£m
131.1
22.8
221.5
259.6
542.2
635.0
Non-current
2020
£m
—
7.9
10.9
4.8
23.6
2021
£m
—
11.3
—
4.1
15.4
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
135
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
136
169
Section 3: Operating assets and liabilities continued
3.1 Working capital continued
There are no customers who represent more than 10% of the total balance of trade receivables.
Non-recourse trade receivables facilities
The value of the outstanding invoices sold under non-recourse trade receivable facilities was £3.9m at 31 December 2021 (2020: £13.6m). The
costs of selling such invoices £0.6m (2020: £0.3m) was included in administrative expenses in the consolidated income statement.
Ageing of trade receivables
Not due
Overdue by less than three months
Overdue between three and six months
Overdue between six and twelve months
Overdue more than twelve months
Allowance for doubtful debts
3.1.2 Trade and other payables
Trade payables
Other payables
Other taxes and social security
Accruals
Trade payables are non-interest bearing and are settled on terms agreed with the suppliers.
2021
£m
203.3
29.8
6.6
11.4
0.3
2020
£m
225.2
29.2
3.9
3.5
—
(19.4)
(11.3)
232.0
250.5
2021
£m
153.7
26.7
122.9
238.9
Current
2020
£m
131.1
22.8
221.5
259.6
542.2
635.0
Non-current
2020
£m
—
7.9
10.9
4.8
23.6
2021
£m
—
11.3
—
4.1
15.4
Section 3: Operating assets and liabilities continued
3.1 Working capital continued
3.1.3 Contract fulfilment assets
AP
Accounting policies
The Group regularly incurs costs to deliver its outsourcing services in a more efficient way (often referred to as ‘transformation’ costs). These
costs may include process mapping and design, system development, project management, hardware (generally within the scope of the
Group’s accounting policy for property, plant and equipment), software licence costs (generally within the scope of the Group’s accounting
policy for intangible assets), recruitment costs and training.
Contract fulfilment costs are divided into: (i) costs that give rise to an asset; and (ii) costs that are expensed as incurred.
When determining the appropriate accounting treatment for such costs, the Group firstly considers any other applicable standards. If those
other standards preclude capitalisation of a particular cost, then an asset is not recognised under IFRS 15.
If other standards are not applicable to contract fulfilment costs, the Group applies the following criteria which, if met, result in capitalisation of
costs that: (i) directly relate to a contract or to a specifically identifiable anticipated contract; (ii) generate or enhance resources that will be used
in satisfying (or in continuing to satisfy) performance obligations in the future; and (iii) are expected to be recovered.
The Group has determined that, where the relevant specific criteria are met, the costs for (i) process mapping and design; (ii) system
development; and (iii) project management; are likely to qualify to be capitalised as contract fulfilment assets.
The incremental costs of obtaining a contract with a customer are recognised as a contract fulfilment asset if the Group expects to recover
them. The Group incurs costs such as bid costs, legal fees to draft a contract and sales commissions when it enters into a new contract.
The Group has determined that the following costs may be capitalised as contract fulfilment assets: (i) legal fees to draft a contract after the
Group has been selected as preferred supplier; and (ii) sales commissions directly related to winning a specific contract.
Costs incurred prior to selection as preferred supplier are not capitalised but expensed as incurred.
Utilisation: The utilisation charge is included within cost of sales. The Group utilises contract fulfilment assets over the expected contract
period on a systematic basis that mirrors the pattern in which the Group transfers control of the service to the customer.
Derecognition: A contract fulfilment asset is derecognised either when it is disposed of or when no further economic benefits are expected to
flow from its use or disposal.
Impairment: At each reporting date, the Group determines whether or not the contract fulfilment assets are impaired by comparing the carrying
amount of the asset with the remaining amount of consideration that the Group expects to receive less the costs that relate to providing
services under the relevant contract. In determining the estimated amount of consideration, the Group uses the same principles as it does to
determine the contract transaction price, except that any constraints used to reduce the transaction price are removed for the impairment test.
J
Significant accounting judgements, estimates and assumptions
Judgement is applied by the Group when determining what costs qualify to be capitalised in particular when considering whether these costs
are incremental and when considering if costs generate or enhance resources to be used to satisfy future performance obligations and whether
costs are expected to be recoverable. For example, the Group considers which type of sales commissions are incremental to the cost of
obtaining specific contracts and the point in time when the costs will be capitalised. See note 2.1 for further information.
Movements in non-current contract fulfilment assets were as follows1:
At 1 January
Additions
Transfer to assets held-for-sale
Impairment
Derecognition
Utilised during the year
Exchange movement
At 31 December
1. Refer to note 3.1.1 for current contract fulfilment assets.
2021
£m
294.8
132.2
(32.7)
(7.3)
(16.6)
(83.9)
0.2
2020
£m
275.8
127.4
(3.9)
(17.5)
(9.5)
(78.0)
0.5
286.7
294.8
Impairment: In 2021, the Group recognised an impairment of £7.3m (2020: £17.5m) in adjusted cost of sales, of which, £nil (2020: £2.0m)
relates to contract fulfilment assets added during the year.
Derecognition: In 2021, £16.6m (2020: £9.5m) was derecognised primarily in relation to a contract in Capita Public Service due to agreed
reduction in scope of the contract and also contracts in Capita Experience where the scope of our services changed due to termination of
contracts and the Group had no further use for the assets. In 2020, the derecognition related to a contract in Capita Experience where the
scope of our services changed due to the partial termination of the contract and the Group had no further use for the assets.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
Strategic report
Corporate governance
Financial statements
137
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Notes to the consolidated financial statements
Section 3: Operating assets and liabilities continued
3.3 Intangible assets
3.2 Property, plant and equipment
AP
Accounting policies
Accounting policies
138
170
Intangible assets acquired separately are capitalised at cost and those identified in a business acquisition are capitalised at fair value at the
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.
date of acquisition. In the case of capitalised software development costs, research expenditure is written off to the consolidated income
Depreciation: Depreciation is disclosed as an administrative expense in the consolidated income statement, and is calculated on a straight-line
statement in the period in which it is incurred. Development expenditure is similarly written off until the Group is satisfied as to the technical,
basis over the estimated useful life of the asset, as follows:
commercial and financial viability of individual projects. Where this condition is satisfied, the development expenditure is capitalised and
amortised over the period during which the Group is expected to benefit.
•
Freehold buildings and long leasehold property – up to 50 years.
Leasehold improvements – period of the lease.
•
Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated
impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. There were no indefinite-lived assets in
•
Plant and machinery – 3 to 10 years.
2021 or 2020.
Impairment: The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
Amortisation: Amortisation is charged on assets with finite lives and is disclosed as an administrative expense in the consolidated income
indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated
statement. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any
recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the
accumulated impairment losses. The amortisation method used reflects the expected pattern of consumption of future economic benefits and
greater of net selling price and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value
generally amortised on a straight-line basis, the amortisation periods used are as follows:
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an
asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the
•
asset belongs. Impairment losses are disclosed as administrative expenses in the consolidated income statement.
•
Derecognition: An item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected to
Impairment: Intangible assets with finite lives are only tested for impairment, either individually or at the cash-generating unit level, where there
arise from the continued use of the asset (retired). Any gain or loss arising on derecognition of the asset, calculated as the difference between
is an indicator of impairment.
the net disposal proceeds and the carrying value of the asset, is included in the consolidated income statement when the asset is
derecognised.
Derecognition: Intangible assets are derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset (retired). Any gain or loss arising on derecognition of the asset, calculated as the difference between the net
disposal proceeds and the carrying value of the asset, is included in the consolidated income statement when the asset is derecognised.
Intangible assets acquired in business combinations – 1.5 to 20 years.
Intangible assets purchased or internally capitalised – 3 to 20 years.
2021
2020
The measurement of intangible assets other than goodwill in a business combination: on the acquisition of a business, the identifiable
intangible assets may include licences, customer lists and brands. The fair value of these assets is determined by discounting estimated future
net cash flows generated by the asset because in most cases no active market for the assets exists and therefore no observable value exists.
The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible
Cost
assets.
At 1 January
Plant and
machinery
£m
Plant and
machinery
£m
206.6
118.1
193.2
103.3
Total
£m
Total
£m
324.7
Leasehold
improvements,
land and
buildings
£m
Leasehold
improvements,
land and
buildings
£m
Additions
Significant accounting judgements, estimates and assumptions
Disposal of business
8.1
—
17.5
(0.8)
21.0
(0.7)
19.8
(0.1)
40.8
(0.8)
Disposals – included in adjusted profit
The assessment of costs capitalised as intangible assets to generate future economic benefits: judgement is applied in assessing
whether costs incurred, both internal and external, will generate future economic benefits. Significant judgements and estimates are applied in
Disposals – excluded from adjusted profit
determining the carrying value of the assets, including assumptions made in respect of the status of the programme each asset relates to.
Transfer to assets held-for-sale
Given the level of judgement and estimation involved in assessing future cash flows, it is reasonably possible that outcomes within the next
Reclassifications
financial year may be different from management’s assumptions and require a material adjustment to the carrying value of intangible assets.
The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives material to
Asset retirements
the Group’s financial position and performance.
Exchange movement
(19.9)
(14.4)
(11.8)
(14.8)
(25.8)
(10.3)
(6.8)
(1.0)
(1.1)
(1.0)
(5.3)
(1.4)
(1.6)
(0.1)
(0.1)
(0.8)
(1.9)
(0.6)
(8.9)
(0.4)
(2.1)
1.5
7.8
—
(20.1)
(34.3)
(12.8)
(8.2)
0.5
6.7
296.5
25.6
(0.8)
(11.9)
(0.9)
(0.7)
(1.9)
(34.7)
(2.5)
At 31 December
Depreciation and impairment
At 1 January
Depreciation charged in the year - included in adjusted profit
Depreciation charged in the year - included in business exits
Disposal of business
Disposals – included in adjusted profit
Disposals – excluded from adjusted profit
Impairment – included in adjusted profit
Impairment – excluded from adjusted profit
Transfer to assets held-for-sale
Reclassifications
Asset retirements
Exchange movement
At 31 December
Net book value
At 1 January
At 31 December
99.6
169.1
268.7
103.3
193.2
296.5
41.6
9.4
—
—
(1.3)
(0.8)
—
0.6
(0.1)
—
(8.9)
—
97.7
38.7
0.5
(0.6)
(10.1)
(0.1)
0.8
0.5
(0.2)
(0.4)
(25.8)
(1.8)
139.3
48.1
0.5
(0.6)
(11.4)
(0.9)
0.8
1.1
(0.3)
(0.4)
(34.7)
(1.8)
47.3
9.0
—
(0.2)
(4.6)
(3.9)
1.2
—
(0.7)
—
(6.8)
0.3
83.1
39.8
2.1
(0.1)
(12.3)
(14.3)
2.2
6.9
(8.8)
—
(1.4)
0.5
130.4
48.8
2.1
(0.3)
(16.9)
(18.2)
3.4
6.9
(9.5)
—
(8.2)
0.8
40.5
99.2
139.7
41.6
97.7
139.3
61.7
59.1
95.5
69.9
157.2
129.0
70.8
61.7
123.5
95.5
194.3
157.2
At 31 December 2021, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment
amounted to £3.6m (2020: £5.3m), relating to building improvements on leased property.
During the year, the Group exited a number of properties and their related leasehold improvement assets were disposed of for no
consideration. Since these exits were part of the Group wide transformation, the related charge was excluded from adjusted profit.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
Strategic report
Corporate governance
Financial statements
138
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
138
171
Section 3: Operating assets and liabilities continued
3.3 Intangible assets
AP
Accounting policies
Intangible assets acquired separately are capitalised at cost and those identified in a business acquisition are capitalised at fair value at the
date of acquisition. In the case of capitalised software development costs, research expenditure is written off to the consolidated income
statement in the period in which it is incurred. Development expenditure is similarly written off until the Group is satisfied as to the technical,
commercial and financial viability of individual projects. Where this condition is satisfied, the development expenditure is capitalised and
amortised over the period during which the Group is expected to benefit.
Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated
impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. There were no indefinite-lived assets in
2021 or 2020.
Amortisation: Amortisation is charged on assets with finite lives and is disclosed as an administrative expense in the consolidated income
statement. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any
accumulated impairment losses. The amortisation method used reflects the expected pattern of consumption of future economic benefits and
generally amortised on a straight-line basis, the amortisation periods used are as follows:
•
Intangible assets acquired in business combinations – 1.5 to 20 years.
Intangible assets purchased or internally capitalised – 3 to 20 years.
•
Impairment: Intangible assets with finite lives are only tested for impairment, either individually or at the cash-generating unit level, where there
is an indicator of impairment.
Derecognition: Intangible assets are derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset (retired). Any gain or loss arising on derecognition of the asset, calculated as the difference between the net
disposal proceeds and the carrying value of the asset, is included in the consolidated income statement when the asset is derecognised.
The measurement of intangible assets other than goodwill in a business combination: on the acquisition of a business, the identifiable
intangible assets may include licences, customer lists and brands. The fair value of these assets is determined by discounting estimated future
net cash flows generated by the asset because in most cases no active market for the assets exists and therefore no observable value exists.
The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible
assets.
Significant accounting judgements, estimates and assumptions
J
Significant accounting judgements, estimates and assumptions
The assessment of costs capitalised as intangible assets to generate future economic benefits: judgement is applied in assessing
whether costs incurred, both internal and external, will generate future economic benefits. Significant judgements and estimates are applied in
determining the carrying value of the assets, including assumptions made in respect of the status of the programme each asset relates to.
Given the level of judgement and estimation involved in assessing future cash flows, it is reasonably possible that outcomes within the next
financial year may be different from management’s assumptions and require a material adjustment to the carrying value of intangible assets.
The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives material to
the Group’s financial position and performance.
137
Notes to the consolidated financial statements
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Section 3: Operating assets and liabilities continued
3.3 Intangible assets
3.2 Property, plant and equipment
Accounting policies
Accounting policies
Intangible assets acquired separately are capitalised at cost and those identified in a business acquisition are capitalised at fair value at the
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.
date of acquisition. In the case of capitalised software development costs, research expenditure is written off to the consolidated income
Depreciation: Depreciation is disclosed as an administrative expense in the consolidated income statement, and is calculated on a straight-line
statement in the period in which it is incurred. Development expenditure is similarly written off until the Group is satisfied as to the technical,
basis over the estimated useful life of the asset, as follows:
commercial and financial viability of individual projects. Where this condition is satisfied, the development expenditure is capitalised and
amortised over the period during which the Group is expected to benefit.
Freehold buildings and long leasehold property – up to 50 years.
•
•
Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated
Leasehold improvements – period of the lease.
impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. There were no indefinite-lived assets in
Plant and machinery – 3 to 10 years.
•
2021 or 2020.
Impairment: The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
Amortisation: Amortisation is charged on assets with finite lives and is disclosed as an administrative expense in the consolidated income
indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated
statement. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any
recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the
accumulated impairment losses. The amortisation method used reflects the expected pattern of consumption of future economic benefits and
greater of net selling price and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value
generally amortised on a straight-line basis, the amortisation periods used are as follows:
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an
•
asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the
Intangible assets acquired in business combinations – 1.5 to 20 years.
asset belongs. Impairment losses are disclosed as administrative expenses in the consolidated income statement.
•
Intangible assets purchased or internally capitalised – 3 to 20 years.
Derecognition: An item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected to
Impairment: Intangible assets with finite lives are only tested for impairment, either individually or at the cash-generating unit level, where there
arise from the continued use of the asset (retired). Any gain or loss arising on derecognition of the asset, calculated as the difference between
is an indicator of impairment.
the net disposal proceeds and the carrying value of the asset, is included in the consolidated income statement when the asset is
derecognised.
Derecognition: Intangible assets are derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset (retired). Any gain or loss arising on derecognition of the asset, calculated as the difference between the net
disposal proceeds and the carrying value of the asset, is included in the consolidated income statement when the asset is derecognised.
The measurement of intangible assets other than goodwill in a business combination: on the acquisition of a business, the identifiable
improvements,
improvements,
intangible assets may include licences, customer lists and brands. The fair value of these assets is determined by discounting estimated future
net cash flows generated by the asset because in most cases no active market for the assets exists and therefore no observable value exists.
land and
buildings
£m
Plant and
machinery
£m
Plant and
machinery
£m
The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible
Leasehold
land and
buildings
£m
Leasehold
2021
Total
£m
2020
Total
£m
Cost
assets.
At 1 January
Additions
Disposal of business
103.3
193.2
296.5
118.1
206.6
324.7
8.1
—
17.5
(0.8)
25.6
(0.8)
21.0
(0.7)
19.8
(0.1)
40.8
(0.8)
Disposals – included in adjusted profit
The assessment of costs capitalised as intangible assets to generate future economic benefits: judgement is applied in assessing
(11.9)
(14.8)
(10.3)
(5.3)
(1.6)
(20.1)
whether costs incurred, both internal and external, will generate future economic benefits. Significant judgements and estimates are applied in
Disposals – excluded from adjusted profit
(19.9)
(14.4)
determining the carrying value of the assets, including assumptions made in respect of the status of the programme each asset relates to.
(0.9)
(0.8)
(0.1)
(34.3)
(0.1)
(0.6)
(0.7)
(1.0)
(11.8)
(12.8)
Given the level of judgement and estimation involved in assessing future cash flows, it is reasonably possible that outcomes within the next
Reclassifications
financial year may be different from management’s assumptions and require a material adjustment to the carrying value of intangible assets.
(1.9)
(1.1)
(1.9)
7.8
—
Transfer to assets held-for-sale
The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives material to
Asset retirements
the Group’s financial position and performance.
Exchange movement
(8.9)
(0.4)
(25.8)
(2.1)
(34.7)
(2.5)
(6.8)
(1.0)
(1.4)
1.5
99.6
169.1
268.7
103.3
193.2
296.5
At 31 December
Depreciation and impairment
At 1 January
Depreciation charged in the year - included in adjusted profit
Depreciation charged in the year - included in business exits
Disposal of business
Disposals – included in adjusted profit
Disposals – excluded from adjusted profit
Impairment – included in adjusted profit
Impairment – excluded from adjusted profit
Transfer to assets held-for-sale
Reclassifications
Asset retirements
Exchange movement
At 31 December
Net book value
At 1 January
At 31 December
6.7
(8.2)
0.5
130.4
48.8
2.1
(0.3)
(16.9)
(18.2)
3.4
6.9
(9.5)
—
(8.2)
0.8
139.3
47.3
(10.1)
(11.4)
41.6
9.4
—
—
(1.3)
(0.8)
—
0.6
(0.1)
—
(8.9)
—
97.7
38.7
0.5
(0.6)
(0.1)
0.8
0.5
(0.2)
(0.4)
(25.8)
(1.8)
48.1
0.5
(0.6)
(0.9)
0.8
1.1
(0.3)
(0.4)
(34.7)
(1.8)
9.0
—
(0.2)
(4.6)
(3.9)
1.2
—
(0.7)
—
(6.8)
0.3
83.1
39.8
2.1
(0.1)
(12.3)
(14.3)
2.2
6.9
(8.8)
—
(1.4)
0.5
40.5
99.2
139.7
41.6
97.7
139.3
61.7
59.1
95.5
69.9
157.2
129.0
70.8
61.7
123.5
95.5
194.3
157.2
At 31 December 2021, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment
amounted to £3.6m (2020: £5.3m), relating to building improvements on leased property.
During the year, the Group exited a number of properties and their related leasehold improvement assets were disposed of for no
consideration. Since these exits were part of the Group wide transformation, the related charge was excluded from adjusted profit.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
139
Capita plc Annual Report 2021
Notes to the consolidated financial statements
172
Section 3: Operating assets and liabilities continued
3.3 Intangible assets continued
Cost
At 1 January
Business disposal
Additions
Disposals – included in adjusted profit
Disposals – excluded from adjusted profit
Transfer to assets held-for-sale
Reclassifications
Asset retirement
Exchange movement
At 31 December
Amortisation and impairment
At 1 January
Amortisation charged in the year - included in adjusted profit
Amortisation charged in the year - excluded from adjusted profit
Amortisation charged in the year - included in business exits
Impairment – included in adjusted profit
Impairment – excluded from adjusted profit
Impairment – included in business exits
Business disposal
Disposals – included in adjusted profit
Disposals – excluded from adjusted profit
Transfer to assets held-for-sale
Reclassifications
Asset retirement
Exchange movement
At 31 December
Net book value
At 1 January
At 31 December
Intangible
assets
acquired in
business
combinations
£m
Capitalised/
purchased
software
£m
174.3
(61.3)
—
—
—
(6.8)
—
(50.3)
(0.5)
314.2
(7.6)
32.5
(3.5)
(2.9)
(16.4)
1.9
(94.8)
(0.7)
2021
Total
£m
488.5
(68.9)
32.5
(3.5)
(2.9)
(23.2)
1.9
(145.1)
(1.2)
Intangible
assets
acquired in
business
combinations
£m
Capitalised/
purchased
software
£m
371.0
—
—
—
—
—
—
(202.9)
6.2
363.0
(3.5)
46.6
(31.6)
(2.0)
(46.0)
—
(13.9)
1.6
2020
Total
£m
734.0
(3.5)
46.6
(31.6)
(2.0)
(46.0)
—
(216.8)
7.8
55.4
222.7
278.1
174.3
314.2
488.5
135.4
—
12.0
4.9
—
—
—
(46.5)
—
—
(5.7)
—
(50.3)
(0.2)
88.1
36.8
—
4.0
2.1
54.1
2.5
(2.4)
(3.2)
(2.9)
(3.1)
0.4
(94.8)
(0.4)
223.5
36.8
12.0
8.9
2.1
54.1
2.5
(48.9)
(3.2)
(2.9)
(8.8)
0.4
(145.1)
(0.6)
296.9
—
24.8
7.5
—
1.6
—
—
—
—
—
—
(202.9)
7.5
82.9
36.7
—
5.6
0.1
0.9
—
(0.3)
(21.9)
(0.4)
(1.6)
—
(13.9)
—
379.8
36.7
24.8
13.1
0.1
2.5
—
(0.3)
(21.9)
(0.4)
(1.6)
—
(216.8)
7.5
49.6
81.2
130.8
135.4
88.1
223.5
38.9
5.8
226.1
141.5
265.0
147.3
74.1
38.9
280.1
226.1
354.2
265.0
Intangible assets acquired in business combinations include brands (net book value 2021: £nil, 2020: £2.6m), Intellectual Property software and
licences (net book value 2021: £nil, 2020: £20.9m), contracts and committed sales (net book value 2021: £3.3m, 2020: £7.7m) and clients lists
and relationships (net book value 2021: £2.5m, 2020: £7.7m). Intangible assets capitalised or purchased include capitalised software
development (net book value 2021: £120.7m, 2020: £184.0m) and purchased software (net book value 2021: £20.8m, 2020: £42.1m).
‘Impairment - excluded from adjusted profit’ includes £53.5m in respect of areas of a new financial reporting system invested in as part of the
finance transformation that are no longer expected to be used. Refer to the Chief Financial Officer’s review in the strategic report for details.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
139
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
140
173
Section 3: Operating assets and liabilities continued
3.3 Intangible assets continued
Section 3: Operating assets and liabilities continued
3.4 Goodwill
Cost
At 1 January
Business disposal
Additions
Disposals – included in adjusted profit
Disposals – excluded from adjusted profit
Transfer to assets held-for-sale
Reclassifications
Asset retirement
Exchange movement
At 31 December
Amortisation and impairment
At 1 January
Amortisation charged in the year - included in adjusted profit
Amortisation charged in the year - excluded from adjusted profit
Amortisation charged in the year - included in business exits
Impairment – included in adjusted profit
Impairment – excluded from adjusted profit
Impairment – included in business exits
Business disposal
Disposals – included in adjusted profit
Disposals – excluded from adjusted profit
Transfer to assets held-for-sale
Reclassifications
Asset retirement
Exchange movement
At 31 December
Net book value
At 1 January
At 31 December
Intangible
assets
acquired in
business
combinations
£m
Capitalised/
purchased
software
£m
Intangible
assets
acquired in
business
combinations
£m
Capitalised/
purchased
software
£m
371.0
363.0
734.0
—
—
—
—
—
—
(3.5)
46.6
(31.6)
(2.0)
(46.0)
—
(94.8)
(145.1)
(202.9)
(13.9)
(216.8)
(0.7)
(1.2)
6.2
1.6
7.8
55.4
222.7
278.1
174.3
314.2
488.5
2021
Total
£m
488.5
(68.9)
32.5
(3.5)
(2.9)
(23.2)
1.9
36.8
12.0
8.9
2.1
54.1
2.5
(48.9)
(3.2)
(2.9)
(8.8)
0.4
314.2
(7.6)
32.5
(3.5)
(2.9)
(16.4)
1.9
88.1
36.8
—
4.0
2.1
54.1
2.5
(2.4)
(3.2)
(2.9)
(3.1)
0.4
174.3
(61.3)
—
—
—
(6.8)
—
(50.3)
(0.5)
135.4
—
12.0
4.9
—
—
—
—
—
(46.5)
(5.7)
—
(50.3)
(0.2)
—
24.8
7.5
—
1.6
—
—
—
—
—
—
82.9
36.7
—
5.6
0.1
0.9
—
(0.3)
(21.9)
(0.4)
(1.6)
—
2020
Total
£m
(3.5)
46.6
(31.6)
(2.0)
(46.0)
—
379.8
36.7
24.8
13.1
0.1
2.5
—
(0.3)
(21.9)
(0.4)
(1.6)
—
(94.8)
(145.1)
(202.9)
(13.9)
(216.8)
(0.4)
(0.6)
7.5
—
7.5
49.6
81.2
130.8
135.4
88.1
223.5
38.9
5.8
226.1
141.5
265.0
147.3
74.1
38.9
280.1
226.1
354.2
265.0
Intangible assets acquired in business combinations include brands (net book value 2021: £nil, 2020: £2.6m), Intellectual Property software and
licences (net book value 2021: £nil, 2020: £20.9m), contracts and committed sales (net book value 2021: £3.3m, 2020: £7.7m) and clients lists
and relationships (net book value 2021: £2.5m, 2020: £7.7m). Intangible assets capitalised or purchased include capitalised software
development (net book value 2021: £120.7m, 2020: £184.0m) and purchased software (net book value 2021: £20.8m, 2020: £42.1m).
‘Impairment - excluded from adjusted profit’ includes £53.5m in respect of areas of a new financial reporting system invested in as part of the
finance transformation that are no longer expected to be used. Refer to the Chief Financial Officer’s review in the strategic report for details.
AP
Accounting policies
Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or
more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill arising on acquisitions prior to
31 December 1997 remains set off directly against reserves and does not get recycled through the consolidated income statement.
At the acquisition date, any goodwill acquired is allocated to the cash-generating units (CGU) which are expected to benefit from the
combination’s synergies. Impairment is determined by assessing the recoverable amount of the CGU to which the goodwill relates. Where the
recoverable amount of the CGU is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a CGU and
part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of
the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in these circumstances is measured on the
basis of the relative values of the operation disposed of and the portion of the CGU retained.
Acquisitions and disposals of non-controlling interests that do not result in a change of control are accounted for as transactions with owners in
their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests
are based on a proportionate amount of the net assets of the subsidiary. Any difference between the price paid or received and the amount by
which non-controlling interests are adjusted is recognised directly in equity and attributed to the owners of the Parent company.
Prior to the adoption of IAS 27 (Amended), goodwill was recognised on the acquisition of non-controlling interests in a subsidiary, which
represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of
the transaction.
223.5
296.9
J
Significant accounting judgements, estimates and assumptions
Measurement and impairment of goodwill: the amount of goodwill initially recognised as a result of a business combination is dependent on
the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair
value of the assets and liabilities is based, to a considerable extent, on management’s judgement. Allocation of the purchase price affects the
results of the Group because finite lived intangible assets are amortised. The Group determines whether goodwill is impaired on an annual
basis, or more frequently if required, and this requires an estimation of the recoverable amount of the CGUs to which the intangible assets are
allocated utilising an estimation of future cash flows and choosing a suitable discount rate. Uncertainties around the on-going impact of
Covid-19 and associated economic recovery have been considered and given the level of judgement and estimation involved in assessing
future cash flows, it is reasonably possible that outcomes within the next financial year may be different from management’s assumptions and
require a material adjustment to the carrying value of goodwill.
Cost
At 1 January
Business disposal
Transfer to disposal group assets held-for-sale
Exchange movement
At 31 December
Accumulated impairment
At 1 January
Business disposal
Transfer to disposal group assets held-for-sale
Impairment – excluded from adjusted profit
Impairment – included in business exits
At 31 December
Net book value
At 1 January
At 31 December
2021
£m
2020
£m
1,918.5
(65.7)
(177.3)
1.3
2,016.1
(52.4)
(45.3)
0.1
1,676.8
1,918.5
798.0
—
(89.0)
11.5
4.6
838.3
(40.3)
—
—
—
725.1
798.0
1,120.5
951.7
1,177.8
1,120.5
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
141
Capita plc Annual Report 2021
Notes to the consolidated financial statements
174
Section 3: Operating assets and liabilities continued
3.4 Goodwill continued
Cash-generating units
As announced in March 2021, the Group has put in place a new organisational structure effective from August 2021 comprising two core
divisions, Capita Public Service and Capita Experience, and a third division holding our non-core assets, Capita Portfolio.
Following this reorganisation, the Group has reviewed the historical assessment of CGUs and the allocation of goodwill. Reflecting the way
management now exercises oversight and monitors the Group’s performance, the Board concluded that the lowest level at which goodwill is
monitored is at the divisional level for Capita Public Service and Capita Experience, and at a sub-divisional level for Capita Portfolio, and
goodwill has been reallocated to these new CGUs or group of CGUs. Where possible, goodwill was reallocated to the new CGUs by
transferring the goodwill balance created on acquisition of the business to the CGU in which the business now primarily resides under the new
organisational structure. In some cases it was not possible to clearly determine a single CGU in which the acquired business now primarily
resides, and in these instances the goodwill was apportioned to the new CGUs using an allocation method that best reflected the goodwill
associated with the reorganised units. As at 31 December 2021 the Group has nine CGUs or groups of CGUs for the purpose of impairment
testing of goodwill. The opening goodwill balance as at 1 January 2021 has been reallocated for comparable purposes.
Carrying amount of goodwill allocated to groups of CGUs:
CGU
At 1 January
Business disposals
Transfer to assets held-for-sale
Impairment
Impairment – business exits
Exchange movement
At 31 December
Capita
Public
Service
£m
284.6
—
Capita
Experience
£m
218.9
—
—
—
—
—
People
£m
106.5
—
—
—
—
—
284.6
—
1.3
220.2
—
—
106.5
Software
£m
94.7
—
(51.4)
—
(4.6)
—
38.7
Capita Portfolio
Property
£m
82.6
—
Business
Solutions
£m
32.6
—
Technology
£m
102.8
—
—
—
—
—
82.6
—
—
—
—
32.6
—
—
—
—
102.8
Travel
£m
80.2
—
Other1
£m
Total
£m
117.6 1,120.5
(65.7)
(65.7)
—
(36.9)
(88.3)
(11.5)
—
(11.5)
—
—
68.7
—
—
15.0
(4.6)
1.3
951.7
1. Other group of CGUs includes other businesses that have been disposed of or transferred to held for sale during the year and the Fera CGU.
Business exits
As set out in note 2.8, three businesses were fully disposed of during the year. Goodwill relating to two of these businesses had been
reclassified to disposal group assets held-for-sale at 31 December 2020. Goodwill relating to the third disposal is included within the Other
group of CGUs as at 1 January 2021, and derecognised as part of business disposals.
Three additional businesses within Capita Portfolio (within the Software CGU and Other group of CGUs) that the Group has or intends to
dispose of in 2022 met the criteria to be treated as held-for-sale at 31 December 2021, with goodwill relating to these businesses reclassified to
disposal group assets held-for-sale.
One business within the Software CGU met the criteria to be treated as a business exit at 31 December 2021. Goodwill relating to this business
has been impaired within business exits.
The impairment test
The Group’s impairment test compares the carrying value of each CGU with its recoverable amount. The recoverable amount of a CGU is the
higher of fair value less cost of disposal, and its value in use. As described in the strategic report, 2021 marked the culmination of the Group’s
multi-year transformation programme. The recoverable amount of each group of CGUs has therefore been calculated using value in use (being
the present value of future cash flows for each CGU) with the exception of the Technology CGU (representing the Trustmarque business)
where, as set out in note 6.3, the fair value less cost to sell was readily determinable and has instead been used. The fair value of the
Technology CGU is based on the disposal proceeds expected to be received on completion of the Trustmarque disposal, and is categorised as
Level 3 in the fair value hierarchy of IFRS 13.
In undertaking the annual impairment review, the directors considered both internal and external sources of information, and any observable
indications that may suggest that the carrying value of goodwill may be impaired. This included a comparison with the Group’s share price and
market capitalisation.
As at 31 December 2021, the estimated recoverable amount of each CGU exceeded its respective carrying value, except for the Travel CGU
where a goodwill impairment of £11.5m was recognised. Following the organisational restructure in 2021 this is the first year that the Group’s
Travel business is a stand-alone CGU for impairment testing purposes. In 2020 it formed part of the Specialist Services group of CGUs. The
goodwill impairment was primarily driven by the continuing impact of Covid-19 on the travel industry, which is reflected in the recovery
assumptions applied to the CGU’s near-term business plans, as well as the increase in comparable companies' discount rates.
The key inputs to the calculations are described below, including changes in market conditions.
Forecast cash flows
The cash flow projections prepared for the impairment test are derived from the 2022-2024 business plans (BP) approved by the Board.
Covid-19 and the associated recovery continued to introduce unprecedented economic uncertainties and has led to increased judgement
particularly in forecasting future financial performance.
Other than for movements in deferred income and contract fulfilment assets, cash flows are adjusted to exclude working capital movements
since the corresponding balances are not included in the CGU carrying amount.
The Board has considered an appropriate methodology to apply when allocating central function costs, which is a key sensitivity. The
methodology applied for the 2021 impairment test was aligned to that applied in reporting segmental performance (refer to note 2.5). The
remaining costs of the Capita plc segment are allocated based on 2022 EBITDA representing the first year of business post transformation.
The long-term growth rate is based on economic growth forecasts by recognised bodies and this been applied to forecast cash flows for years
four and five (2025 and 2026) and for the terminal period. The 2021 long-term growth rate is 1.7% (2020: 1.6%).
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
141
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
142
175
Section 3: Operating assets and liabilities continued
3.4 Goodwill continued
Discount rates
Management estimates discount rates using pre-tax rates that reflect the latest market assumptions for the risk-free rate, the equity risk
premium and the net cost of debt, which are all based on publicly available external sources.
The table below represents the pre-tax discount rates used on the cash flows for 2021. The 2020 rates have not been reported due to the CGU
restructure in the second half of 2021.
Capita Public
Service
Capita
Experience
2021
13.0 %
11.6 %
People
12.4 %
Software
12.8 %
Property
13.2 %
Capita Portfolio
Business
Solutions
13.3 %
Technology
13.2 %
Travel
15.7 %
Other
11.9 %
Sensitivity analysis
The impairment testing as described is reliant on the accuracy of management’s forecasts and the assumptions that underlie them; and on the
selection of the discount and growth rates to be applied. To gauge the sensitivity of the result to a change in any one, or combination of the
assumptions that underlie the model, a number of scenarios were developed to identify the range of reasonably possible alternatives and
measure which CGUs are the most susceptible to an impairment should the assumptions used be varied.
The table below shows the additional impairment required (with all other variables being equal) by: an increase in discount rate of 1%, or a
decrease of 1% in the long-term growth rate (for the terminal period) for the Group in total and each of the CGUs; or, by the severe but
plausible downsides applied to the base-case projections for assessing going concern and viability, without mitigations, for 2022 to 2024, and
the long-term growth rate (1.7%) applied to projected cash flows for 2025, 2026, and the terminal period. We have also considered the impact
of all of the scenarios together, which is also a reasonable possible alternative.
Capita Public Service
Capita Experience
Capita Portfolio - People
Capita Portfolio - Software
Capita Portfolio - Property
Capita Portfolio - Business Solutions
Capita Portfolio - Travel
Capita Portfolio - Other
1% increase in
discount rate
£m
—
—
—
—
—
—
(4.9)
—
Long-term growth rate
decrease by 1%
£m
—
—
—
—
—
—
(3.1)
—
Severe but plausible
downside
£m
—
(37.5)
(22.0)
—
(6.4)
—
(12.4)
—
Combination
sensitivity
£m
—
(88.9)
(34.1)
—
(16.0)
—
(18.6)
—
Total
(4.9)
(3.1)
(78.3)
(157.6)
Under the combination sensitivity scenario, an increase in impairment for Travel and impairments in relation to Experience, People and
Property CGUs have been highlighted. Whereas under the base case impairment test the recoverable amount exceeded the carrying amount
of assets (including goodwill) relating to these CGUs by £174.9m for Experience, £10.6m for People and £10.2m for Property.
Management continue to monitor closely the performance of all CGUs and consider the impact of any changes to the key assumptions. Given
trading is still being affected by the continued recovery from Covid-19, there is a greater range of potential future outcomes. A number of these
downsides would give rise to an impairment.
Section 3: Operating assets and liabilities continued
3.4 Goodwill continued
Cash-generating units
As announced in March 2021, the Group has put in place a new organisational structure effective from August 2021 comprising two core
divisions, Capita Public Service and Capita Experience, and a third division holding our non-core assets, Capita Portfolio.
Following this reorganisation, the Group has reviewed the historical assessment of CGUs and the allocation of goodwill. Reflecting the way
management now exercises oversight and monitors the Group’s performance, the Board concluded that the lowest level at which goodwill is
monitored is at the divisional level for Capita Public Service and Capita Experience, and at a sub-divisional level for Capita Portfolio, and
goodwill has been reallocated to these new CGUs or group of CGUs. Where possible, goodwill was reallocated to the new CGUs by
transferring the goodwill balance created on acquisition of the business to the CGU in which the business now primarily resides under the new
organisational structure. In some cases it was not possible to clearly determine a single CGU in which the acquired business now primarily
resides, and in these instances the goodwill was apportioned to the new CGUs using an allocation method that best reflected the goodwill
associated with the reorganised units. As at 31 December 2021 the Group has nine CGUs or groups of CGUs for the purpose of impairment
testing of goodwill. The opening goodwill balance as at 1 January 2021 has been reallocated for comparable purposes.
Carrying amount of goodwill allocated to groups of CGUs:
Capita
Public
Capita
Service
Experience
£m
£m
People
£m
Software
Property
£m
£m
Technology
£m
Travel
£m
Other1
£m
Total
£m
284.6
218.9
106.5
94.7
82.6
32.6
102.8
80.2
117.6 1,120.5
Capita Portfolio
Business
Solutions
£m
—
—
—
—
—
—
—
—
—
1.3
—
—
—
—
—
—
(51.4)
—
(4.6)
—
38.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(11.5)
—
—
—
—
(65.7)
(65.7)
(36.9)
(88.3)
—
—
—
(11.5)
(4.6)
1.3
284.6
220.2
106.5
82.6
32.6
102.8
68.7
15.0
951.7
CGU
At 1 January
Business disposals
Transfer to assets held-for-sale
Impairment
Impairment – business exits
Exchange movement
At 31 December
Business exits
1. Other group of CGUs includes other businesses that have been disposed of or transferred to held for sale during the year and the Fera CGU.
As set out in note 2.8, three businesses were fully disposed of during the year. Goodwill relating to two of these businesses had been
reclassified to disposal group assets held-for-sale at 31 December 2020. Goodwill relating to the third disposal is included within the Other
group of CGUs as at 1 January 2021, and derecognised as part of business disposals.
Three additional businesses within Capita Portfolio (within the Software CGU and Other group of CGUs) that the Group has or intends to
dispose of in 2022 met the criteria to be treated as held-for-sale at 31 December 2021, with goodwill relating to these businesses reclassified to
One business within the Software CGU met the criteria to be treated as a business exit at 31 December 2021. Goodwill relating to this business
disposal group assets held-for-sale.
has been impaired within business exits.
The impairment test
The Group’s impairment test compares the carrying value of each CGU with its recoverable amount. The recoverable amount of a CGU is the
higher of fair value less cost of disposal, and its value in use. As described in the strategic report, 2021 marked the culmination of the Group’s
multi-year transformation programme. The recoverable amount of each group of CGUs has therefore been calculated using value in use (being
the present value of future cash flows for each CGU) with the exception of the Technology CGU (representing the Trustmarque business)
where, as set out in note 6.3, the fair value less cost to sell was readily determinable and has instead been used. The fair value of the
Technology CGU is based on the disposal proceeds expected to be received on completion of the Trustmarque disposal, and is categorised as
Level 3 in the fair value hierarchy of IFRS 13.
In undertaking the annual impairment review, the directors considered both internal and external sources of information, and any observable
indications that may suggest that the carrying value of goodwill may be impaired. This included a comparison with the Group’s share price and
market capitalisation.
As at 31 December 2021, the estimated recoverable amount of each CGU exceeded its respective carrying value, except for the Travel CGU
where a goodwill impairment of £11.5m was recognised. Following the organisational restructure in 2021 this is the first year that the Group’s
Travel business is a stand-alone CGU for impairment testing purposes. In 2020 it formed part of the Specialist Services group of CGUs. The
goodwill impairment was primarily driven by the continuing impact of Covid-19 on the travel industry, which is reflected in the recovery
assumptions applied to the CGU’s near-term business plans, as well as the increase in comparable companies' discount rates.
The key inputs to the calculations are described below, including changes in market conditions.
Forecast cash flows
The cash flow projections prepared for the impairment test are derived from the 2022-2024 business plans (BP) approved by the Board.
Covid-19 and the associated recovery continued to introduce unprecedented economic uncertainties and has led to increased judgement
particularly in forecasting future financial performance.
Other than for movements in deferred income and contract fulfilment assets, cash flows are adjusted to exclude working capital movements
since the corresponding balances are not included in the CGU carrying amount.
The Board has considered an appropriate methodology to apply when allocating central function costs, which is a key sensitivity. The
methodology applied for the 2021 impairment test was aligned to that applied in reporting segmental performance (refer to note 2.5). The
remaining costs of the Capita plc segment are allocated based on 2022 EBITDA representing the first year of business post transformation.
The long-term growth rate is based on economic growth forecasts by recognised bodies and this been applied to forecast cash flows for years
four and five (2025 and 2026) and for the terminal period. The 2021 long-term growth rate is 1.7% (2020: 1.6%).
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
143
Capita plc Annual Report 2021
Notes to the consolidated financial statements
176
Section 3: Operating assets and liabilities continued
3.5 Right-of-use assets
AP
Accounting policies
At the inception of the lease, the Group recognises a right-of-use asset at cost, which comprises the present value of minimum future lease
payments determined at the inception of the lease. Right-of-use assets are depreciated using the straight-line method over the shorter of
estimated life or the lease term. Depreciation is included within administrative expenses in the consolidated income statement. Amendment to
lease terms resulting in a change in payments or the length of the lease results in an adjustment to the right-of-use asset and corresponding
lease liability. Right-of-use assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not
be fully recoverable.
Right-of-uses assets exclude leases with low values and terms of twelve months or less. These leases are expensed to the consolidated
income statement as incurred.
Net Book Value
At 1 January 2020
Addition of new leases
Depreciation charged during the year
Impairment - excluded from adjusted profit
Transfer to disposal group assets held-for-sale
Transfer to financial lease receivables
Exchange movement
Other movements
At 31 December 2020
Addition of new leases
Depreciation charged during the year
Impairment - excluded from adjusted profit
Disposal
Exchange movement
Other movements
At 31 December 2021
Other movements include amendments to existing leases and terminations.
Property
£m
Motor vehicles
£m
Equipment
£m
Total
£m
446.0
11.3
(69.2)
(20.1)
(4.5)
(68.0)
0.5
14.0
310.0
18.2
(55.1)
(13.0)
(2.2)
(1.7)
9.4
4.3
17.9
(5.1)
—
—
—
(0.1)
(0.1)
16.9
4.2
(6.5)
—
—
0.4
0.4
30.6
480.9
0.1
(13.9)
(2.1)
—
—
(0.4)
0.9
29.3
(88.2)
(22.2)
(4.5)
(68.0)
—
14.8
15.2
342.1
—
(6.6)
(0.3)
(1.0)
—
(0.4)
22.4
(68.2)
(13.3)
(3.2)
(1.3)
9.4
265.6
15.4
6.9
287.9
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
143
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
144
177
Section 3: Operating assets and liabilities continued
3.5 Right-of-use assets
Accounting policies
Section 3: Operating assets and liabilities continued
3.6 Provisions
AP
Accounting policies
At the inception of the lease, the Group recognises a right-of-use asset at cost, which comprises the present value of minimum future lease
payments determined at the inception of the lease. Right-of-use assets are depreciated using the straight-line method over the shorter of
estimated life or the lease term. Depreciation is included within administrative expenses in the consolidated income statement. Amendment to
lease terms resulting in a change in payments or the length of the lease results in an adjustment to the right-of-use asset and corresponding
lease liability. Right-of-use assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not
Provisions are recognised when the Group has a present legal or constructive obligation arising from past events, it is probable that cash will
be paid to settle it, and the amount can be estimated reliably. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows by a rate that reflects current market assessments of the time value of money and the risks specific
to the liability. The unwinding of the discount is recognised as a financing cost in the consolidated income statement. The value of the provision
is determined based on assumptions and estimates in relation to the amount, timing and likelihood of actual cash flows, which are dependent
on future events.
Right-of-uses assets exclude leases with low values and terms of twelve months or less. These leases are expensed to the consolidated
J
Significant accounting judgements, estimates and assumptions
Judgement is required in measuring and recognising provisions related to pending litigation or other outstanding claims subject to negotiated
settlement, mediation and arbitration, as well as other contingent liabilities. Judgement is necessary in assessing the likelihood that a pending
claim will succeed, or a liability will arise, and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in
this evaluation process, actual losses may be different from the originally estimated provision. Where practicable, the range of reasonably
possible outcomes and sensitivities of the carrying amounts to the methodology, assumptions, and estimates, the reason for the sensitivity, the
expected resolution of uncertainties and the range of reasonable possible alternatives, are provided. Where no reliable basis of estimation can
be made, no provision is recorded. However, contingent liabilities disclosures are given when there is a greater than a remote probability of
outflow of economic benefits. See note 6.2. On an ongoing basis, management monitor provisions and their accurate estimation when
compared to final outcomes.
Onerous contract provisions
See note 2.1 for further information.
Provisions
The movements in provisions during the year are as follows:
be fully recoverable.
income statement as incurred.
Net Book Value
At 1 January 2020
Addition of new leases
Depreciation charged during the year
Impairment - excluded from adjusted profit
Transfer to disposal group assets held-for-sale
Transfer to financial lease receivables
Exchange movement
Other movements
At 31 December 2020
Addition of new leases
Disposal
Exchange movement
Other movements
At 31 December 2021
Depreciation charged during the year
Impairment - excluded from adjusted profit
Property
Motor vehicles
Equipment
£m
£m
£m
Total
£m
30.6
480.9
446.0
11.3
(69.2)
(20.1)
(4.5)
(68.0)
0.5
14.0
310.0
18.2
(55.1)
(13.0)
(2.2)
(1.7)
9.4
4.3
17.9
(5.1)
—
—
—
(0.1)
(0.1)
16.9
4.2
(6.5)
—
—
0.4
0.4
0.1
(13.9)
(2.1)
—
—
(0.4)
0.9
—
(6.6)
(0.3)
(1.0)
—
(0.4)
29.3
(88.2)
(22.2)
(4.5)
(68.0)
—
14.8
22.4
(68.2)
(13.3)
(3.2)
(1.3)
9.4
15.2
342.1
265.6
15.4
6.9
287.9
At 1 January
Reclassifications
Provisions in the year
Releases in the year
Utilisation
13.5
0.2
24.6
(1.6)
15.3
—
8.3
(5.4)
41.7
—
7.1
(6.2)
(11.1)
(16.7)
(29.4)
Restructuring
provision
£m
Business exit
provision
£m
Claim and
litigation
provision
£m
Property
provision
£m
Customer
contract
provision
£m
Other
provisions
£m
8.7
0.8
4.0
(3.4)
(0.4)
—
38.1
0.1
62.5
(9.1)
(6.9)
—
7.1
(1.1)
9.7
(1.8)
(5.6)
(2.4)
Total
£m
124.4
—
116.2
(27.5)
(70.1)
(2.4)
Other movements include amendments to existing leases and terminations.
Transfer to disposal group liabilities held-for-sale
At 31 December
—
25.6
—
1.5
—
13.2
9.7
84.7
5.9
140.6
The provisions made above have been shown as current or non-current on the balance sheet to indicate the Group’s expected timing of the
matters reaching conclusion.
Restructuring 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 a period of one to two years. Additionally, it relates to
unavoidable running costs of leasehold properties, such as insurance and security, and dilapidation provision, where properties are exited as a
result of the transformation plan. These provisions are likely to unwind over periods of up to 25 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 the remaining 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 for ongoing operations, and for dilapidation costs, as part of the ordinary course of business and
not the Group wide transformation plan (where such costs are included in the restructuring provision). The expectation is that this expenditure
will be incurred over the remaining periods of the leases which vary up to two years.
Customer contract provision: the provision includes onerous contract provisions in respect of customer contracts where the unavoidable
costs of meeting the obligations under the contracts exceeds the economic benefits expected to be received under them, claims/obligations
associated with missed milestones in contractual obligations, and other potential exposures related to contracts with customers. These
provisions are forecast to unwind over periods up to six years.
The customer contract provision includes £54.5m in respect of contracts in Capita Experience. The new corporate structure has simplified
internal reporting, which has highlighted those businesses that represent a drag on the Group cash resources. This includes the Life &
Pensions business that provides outsourced administration services for the associated closed pension books which we main on behalf of
clients.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
145
Capita plc Annual Report 2021
Notes to the consolidated financial statements
178
Section 3: Operating assets and liabilities continued
3.6 Provisions continued
The Group has highlighted in prior reporting the structural challenges associated with the closed book Life & Pensions contracts. These
provided for upfront cash inflows to support initial transformation activities with a much lower level of cash inflow once the transformation phase
was completed. Under the Group’s long-term contract accounting policy (see note 2.1), the cash flow profile of these contracts has resulted in
deferral of profit into future years which is not backed by net cash flows (because the relevant cash receipts arose n the early years of contract
execution). Additionally, some of the contracts contain evergreen clauses allowing the customers to extend the contracts indefinitely until the
run-off of the underlying pension books is complete.
The Life & Pensions business has remained in structural decline as some customers, with legacy IT systems, have switched to suppliers who
can provide a single digital platform for all their books. The Group has sought to drive efficiencies to mitigate this fall off in volumes, while
supporting customers who have selected new outsource providers or taken the activities back in-house.
The closed books and contractual dynamics have led to onerous conditions to service these contracts. The Board has been required to assess
the likely length of the remaining contracts, given the pattern and experience of contract terminations while also recognising the evergreen
clauses. Accordingly, management has in prior years provided for the onerous contract conditions based on the best estimate of the remaining
contract terms. The contingent liability note has highlighted that should the contracts end earlier or extend for longer this may result in a
material reduction or increase in the provision recorded.
During 2021, the Group has continued to support a major customer on the transfer of services to another supplier. This is taking significantly
longer than initially expected. Management has reassessed the lifetime estimate to include not only the onerous contract terms but also the
period and likely costs to support the final handover of services. This assessment has extended across all contracts that contain evergreen
clauses, including those where there are ongoing discussions regarding either termination or transfer of services.
This reassessment, reflecting the developments in the latter half of 2021, provides cover for contracts to extend out to 2026. This has resulted
in an increase to the contract provision of £39.5m which has been reported as an adjusting item. In prior years the financial impacts of such
contract judgements have not been shown as adjusting items as they were considered to be normal course of business, not material in the
context of the Group results and not associated with the transformation plan. However, due to the quantum of the charge arising from the 2021
reassessment, the Board consider it appropriate to separately disclose this as an adjusted item to highlight the impact on the results in the
period.
Other provisions: relates to provisions in respect of other potential exposures arising due to the nature of some of the operations that the
Group provides which are immaterial on an individual basis. This includes provision for regulatory audits, employee related matters and related
professional fees which are not included within the restructuring provision. These are likely to unwind over periods of up to five years.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 145
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
146
179
Section 3: Operating assets and liabilities continued
Section 4: Capital structure and finance costs
3.6 Provisions continued
The Group has highlighted in prior reporting the structural challenges associated with the closed book Life & Pensions contracts. These
provided for upfront cash inflows to support initial transformation activities with a much lower level of cash inflow once the transformation phase
was completed. Under the Group’s long-term contract accounting policy (see note 2.1), the cash flow profile of these contracts has resulted in
deferral of profit into future years which is not backed by net cash flows (because the relevant cash receipts arose n the early years of contract
execution). Additionally, some of the contracts contain evergreen clauses allowing the customers to extend the contracts indefinitely until the
run-off of the underlying pension books is complete.
The Life & Pensions business has remained in structural decline as some customers, with legacy IT systems, have switched to suppliers who
can provide a single digital platform for all their books. The Group has sought to drive efficiencies to mitigate this fall off in volumes, while
supporting customers who have selected new outsource providers or taken the activities back in-house.
The closed books and contractual dynamics have led to onerous conditions to service these contracts. The Board has been required to assess
the likely length of the remaining contracts, given the pattern and experience of contract terminations while also recognising the evergreen
clauses. Accordingly, management has in prior years provided for the onerous contract conditions based on the best estimate of the remaining
contract terms. The contingent liability note has highlighted that should the contracts end earlier or extend for longer this may result in a
material reduction or increase in the provision recorded.
During 2021, the Group has continued to support a major customer on the transfer of services to another supplier. This is taking significantly
longer than initially expected. Management has reassessed the lifetime estimate to include not only the onerous contract terms but also the
period and likely costs to support the final handover of services. This assessment has extended across all contracts that contain evergreen
clauses, including those where there are ongoing discussions regarding either termination or transfer of services.
This reassessment, reflecting the developments in the latter half of 2021, provides cover for contracts to extend out to 2026. This has resulted
in an increase to the contract provision of £39.5m which has been reported as an adjusting item. In prior years the financial impacts of such
contract judgements have not been shown as adjusting items as they were considered to be normal course of business, not material in the
context of the Group results and not associated with the transformation plan. However, due to the quantum of the charge arising from the 2021
reassessment, the Board consider it appropriate to separately disclose this as an adjusted item to highlight the impact on the results in the
period.
Other provisions: relates to provisions in respect of other potential exposures arising due to the nature of some of the operations that the
Group provides which are immaterial on an individual basis. This includes provision for regulatory audits, employee related matters and related
professional fees which are not included within the restructuring provision. These are likely to unwind over periods of up to five years.
This section outlines the Group’s capital structure and financing costs. The Group defines its capital structure as its cash and
cash equivalents, non-current interest bearing loans and borrowings and equity. The Group aims to manage its capital structure to
safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns to shareholders and
benefits for other stakeholders. The Group manages its capital structure to maintain a sustainable mix of debt and equity that
ensures that the Group can pursue its strategy. The Group makes adjustments to its capital structure in light of changes in
economic conditions and strategic operational risk. To maintain or adjust the capital structure, the Group may return capital to
shareholders through dividends and share buy backs, sell assets, raise additional equity, or arrange additional debt facilities. In
this section you will find disclosures about:
4.1
4.2
4.3
4.4
4.5
4.6
4.7
AP
J
Net debt, capital and capital management
Financial risk
Net finance costs
Leases
Financial instruments and the fair value hierarchy
Issued share capital
Group composition and non-controlling interests
Denotes accounting policies
Denotes significant accounting judgements, estimates and assumptions
Key highlights
Headline gearing2: headline net debt to adjusted EBITDA1 (post IFRS 16)
Aim: Maintain the ratio of headline net debt to adjusted EBITDA1 (post IFRS 16)
in the range of 1.7x and 2.7x over the long term
Available liquidity
2.7x
(2020: 3.1x)
£392.4m
(2020: £708.6m)
1. Details of all alternative performance measures and related KPIs can be found in section 8.2.
2. Headline gearing differs to covenant gearing. Headline gearing is based on net debt of £879.8m (2020: £1,077.1m), which includes the Group’s restricted cash of £54.8m (2020: £34.5m).
Refer to section 8.2 for further details.
Capital strategy
The Group’s capital strategy is to build a strong and flexible balance sheet, supporting the strategy and the investment needed to grow the
business and reducing pension liabilities.
The Board has not formally updated its view of the appropriate leverage ratio over the medium term. The target is between 1.7 and 2.7 times
headline net debt to adjusted EBITDA (post IFRS 16) (refer to note 8.2). This is equivalent to the previously stated range of between 1.0 and
2.0 times, pre-IFRS 16. At 31 December 2021, the Group’s headline gearing ratio was 2.7 times (2020: 3.1 times) post IFRS 16.
Liquidity
Available liquidity at 31 December 2021 was £392.4m (31 December 2020 £708.6m). During 2021 net debt (excluding leases and restricted
cash) reduced by £117.3m from £603.5m to £486.2m. Liquidity remains a key area of focus. The Group’s committed bank facilities provide
liquidity for the cash fluctuations of the business cycle and an allowance for contingencies. In June 2021, we signed a £300m forward start
revolving credit facility (RCF) with our lending banks for the twelve months to August 2023. The new facility will start upon the expiry of the
current RCF in August 2022. We are reducing the size of the RCF over time as our liquidity requirement diminishes and we continue the
execution of the disposal programme. The RCF was £40m drawn at 31 December 2021 out of a total committed value of £385.7m. Following
the disposal receipts in early January, the drawing was repaid and the commitment reduced to £377.5m.
A sustainability component has been included in the new facility that can adjust the margin by up to five basis points conditional upon achieving
agreed ESG KPIs. One of these KPIs has been achieved and as a result a slight reduction in the facility margin is anticipated in August 2022.
In March 2022 the Group executed with one of its relationship banks a committed backstop bridge facility. The facility provides £70m of
additional liquidity and it incorporates provisions such that it will be cancelled or will partially reduce in quantum as a consequence of specified
transactions, including on completion of the announced disposal of Trustmarque. The committed facility has an expiry date of 31 August 2023
with an option for a further one year extension at the option of the lender. The facility is subject to covenants, which are the same as the RCF.
Finally, at 31 December 2020, £150m in similar committed bank backstop bridge facilities were in place. These were cancelled on 1 February
2021 on receipt of disposal proceeds.
Net finance costs
Net finance costs have decreased by £2.7m to £46.9m (2020: £49.6m). The reduction is primarily due to less interest on debt as a result of the
debt maturities offset in part by an increase in the coupon payable under certain loan notes (£2.7m). There was also a reduction in the net
interest on leases (£4.4m) and a £1.1m decrease in a provision for hedge ineffectiveness.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 147
Capita plc Annual Report 2021
Notes to the consolidated financial statements
180
Section 4: Capital structure and financing costs continued
4.1 Net debt, capital and capital management
4.1.1 Net debt and capital
The components of the Group’s net debt and undrawn available liquidity are summarised below.
Cash and cash equivalents
Overdraft
Lease liabilities
Private placement loan notes1
Credit facilities2
Other loan notes
Currency and interest rate swaps
Deferred consideration
Net debt
Undrawn available financing facilities
Capital
Notes
4.5.4
4.5.4
4.4.1
4.5.2
4.5.2
4.5.2
4.5.2
2021
£m
(333.4)
231.9
448.4
512.9
46.0
1.3
(28.0)
0.7
2020
£m
(473.8)
332.7
508.1
765.1
—
2.3
(58.0)
0.7
Year on
year
movement
140.4
(100.8)
(59.7)
(252.2)
46.0
(1.0)
30.0
—
4.5.2b
879.8 1,077.1
602.0
345.7
(197.3)
(256.3)
1,225.5 1,679.1
(453.6)
1. Private placement loan notes include US dollar and British pound sterling private placement loan notes, euro fixed rate bearer notes and a Schuldschein loan.
2. Credit facilities includes £40.0m drawing on the RCF.
A reconciliation of net debt shown above to cash flow can be found in note 2.10.3.
The overdrafts are part of a cash pooling arrangement, and the underlying balances can be fully offset by cash balances in the same
arrangement.
Private placement loan notes decreased following the repayment at maturity of £179.9m on 19 and 26 July and £49.8m on 27 October. The
associated currency and interest rate swaps also expired on these dates, such that the combined net cash outflow was £209.9m. The fair value
of the remaining currency and interest rate swaps changed over the year with the passage of time to maturity and changes in market rates.
Finally, a further £2.6m was prepaid in August 2021 arising from the replacement of the EUR fixed rate note due November 2022 with an
equivalent note to facilitate the Group’s disposal programme.
There are two separate sets of covenant tests underlying the Group’s financial instruments. A key difference is the treatment of IFRS 16. The
bank facilities and euro instruments fully exclude the impact of IFRS 16 whereas the US private placement loan notes test includes the income
statement impact of IFRS 16 but not the balance sheet impact.
Under the test for the bank and euro instruments, at 31 December 2021, adjusted net debt to adjusted EBITDA ratio was 2.0x (2020: 2.5x)
compared to a maximum permitted value of 3.5x and annualised interest cover was 9.6x (2020: 7.8x) compared to a minimum permitted level
of 4.0x.
Under the test for the US private placement loan notes, at 31 December 2021, adjusted net debt to adjusted EBITDA ratio was 1.5x
(2020: 1.8x) compared to a maximum permitted value of 3.0x and annualised interest cover was 9.9x (2020: 8.5x) compared to a minimum
permitted level of 4.0x.
In calculating adjusted EBITDA for covenant purposes consideration is given to consistency of treatment of adjusted items with the prior
measurement dates, including the exclusion of restructuring.
4.1.2 Capital Management
Focus on capital management forms an important component of Board meetings, including review of forecast headline gearing and key
covenant tests, and the mix of funding sources, thereby ensuring sustainability and flexibility. Shareholder returns will be reviewed over time in
accordance with the Group’s generation of sustainable free cash flow.
The Group’s capital management process ensures that it meets the financial covenants of its borrowing arrangements. There have been no
breaches in the financial covenants of any loans or borrowings during the reporting period.
Capita plc supports the obligations of its various regulated financial services businesses. The board of each regulated firm is responsible for
ensuring it has embedded capital management frameworks that ensure the availability of adequate financial resources at all times. With the
exception of one isolated breach at Pay 360 Limited, each complied with all externally imposed financial services regulatory capital
requirements applicable to them. The regulatory capital breach at Pay 360 Limited was addressed as soon as it was identified in February 2021
and did not result in a fine.
The committed RCF provides the liquidity needed to cover the cash fluctuations of the business cycle, allowing a buffer for contingencies.
The Group has in place a non-recourse invoice discounting facility and the value of invoices sold under the arrangement at 31 December 2021
was £3.9m (2020: £13.6m). In addition, the Group's German business uses an invoice discounting arrangement relating to a specific customer
contract, and the value of invoices sold under that arrangement at 31 December 2021 was £12.5m (2020: £8.5m).
The Group aims to pay its suppliers on time in accordance with agreed terms.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
147
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
148
181
Section 4: Capital structure and financing costs continued
4.1 Net debt, capital and capital management
4.1.1 Net debt and capital
The components of the Group’s net debt and undrawn available liquidity are summarised below.
Cash and cash equivalents
Private placement loan notes1
Overdraft
Lease liabilities
Credit facilities2
Other loan notes
Currency and interest rate swaps
Deferred consideration
Undrawn available financing facilities
Net debt
Capital
Notes
4.5.4
4.5.4
4.4.1
4.5.2
4.5.2
4.5.2
4.5.2
2021
£m
2020
£m
Year on
year
movement
(333.4)
(473.8)
140.4
231.9
332.7
(100.8)
448.4
508.1
(59.7)
512.9
765.1
(252.2)
46.0
1.3
—
2.3
(28.0)
(58.0)
0.7
0.7
46.0
(1.0)
30.0
—
879.8 1,077.1
(197.3)
4.5.2b
345.7
602.0
(256.3)
1,225.5 1,679.1
(453.6)
1. Private placement loan notes include US dollar and British pound sterling private placement loan notes, euro fixed rate bearer notes and a Schuldschein loan.
2. Credit facilities includes £40.0m drawing on the RCF.
A reconciliation of net debt shown above to cash flow can be found in note 2.10.3.
The overdrafts are part of a cash pooling arrangement, and the underlying balances can be fully offset by cash balances in the same
arrangement.
Private placement loan notes decreased following the repayment at maturity of £179.9m on 19 and 26 July and £49.8m on 27 October. The
associated currency and interest rate swaps also expired on these dates, such that the combined net cash outflow was £209.9m. The fair value
of the remaining currency and interest rate swaps changed over the year with the passage of time to maturity and changes in market rates.
Finally, a further £2.6m was prepaid in August 2021 arising from the replacement of the EUR fixed rate note due November 2022 with an
equivalent note to facilitate the Group’s disposal programme.
There are two separate sets of covenant tests underlying the Group’s financial instruments. A key difference is the treatment of IFRS 16. The
bank facilities and euro instruments fully exclude the impact of IFRS 16 whereas the US private placement loan notes test includes the income
statement impact of IFRS 16 but not the balance sheet impact.
Under the test for the bank and euro instruments, at 31 December 2021, adjusted net debt to adjusted EBITDA ratio was 2.0x (2020: 2.5x)
compared to a maximum permitted value of 3.5x and annualised interest cover was 9.6x (2020: 7.8x) compared to a minimum permitted level
Under the test for the US private placement loan notes, at 31 December 2021, adjusted net debt to adjusted EBITDA ratio was 1.5x
(2020: 1.8x) compared to a maximum permitted value of 3.0x and annualised interest cover was 9.9x (2020: 8.5x) compared to a minimum
of 4.0x.
permitted level of 4.0x.
In calculating adjusted EBITDA for covenant purposes consideration is given to consistency of treatment of adjusted items with the prior
measurement dates, including the exclusion of restructuring.
4.1.2 Capital Management
Focus on capital management forms an important component of Board meetings, including review of forecast headline gearing and key
covenant tests, and the mix of funding sources, thereby ensuring sustainability and flexibility. Shareholder returns will be reviewed over time in
accordance with the Group’s generation of sustainable free cash flow.
The Group’s capital management process ensures that it meets the financial covenants of its borrowing arrangements. There have been no
breaches in the financial covenants of any loans or borrowings during the reporting period.
Capita plc supports the obligations of its various regulated financial services businesses. The board of each regulated firm is responsible for
ensuring it has embedded capital management frameworks that ensure the availability of adequate financial resources at all times. With the
exception of one isolated breach at Pay 360 Limited, each complied with all externally imposed financial services regulatory capital
requirements applicable to them. The regulatory capital breach at Pay 360 Limited was addressed as soon as it was identified in February 2021
and did not result in a fine.
The committed RCF provides the liquidity needed to cover the cash fluctuations of the business cycle, allowing a buffer for contingencies.
The Group has in place a non-recourse invoice discounting facility and the value of invoices sold under the arrangement at 31 December 2021
was £3.9m (2020: £13.6m). In addition, the Group's German business uses an invoice discounting arrangement relating to a specific customer
contract, and the value of invoices sold under that arrangement at 31 December 2021 was £12.5m (2020: £8.5m).
The Group aims to pay its suppliers on time in accordance with agreed terms.
Section 4: Capital structure and financing costs continued
4.2 Financial risk
Financial risk management objectives and policies
The Group’s Board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework, which
is outlined on pages 53 to 61 of the strategic report. The Group’s principal financial instruments comprise cash, bank loans, private placement
loan notes, lease assets and liabilities, and derivatives. The purpose of these is to fund and provide liquidity for the Group’s operations and to
manage its financial risks. The Group has various other financial instruments including trade receivables and trade payables arising from its
operations.
Derivatives comprise interest rate swaps, cross-currency interest rate swaps, and forward foreign currency contracts executed with its
relationship banks, all of which have investment grade credit ratings. The derivatives’ purpose is to manage interest rate and currency risks
arising from the Group’s operations and its sources of finance. It is the Group’s policy that no speculative trading in financial instruments is
undertaken.
The main risks arising from the Group’s financial instruments are liquidity risk, foreign currency risk, interest rate risk, and credit risk. The Board
periodically reviews and agrees policies for managing these risks, which are summarised below.
4.2.1 Liquidity risk
The Group’s policy is to hold cash and undrawn committed facilities at a level sufficient to fund the Group's operations and its medium-term
plans.
The Group monitors the risk of a liquidity shortage through its business plan and liquidity cycle forecasts and analysis. The process considers
the maturity of both the Group’s financial instruments, projected cash flows from operations and an allowance for contingencies. The Group
maintains a balance between continuity of funding and flexibility through the use or availability of multiple sources of funding. Maturing private
placement loan notes will continue to place the Group’s liquidity under pressure during 2022. The Group plans to address this through its
ongoing programme of disposal of additional non-core businesses and refinancing.
Committed bank facilities provide liquidity for the cash fluctuations. The Group does not rely on sources of funding that are not contractually
committed. The bank facilities and private placement loan notes all include provisions that would require repayment in the event of a change of
control, which are typical of these arrangements.
The current RCF expires on 31 August 2022 and a Forward Start RCF is in place which will cover the year to 31 August 2023. The RCF was
£40.0m drawn at 31 December 2021 (31 December 2020: undrawn).
In March 2022 the Group executed with one of its relationship banks a committed backstop bridge facility. The facility provides £70m of
additional liquidity and it incorporates provisions such that it will be cancelled or will partially reduce in quantum as a consequence of specified
transactions, including on the completion of the announced disposal of Trustmarque. The committed facility has an expiry date of 31 August
2023 with an option, by the lender, for a further one year extension. The facility is subject to covenants, which are the same as the RCF.
Finally, at 31 December 2020, £150m in similar committed bank backstop bridge facilities were in place. These were cancelled on 1 February
2021 on receipt of disposal proceeds.
The financial instruments providing core funding (private placement loan notes) include US private placement loan notes, euro fixed rate bearer
notes, and a euro Schuldschein loan. To mitigate the risk of needing to refinance in challenging conditions, these have been arranged with a
spread of maturities to November 2027.
The tables below summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. All balances
are stated based on the prevailing foreign exchange rates and the contractual interest rates at the end of the reporting period. In accordance
with IFRS 7, payments but not receipts are stated for cross-currency interest rate swaps.
At 31 December 2021
Overdraft
Credit facilities
Private placement loan notes
Interest on loan notes
Lease liabilities
Deferred consideration
Put options of non-controlling interests
Cross-currency interest rate swaps
Cash flow hedges
Other financial instruments
Within
1 year
£m
231.9
46.0
226.9
15.3
82.8
—
8.6
0.6
0.6
1.3
Between
1–2 years
£m
—
Between
2–3 years
£m
—
Between
3–4 years
£m
—
Between
4–5 years
£m
—
More than
5 years
£m
—
—
69.8
9.2
73.0
—
—
0.7
0.6
4.3
—
—
7.6
61.8
—
—
0.4
0.1
—
—
84.6
6.0
46.6
—
—
0.4
—
—
—
32.9
4.5
38.1
—
—
0.4
—
—
—
94.6
2.6
322.2
0.7
—
—
—
—
Total
£m
231.9
46.0
508.8
45.2
624.5
0.7
8.6
2.5
1.3
5.6
614.0
157.6
69.9
137.6
75.9
420.1 1,475.1
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
149
Capita plc Annual Report 2021
Notes to the consolidated financial statements
182
Section 4: Capital structure and financing costs continued
4.2 Financial risk continued
At 31 December 2020
Overdraft
Private placement loan notes
Interest on loan notes
Lease liabilities
Deferred consideration
Public sector subsidiary partnership payment
Put options of non-controlling interests
Cross-currency interest rate swaps
Other financial instruments
Within
1 year
£m
332.7
231.4
24.9
102.3
—
9.4
99.7
0.8
1.1
Between
1–2 years
£m
—
238.8
14.1
78.0
—
9.4
—
0.6
0.8
Between
2–3 years
£m
—
69.4
8.9
69.1
—
9.4
—
0.6
0.7
Between
3–4 years
£m
—
—
7.3
55.8
—
—
—
0.3
0.1
Between
4–5 years
£m
—
84.2
5.7
44.2
—
—
—
0.3
—
More than
5 years
£m
—
130.5
6.5
350.4
0.7
—
—
0.3
—
Total
£m
332.7
754.3
67.4
699.8
0.7
28.2
99.7
2.9
2.7
802.3
341.7
158.1
63.5
134.4
488.4 1,988.4
4.2.2 Foreign currency risk
The Group is not generally exposed to significant foreign currency transaction risk with two exceptions. Firstly, services are provided by the
Group’s operations in India and incurred in Indian Rupee (INR). The Group seeks to mitigate the short term effect of this exposure by entering
into forward foreign exchange contracts (Non-deliverable Forward Contracts (NDFs)) to fix the British pounds sterling (GBP) cost of highly
probable transactions over a rolling 24 month period.
At 31 December 2021, the Group held forward foreign exchange contracts against forecast internal monthly INR costs expected in the years up
to and including December 2024. These forecast costs have been determined on the basis of the underlying cash flows associated with the
delivery of services under executed customer contracts.
Secondly, the Group holds foreign exchange forwards against committed costs relating to the purchase of cloud software services in US dollars
(USD) in the years up to and including August 2024.
To maximise hedge effectiveness, forward foreign exchange contracts are executed with terms matching the underlying cash flows.
The following table demonstrates the sensitivity of the Group’s profit before tax and equity to a 5% strengthening/(weakening) in INR and USD
exchange rates, assuming all other variables are unchanged, that would arise from the resulting changes in the fair value of the Group’s
forward exchange contracts.
2021
2020
Effect on profit
before tax
£m
—
—
USD
Effect on
equity
£m
(3.3)
(4.4)
Effect on profit
before tax
£m
—
—
INR
Effect on
equity
£m
(5.3)
(5.3)
4.2.3 Interest rate risk
The Group manages its interest rate exposure, which arises from the Group’s private placement loan notes, through cash, deposits and RCF
drawings at variable interest rates, and through interest rate and cross-currency interest rate swaps. The swaps are designated fair value
hedges against the fair value changes of the private placement loan notes.
A fundamental reform of interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates
(IBORs) with alternative nearly risk-free rates. The Group’s financial instruments include exposure to the IBORs that are being replaced or
reformed as part of these market-wide initiatives. The Group’s main IBOR exposure at 31 December 2020 related to sterling LIBOR. The
alternative reference rate for sterling LIBOR is the Sterling Overnight Index Average (SONIA) rate. In 2021 the Group executed amendments to
its financial instruments referenced to sterling LIBOR to incorporate SONIA. There has been no change in the Group’s risk management
strategy as a result of the transition to SONIA.
Non-derivative financial liabilities
The Group’s non-derivative financial liability exposure to IBOR at 31 December 2020 comprised the committed RCF and a £6m uncommitted
loan facility. In 2021 the Group amended these from a sterling LIBOR reference to SONIA.
Derivatives
The Group holds interest rate and cross currency swaps for risk management purposes that are designated in fair value hedging relationships
and each swap includes a floating leg. In 2021 the Group executed amendments to these swaps to replace the sterling LIBOR reference with
SONIA for interest resets taking place after 31 December 2021.
Hedge accounting
The Group’s hedged items and hedging instruments as at the reporting date reference SONIA. In 2021, the Group replaced its sterling LIBOR
interest rate derivatives used in fair value hedging relationships with economically equivalent interest rate derivatives referencing SONIA. As a
result, there is no longer uncertainty about when and how the replacement will occur with respect to the relevant hedged items and hedging
instruments and the Group no longer applies the amendments to IFRS 9 issued in September 2019 (Phase 1) to those hedging relationships.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
149
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
150
183
Section 4: Capital structure and financing costs continued
4.2 Financial risk continued
At 31 December 2020
Overdraft
Private placement loan notes
Interest on loan notes
Lease liabilities
Deferred consideration
Public sector subsidiary partnership payment
Put options of non-controlling interests
Cross-currency interest rate swaps
Other financial instruments
Within
1 year
£m
332.7
231.4
24.9
102.3
—
9.4
99.7
0.8
1.1
Between
1–2 years
Between
2–3 years
Between
3–4 years
Between
4–5 years
More than
5 years
£m
—
238.8
14.1
78.0
—
9.4
—
0.6
0.8
£m
—
69.4
8.9
69.1
—
9.4
—
0.6
0.7
£m
—
—
7.3
55.8
—
—
—
0.3
0.1
£m
—
£m
—
84.2
130.5
5.7
6.5
44.2
350.4
—
—
—
0.3
—
0.7
—
—
0.3
—
Total
£m
332.7
754.3
67.4
699.8
0.7
28.2
99.7
2.9
2.7
802.3
341.7
158.1
63.5
134.4
488.4 1,988.4
4.2.2 Foreign currency risk
The Group is not generally exposed to significant foreign currency transaction risk with two exceptions. Firstly, services are provided by the
Group’s operations in India and incurred in Indian Rupee (INR). The Group seeks to mitigate the short term effect of this exposure by entering
into forward foreign exchange contracts (Non-deliverable Forward Contracts (NDFs)) to fix the British pounds sterling (GBP) cost of highly
probable transactions over a rolling 24 month period.
At 31 December 2021, the Group held forward foreign exchange contracts against forecast internal monthly INR costs expected in the years up
to and including December 2024. These forecast costs have been determined on the basis of the underlying cash flows associated with the
delivery of services under executed customer contracts.
Secondly, the Group holds foreign exchange forwards against committed costs relating to the purchase of cloud software services in US dollars
(USD) in the years up to and including August 2024.
To maximise hedge effectiveness, forward foreign exchange contracts are executed with terms matching the underlying cash flows.
The following table demonstrates the sensitivity of the Group’s profit before tax and equity to a 5% strengthening/(weakening) in INR and USD
exchange rates, assuming all other variables are unchanged, that would arise from the resulting changes in the fair value of the Group’s
forward exchange contracts.
Effect on profit
before tax
Effect on profit
before tax
USD
Effect on
equity
£m
(3.3)
(4.4)
£m
—
—
INR
Effect on
equity
£m
(5.3)
(5.3)
£m
—
—
The Group manages its interest rate exposure, which arises from the Group’s private placement loan notes, through cash, deposits and RCF
drawings at variable interest rates, and through interest rate and cross-currency interest rate swaps. The swaps are designated fair value
hedges against the fair value changes of the private placement loan notes.
A fundamental reform of interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates
(IBORs) with alternative nearly risk-free rates. The Group’s financial instruments include exposure to the IBORs that are being replaced or
reformed as part of these market-wide initiatives. The Group’s main IBOR exposure at 31 December 2020 related to sterling LIBOR. The
alternative reference rate for sterling LIBOR is the Sterling Overnight Index Average (SONIA) rate. In 2021 the Group executed amendments to
its financial instruments referenced to sterling LIBOR to incorporate SONIA. There has been no change in the Group’s risk management
strategy as a result of the transition to SONIA.
Non-derivative financial liabilities
The Group’s non-derivative financial liability exposure to IBOR at 31 December 2020 comprised the committed RCF and a £6m uncommitted
loan facility. In 2021 the Group amended these from a sterling LIBOR reference to SONIA.
2021
2020
4.2.3 Interest rate risk
Derivatives
Hedge accounting
Section 4: Capital structure and financing costs continued
4.2 Financial risk continued
The net level of floating rate interest exposure is managed, to arrive at an acceptable overall interest rate risk profile. The interest rate profile of
the Group’s interest-bearing financial instruments was as follows:
At 31 December 2021
Fixed rate
Private placement loan notes
Floating rate
Cash in hand
Overdraft
Private placement loan notes
Cross-currency interest rate swaps
At 31 December 2020
Fixed rate
Private placement loan notes
Floating rate
Cash in hand
Overdraft
Private placement loan notes
Interest rate swaps
Cross-currency interest rate swaps
Within
1 year
£m
Between
1–2 years
£m
Between
2–3 years
£m
Between
3–4 years
£m
Between
4–5 years
£m
More than
5 years
£m
Total
£m
123.8
27.6
—
30.0
18.8
74.5
274.7
(333.4)
231.9
102.6
(9.3)
—
—
41.8
(4.0)
—
—
—
—
—
—
57.0
(11.0)
—
—
14.3
1.0
—
—
22.5
(4.7)
(333.4)
231.9
238.2
(28.0)
Within
1 year
£m
Between
1–2 years
£m
Between
2–3 years
£m
Between
3–4 years
£m
Between
4–5 years
£m
More than
5 years
£m
Total
£m
35.2
181.1
27.3
—
29.4
95.9
368.9
(473.8)
332.7
197.5
(0.5)
—
—
58.4
—
(24.1)
(10.1)
—
—
43.5
—
(4.9)
—
—
—
—
—
—
—
59.2
—
(13.2)
—
—
37.6
—
(5.2)
(473.8)
332.7
396.2
(0.5)
(57.5)
A sensitivity analysis to changes in interest rates shows that a 0.5% increase or decrease in interest rates, assuming all other variables are
held constant, results in an £1.1m (2020: £1.6m) increase or decrease to profit before tax, and no impact on the Group’s equity.
4.2.4 Hedges
Fair value hedges
The Group’s fixed rate USD and GBP private placement loan notes are hedged through a combination of interest rate and cross-currency
interest rate swaps. The cross-currency interest rate swaps hedge the exposure to changes in the fair value of US dollar denominated loan
notes. The loan notes and their corresponding swaps have the same critical terms including nominal values and maturity dates.
The total loss in the year on the fair value hedges of £30.0m (2020: £20.3m) was equal to the gain/loss on the hedged items resulting in no net
gain or loss in the income statement apart from hedge ineffectiveness from credit risk and currency basis risk. This effect of hedge
ineffectiveness resulted in a £0.1m credit (2020: £1.0 debit) to the consolidated income statement – shown in net finance costs, note 4.3.
The impact of the hedged item and the related financial derivatives on the consolidated balance sheet at 31 December 2021 is as follows:
Interest rate swaps – assets
Cross-currency interest rate swaps – assets
Cross-currency interest rate swaps – liabilities
The Group holds interest rate and cross currency swaps for risk management purposes that are designated in fair value hedging relationships
and each swap includes a floating leg. In 2021 the Group executed amendments to these swaps to replace the sterling LIBOR reference with
SONIA for interest resets taking place after 31 December 2021.
Private placement loan notes
The Group’s hedged items and hedging instruments as at the reporting date reference SONIA. In 2021, the Group replaced its sterling LIBOR
interest rate derivatives used in fair value hedging relationships with economically equivalent interest rate derivatives referencing SONIA. As a
result, there is no longer uncertainty about when and how the replacement will occur with respect to the relevant hedged items and hedging
instruments and the Group no longer applies the amendments to IFRS 9 issued in September 2019 (Phase 1) to those hedging relationships.
Notional amount
£m
—
136.3
29.8
Line item in the
balance sheet
Financial assets
Financial assets
Carrying amount
£m
—
30.2
(2.2) Financial liabilities
28.0
Change in FV used for
measuring ineffectiveness
£m
(0.5)
(30.0)
0.5
(30.0)
Carrying amount
£m
512.9
Accumulated FV
adjustment
£m
28.0
Line item in the
balance sheet
Financial Liabilities
Change in FV used for
measuring ineffectiveness
£m
30.0
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
151
Capita plc Annual Report 2021
Notes to the consolidated financial statements
184
Section 4: Capital structure and financing costs continued
4.2 Financial risk continued
Cash flow hedges
The Group holds a series of non-deliverable forward foreign exchange contracts, that are designated as hedges of the highly probable
transactions in INR of the Group’s Indian operations. The terms of the NDFs match the terms of these commitments.
Secondly, the Group holds foreign exchange forward contracts against committed costs relating to the purchase of cloud software services in
US dollars in years up to and including August 2024.
The fair value of cash flow hedging instruments held at 31 December 2021 is shown in note 4.5.2.
The cash flow hedges have been assessed to be highly effective. The cash flow hedging reserve comprises the effective portion of the
cumulative net change in the fair value of the hedging instruments. The following table provides an analysis of components of equity resulting
from cash flow hedge accounting:
At 1 January
Change in fair value recognised in the consolidated statement of other comprehensive income
Reclassified to the consolidated income statement
Change in tax
At 31 December
2021
£m
(4.8)
1.3
0.6
2.2
(0.7)
2020
£m
0.2
(1.6)
(4.5)
1.1
(4.8)
4.2.5 Credit risk
The Group trades only with third parties that are expected to be creditworthy. It is the Group’s policy that all clients who wish to trade on credit
terms are subject to credit verification procedures. The Group manages its operations to avoid any excessive concentration of counterparty risk
and the Group takes all reasonable steps to seek assurance from the counterparties that they can fulfil their obligations. In addition, receivable
balances are monitored on an ongoing basis with the result that the Group’s exposure to credit loss remains low.
The carrying values of the Group’s financial assets and contract assets represent its maximum credit exposure.
The mark-to-market movement on derivatives includes the extent to which the fair value of these instruments has been affected by the
perceived change in the creditworthiness of the counterparties to those instruments and that of the Group itself (own credit risk). The Group is
comfortable that the risk attached to those counterparties is not significant and believes that the swaps continue to act as an effective hedge
against the movements in the fair value of the Group’s private placement loan notes.
4.3 Net finance costs
The table below shows the composition of net finance costs, including those excluded from adjusted profit:
Interest income
Interest on cash
Interest on finance lease assets
Total interest income
Interest expense
Private placement loan notes1
Cash flow hedges recycled to the income statement
Bank loans and overdrafts
Interest on finance lease liabilities
Net interest cost on defined benefit pension schemes
Total interest expense
Net finance expense included in adjusted profit
Included within business exits
Bank loans and overdrafts
Discount unwind on public sector subsidiary partnership payment
Other financial income
Fair value hedge ineffectiveness2
Other items excluded from adjusted profits
Non-designated foreign exchange forward contracts – mark-to-market
Fair value hedge ineffectiveness2
Net finance expenses excluded from adjusted profit
Notes
4.2.4
5.2
4.5.2
4.2.4
2021
£m
(0.4)
(4.3)
(4.7)
17.9
0.6
5.9
23.8
1.5
49.7
45.0
0.4
0.4
(0.3)
—
1.5
(0.1)
1.9
2020
£m
(1.6)
(1.2)
(2.8)
20.6
(4.5)
4.9
25.1
3.2
49.3
46.5
0.1
1.1
—
0.4
0.9
0.6
3.1
Total net finance expense
46.9
49.6
1. Private placement loan notes comprise US private placement loan notes, euro fixed rate bearer notes, and a Schuldschein loan.
2. Fair value hedge ineffectiveness arises from changes in currency basis, and the movement in a provision for counterparty risk associated with the swaps.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
151
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
152
185
Section 4: Capital structure and financing costs continued
4.2 Financial risk continued
Cash flow hedges
The Group holds a series of non-deliverable forward foreign exchange contracts, that are designated as hedges of the highly probable
transactions in INR of the Group’s Indian operations. The terms of the NDFs match the terms of these commitments.
AP
Accounting policies
Secondly, the Group holds foreign exchange forward contracts against committed costs relating to the purchase of cloud software services in
The Group leases various assets, comprising land and buildings, equipment and motor vehicles.
US dollars in years up to and including August 2024.
The fair value of cash flow hedging instruments held at 31 December 2021 is shown in note 4.5.2.
The determination whether an arrangement is, or contains, a lease is based on whether the contract conveys a right to control the use of an
identified asset for a period of time in exchange for consideration.
The cash flow hedges have been assessed to be highly effective. The cash flow hedging reserve comprises the effective portion of the
cumulative net change in the fair value of the hedging instruments. The following table provides an analysis of components of equity resulting
The following sets out the Group’s lease accounting policy for all leases with the exception of leases with low value and term of twelve months
or less which are expensed to the consolidated income statement.
Section 4: Capital structure and financing costs continued
4.4 Leases
Change in fair value recognised in the consolidated statement of other comprehensive income
Reclassified to the consolidated income statement
from cash flow hedge accounting:
At 1 January
Change in tax
At 31 December
4.2.5 Credit risk
2021
£m
(4.8)
1.3
0.6
2.2
(0.7)
2020
£m
0.2
(1.6)
(4.5)
1.1
(4.8)
The Group trades only with third parties that are expected to be creditworthy. It is the Group’s policy that all clients who wish to trade on credit
terms are subject to credit verification procedures. The Group manages its operations to avoid any excessive concentration of counterparty risk
and the Group takes all reasonable steps to seek assurance from the counterparties that they can fulfil their obligations. In addition, receivable
balances are monitored on an ongoing basis with the result that the Group’s exposure to credit loss remains low.
The carrying values of the Group’s financial assets and contract assets represent its maximum credit exposure.
The mark-to-market movement on derivatives includes the extent to which the fair value of these instruments has been affected by the
perceived change in the creditworthiness of the counterparties to those instruments and that of the Group itself (own credit risk). The Group is
comfortable that the risk attached to those counterparties is not significant and believes that the swaps continue to act as an effective hedge
against the movements in the fair value of the Group’s private placement loan notes.
4.3 Net finance costs
The table below shows the composition of net finance costs, including those excluded from adjusted profit:
Interest on finance lease assets
Interest income
Interest on cash
Total interest income
Interest expense
Private placement loan notes1
Cash flow hedges recycled to the income statement
Bank loans and overdrafts
Interest on finance lease liabilities
Net interest cost on defined benefit pension schemes
Total interest expense
Net finance expense included in adjusted profit
Included within business exits
Bank loans and overdrafts
Discount unwind on public sector subsidiary partnership payment
Other financial income
Fair value hedge ineffectiveness2
Other items excluded from adjusted profits
Non-designated foreign exchange forward contracts – mark-to-market
Fair value hedge ineffectiveness2
Net finance expenses excluded from adjusted profit
Notes
4.2.4
5.2
4.5.2
4.2.4
2021
£m
(0.4)
(4.3)
(4.7)
17.9
0.6
5.9
23.8
1.5
49.7
45.0
0.4
0.4
(0.3)
—
1.5
(0.1)
1.9
2020
£m
(1.6)
(1.2)
(2.8)
20.6
(4.5)
4.9
25.1
3.2
49.3
46.5
0.1
1.1
—
0.4
0.9
0.6
3.1
Total net finance expense
46.9
49.6
1. Private placement loan notes comprise US private placement loan notes, euro fixed rate bearer notes, and a Schuldschein loan.
2. Fair value hedge ineffectiveness arises from changes in currency basis, and the movement in a provision for counterparty risk associated with the swaps.
The Group as a lessee – Right-of-use assets and lease liabilities
The accounting policy for right-of-use assets is included in note 3.5.
The Group recognises lease liabilities where a lease contract exists and right-of-use assets representing the right to use the underlying leased
assets.
At the commencement of a lease, the Group recognises the lease liability measured at the present value of the lease payments to be made
over the lease term.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because
the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of the lease liability is increased to
reflect the accretion of interest and reduced for the lease payments made. The incremental borrowing rate is the rate of interest that the Group
would have to pay to borrow, over a similar term and with a similar security, the funds necessary to obtain an asset of a similar value to the
right-of-use asset in a similar economic environment. Incremental borrowing rates are determined monthly and depend on the term, country,
currency and commencement date of the lease. The incremental borrowing rate is determined based on a series of inputs including: the risk-
free rate based on swap market data; a country-specific risk adjustment; a credit risk adjustment; and an entity-specific adjustment where the
entity risk profile is different to that of the Group.
The lease liability is subsequently remeasured (with a corresponding adjustment to the related right-of-use asset) when there is a change in
future lease payments due to a renegotiation or market rent review, a change of an index or rate or a reassessment of the lease term.
Lease payments are apportioned between a finance charge and a reduction of the lease liability based on the constant interest rate applied to
the remaining balance of the liability. Interest expense is included within net finance costs in the consolidated income statement.
Lease payments comprise fixed payments, including in-substance fixed payments such as service charges and variable lease payments that
depend on an index or a rate, initially measured using the minimum index or rate at inception date. The payments also include any lease
incentives and any penalty payments for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease term determined comprises the non-cancellable period of the lease contract. Periods covered by an option to extend the lease are
included if the Group has reasonable certainty that the option will be exercised, and periods covered by an option to terminate are included if it
is reasonably certain that this will not be exercised.
The Group has elected to apply the practical expedient in IFRS 16 paragraph 15 not to separate non-lease components such as service
charges from lease rental charges.
The Group as a lessor
When the Group acts as a lessor, it determines at lease commencement whether the lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers to the lessee all of the risks and rewards of
ownership in relation to the underlying asset. If this is the case, then the lease is a finance lease. If not, then it is an operating lease.
The Group acts as an intermediate lessor of property assets and equipment. When the Group is an intermediate lessor, it accounts for its
interests in the head lease and the sub-lease separately. It assesses whether the sub-lease is a finance or operating lease in the context of the
right-of-use asset arising from the head lease.
In instances where the Group is the intermediate lessor and the sub-lease is classified as a finance lease, the Group recognises a net
investment in sub-leases for amounts recoverable from the sub-lessees while derecognising the respective portion of the right-of-use asset.
The lease liability is retained on the balance sheet. The net investment in sub-leases is classified as current or non-current finance assets in the
consolidated balance sheet according to whether or not the amounts will be recovered within twelve months of the balance sheet date. Finance
income recognised in respect of net investment in sub-leases is presented within net finance costs in the consolidated income statement and
the capital element of lease rental received is presented within investing activities in the consolidated cash flow statement.
The Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term. The Group
accounts for finance leases as finance lease receivables, using an incremental borrowing rate where the interest rate implicit in sub-lease is not
easily determinable.
Sale and leaseback
A sale and leaseback transaction is one where the Group sells an asset and immediately reacquires the use of the asset by entering into a
lease with the buyer. For sale and leasebacks, any gain or loss from the sale is recognised in proportion to the gain or loss that relates to the
rights transferred to the buyer. If the consideration for the sale is not equal to the fair value of the asset, any resulting difference is treated as
either a prepayment of the lease payments or additional financing.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
153
Capita plc Annual Report 2021
Notes to the consolidated financial statements
186
Section 4: Capital structure and financing costs continued
4.4 Leases continued
4.4.1 The Group as a lessee
Amounts recognised on the balance sheet
Lease liabilities
Lease liabilities included within disposal group liabilities held-for-sale
Total
Note
2.8
2021
£m
448.4
—
448.4
2020
£m Type of financial instrument
503.5 Financial liabilities
4.6
508.1
The lease liability includes £18.8m (2020: £10.7m) of future lease payments (undiscounted) for leases with termination options that could be
exercised but are recognised at full term. The potential future cash outflows of £23.1m (2020: £37.2m) (undiscounted) have not been included
in the lease liability because the Group is reasonably certain that the leases will not be extended. The total cash outflow for leases was
£106.2m (2020: £123.1m) consisting of interest paid of £23.6m (2020: £25.1m) and capital element of £82.6m (2020: £98.0m).
Right-of-use assets are discussed in note 3.5, the maturity analysis of lease liabilities is included in note 4.2 and interest expense in note 4.3.
4.4.2 The Group as a lessor
Amounts recognised on the balance sheet
Lease receivables
2021
£m
82.1
2020
£m Type of financial instrument
82.6 Financial assets
The maturity analysis of lease receivables, including the undiscounted lease payments to be received, is as follows:
Within 1 year
Between 1-2 years
Between 2-3 years
Between 3-4 years
Between 4-5 years
More than 5 years
Total undiscounted lease payments receivable
Unearned finance income
Net investment in lease receivables
2021
£m
10.8
9.6
9.6
8.2
7.7
73.0
118.9
(36.8)
82.1
2020
£m
4.6
10.6
9.7
9.7
8.2
80.7
123.5
(40.9)
82.6
The expenses related to short-term leases, leases of low-value assets and income from sub-leases are immaterial and therefore there is no
separate disclosure.
During 2020, the Group sublet a leased property. The sub-lease includes an option for the lessee to terminate the lease earlier than the
Group’s lease with its landlord. Management assessed it was reasonably certain that the break clause will not be exercised and, accordingly,
determined that the sub-lease is a finance lease. This resulted in the recognition of a finance lease receivable (£69.9m), included in the balance
above. This judgement was based on a number of factors as prescribed within IFRS 16 ‘Leases’ such as incentive to lessee, importance of the
location to the lessee’s operations, shorter non-cancellable period of lease and the lessee’s planned modifications to, and customisation of, the
property.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
153
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
154
187
Section 4: Capital structure and financing costs continued
4.4 Leases continued
4.4.1 The Group as a lessee
Amounts recognised on the balance sheet
Lease liabilities
Lease liabilities included within disposal group liabilities held-for-sale
Total
Note
2.8
2021
£m
2020
£m Type of financial instrument
448.4
503.5 Financial liabilities
—
448.4
4.6
508.1
The lease liability includes £18.8m (2020: £10.7m) of future lease payments (undiscounted) for leases with termination options that could be
exercised but are recognised at full term. The potential future cash outflows of £23.1m (2020: £37.2m) (undiscounted) have not been included
in the lease liability because the Group is reasonably certain that the leases will not be extended. The total cash outflow for leases was
£106.2m (2020: £123.1m) consisting of interest paid of £23.6m (2020: £25.1m) and capital element of £82.6m (2020: £98.0m).
Right-of-use assets are discussed in note 3.5, the maturity analysis of lease liabilities is included in note 4.2 and interest expense in note 4.3.
The maturity analysis of lease receivables, including the undiscounted lease payments to be received, is as follows:
2021
£m
2020
£m Type of financial instrument
82.1
82.6 Financial assets
2021
£m
10.8
9.6
9.6
8.2
7.7
73.0
118.9
(36.8)
82.1
2020
£m
4.6
10.6
9.7
9.7
8.2
80.7
123.5
(40.9)
82.6
4.4.2 The Group as a lessor
Amounts recognised on the balance sheet
Lease receivables
Within 1 year
Between 1-2 years
Between 2-3 years
Between 3-4 years
Between 4-5 years
More than 5 years
Total undiscounted lease payments receivable
Unearned finance income
Net investment in lease receivables
separate disclosure.
The expenses related to short-term leases, leases of low-value assets and income from sub-leases are immaterial and therefore there is no
During 2020, the Group sublet a leased property. The sub-lease includes an option for the lessee to terminate the lease earlier than the
Group’s lease with its landlord. Management assessed it was reasonably certain that the break clause will not be exercised and, accordingly,
determined that the sub-lease is a finance lease. This resulted in the recognition of a finance lease receivable (£69.9m), included in the balance
above. This judgement was based on a number of factors as prescribed within IFRS 16 ‘Leases’ such as incentive to lessee, importance of the
location to the lessee’s operations, shorter non-cancellable period of lease and the lessee’s planned modifications to, and customisation of, the
property.
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy
AP
Accounting policies
Financial instruments – classification of financial instruments
The Group classifies its financial instruments in the following measurement categories:
•
•
those to be measured subsequently at fair value, either through other comprehensive income (FVOCI) or through profit or loss (FVPL); and
those to be measured at amortised cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows.
Financial instruments – initial recognition
At initial recognition, the Group measures a financial instrument at its fair value plus, in the case of a financial instrument not at FVPL,
transaction costs that are directly attributable to the acquisition of the financial instrument. Transaction costs of financial instruments carried at
FVPL are expensed in the consolidated income statement.
Financial instruments with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment
of principal and interest.
Purchases and sales of financial instruments are recognised on their trade date (ie the date the Group commits to purchase or sell the
instrument). Financial instruments are derecognised when the rights to receive/pay cash flows from the financial instrument have expired or
have been transferred such that the Group has transferred substantially all risks and rewards of ownership.
Debt instruments
Debt instruments are initially recognised at fair value less directly attributable transaction costs and are subsequently remeasured depending
on the Group’s business model for managing the liability and the cash flow characteristics of the liability. There are three measurement
categories into which the Group classifies its debt instruments:
• Amortised cost: instruments that are held for collection/payment of contractual cash flows are measured at amortised cost where those
cash flows represent solely payments of principal and interest. Interest income/expense from these financial instruments is included in net
finance costs using the effective interest rate method.
• FVOCI: instruments that are held for collection/payment of contractual cash flows and for selling the financial instrument are measured at
FVOCI where the instrument’s cash flows represent solely payments of principal and interest. Movements in the carrying amount are taken
through consolidated Other Comprehensive Income (OCI), except for the recognition of impairment gains or losses, interest income and
foreign exchange gains/losses, which are recognised in the consolidated income statement. When the financial instrument is derecognised,
the cumulative gain/loss previously recognised in OCI is reclassified to the consolidated income statement and recognised in other gains/
(losses).
• FVPL: instruments that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain/loss on a debt instrument that is
measured at FVPL is recognised in the consolidated income statement and presented within net finance costs.
The Group reclassifies debt instruments when, and only when, its business model for managing those instruments changes.
Equity instruments
Investments in equity instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement
recognised through the consolidated income statement, except where an election has been made for the movement to be recognised through
OCI. An election can be made on initial recognition of equity instruments that are neither held-for-trading or instruments acquired as part of a
business combination. Once an election has been made all movements in fair value, with the exception of dividends, are presented through
OCI and there is no subsequent reclassification of fair value gains/losses to the consolidated income statement following the derecognition of
the investment. Dividends from such investments continue to be recognised in the consolidated income statement as other income when the
Group’s right to receive payments is established.
Impairment
The Group assesses, on a forward looking basis, the expected credit losses associated with its financial instruments carried at amortised cost
and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
Derivatives
Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value at the end of each reporting
period with the movement recognised through the consolidated income statement, except where derivatives qualify for cash flow hedge
accounting. The effective proportion of cash flow hedges is recognised in OCI and presented in the hedging reserve within equity. The
cumulative gain/loss is subsequently reclassified to the consolidated income statement in the same period that the relevant hedged transaction
is realised.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time
to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in
the period they occur. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
155
Capita plc Annual Report 2021
Notes to the consolidated financial statements
188
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
4.5.1 Fair value hierarchy
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 all inputs that have a significant effect on the recorded fair value are observable, either directly or
indirectly. With the exception of current financial instruments (which have a short maturity), the fair value of the Group’s level-2 financial
instruments were 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: techniques using inputs that have a significant effect on the recorded fair value which are not based on observable market data.
Other financial instruments where observable market data is not available have been held at either amortised cost or cost (undiscounted
cash flows) as a reasonable approximation of fair value.
During the year ended 31 December 2021, there were no transfers between fair value levels.
4.5.2 Financial instruments and their fair value hierarchy classification
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 31 December 2021
Financial assets
Lease receivables
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Investments
Other investments
Other financial assets
Cash
Cash included within disposal group assets held-
for-sale
Total financial assets
Financial liabilities
Private placement loan notes
Other loan notes
Credit facilities
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Deferred consideration
Put options of non-controlling interests
Other financial liabilities
Overdrafts
Lease liabilities
Total financial liabilities
Note
Fair value
hierarchy
FVPL
£m
FVOCI
£m
Derivatives
used for
hedging
£m
Amortised
cost
£m
Total
£m
Current
£m
Non-
current
£m
n/a
4.4.2
4.2.4 Level-2
a
Level-2
Level-2
Level-3
Level-3
—
—
1.8
—
8.9
—
—
—
—
—
—
0.8
—
0.9
82.1
—
82.1
0.9
6.6
0.7
75.5
0.2
—
30.2
—
—
—
—
—
—
1.8
30.2
8.9
0.8
0.8
9.4
—
—
1.0
20.8
8.9
0.8
10.7
0.8
31.1
82.1 124.7
17.5 107.2
4.5.4
2.8
n/a
n/a
—
—
—
317.6 317.6
317.6
—
—
—
15.8
15.8
15.8
—
—
10.7
0.8
31.1
415.5 458.1
350.9 107.2
a
b
n/a
n/a
n/a
4.2.4 Level-2
Level-2
Level-2
n/a
Level-3
a
d
4.5.4
4.4.1
n/a
n/a
—
—
—
—
4.7
—
—
—
4.7
—
—
—
—
—
—
—
—
—
8.6
8.6
—
—
512.9 512.9
226.3 286.6
—
—
—
1.3
1.3
46.0
46.0
1.8
—
1.8
—
2.2
—
—
—
—
0.7
—
4.7
2.2
0.7
8.6
0.3
46.0
0.8
4.3
—
—
8.6
1.0
—
1.0
0.4
2.2
0.7
—
4.0
560.9 578.2
286.3 291.9
—
—
231.9 231.9
448.4 448.4
231.9
—
61.6 386.8
4.7
8.6
4.0 1,241.2 1,258.5
579.8 678.7
Financial assets measured at amortised cost consist of cash, insurance assets recoverable, lease receivables and other investments. The
carrying values of these financial assets are a reasonable approximation of their fair value due to the short-term nature of the instruments.
Included in other investments are £0.8m (2020: £1.0m) of strategic investments in unlisted equity securities which are not held-for-trading and
the Group elected to recognise at FVOCI. During the year no dividends were received from, and no disposals were made of, strategic
investments.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
155
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
156
189
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
4.5.1 Fair value hierarchy
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 all inputs that have a significant effect on the recorded fair value are observable, either directly or
indirectly. With the exception of current financial instruments (which have a short maturity), the fair value of the Group’s level-2 financial
instruments were 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: techniques using inputs that have a significant effect on the recorded fair value which are not based on observable market data.
Other financial instruments where observable market data is not available have been held at either amortised cost or cost (undiscounted
cash flows) as a reasonable approximation of fair value.
During the year ended 31 December 2021, there were no transfers between fair value levels.
4.5.2 Financial instruments and their fair value hierarchy classification
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:
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
At 31 December 2021
Financial assets
Lease receivables
Cash flow hedges
Investments
Other investments
Other financial assets
Cash
for-sale
Note
Fair value
hierarchy
FVPL
£m
FVOCI
£m
Derivatives
used for
hedging
£m
Amortised
cost
£m
Total
£m
Current
£m
Non-
current
£m
4.4.2
n/a
4.2.4 Level-2
—
0.9
82.1
82.1
—
0.9
6.6
0.7
75.5
0.2
—
—
1.8
—
8.9
—
—
—
—
—
—
0.8
Level-2
Level-2
Level-3
Level-3
—
30.2
—
—
—
—
—
—
1.8
30.2
8.9
0.8
0.8
9.4
—
—
1.0
20.8
8.9
0.8
10.7
0.8
31.1
82.1 124.7
17.5 107.2
Cash included within disposal group assets held-
4.5.4
2.8
n/a
n/a
—
—
—
317.6 317.6
317.6
—
—
—
15.8
15.8
15.8
Total financial assets
10.7
0.8
31.1
415.5 458.1
350.9 107.2
Financial liabilities
Private placement loan notes
Other loan notes
Credit facilities
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Deferred consideration
Put options of non-controlling interests
Other financial liabilities
Overdrafts
Lease liabilities
Total financial liabilities
4.2.4 Level-2
1.8
—
1.8
n/a
n/a
n/a
Level-2
Level-2
n/a
Level-3
—
—
—
—
4.7
—
—
—
4.7
—
—
—
—
—
—
—
—
—
8.6
8.6
—
—
512.9 512.9
226.3 286.6
—
—
—
—
2.2
—
—
1.3
1.3
46.0
46.0
—
—
0.7
—
4.7
2.2
0.7
8.6
0.3
46.0
0.8
4.3
—
—
8.6
4.0
560.9 578.2
286.3 291.9
4.5.4
4.4.1
n/a
n/a
—
—
231.9 231.9
231.9
—
448.4 448.4
61.6 386.8
4.7
8.6
4.0 1,241.2 1,258.5
579.8 678.7
Financial assets measured at amortised cost consist of cash, insurance assets recoverable, lease receivables and other investments. The
carrying values of these financial assets are a reasonable approximation of their fair value due to the short-term nature of the instruments.
Included in other investments are £0.8m (2020: £1.0m) of strategic investments in unlisted equity securities which are not held-for-trading and
the Group elected to recognise at FVOCI. During the year no dividends were received from, and no disposals were made of, strategic
investments.
—
—
1.0
—
1.0
0.4
2.2
0.7
—
a
a
b
a
d
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
Financial liabilities measured at amortised cost consist of overdrafts, lease liabilities and loan notes. With the exception of the series of private
placement loan notes which have not been swapped to floating interest, 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 fixed rate interest have an underlying carrying value of £320.7m (2020: £368.8m) and a fair
value of £278.2m (2020: £309.8m). Lease liabilities 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
Private placement loan notes are issued at fixed rates of interest. Some of the series have been swapped into floating rates of interest.
To mitigate exposure to currency fluctuations the Group has entered into currency and interest rate swaps which effectively hedge movements
in the loan notes’ fair value arising from changes in foreign exchange and interest rates.
b. Bank Facilities
Details of the Group’s bank facilities are provided in the Liquidity section above. At 31 December 2021, the total value of committed facilities
was £385.7m, of which £40.0m was drawn at 31 December 2021 (2020: total facilities of £602.0m, fully undrawn).
c. Public sector subsidiary partnership payment
The public sector subsidiary partnership payment liability represented the annual deferred payments to be made by AXELOS Limited. This
liability was derecognised when AXELOS Limited was sold on 26 July 2021.
d. Put options of non-controlling interests
The liability at 31 December 2021 represents the present value of the cost to acquire the non-controlling interest in Fera Science Limited (see
note 4.7). The option held by the non-controlling shareholder of Fera Science Limited has been exercisable since April 2021. A sensitivity
analysis assuming a 10% increase/decrease in the earnings potential of the business results in a £0.9m increase/decrease in the valuation.
The option to acquire the non-controlling interest in AXELOS Limited expired without being exercised on 28 February 2021, and the related
liability was de-recognised. Upon inception of the option agreements, management determined that changes in the carrying amount would be
recognised within equity. This has been applied consistently for all options entered into.
At 31 December 2020
Financial assets
Lease receivables
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Interest rate swaps
Cross-currency interest rate swaps
Investments
Other investments
Other financial assets
Cash
Cash included within disposal group assets held-for-
sale
Total financial assets
Financial liabilities
Private placement loan note
Other loan notes
Cash flow hedges
Non-designated foreign exchange forwards and
swaps
Cross-currency interest rate swaps
Public sector subsidiary partnership payment
Deferred consideration
Put options of non-controlling interests
Other financial liabilities
Overdrafts
Lease liabilities
Lease liabilities included within disposal group
liabilities held-for-sale
Total financial liabilities
Note
Fair value
hierarchy
FVPL
£m
FVOCI
£m
Derivatives
used for
hedging
£m
Amortised
cost
£m
Total
£m
Current
£m
Non-
current
£m
n/a
4.4.2
4.2.4 Level-2
a
a
Level-2
Level-2
Level-2
Level-3
Level-3
—
—
2.9
—
—
1.8
—
4.7
—
—
—
—
—
—
1.0
—
0.1
82.6
—
82.6
0.1
3.8
—
78.8
0.1
—
0.5
60.2
—
—
—
—
—
—
—
2.9
0.5
60.2
1.8
1.0
1.3
0.5
26.5
—
—
1.6
—
33.7
1.8
1.0
1.0
60.8
82.6 149.1
32.1 117.0
4.5.4
n/a
—
—
— 460.9 460.9
460.9
2.8
n/a
—
—
—
12.9
12.9
12.9
—
—
4.7
1.0
60.8 556.4 622.9
505.9 117.0
a
n/a
n/a
4.2.4 Level-2
Level-2
Level-2
n/a
n/a
Level-3
a
c
d
—
—
—
1.7
—
—
—
—
—
—
—
— 765.1 765.1
2.3
2.3
—
2.8
—
2.8
233.9 531.2
—
2.2
2.3
0.6
—
—
—
—
99.7
—
2.7
—
—
—
—
—
27.1
0.7
—
1.7
2.7
27.1
0.7
99.7
1.4
1.2
8.7
—
99.7
0.3
1.5
18.4
0.7
—
1.7
99.7
5.5 795.2 902.1
347.8 554.3
4.5.4
4.4.1
2.8
n/a
n/a
n/a
—
—
—
—
— 332.7 332.7
— 503.5 503.5
332.7
—
77.5 426.0
—
—
—
4.6
4.6
4.6
—
1.7
99.7
5.5 1,636.0 1,742.9
762.6 980.3
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
157
Capita plc Annual Report 2021
Notes to the consolidated financial statements
190
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
The following table shows the reconciliation from the opening balances to the closing balances for Level-3 fair values.
At 1 January 2020
Gain on final settlement recognised in the income statement
Payments made
Change in put-options recognised in other comprehensive income
Additions
Disposals
Impairments
Gain in fair value recognised in other comprehensive income
Discount unwind recognised in the income statement
At 31 December 2020
Gain on final settlement recognised in the income statement
Payments made
Change in put-options recognised in other comprehensive income1
Additions
Reclassification from other investment categories
Gain in fair value recognised in income statement
Gain in fair value recognised in other comprehensive income
Discount unwind recognised in the income statement
Business disposal
At 31 December 2021
Contingent
consideration
£m
Subsidiary
partnership
payment
£m
Put options
of non-
controlling
interests
£m
Investments
and other
investments
£m
5.0
(0.1)
(4.9)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35.4
108.7
—
(9.4)
—
—
—
—
—
1.1
27.1
—
(4.7)
—
—
—
—
—
0.4
(22.8)
—
—
—
(9.0)
—
—
—
—
—
99.7
—
—
(91.1)
—
—
—
—
—
—
8.6
3.9
1.6
—
—
2.6
(3.9)
(0.7)
(0.7)
—
2.8
—
—
—
0.3
4.3
2.2
0.1
—
—
9.7
1. The option to acquire the non-controlling interest in AXELOS Limited expired without being exercised on 28 February 2021, and the related liability was de-recognised
4.5.3 Borrowings
Details of the Group’s current RCF and backstop bridge facilities are shown in the above liquidity section (see note 4.5.2b).
Borrowing costs of £1.9m were capitalised in the year (2020: £0.5m). At 31 December 2021, the Group’s private placement loan note series
had a GBP equivalent underlying carrying value of £484.8m (2020: £707.1m) (see note 4.5.2a) analysed as follows:
Maturity
22 January 2022
27 October 2023
22 January 2025
22 April 2025
27 October 2026
22 January 2027
Total GBP denominated
22 January 2022
22 April 2022
22 January 2023
27 October 2023
22 January 2025
27 October 2026
22 January 2027
Total USD denominated1
10 November 2022
10 November 2022
10 November 2027
Total euro denominated2
Denomination
GBP
GBP
GBP
GBP
GBP
GBP
GBP
USD
USD
USD
USD
USD
USD
USD
USD
EUR
EUR
EUR
EUR
Interest rate
%
3.260
2.520
3.540
3.670
2.770
3.580
Nominal value
Ccy’m
18.6
27.5
7.4
22.3
18.6
23.8
3.330
3.430
3.450
3.370
3.650
3.590
3.800
2.875
3.625
2.875
118.2
29.7
48.3
39.4
17.8
74.3
19.3
27.5
256.3
163.0
16.0
60.0
239.0
1. USD denominated loan notes have a GBP equivalent underlying carrying value of £165.4m. The Group has entered into cross-currency interest rate swaps for the USD issues to achieve a
floating rate of interest based on six-month GBP LIBOR. Further disclosure on the Group’s use of hedges is included in note 4.2.
2. Euro denominated loan notes have a GBP equivalent underlying carrying value of £203.2m.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
157
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
158
191
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
4.5.4 Cash, cash equivalents and overdrafts
The Group has a notional cash pool under which the bank may net cash balances with overdrafts held by other Group companies in the
arrangements. The overdraft balances shown below are fully offset by credit balances in the same arrangement. The Group’s gross cash
position is shown in the table below:
Cash and cash equivalents
Overdrafts
Cash, net of overdrafts, included in disposal group assets and liabilities held for sale
Cash, cash equivalents and overdrafts
Cash includes £nil (2020: £9.4m) held in a 32-day notice deposit account.
2021
£m
317.6
(231.9)
15.8
2020
£m
460.9
(332.7)
12.9
101.5
141.1
Section 4: Capital structure and financing costs continued
4.5 Financial instruments and the fair value hierarchy continued
The following table shows the reconciliation from the opening balances to the closing balances for Level-3 fair values.
Gain on final settlement recognised in the income statement
Change in put-options recognised in other comprehensive income
Gain in fair value recognised in other comprehensive income
Discount unwind recognised in the income statement
Gain on final settlement recognised in the income statement
Change in put-options recognised in other comprehensive income1
Reclassification from other investment categories
Gain in fair value recognised in income statement
Gain in fair value recognised in other comprehensive income
Discount unwind recognised in the income statement
Contingent
consideration
£m
Subsidiary
partnership
payment
£m
Put options
of non-
controlling
interests
£m
Investments
and other
investments
35.4
108.7
5.0
(0.1)
(4.9)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9.4)
—
—
—
—
—
1.1
27.1
—
(4.7)
—
—
—
—
—
0.4
(22.8)
—
—
(9.0)
99.7
(91.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.6
£m
3.9
1.6
—
—
2.6
(3.9)
(0.7)
(0.7)
—
2.8
—
—
—
0.3
4.3
2.2
0.1
—
—
9.7
1. The option to acquire the non-controlling interest in AXELOS Limited expired without being exercised on 28 February 2021, and the related liability was de-recognised
Details of the Group’s current RCF and backstop bridge facilities are shown in the above liquidity section (see note 4.5.2b).
Borrowing costs of £1.9m were capitalised in the year (2020: £0.5m). At 31 December 2021, the Group’s private placement loan note series
had a GBP equivalent underlying carrying value of £484.8m (2020: £707.1m) (see note 4.5.2a) analysed as follows:
Denomination
Interest rate
Nominal value
At 1 January 2020
Payments made
Additions
Disposals
Impairments
At 31 December 2020
Payments made
Additions
Business disposal
At 31 December 2021
4.5.3 Borrowings
Total GBP denominated
Maturity
22 January 2022
27 October 2023
22 January 2025
22 April 2025
27 October 2026
22 January 2027
22 January 2022
22 April 2022
22 January 2023
27 October 2023
22 January 2025
27 October 2026
22 January 2027
Total USD denominated1
10 November 2022
10 November 2022
10 November 2027
Total euro denominated2
GBP
GBP
GBP
GBP
GBP
GBP
GBP
USD
USD
USD
USD
USD
USD
USD
USD
EUR
EUR
EUR
EUR
%
3.260
2.520
3.540
3.670
2.770
3.580
3.330
3.430
3.450
3.370
3.650
3.590
3.800
2.875
3.625
2.875
Ccy’m
18.6
27.5
7.4
22.3
18.6
23.8
118.2
29.7
48.3
39.4
17.8
74.3
19.3
27.5
256.3
163.0
16.0
60.0
239.0
1. USD denominated loan notes have a GBP equivalent underlying carrying value of £165.4m. The Group has entered into cross-currency interest rate swaps for the USD issues to achieve a
floating rate of interest based on six-month GBP LIBOR. Further disclosure on the Group’s use of hedges is included in note 4.2.
2. Euro denominated loan notes have a GBP equivalent underlying carrying value of £203.2m.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
159
Capita plc Annual Report 2021
Notes to the consolidated financial statements
192
Section 4: Capital structure and financing costs continued
4.6 Issued share capital
Allotted, called up and fully paid
Ordinary shares of 2 1/15p each
At 1 January
Issue of share capital
At 31 December
Share premium
Ordinary shares of 2 1/15p each
At 1 January
VAT refund on rights issue issuance costs
At 31 December
2021
№ m
2020
№ m
2021
£m
1,671.1 1,671.1
—
13.0
1,684.1
1,671.1
34.5
0.3
34.8
2021
£m
2020
£m
34.5
—
34.5
2020
£m
1,143.3 1,143.3
—
2.2
1,145.5 1,143.3
In 2018 the Group offered a rights issue to existing shareholders, raising £700.7m less issuance costs of £38.0m, which was capitalised to
share capital and share premium. The issuance costs included VAT that was, at the time, treated as irrecoverable. In 2021 it was agreed with
HMRC that £2.2m of this VAT was recoverable and was refunded to the Group.
Treasury shares
Ordinary shares of 2 1/15p
At 1 January
Issued on exercise of share options
At 31 December
2021
№ m
2020
№ m
2021
£m
2.3
(2.3)
—
2.6
(0.3)
2.3
(0.1)
0.1
—
2020
£m
(0.1)
—
(0.1)
During the year, the Group made no purchases of shares into Treasury and allotted 2,299,955 (2020: 276,614) shares with an aggregate
nominal value of £47,532 (2020: £5,717). The total consideration received in respect of these shares was £nil (2020: £nil).
Employee benefit trust shares
Ordinary shares of 2 1/15p
At 1 January
Shares purchased
Issued on exercise of share options
At 31 December
2021
№ m
2020
№ m
2021
£m
2020
£m
12.6
13.0
(7.5)
18.1
12.6
—
—
12.6
(11.1)
(0.3)
3.4
(11.1)
—
—
(8.0)
(11.1)
The Group will use shares held in the Employee Benefit Trust (EBT) and treasury shares to satisfy future requirements for shares under the
Group’s share option and long-term incentive plans. On 19 April 2021, 13m ordinary 2 1/15p shares (2020: nil) were allotted to the EBT for an
aggregate nominal value of £268,667 (2020: £nil) to satisfy exercises under the Group’s share plans. The total consideration received in
respect of these shares was £268,667 (2020: £nil). During the year, 7,560,173 (2020: nil) shares with a value of £3.4m (2020: £nil) 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 (2020: £nil).
The Group has an unexpired authority to repurchase up to 10% of its issued share capital.
4.7 Group composition and non-controlling interests
The Group’s subsidiaries are listed in notes 7.3.4 and 7.3.16 of the Parent Company financial statements on pages 208 and 213 to 217. This list
includes Entrust Support Services Limited which has a 49% non-controlling interest, and Fera Science Limited which has a 25% non-controlling
interest.
The Group holds a majority of the voting rights in all of its subsidiaries and the directors have determined that, other than the entity commented
on below, in each case the Group exercises de facto control.
On 23 September 2014, the Secretary of State for the Department for Energy and Climate Change granted Smart DCC Limited (DCC), a
wholly-owned subsidiary of the Group, a licence to establish and manage the smart metering communications infrastructure, governed by the
Smart Energy Code. Each year the Group reassess whether it has control over DCC as required under IFRS 10. The Group’s ability to control
the relevant activities of DCC is restricted by DCC’s operating licence. The power that the Group has over DCC’s relevant activities by virtue of
owning it is limited (given the restrictions in the licence). That power is held by the board of DCC where the Group has minority representation
in compliance with the licence. Consequently, the Group has not consolidated DCC within its Group financial statements. The disclosure of
related party transactions with DCC is included in note 6.1.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
159
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
160
193
Section 4: Capital structure and financing costs continued
Section 5: Employee benefits
This section details employee related items that are not explained elsewhere in the financial statements.
In this section you will find disclosures about:
5.1 Share-based payment plans
5.2 Pensions
5.3 Employee benefit expense
AP
J
Denotes accounting policies
Denotes significant accounting judgements, estimates and assumptions
Key highlights
Additional funding into
the defined benefit schemes1
Net defined benefit pension asset
£155.5m £5.8m
(2020: £29.5m)
(2020: deficit £252.1m)
Employee benefit expense
£1,767.1m
(2020: £1,794.8m)
The net defined benefit pension position moved from a net liability position at the start of the year to a small net asset position by 31 December
2021. As part of the deficit funding plan £155.5m of additional funding1 was paid into the defined benefit schemes.
Net defined benefit pension asset / (deficit)
Defined benefit obligation
Fair value of plan assets
Net defined pension asset/(liability) before effect of asset ceiling limit
Effect of asset ceiling limit
Net defined pension asset/(liability) after effect of asset ceiling limit
1. Including £5.0m held in escrow as at 31 December 2021, to be released to the scheme in 2022 (refer to note 2.10.2).
2021
£m
2020
£m
(1,789.2) (1,882.3)
1,797.3 1,630.2
(252.1)
—
(252.1)
8.1
(2.3)
5.8
Movement
£m
93.1
167.1
260.2
(2.3)
257.9
The main reason for the decrease in liabilities over the year was due to the material increase in the yields available on good quality, long term
corporate bonds (which are used to derive the discount rate to value the liabilities), offset to some degree by the increase in inflation
expectations (which impacts the pension benefits provided by the schemes). The schemes are highly sensitive to the change in discount rates
(with a 0.1% pa change resulting in a c. £35.4m impact) and in inflation expectations (with a 0.1% pa change resulting in a c. £18.7m impact).
Additional employer contributions and higher than expected asset returns increased the schemes’ assets.
The Capita Pension and Life Assurance Scheme (CPLAS) is the Group’s main defined benefit scheme. The valuation of liabilities for funding
purposes (the actuarial valuation) differs to the valuation for accounting purposes (which are shown in these financial statements) mainly due to
different assumptions being used and different market conditions at the different valuation dates (the effective date for the actuarial valuation is
31 March). The assumptions used for funding purposes allow for an appropriate amount of prudence, with the discount rate being based on the
actual assets of the CPLAS. While for accounting purposes the assumptions are determined on a best estimate basis in accordance with
IAS 19, with the discount rate being based on the yields available on high quality corporate bonds of appropriate currency and term.
Management estimate that at 31 December 2021 the net asset of the CPLAS scheme was higher on a funding basis (ie the funding assumption
principles adopted for the full actuarial valuation at 31 March 2020) than on an accounting basis.
4.6 Issued share capital
Allotted, called up and fully paid
Ordinary shares of 2 1/15p each
At 1 January
Issue of share capital
At 31 December
Share premium
Ordinary shares of 2 1/15p each
At 1 January
VAT refund on rights issue issuance costs
At 31 December
Treasury shares
Ordinary shares of 2 1/15p
At 1 January
Issued on exercise of share options
At 31 December
Employee benefit trust shares
Ordinary shares of 2 1/15p
At 1 January
Shares purchased
At 31 December
Issued on exercise of share options
2021
№ m
2020
№ m
2021
£m
1,671.1 1,671.1
13.0
—
1,684.1
1,671.1
2020
£m
34.5
—
34.5
2020
£m
34.5
0.3
34.8
2021
£m
1,143.3 1,143.3
2.2
—
1,145.5 1,143.3
2021
№ m
2020
№ m
2021
£m
2.3
(2.3)
—
2.6
(0.3)
2.3
(0.1)
0.1
—
2020
£m
(0.1)
—
(0.1)
2021
№ m
2020
№ m
2021
£m
2020
£m
12.6
13.0
(7.5)
12.6
(11.1)
(11.1)
—
—
(0.3)
3.4
—
—
18.1
12.6
(8.0)
(11.1)
In 2018 the Group offered a rights issue to existing shareholders, raising £700.7m less issuance costs of £38.0m, which was capitalised to
share capital and share premium. The issuance costs included VAT that was, at the time, treated as irrecoverable. In 2021 it was agreed with
HMRC that £2.2m of this VAT was recoverable and was refunded to the Group.
During the year, the Group made no purchases of shares into Treasury and allotted 2,299,955 (2020: 276,614) shares with an aggregate
nominal value of £47,532 (2020: £5,717). The total consideration received in respect of these shares was £nil (2020: £nil).
The Group will use shares held in the Employee Benefit Trust (EBT) and treasury shares to satisfy future requirements for shares under the
Group’s share option and long-term incentive plans. On 19 April 2021, 13m ordinary 2 1/15p shares (2020: nil) were allotted to the EBT for an
aggregate nominal value of £268,667 (2020: £nil) to satisfy exercises under the Group’s share plans. The total consideration received in
respect of these shares was £268,667 (2020: £nil). During the year, 7,560,173 (2020: nil) shares with a value of £3.4m (2020: £nil) 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 (2020: £nil).
The Group has an unexpired authority to repurchase up to 10% of its issued share capital.
4.7 Group composition and non-controlling interests
The Group’s subsidiaries are listed in notes 7.3.4 and 7.3.16 of the Parent Company financial statements on pages 208 and 213 to 217. This list
includes Entrust Support Services Limited which has a 49% non-controlling interest, and Fera Science Limited which has a 25% non-controlling
interest.
The Group holds a majority of the voting rights in all of its subsidiaries and the directors have determined that, other than the entity commented
on below, in each case the Group exercises de facto control.
On 23 September 2014, the Secretary of State for the Department for Energy and Climate Change granted Smart DCC Limited (DCC), a
wholly-owned subsidiary of the Group, a licence to establish and manage the smart metering communications infrastructure, governed by the
Smart Energy Code. Each year the Group reassess whether it has control over DCC as required under IFRS 10. The Group’s ability to control
the relevant activities of DCC is restricted by DCC’s operating licence. The power that the Group has over DCC’s relevant activities by virtue of
owning it is limited (given the restrictions in the licence). That power is held by the board of DCC where the Group has minority representation
in compliance with the licence. Consequently, the Group has not consolidated DCC within its Group financial statements. The disclosure of
related party transactions with DCC is included in note 6.1.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
161
Capita plc Annual Report 2021
Notes to the consolidated financial statements
194
Section 5: Employee benefits continued
5.1 Share-based payment plans
The Group operates a number of executive and employee equity-settled share schemes.
AP
Accounting policies
The fair value of the equity instrument granted is measured at grant date and is recognised as an expense over the vesting period, which ends
on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an option pricing model, only
taking into account vesting conditions linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest as a result of not meeting performance or service conditions. Where all service
and performance vesting conditions have been met, the awards are treated as vesting, irrespective of whether or not the market condition is
satisfied, as market conditions have been reflected in the fair value of the equity instruments.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will
ultimately vest or, in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in
cumulative expense since the previous balance sheet date is recognised in the consolidated income statement, with a corresponding
adjustment to equity.
Where the terms of an award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting period adjusted for the incremental fair value of any modification ie the
difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the
modification. No reduction is recognised if this difference is negative.
Where an award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the consolidated
income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or
settlement date is deducted from equity, with any excess over the fair value being treated as an expense in the income statement.
The expense recognised for share-based payments (before tax) in respect of employee services received during the year to 31 December 2021
was £1.2m (2020: £6.4m), all of which arises from equity-settled share based payment transactions. Details of the schemes are as follows:
Deferred annual bonus plan
This scheme is applicable to executive directors. Under this scheme, awards are made annually consisting of only deferred shares, which are
linked to the payout under the annual bonus scheme (details of which are contained in the directors’ remuneration report on pages 96 to 119.
The value of deferred shares is determined by the pay-out under the annual bonus scheme: half of the annual bonus is paid in cash and the
remainder is deferred into shares under the deferred annual bonus plan or the Capita executive plan. Directors have the option to defer up to
100% of their annual bonus into deferred shares or net bonus into a restricted share award. The deferred/restricted shares are held for a period
of three years from the date of award, during which they are not forfeitable, except in the case of dismissal for gross misconduct.
The weighted average share price of options at the date of exercise in 2021 was £0.33 (2020: £0.64). The weighted average share price during
the year was £0.43 (2020: £0.57).
The total cash value of the deferred shares awarded during the year was £nil (2020: £nil).
Long-term incentive plans (LTIPs)
The 2017 LTIP was approved and adopted at the AGM on 13 June 2017. From 2021, no new awards will be granted under the LTIP although
2019 and 2020 awards are yet to vest.
For the 2018 award, one-third of the award was subject to retention over a three-year vesting period at which point this portion of the award will
vest in full. The remainder of the award was subject to performance conditions, namely: annualised cost savings, free cash flow and EBIT
margin, customer satisfaction and employee engagement, all measured over a three-year period. Threshold vesting (25%) for each measure
was dependent upon: annualised costs savings reaching £160m; free cash flow reaching £180m; EBIT margin exceeding 9%; 6 point positive
swing in NPS for both customer satisfaction and employee engagement. Target vesting (50%) for each measure was dependent upon:
annualised cost savings reaching £175m; free cash flow reaching £200m; EBIT margin of 10%; 8 point positive swing in net promoter score
(NPS) for both customer satisfaction and employee engagement. Maximum vesting (100%) for each measure was dependent upon: annualised
cost savings reaching £205m; free cash flow reaching £240m; EBIT margin of 12%; 12 point positive swing in net promoter score (NPS) for
both customer satisfaction and employee engagement. Awards were also subject to an underpin based on an assessment of underlying
financial and operational performance.
For the 2019 award, 75% of the award was equally weighted between free cash flow, EBIT margin and organic revenue growth, with the
remaining 25% split equally between customer satisfaction and employee engagement, measured over a three-year period. Threshold vesting
(25%) for each measure is dependent upon: free cash flow reaching £190m; EBIT margin exceeding 9%; organic revenue growth to £3,900m;
6 point positive swing in NPS for both customer satisfaction and employee engagement. Target vesting (50%) for each measure is dependent
upon: free cash flow reaching £210m; EBIT margin exceeding 10%; organic revenue growth to £3,950m; 8 point positive swing in NPS for both
customer satisfaction and employee engagement. Maximum vesting (100%) for each measure is dependent upon: free cash flow reaching
£250m; EBIT margin of 12%; organic revenue growth to £4,050m; 12 point positive swing in net promoter score (NPS) for both customer
satisfaction and employee engagement. Awards are also subject to an underpin based on an assessment of underlying financial and
operational performance.
The 2020 award is split into three equal tranches that vest on the first, second and third anniversary of the grant date. The first tranche in 2020
was subject to a retention element which will vest in full on each annual vesting date, with the remaining 50% subject to a performance
condition of headline net debt. Threshold vesting (25%) is dependent on headline net debt falling to £872m, target vesting (50%) is dependent
on net debt falling to £822m and maximum vesting (100%) is dependent on net debt being below £772m. Tranches 2 and 3 are subject to the
retention element only apart from the CEO’s award which is subject to relative TSR and responsible business scorecard measures.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 161
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
162
195
The Group operates a number of executive and employee equity-settled share schemes.
Details of the LTIP awards made to executive directors over the same period are set out in the directors’ remuneration report, on page 113.
Section 5: Employee benefits continued
5.1 Share-based payment plans continued
All of the above awards are subject to a performance underpin – assessment of the underlying financial and operational performance of Capita
over the performance period.
Capita Executive Plan 2021
The Capita Executive Plan was approved by shareholders at the 2021 AGM. Under this plan, restricted share awards (RSAs) are granted to
executives.
With the exception of the executive directors, RSAs granted in 2021 are split into three equal tranches that may vest on the first, second and
third anniversary of the grant date. The awards are not subject to a performance underpin.
Details of the Capita Executive Plan RSAs made to executive directors and the associated underpins are set out in the directors’ remuneration
report, on page 113.
Outstanding at 1 January
Awarded during the year
Exercised
Forfeited
Outstanding at 31 December
Exercisable at 31 December
2021
№ m
48.5
15.8
(9.8)
(8.1)
2020
№ m
38.0
16.2
(0.3)
(5.4)
46.4
48.5
—
—
The weighted average remaining contractual life of the above shares outstanding at 31 December 2021 was 1.0 years (2020: 0.8 years).
All schemes
The fair value of the options granted/awarded during the year was £0.41 per share (2020: £0.33 per share). None of the existing option
schemes have exercise prices.
The fair value for current share scheme issues is effectively the market price of a Capita share at the date of grant. Accordingly, no
assumptions have been disclosed.
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected
volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
5.2 Pensions
AP
Accounting policies
Defined contribution pension schemes
The Group maintains a number of defined contribution pension schemes and for these schemes the Group has no further payment obligations
once the contributions have been paid. The contributions are recognised as an employee benefit expense in the consolidated income
statement as the related service is provided and as they fall due.
Defined benefit pension schemes
In addition, the Group operates a defined benefit pension scheme and participates in a number of other defined benefit pension schemes, all of
which require contributions to be made to separate trustee-administered funds. The costs of providing benefits under these schemes are
determined separately for each scheme using the projected unit credit method, which attributes entitlement to benefits to the current period (to
determine current service cost) and to the current and prior periods (to determine the present value of the defined benefit obligation) and is
based on actuarial advice. Past service costs are recognised immediately in the consolidated income statement.
When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material
reduction in the scheme membership or a reduction in future entitlement) occurs, the obligation and related plan assets are remeasured using
current actuarial assumptions and the resultant gain/loss recognised in the consolidated income statement during the period in which the
settlement or curtailment occurs.
Remeasurements of the net defined benefit asset/liability, which comprise actuarial gains and losses, the return on plan assets (excluding
interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income and will not
be reclassified to the consolidated income statement. The Group generally determines the net interest expense/income on the net defined
benefit asset/liability for the year by applying the discount rate used to measure the defined benefit obligation at the beginning of the year to the
then net defined benefit asset/liability, taking into account any changes in the net defined benefit asset/liability during the year as a result of
contributions and benefit payments. However, due consideration is made to events which require the net interest expense/income on the net
defined benefit asset/liability to be remeasured over the course of the year.
Current and past service costs are charged to operating profit while the net interest cost is included within net finance costs.
In respect of one of the defined benefit pension schemes in which the Group participates, the Group accounts for its legal and constructive
obligation only over the fixed period of its participation in that scheme.
The net asset/(liability) in the consolidated balance sheet with respect to the defined benefit pension schemes comprises the total for each
scheme, or group of schemes, of the present value of the defined benefit obligation (using a discount rate based on high quality corporate
bonds), less the fair value of plan assets out of which the obligations are to be settled directly. The policy to determine fair value of plan assets
is detailed in the note below. The value of a net pension benefit asset is restricted to the present value of any amount the Group expects to
recover by way of refunds from the plan or reductions in the future contributions.
Section 5: Employee benefits continued
5.1 Share-based payment plans
Accounting policies
The fair value of the equity instrument granted is measured at grant date and is recognised as an expense over the vesting period, which ends
on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an option pricing model, only
taking into account vesting conditions linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest as a result of not meeting performance or service conditions. Where all service
and performance vesting conditions have been met, the awards are treated as vesting, irrespective of whether or not the market condition is
satisfied, as market conditions have been reflected in the fair value of the equity instruments.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will
ultimately vest or, in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in
cumulative expense since the previous balance sheet date is recognised in the consolidated income statement, with a corresponding
adjustment to equity.
Where the terms of an award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting period adjusted for the incremental fair value of any modification ie the
difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the
modification. No reduction is recognised if this difference is negative.
Where an award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the consolidated
income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or
settlement date is deducted from equity, with any excess over the fair value being treated as an expense in the income statement.
The expense recognised for share-based payments (before tax) in respect of employee services received during the year to 31 December 2021
was £1.2m (2020: £6.4m), all of which arises from equity-settled share based payment transactions. Details of the schemes are as follows:
Deferred annual bonus plan
This scheme is applicable to executive directors. Under this scheme, awards are made annually consisting of only deferred shares, which are
linked to the payout under the annual bonus scheme (details of which are contained in the directors’ remuneration report on pages 96 to 119.
The value of deferred shares is determined by the pay-out under the annual bonus scheme: half of the annual bonus is paid in cash and the
remainder is deferred into shares under the deferred annual bonus plan or the Capita executive plan. Directors have the option to defer up to
100% of their annual bonus into deferred shares or net bonus into a restricted share award. The deferred/restricted shares are held for a period
of three years from the date of award, during which they are not forfeitable, except in the case of dismissal for gross misconduct.
The weighted average share price of options at the date of exercise in 2021 was £0.33 (2020: £0.64). The weighted average share price during
The total cash value of the deferred shares awarded during the year was £nil (2020: £nil).
the year was £0.43 (2020: £0.57).
Long-term incentive plans (LTIPs)
2019 and 2020 awards are yet to vest.
The 2017 LTIP was approved and adopted at the AGM on 13 June 2017. From 2021, no new awards will be granted under the LTIP although
For the 2018 award, one-third of the award was subject to retention over a three-year vesting period at which point this portion of the award will
vest in full. The remainder of the award was subject to performance conditions, namely: annualised cost savings, free cash flow and EBIT
margin, customer satisfaction and employee engagement, all measured over a three-year period. Threshold vesting (25%) for each measure
was dependent upon: annualised costs savings reaching £160m; free cash flow reaching £180m; EBIT margin exceeding 9%; 6 point positive
swing in NPS for both customer satisfaction and employee engagement. Target vesting (50%) for each measure was dependent upon:
annualised cost savings reaching £175m; free cash flow reaching £200m; EBIT margin of 10%; 8 point positive swing in net promoter score
(NPS) for both customer satisfaction and employee engagement. Maximum vesting (100%) for each measure was dependent upon: annualised
cost savings reaching £205m; free cash flow reaching £240m; EBIT margin of 12%; 12 point positive swing in net promoter score (NPS) for
both customer satisfaction and employee engagement. Awards were also subject to an underpin based on an assessment of underlying
financial and operational performance.
For the 2019 award, 75% of the award was equally weighted between free cash flow, EBIT margin and organic revenue growth, with the
remaining 25% split equally between customer satisfaction and employee engagement, measured over a three-year period. Threshold vesting
(25%) for each measure is dependent upon: free cash flow reaching £190m; EBIT margin exceeding 9%; organic revenue growth to £3,900m;
6 point positive swing in NPS for both customer satisfaction and employee engagement. Target vesting (50%) for each measure is dependent
upon: free cash flow reaching £210m; EBIT margin exceeding 10%; organic revenue growth to £3,950m; 8 point positive swing in NPS for both
customer satisfaction and employee engagement. Maximum vesting (100%) for each measure is dependent upon: free cash flow reaching
£250m; EBIT margin of 12%; organic revenue growth to £4,050m; 12 point positive swing in net promoter score (NPS) for both customer
satisfaction and employee engagement. Awards are also subject to an underpin based on an assessment of underlying financial and
operational performance.
The 2020 award is split into three equal tranches that vest on the first, second and third anniversary of the grant date. The first tranche in 2020
was subject to a retention element which will vest in full on each annual vesting date, with the remaining 50% subject to a performance
condition of headline net debt. Threshold vesting (25%) is dependent on headline net debt falling to £872m, target vesting (50%) is dependent
on net debt falling to £822m and maximum vesting (100%) is dependent on net debt being below £772m. Tranches 2 and 3 are subject to the
retention element only apart from the CEO’s award which is subject to relative TSR and responsible business scorecard measures.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
163
Capita plc Annual Report 2021
Notes to the consolidated financial statements
196
Section 5: Employee benefits continued
5.2 Pensions continued
J
Significant accounting judgements, estimates and assumptions
The measurement of defined benefit obligations – the accounting cost of these benefits and the present value of pension liabilities involve
judgements about uncertain events including such factors as the life expectancy of members, the salary progression of current employees,
price inflation and the discount rate used to calculate the net present value of the future pension payments. The Group uses estimates for all of
these factors in determining the pension costs and liabilities incorporated in the consolidated financial statements. The assumptions reflect
historical experience and judgement regarding future expectations.
The Group continued to set RPI inflation in accordance with the market break-even expectations less an inflation risk premium. The inflation
risk premium has remained at 0.25% pa. For CPI, the Group reduced the assumed difference between the RPI and CPI by 0.1% pa to an
average of 0.65% pa. The estimated impact of the change in the methodology is approximately a £5m increase in the defined benefit obligation
in respect of the CPLAS scheme.
The impact of Covid-19 on the effects of future life expectancy continues to be uncertain. The pandemic is likely to have an impact on the
setting of appropriate life expectancy assumptions and models for future improvements will need to consider whether the experience in 2020 is
a one-off, and if the pandemic will influence future mortality in other ways. For example, the pressure on health services may mean that
progress against other causes of death such as cancer is slower than previously expected, meaning an assumption of a lower rate of mortality
improvements might be appropriate. Alternatively, the surviving population may be in better health than those dying from Covid-19, meaning
that it might be expected that the remaining members live slightly longer. It is still too early to draw conclusions as to what impact Covid-19
might have on future life expectancy and while a new model for future life expectancy has been adopted, with the principles underlying the
setting of the assumptions remaining unchanged, no allowance has been made for actual mortality experience experienced in 2020.
Pension expense included in the consolidated income statement
Defined contribution scheme
Defined benefit schemes
Current service cost
Administration costs
Past service cost
Effect of settlements
Interest cost
Total defined benefit schemes
Total charged to profit before tax in the consolidated income statement
2021
£m
107.8
2020
£m
109.0
6.3
3.5
(0.2)
(0.7)
1.5
10.4
6.2
3.7
0.1
3.1
3.2
16.3
118.2
125.3
At 31 December 2021, retirement obligations were disclosed in relation to 10 (2020: 10) defined benefit pension schemes. The main defined
benefit scheme is the Capita Pension and Life Assurance Scheme.
The Capita Pension and Life Assurance Scheme (CPLAS)
CPLAS is the Group’s main defined benefit scheme, which closed to future accrual for most members in 2017 (with around 270 members
continuing to accrue benefits – out of a total membership of around 16,650 members). Details of the CPLAS and other schemes net surplus/
(deficit) position are given at the bottom of the table below which shows the movements from the opening to the closing balance of the net
defined benefit asset/(liability). Events have occurred in the CPLAS that has led to its income statement being remeasured during the year.
Responsibility for the operation and governance of the CPLAS lies with a corporate Trustee which is independent of the Group. The Trustee
Board is required by law to act in the interest of the CPLAS’s beneficiaries in accordance with the rules of the CPLAS and relevant legislation
(which includes the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004). The nature of the relationship between
the Group and the Trustee Board is also governed by the rules of the CPLAS and relevant legislation. The Trustee Board is chaired by an
independent Trustee.
The assets of the CPLAS are held in a separate fund (administered by the Trustee Board) to meet long-term pension liabilities to beneficiaries.
The Trustee Board invest the assets in accordance with their Statement of Investment Principles, which is regularly reviewed. During 2021, the
Trustee Board delegated investment strategy decisions to a fiduciary manager, however, the Trustee Board maintained overall oversight of the
investment strategy.
A full actuarial valuation of the scheme is carried out every three years by an independent actuary for the Trustee Board, with the last full
actuarial valuation carried out at 31 March 2020. The purpose of that valuation is to design a funding plan to ensure that the CPLAS has
sufficient assets available to meet future benefit payments, based on assumptions agreed between the Trustee Board and the Group. The
31 March 2020 actuarial valuation showed a funding deficit of £182.2m (31 March 2017: £185.0m). This equates to a funding level of 89.0%
(31 March 2017: 86%).
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
163
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
164
197
Section 5: Employee benefits continued
5.2 Pensions continued
Significant accounting judgements, estimates and assumptions
The measurement of defined benefit obligations – the accounting cost of these benefits and the present value of pension liabilities involve
judgements about uncertain events including such factors as the life expectancy of members, the salary progression of current employees,
price inflation and the discount rate used to calculate the net present value of the future pension payments. The Group uses estimates for all of
these factors in determining the pension costs and liabilities incorporated in the consolidated financial statements. The assumptions reflect
historical experience and judgement regarding future expectations.
The Group continued to set RPI inflation in accordance with the market break-even expectations less an inflation risk premium. The inflation
risk premium has remained at 0.25% pa. For CPI, the Group reduced the assumed difference between the RPI and CPI by 0.1% pa to an
average of 0.65% pa. The estimated impact of the change in the methodology is approximately a £5m increase in the defined benefit obligation
in respect of the CPLAS scheme.
The impact of Covid-19 on the effects of future life expectancy continues to be uncertain. The pandemic is likely to have an impact on the
setting of appropriate life expectancy assumptions and models for future improvements will need to consider whether the experience in 2020 is
a one-off, and if the pandemic will influence future mortality in other ways. For example, the pressure on health services may mean that
progress against other causes of death such as cancer is slower than previously expected, meaning an assumption of a lower rate of mortality
improvements might be appropriate. Alternatively, the surviving population may be in better health than those dying from Covid-19, meaning
that it might be expected that the remaining members live slightly longer. It is still too early to draw conclusions as to what impact Covid-19
might have on future life expectancy and while a new model for future life expectancy has been adopted, with the principles underlying the
setting of the assumptions remaining unchanged, no allowance has been made for actual mortality experience experienced in 2020.
Pension expense included in the consolidated income statement
2021
£m
2020
£m
107.8
109.0
6.3
3.5
(0.2)
(0.7)
1.5
6.2
3.7
0.1
3.1
3.2
10.4
16.3
118.2
125.3
Defined contribution scheme
Defined benefit schemes
Current service cost
Administration costs
Past service cost
Effect of settlements
Interest cost
Total defined benefit schemes
Total charged to profit before tax in the consolidated income statement
At 31 December 2021, retirement obligations were disclosed in relation to 10 (2020: 10) defined benefit pension schemes. The main defined
benefit scheme is the Capita Pension and Life Assurance Scheme.
The Capita Pension and Life Assurance Scheme (CPLAS)
CPLAS is the Group’s main defined benefit scheme, which closed to future accrual for most members in 2017 (with around 270 members
continuing to accrue benefits – out of a total membership of around 16,650 members). Details of the CPLAS and other schemes net surplus/
(deficit) position are given at the bottom of the table below which shows the movements from the opening to the closing balance of the net
defined benefit asset/(liability). Events have occurred in the CPLAS that has led to its income statement being remeasured during the year.
Responsibility for the operation and governance of the CPLAS lies with a corporate Trustee which is independent of the Group. The Trustee
Board is required by law to act in the interest of the CPLAS’s beneficiaries in accordance with the rules of the CPLAS and relevant legislation
(which includes the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004). The nature of the relationship between
the Group and the Trustee Board is also governed by the rules of the CPLAS and relevant legislation. The Trustee Board is chaired by an
independent Trustee.
investment strategy.
(31 March 2017: 86%).
The assets of the CPLAS are held in a separate fund (administered by the Trustee Board) to meet long-term pension liabilities to beneficiaries.
The Trustee Board invest the assets in accordance with their Statement of Investment Principles, which is regularly reviewed. During 2021, the
Trustee Board delegated investment strategy decisions to a fiduciary manager, however, the Trustee Board maintained overall oversight of the
A full actuarial valuation of the scheme is carried out every three years by an independent actuary for the Trustee Board, with the last full
actuarial valuation carried out at 31 March 2020. The purpose of that valuation is to design a funding plan to ensure that the CPLAS has
sufficient assets available to meet future benefit payments, based on assumptions agreed between the Trustee Board and the Group. The
31 March 2020 actuarial valuation showed a funding deficit of £182.2m (31 March 2017: £185.0m). This equates to a funding level of 89.0%
Section 5: Employee benefits continued
5.2 Pensions continued
As a result of the funding valuation, the Group and the Trustee Board agreed the following plan to eliminate the deficit, effective from 1 July
2021:
Deficit contribution1
2021
20222
2023
£59.0m
£30.0m
£30.0m
1. The agreed contributions make allowance for additional contributions, totalling c£113.6m, paid by the Group between 1 April 2020 and 30 June 2021 to meet its obligations under the
previous agreement dated 23 November 2018, to unwind CPLAS’s interest in the Partnership (see below), and in respect of a section 75 debt.
2. In addition, in 2022, the £5.0m held in escrow at 31 December 2021 will be released to CPLAS.
In addition to the above, the Group has agreed to make additional, non-statutory, contributions of £15m each year in 2024, 2025 and 2026 to
meet a secondary funding target. The aim of which is to target, by 2026, the position of having sufficient assets to invest in a portfolio of low risk
assets that will generate income to pay members’ benefits as they fall due.
The next full actuarial valuation is due to be carried out with an effective date of 31 March 2023 and as part of that valuation the contribution
requirements will be reviewed, and if necessary, amended. For the purpose of these accounts, an independent qualified actuary projected the
results of the 31 March 2020 actuarial valuation to 31 December 2021 taking account of the relevant accounting requirements.
Approximate funding updates are produced at each scheme anniversary when a full actuarial valuation is not being undertaken. The most
recent of these, at 31 March 2021, showed a funding level of 97%.
In 2012, the Group established the Capita Scotland (Pension) Limited Partnership (the Partnership) with the CPLAS. Under this arrangement,
intellectual property rights (IPR) in specific Group software was transferred to the partnership and the rights to use, develop and exploit this IPR
was licensed back to the Group in return for an annual fee. The CPLAS’s interest in the Partnership entitled it to an annual distribution of £8.0m
for 15 years from inception.
Under IAS 19 (Revised) the interest in the Partnership does not represent a plan asset for Group reporting purposes and therefore the
CPLAS’s deficit position as at 31 December 2020 (shown as the start year position in these accounts) does not reflect the CPLAS’s interest in
the Partnership. Accordingly, any distributions from the Partnership to the CPLAS are reflected in these Group accounts as pension
contributions to the CPLAS on a cash basis as paid.
At 31 December 2020, the CPLAS’s interest in the Partnership ceased and in return the CPLAS received a special contribution of £50.1m in
February 2021.
The Group expects to contribute around £40m to the CPLAS during 2022.
Other defined benefit schemes
The total employer contributions to the ‘Other’ schemes during 2022 are estimated to be £2m.
Admitted Body arrangement
For the Admitted Body scheme, under which benefits continued to accrue until the contract ceased on 16 January 2020, the Group was
required to pay regular contributions as decided by the Scheme Actuary and as detailed in the scheme’s Schedule of Contributions. On
2 February 2022 the scheme confirmed that, in accordance with their funding strategy statement, a cessation valuation as at 16 January 2020
had been carried out and an exit credit payment of £192,587 is due from the scheme to the Group. The Group previously expected that an exit
deficit amount would be payable by the Group to the scheme, and for which the Group was carrying a sufficient level of provision in the
consolidated financial statements. The difference between the Group’s previous expectation (a payment to the scheme of up to £0.6m) and the
actual amount receivable by the Group has been treated as a settlement item – a gain of £0.75m. After payment is made, which is expected to
be during 2022, no further amounts will be due to the Group and the scheme’s assessed liability to the Group will be settled.
Allocated section of a Local Government Pension Scheme
For the allocated section of a Local Government Pension Scheme, under which benefits continued to accrue until the last contributing member
ceased to be an active member on 25 July 2020, the Group was required to pay regular contributions as decided by the Scheme Actuary and
as detailed in the scheme’s Schedule of Contributions. An exit debt was triggered on 25 July 2020 (when the last contributing member ceased
to be an active member), and this was calculated by the Scheme Actuary to be £4.3m. This amount and all outstanding expenses were paid by
the Group during the year which settled the Group’s liability to the allocated section of a Local Government Pension Scheme.
Other UK schemes
• Three segregated sections in an industry-wide scheme where benefits continued to accrue for only one of these sections over the financial
year. The latest full actuarial valuations (at 31 December 2018) showed that two of these sections were in surplus and therefore no deficit
contributions were required. The third section showed a small deficit but the Trustees agreed that no deficit contributions would be required.
There is no cross subsidy with other employer sections.
• Participation in a non-associated multi-employer scheme under which defined benefits are not continuing to accrue. The latest full actuarial
valuation (at 30 September 2020) resulted in the Group requiring to pay deficit contributions of initially £0.4m pa (which increase each year by
5.5% pa) until 2028. If the Group were to cease to be a participating employer in this scheme there would be an exit debt payable. At
30 September 2020, this was estimated at £11.1m.
Overseas defined benefit schemes
The Group is responsible for an Irish defined benefit scheme which is classed as a cross-border scheme where the beneficiaries of the scheme
have their liabilities, and the trustees hold assets, denominated in euro. The scheme is governed under UK regulations and subject to further
requirements applying to cross-border schemes. There are two segregated sections in the scheme. The latest full actuarial valuation (at
31 March 2021) showed a funding surplus for both the main section and the other section, and consequently, no deficit contributions are
required for either section. There are no members left accruing benefits.
The Group is also responsible for two Swiss schemes that provide defined contribution benefits but with certain guarantees (and are therefore
reported as defined benefit schemes under IAS 19). They are administered and governed through collective foundations which are separate
legal entities. Benefits are continuing to accrue in these schemes.
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
165
Capita plc Annual Report 2021
Notes to the consolidated financial statements
198
Section 5: Employee benefits continued
5.2 Pensions continued
Additional defined benefit schemes
There are a further 48 (2020: 47) defined benefit pension arrangements in which various Capita businesses participated during 2021. Of these
arrangements, 41 (2020: 41) relate to participation in funded and unfunded public sector schemes (referred to as Admitted Body Arrangements
as described above), however, contractual protections are in place allowing actuarial and investment risk to be passed to the end customer via
recoveries for contributions paid. The nature of these arrangements vary from contract to contract but typically allow for the majority of
contributions payable to the schemes in excess of an initial rate agreed at the inception to be recovered from the end customer, as well as exit
payments (for funded schemes) payable to the schemes at the cessation of the contract, such that the Group’s net exposure to actuarial and
investment risk is immaterial.
It is estimated that around £12.5m of employer contributions were paid to these 48 schemes during 2021.
Judgement is required in determining the appropriate accounting treatment for the participation in all of the above schemes, in particular as to
whether actuarial and investment risk fall in substance on the Group. It is considered that the net risk to the Group from these defined benefit
arrangements is immaterial and therefore the costs in relation to all of the above schemes have been included in the defined contribution
pension charge and no amounts are recognised in the Group’s consolidated balance sheet.
Risks associated with the Group’s pension schemes
The defined benefit pension schemes expose the Group to various risks, with the key risks set out below:
Investment risk: the schemes invest in a wide range of assets with a view to provide long-term investment returns at particular levels. There is
a risk that investment returns are lower than expected which, in isolation, could result in a worsening of the funding position of the schemes.
Interest rate risk: the IAS 19 discount rate is derived based on the yields available on good quality corporate bonds of suitable duration. If
these yields decrease then, in isolation, this would increase the value placed on the IAS 19 obligation and result in a worsening of the funding
position of the schemes.
Inflation risk: the liabilities of the schemes are linked to future levels of inflation. If future inflation is higher than expected then this would result
in the cost of providing the benefits increasing and thereby worsening the funding position of the schemes.
Longevity risk: if members live longer than expected, then pensions will be paid for a longer time which will increase the value placed on the
liabilities and therefore worsen the funding position of the schemes.
To manage these risks, the Group and the trustees carry out regular assessments of them. For CPLAS, the main defined benefit scheme, the
following actions have been taken:
• The CPLAS Trustee Board has entered into two bulk annuity contracts with an insurer in respect of a small number of high individual liability
pensioner members (one in 2015 and the second in late 2017) with total value included in the assets at 31 December 2021 of £67.8m
(2020: £73.6m).
• The CPLAS Trustee Board has entered into a Liability Driven Investment programme. The level of risk that is managed by this programme is
set by various market-related and funding trigger points.
Together, these actions have led to the Trustee Board hedging (interest rate and inflation) a high proportion of the CPLAS’s liabilities. As at
31 December 2021 around 80% of CPLAS’s liabilities measured on the Trustee Board’s long-term funding basis was hedged. The target is to
hedge 100% of the funded liabilities (ie the level of liabilities covered by the assets) on this basis, and as such the level of hedging is expected
to be increased to around 90% in 2022 (reflecting the current funding level on this long-term funding basis). As the funding level improves it is
planned to further increase the level of hedging.
The hedging aims to match the value of the assets to the movement in liabilities arising from changes in market expectations of future inflation
rates and future gilt yields. This is to help protect and reduce volatility in funding valuations which are used to determine the cash contribution
requirements to the scheme. As these accounting disclosures use the yields available on corporate bonds to determine the accounting
liabilities, the hedging may not have the same impact against changes as they do on a funding valuation. Over 2021, the yields available on
long dated corporate bonds have increased broadly in line with long dated gilt yields. This means that the hedge has broadly had the same
impact on the funding position of the scheme and the accounting disclosures.
To illustrate how sensitive the value of the defined benefit obligations are to different market conditions, the table below shows what resulting
defined benefit obligation would be (before any effect of the asset ceiling limit) if the assumptions were changed as shown (assuming all other
assumptions remain constant):
Change in assumptions compared with 31 December 2021 actuarial assumptions
Base defined benefit obligation
0.1% pa decrease in discount rate
0.1% pa increase in salary increases
0.1% pa increase in inflation (and related assumption, eg salary and pension increases)
1 year increase in life expectancy
Group Total
£m
1,789.2
1,824.6
1,789.8
1,807.9
1,860.1
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
165
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
166
199
Section 5: Employee benefits continued
5.2 Pensions continued
Additional defined benefit schemes
There are a further 48 (2020: 47) defined benefit pension arrangements in which various Capita businesses participated during 2021. Of these
arrangements, 41 (2020: 41) relate to participation in funded and unfunded public sector schemes (referred to as Admitted Body Arrangements
as described above), however, contractual protections are in place allowing actuarial and investment risk to be passed to the end customer via
recoveries for contributions paid. The nature of these arrangements vary from contract to contract but typically allow for the majority of
contributions payable to the schemes in excess of an initial rate agreed at the inception to be recovered from the end customer, as well as exit
payments (for funded schemes) payable to the schemes at the cessation of the contract, such that the Group’s net exposure to actuarial and
investment risk is immaterial.
It is estimated that around £12.5m of employer contributions were paid to these 48 schemes during 2021.
Judgement is required in determining the appropriate accounting treatment for the participation in all of the above schemes, in particular as to
whether actuarial and investment risk fall in substance on the Group. It is considered that the net risk to the Group from these defined benefit
arrangements is immaterial and therefore the costs in relation to all of the above schemes have been included in the defined contribution
pension charge and no amounts are recognised in the Group’s consolidated balance sheet.
Risks associated with the Group’s pension schemes
The defined benefit pension schemes expose the Group to various risks, with the key risks set out below:
Investment risk: the schemes invest in a wide range of assets with a view to provide long-term investment returns at particular levels. There is
a risk that investment returns are lower than expected which, in isolation, could result in a worsening of the funding position of the schemes.
Interest rate risk: the IAS 19 discount rate is derived based on the yields available on good quality corporate bonds of suitable duration. If
these yields decrease then, in isolation, this would increase the value placed on the IAS 19 obligation and result in a worsening of the funding
position of the schemes.
Inflation risk: the liabilities of the schemes are linked to future levels of inflation. If future inflation is higher than expected then this would result
in the cost of providing the benefits increasing and thereby worsening the funding position of the schemes.
Longevity risk: if members live longer than expected, then pensions will be paid for a longer time which will increase the value placed on the
liabilities and therefore worsen the funding position of the schemes.
To manage these risks, the Group and the trustees carry out regular assessments of them. For CPLAS, the main defined benefit scheme, the
following actions have been taken:
(2020: £73.6m).
• The CPLAS Trustee Board has entered into two bulk annuity contracts with an insurer in respect of a small number of high individual liability
pensioner members (one in 2015 and the second in late 2017) with total value included in the assets at 31 December 2021 of £67.8m
• The CPLAS Trustee Board has entered into a Liability Driven Investment programme. The level of risk that is managed by this programme is
set by various market-related and funding trigger points.
Together, these actions have led to the Trustee Board hedging (interest rate and inflation) a high proportion of the CPLAS’s liabilities. As at
31 December 2021 around 80% of CPLAS’s liabilities measured on the Trustee Board’s long-term funding basis was hedged. The target is to
hedge 100% of the funded liabilities (ie the level of liabilities covered by the assets) on this basis, and as such the level of hedging is expected
to be increased to around 90% in 2022 (reflecting the current funding level on this long-term funding basis). As the funding level improves it is
planned to further increase the level of hedging.
The hedging aims to match the value of the assets to the movement in liabilities arising from changes in market expectations of future inflation
rates and future gilt yields. This is to help protect and reduce volatility in funding valuations which are used to determine the cash contribution
requirements to the scheme. As these accounting disclosures use the yields available on corporate bonds to determine the accounting
liabilities, the hedging may not have the same impact against changes as they do on a funding valuation. Over 2021, the yields available on
long dated corporate bonds have increased broadly in line with long dated gilt yields. This means that the hedge has broadly had the same
impact on the funding position of the scheme and the accounting disclosures.
To illustrate how sensitive the value of the defined benefit obligations are to different market conditions, the table below shows what resulting
defined benefit obligation would be (before any effect of the asset ceiling limit) if the assumptions were changed as shown (assuming all other
assumptions remain constant):
Change in assumptions compared with 31 December 2021 actuarial assumptions
Base defined benefit obligation
0.1% pa decrease in discount rate
0.1% pa increase in salary increases
1 year increase in life expectancy
0.1% pa increase in inflation (and related assumption, eg salary and pension increases)
Group Total
£m
1,789.2
1,824.6
1,789.8
1,807.9
1,860.1
Section 5: Employee benefits continued
5.2 Pensions continued
Assets and liabilities
Under IAS 19, plan assets must be valued at their fair value on the balance sheet date. The plan assets are made up of quoted and unquoted
investments, and asset valuations have been sourced from the respective scheme’s investment managers and custodians, based on their
pricing sources and methodologies. Unquoted investments require more judgement because their values are not directly observable. The
assumptions used in valuing unquoted investments are affected by current market conditions which could result in changes in fair value after
the measurement date.
For the main asset categories:
• Equities listed on recognised stock exchanges are valued at closing bid prices.
• Bonds are measured using a combination of broker quotes and pricing models making assumptions for credit and market risks and market
yield curves.
• Properties are valued on the basis of an open market value or are valued using models based on discounted cash flow techniques.
• Assets in investment funds are valued at fair value which is typically the net asset value provided by the investment manager.
• Certain unlisted investments are valued using a model based valuation such as discounted cash flow.
• The value of bulk annuity contracts has been assessed by discounting the projected cash flows payable under the contracts (projected by an
actuary, consistent with the terms of the contract) and is equal to the corresponding liability calculated by reference to the IAS 19
assumptions.
The assets and liabilities of all of the defined benefit pension schemes (excluding additional voluntary contributions) at 31 December are:
Scheme assets at fair value:
Equities:
– UK
– Overseas
– Private
Debt securities:
– UK Government
– UK Corporate
– Overseas Government
– Overseas Corporate
– Emerging Markets
– Private Debt
– Secured Loans
Property
Infrastructure
Credit Funds
Hedge Funds
Absolute Return Funds
Diversified growth funds
Insurance Contracts
Cash
Other
Total
Present value of scheme liabilities
(before effect of asset ceiling limit)
Net surplus/(liability)
(before effect of asset ceiling limit)
Effect of asset ceiling limit
Present value of scheme liabilities
(after effect of asset ceiling limit)
Net surplus/(liability)
(after effect of asset ceiling limit)
Quoted
£m
Unquoted
£m
1.0
7.0
0.5
8.5
789.1
1.1
2.6
1.2
1.4
—
0.1
795.5
2.8
1.5
3.2
—
0.8
—
—
148.1
1.2
157.6
961.6
3.1
76.5
—
79.6
0.2
7.6
53.4
67.8
—
129.5
—
258.5
97.5
—
160.1
54.1
—
79.5
86.8
11.2
8.4
497.6
835.7
2021
Total
£m
4.1
83.5
0.5
88.1
789.3
8.7
56.0
69.0
1.4
129.5
0.1
1,054.0
100.3
1.5
163.3
54.1
0.8
79.5
86.8
159.3
9.6
655.2
1,797.3
(1,789.2)
8.1
(2.3)
(1,791.5)
5.8
Quoted
£m
Unquoted
£m
1.1
4.6
—
5.7
760.3
1.2
2.4
68.8
0.6
—
—
833.3
4.2
0.9
5.3
16.5
0.7
3.9
—
(70.8)
—
(39.3)
799.7
23.2
189.8
—
213.0
0.2
7.5
52.9
135.4
31.5
71.3
—
298.8
89.6
—
—
131.0
—
—
91.9
5.0
1.2
318.7
830.5
Group total
2020
Total
£m
24.3
194.4
—
218.7
760.5
8.7
55.3
204.2
32.1
71.3
—
1,132.1
93.8
0.9
5.3
147.5
0.7
3.9
91.9
(65.8)
1.2
279.4
1,630.2
(1,882.3)
(252.1)
—
(1,882.3)
(252.1)
* Some investments are in funds which are in themselves not traded in active markets
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
167
Capita plc Annual Report 2021
Notes to the consolidated financial statements
200
Section 5: Employee benefits continued
5.2 Pensions continued
The Trustee of CPLAS invests in Liability Driven Investments (LDIs) as part of a risk hedging strategy. The aim of the strategy is to match the
value of the assets to the movement in liabilities arising from changes in market expectations of future inflation rates and future gilt yields. In
order to achieve this, LDIs invest in a variety of instruments including gilts, synthetic gilts (combination of repurchase agreement, reverse
repurchase agreements and total return swaps) and cash. In the table above, the LDI as at 31 December 2021 (approximately £785m) has
been mapped as 98.4% Quoted UK government bonds, 1.5% Quoted Cash and 0.1% Quoted Other. In prior years, the Trustee used the
product to gain exposure to the equity markets, through the use of a synthetic equity overlay (combination of equity options and total return
swaps); however, the Trustee closed out their positions in Q4 2021 and gained exposure to equity markets in a more conventional way via a
unitised portfolio. In the above mapping, Cash historically included CPLAS’s cash obligations under the equity total return swap (which resulted
in a large negative number) with the corresponding benefit included as Equities.
These amounts do not include any directly owned financial instruments issued by the Group.
Within the Private Debt allocation, approximately £66m relates to lagged valuations as at 30 September 2021. Allowance has been made for
distributions only over the period to 31 December 2021.
IFRIC 14
The Group has considered the impact of IFRIC 14 on the various schemes (in relation to either recognising a surplus or allowing for the impact
of any funding commitments made) and has concluded, based on the interpretation of the rules for each of the schemes, that IFRIC 14 would
increase the deficits shown at this balance sheet date for one scheme only, which is reflected in the balance sheet position. For CPLAS and the
other schemes, IFRIC 14 would not limit the surplus or increase the deficits shown at the balance sheet date.
Reconciliation of retirement benefits
Explanation of constituents of the consolidated income statement.
The cost of providing the pension scheme during the year is broken down as follows, with due consideration being made for events which
require the income statement to be re-measured over the course of the year:
• Service cost is the cost to the Group of future benefits earned by contributing members over the current financial period.
• Past service cost represents the change in the present value of scheme liabilities in the current period in relation to prior years’ service.
• Administration costs are those entailed by the pension schemes over the current period.
• Interest expense/(income) is made up of the interest on pension liabilities and assets over the current period generally based on the discount
rate adopted at the start of the period. An allowance for interest on the asset ceiling is recognised where applicable £nil as at 31 December
2021 (£nil as at 31 December 2020).
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 167
Capita plc Annual Report 2021
Strategic report
Corporate governance
Financial statements
Notes to the consolidated financial statements
Notes to the consolidated financial statements
168
201
Section 5: Employee benefits continued
5.2 Pensions continued
The Trustee of CPLAS invests in Liability Driven Investments (LDIs) as part of a risk hedging strategy. The aim of the strategy is to match the
value of the assets to the movement in liabilities arising from changes in market expectations of future inflation rates and future gilt yields. In
order to achieve this, LDIs invest in a variety of instruments including gilts, synthetic gilts (combination of repurchase agreement, reverse
repurchase agreements and total return swaps) and cash. In the table above, the LDI as at 31 December 2021 (approximately £785m) has
been mapped as 98.4% Quoted UK government bonds, 1.5% Quoted Cash and 0.1% Quoted Other. In prior years, the Trustee used the
product to gain exposure to the equity markets, through the use of a synthetic equity overlay (combination of equity options and total return
swaps); however, the Trustee closed out their positions in Q4 2021 and gained exposure to equity markets in a more conventional way via a
unitised portfolio. In the above mapping, Cash historically included CPLAS’s cash obligations under the equity total return swap (which resulted
in a large negative number) with the corresponding benefit included as Equities.
These amounts do not include any directly owned financial instruments issued by the Group.
Within the Private Debt allocation, approximately £66m relates to lagged valuations as at 30 September 2021. Allowance has been made for
distributions only over the period to 31 December 2021.
IFRIC 14
The Group has considered the impact of IFRIC 14 on the various schemes (in relation to either recognising a surplus or allowing for the impact
of any funding commitments made) and has concluded, based on the interpretation of the rules for each of the schemes, that IFRIC 14 would
increase the deficits shown at this balance sheet date for one scheme only, which is reflected in the balance sheet position. For CPLAS and the
other schemes, IFRIC 14 would not limit the surplus or increase the deficits shown at the balance sheet date.
Reconciliation of retirement benefits
Explanation of constituents of the consolidated income statement.
The cost of providing the pension scheme during the year is broken down as follows, with due consideration being made for events which
require the income statement to be re-measured over the course of the year:
• Service cost is the cost to the Group of future benefits earned by contributing members over the current financial period.
• Past service cost represents the change in the present value of scheme liabilities in the current period in relation to prior years’ service.
• Administration costs are those entailed by the pension schemes over the current period.
• Interest expense/(income) is made up of the interest on pension liabilities and assets over the current period generally based on the discount
rate adopted at the start of the period. An allowance for interest on the asset ceiling is recognised where applicable £nil as at 31 December
2021 (£nil as at 31 December 2020).
Section 5: Employee benefits continued
5.2 Pensions continued
All schemes are partly or wholly funded, and the following table shows the components of the movements from the opening to the closing
balances for the net defined benefit obligation:
At 1 January
Included in the consolidated income statement:
Current service cost
Administration costs
Past service cost
Effect of settlements
Interest expense/(income)
Sub-total in consolidated income statement
Included in other comprehensive income:
Actuarial loss/(gain) arising from:
– demographic assumptions
– financial assumptions
– experience adjustments
– changes in asset ceiling/minimum liability
Return on plan assets excluding interest
Sub-total in other comprehensive income
Employer contributions1
Contributions by employees
Benefits paid
Exchange movement - recognised in other comprehensive income
At 31 December
Schemes in a net surplus
CPLAS
Other schemes
Schemes in a net deficit
CPLAS
Other schemes
Defined benefit obligation
Fair value of plan assets
Net defined obligation
2021
£m
2020
£m
(1,882.3) (1,697.0)
2021
£m
2020
£m
1,630.2 1,444.5
2021
£m
(252.1)
2020
£m
(252.5)
Group total
(6.3)
(3.5)
0.2
5.5
(27.5)
(31.6)
(10.7)
129.2
(41.6)
(2.3)
—
74.6
—
(1.6)
48.8
0.6
(6.2)
(3.7)
(0.1)
15.3
(30.1)
(24.8)
12.9
(256.3)
40.3
—
—
(203.1)
—
(1.4)
45.6
(1.6)
—
—
—
(4.8)
26.0
21.2
—
—
—
—
34.8
34.8
158.9
1.6
(48.8)
(0.6)
—
—
—
(18.4)
26.9
8.5
—
—
—
—
171.0
171.0
49.0
1.4
(45.6)
1.4
(6.3)
(3.5)
0.2
0.7
(1.5)
(10.4)
(10.7)
129.2
(41.6)
(2.3)
34.8
109.4
158.9
—
—
—
(6.2)
(3.7)
(0.1)
(3.1)
(3.2)
(16.3)
12.9
(256.3)
40.3
—
171.0
(32.1)
49.0
—
—
(0.2)
(1,791.5) (1,882.3)
1,797.3 1,630.2
5.8
(252.1)
(1,725.3)
(23.8)
(1,749.1)
—
(25.3)
(25.3)
1,732.5
29.9
1,762.4
—
28.4
28.4
7.2
6.1
13.3
—
3.1
3.1
— (1,810.6)
(42.4)
(46.4)
(42.4) (1,857.0)
— 1,568.8
34.9
33.0
34.9 1,601.8
—
(7.5)
(7.5)
(241.8)
(13.4)
(255.2)
At 31 December
(1,791.5) (1,882.3)
1,797.3 1,630.2
5.8
(252.1)
1. 2021 employer contributions excludes £5.0m held in escrow at 31 December 2021 which will be released to the scheme in 2022
Of the total pension cost of £10.4m (2020: £16.3m), £5.4m (2020: £9.4m) was included in cost of sales, £3.5m (2020: £3.7m) was included in
administrative expenses, and £1.5m in finance costs (2020: £3.2m).
Breakdown of liabilities for the CPLAS
Information about the defined benefit obligation for the CPLAS:
Active members
Deferred members
Pensioners
Total percentage / average duration
Proportion
of overall
liability
%
2021
5
63
32
Proportion
of overall
liability
%
2020
5
64
31
Duration
(years)
2021
21.4
22.8
13.0
100
19.6
100
Duration
(years)
2020
22.4
24.2
13.7
20.9
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements
169
Capita plc Annual Report 2021
Notes to the consolidated financial statements
202
Section 5: Employee benefits continued
5.2 Pensions continued
Financial and demographic assumptions
Main assumptions1:
Rate of price inflation – RPI
Rate of price inflation – CPI
Rate of salary increase
Rate of increase of pensions in payment2:
– RPI inflation capped at 5% per annum
– RPI inflation capped at 2.5% per annum
– CPI inflation capped at 5% per annum
Discount rate
Expected take up maximum available tax free cash
All schemes
2020
%
2.90
2.15
2.90
2.85
2.10
2.20
1.30
85.00
2021
%
3.30
2.65
3.30
3.20
2.20
2.65
1.90
85.00
1. Only the discount rate is relevant to the Admitted Body Scheme. Different assumptions apply to non-UK schemes, for example: the discount rate for the Irish Schemes are 1.25% per
annum and for the Swiss schemes it is 0.35% per annum in 2021.
2. There are other levels of pension increase which apply to particular periods of membership.
The average future life expectancy from age 65 (in years) for mortality tables used to determine scheme liabilities for the various different
schemes at 31 December 2021 and 31 December 2020 are as follows:
Member currently aged 65 (current life expectancy)
Member currently aged 45 (life expectancy at 65)
Male
Female
Male
Female
Capita Scheme1
Other Schemes2
2021
22.5
21.6 to 22.6
2020
22.5
21.5 to 22.8
2021
24.4
23.5 to 24.4
2020
24.3
23.3 to 24.9
2021
22.4
22.4 to 24.9
2020
22.4
22.4 to 24.6
2021
25.3
25.1 to 26.4
2020
25.3
24.5 to 26.6
1. The assumptions used for the Capita scheme are tailored for each member. The assumptions adopted make allowance for an increase in the longevity in the future. The rate for members
currently aged 65 is derived from the pensioner membership and the rate for members reaching age 65 in 20 years' time is derived from non-pensioner membership.
2. This does not apply to the Admitted Body Scheme or the allocated section of a Local Government Pension Scheme.
5.3 Employee benefit expense
AP
Accounting policies
Government grants
Government grants are not recognised until there is a reasonable assurance that they Group will comply with the conditions attaching to them
and that the grants will be received. Government grants are recognised in the consolidated income statement on a systematic basis over the
periods in which the Group recognises, as expenses, the related costs for which the grants are intended to compensate. Government grants
that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the
Group with no future related costs are recognised in the consolidated income statement in the period in which they become receivable.
Wages and salaries
Social security costs
Pension costs1
Share-based payments
Notes
5.2
5.1
2021
£m
1,493.3
155.9
116.7
1.2
2020
£m
1,511.7
154.6
122.1
6.4
1,767.1
1,794.8
1. Pension costs include contributions from employees amounting to £47.6m (2020: £47.9m).
During 2021 and 2020, the Group furloughed employees unable to work as a result of the Covid-19 pandemic, and applied to the Coronavirus
Job Retention Scheme (CJRS) operated by the UK Government. Amounts received under CJRS are treated as a government grant and
deducted from the relevant cost in the consolidated income statement. During the year, the Group claimed £4.9m (2020: £21.3m) under CJRS.
These amounts are included within the relevant cost headings in the table above.
The aggregate amount of directors’ remuneration (salary, bonus and benefits) is shown on page 109 of the directors’ remuneration report.
•
•
•
The aggregate amount of gains made by directors on exercise of share options was £— (2020: £49,569) (refer to note 6.1).
The remuneration of the highest paid director was £1,237,918 (2020: £1,112,325).
Payments have been made to a defined contribution pension scheme on behalf of four directors (2020: four directors). For the
highest paid director, pension contributions of £36,250 (2020: £36,250) were made.
The average number of employees during the year was made up as follows:
Sales
Administration
Operations
2021
Number
766
3,259
49,305
2020
Number
1,661
3,962
52,702
53,330
58,325
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 169
Capita plc Annual Report 2021
Notes to the consolidated financial statements
Strategic report
Corporate governance
Financial statements
170
203
Section 5: Employee benefits continued
Section 6: Other supporting notes
All schemes
In this section you will find disclosures about:
This section includes disclosures of those items that are not explained elsewhere in the financial statements.
2021
%
3.30
2.65
3.30
3.20
2.20
2.65
1.90
2020
%
2.90
2.15
2.90
2.85
2.10
2.20
1.30
6.1 Related-party transactions
6.2 Contingent liabilities
6.3 Post balance sheet events
AP
Denotes accounting policies
6.1 Related-party transactions
Compensation of key management personnel
Short-term employment benefits
Pension
Share-based payments
2021
£m
12.7
—
0.3
13.0
2020
£m
6.9
—
3.5
10.4
Gains on share options exercised in the year by Capita plc executive directors were £nil (2020: £49,569) and by key management personnel
£1,132,231 (2020: £38,050), totalling £1,132,231 (2020: £87,619).
During the year, the Group rendered administrative services to Smart DCC Limited (DCC), a wholly-owned subsidiary which is not consolidated
(refer to note 4.7). The Group received £90.1m (2020: £113.1m) of revenue for these services. 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.
Capita Pension and Life Assurance Scheme is a related party of the Group. Transactions with the Scheme are disclosed in note 5.2
.
6.2 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 £28.7m (2020: £55.8m).
The Group is in discussions with a number of its closed book Life & Pensions clients, the outcomes and timings of which are uncertain but
could result in 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.
The Group’s entities are parties to legal actions and claims which arise in the normal course of business. The Group needs to apply judgement
in determining the merit of litigation against it and the chances of a claim successfully being made. It needs to determine the likelihood of an
outflow of economic benefits occurring and whether there is a need to disclose a contingent liability or whether a provision might be required
due to the probability assessment.
At any time there are a number of claims or notifications that need to be assessed across the Group. The disparate nature of the Group’s
entities heightens the risk that not all potential claims are known at any point in time.
6.3 Post balance sheet events
The following events occurred after 31 December 2021, and before the approval of these consolidated financial statements, but have not
resulted in adjustment to the 2021 financial results:
Disposal of AMT Sybex
The disposal of the AMT Sybex software business to Jonas Computing (UK) Limited completed on 1 January 2022.
Cash proceeds of £23.0m were received on completion, which included the settlement of intercompany balances owed by AMT Sybex to the
Group of £12.8m. Following an impairment of assets in 2021 based on the expected fair value less cost of disposal of the business, net assets
of £17.7m were disposed of on completion. Total costs of disposal are estimated to be £3.4m, of which £1.7m were recognised at 31 December
2021.
Potential additional consideration of up to £17m is payable to Capita over 24 months, subject to certain conditions.
Disposal of Secure Solutions and Services (SSS)
The disposal of the SSS business to NEC Software Solutions UK completed on 3 January 2022.
Cash proceeds of £72.0m were received on completion, which included the settlement of intercompany balances owed by SSS to the Group of
£41.8m. Net liabilities of £0.3m were disposed of, and total disposal costs are estimated to be £4.2m (of which £2.9m were recognised at
31 December 2021). Consequently, we expect to record a total gain on disposal of approximately £26.3m.
Disposal of Trustmarque
The disposal of the Trustmarque business to One Equity Partners was announced on 28 January 2022 for £111m on a cash free, debt free
basis, and the Group expects to receive net proceeds of c.£115m at completion. Additional consideration of c.£3m is payable to Capita
contingent on certain future events. The sale is subject to certain consents.
5.2 Pensions continued
Financial and demographic assumptions
Main assumptions1:
Rate of price inflation – RPI
Rate of price inflation – CPI
Rate of salary increase
Rate of increase of pensions in payment2:
– RPI inflation capped at 5% per annum
– RPI inflation capped at 2.5% per annum
– CPI inflation capped at 5% per annum
Discount rate
Expected take up maximum available tax free cash
85.00
85.00
1. Only the discount rate is relevant to the Admitted Body Scheme. Different assumptions apply to non-UK schemes, for example: the discount rate for the Irish Schemes are 1.25% per
annum and for the Swiss schemes it is 0.35% per annum in 2021.
2. There are other levels of pension increase which apply to particular periods of membership.
The average future life expectancy from age 65 (in years) for mortality tables used to determine scheme liabilities for the various different
schemes at 31 December 2021 and 31 December 2020 are as follows:
Member currently aged 65 (current life expectancy)
Member currently aged 45 (life expectancy at 65)
2021
22.5
Male
2020
22.5
2021
24.4
Female
2020
24.3
2021
22.4
Male
2020
22.4
2021
25.3
Female
2020
25.3
21.6 to 22.6
21.5 to 22.8
23.5 to 24.4
23.3 to 24.9
22.4 to 24.9
22.4 to 24.6
25.1 to 26.4
24.5 to 26.6
Capita Scheme1
Other Schemes2
1. The assumptions used for the Capita scheme are tailored for each member. The assumptions adopted make allowance for an increase in the longevity in the future. The rate for members
currently aged 65 is derived from the pensioner membership and the rate for members reaching age 65 in 20 years' time is derived from non-pensioner membership.
2. This does not apply to the Admitted Body Scheme or the allocated section of a Local Government Pension Scheme.
5.3 Employee benefit expense
Accounting policies
Government grants
Wages and salaries
Social security costs
Pension costs1
Share-based payments
Government grants are not recognised until there is a reasonable assurance that they Group will comply with the conditions attaching to them
and that the grants will be received. Government grants are recognised in the consolidated income statement on a systematic basis over the
periods in which the Group recognises, as expenses, the related costs for which the grants are intended to compensate. Government grants
that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the
Group with no future related costs are recognised in the consolidated income statement in the period in which they become receivable.
1. Pension costs include contributions from employees amounting to £47.6m (2020: £47.9m).
During 2021 and 2020, the Group furloughed employees unable to work as a result of the Covid-19 pandemic, and applied to the Coronavirus
Job Retention Scheme (CJRS) operated by the UK Government. Amounts received under CJRS are treated as a government grant and
deducted from the relevant cost in the consolidated income statement. During the year, the Group claimed £4.9m (2020: £21.3m) under CJRS.
These amounts are included within the relevant cost headings in the table above.
The aggregate amount of directors’ remuneration (salary, bonus and benefits) is shown on page 109 of the directors’ remuneration report.
•
•
•
The aggregate amount of gains made by directors on exercise of share options was £— (2020: £49,569) (refer to note 6.1).
The remuneration of the highest paid director was £1,237,918 (2020: £1,112,325).
Payments have been made to a defined contribution pension scheme on behalf of four directors (2020: four directors). For the
highest paid director, pension contributions of £36,250 (2020: £36,250) were made.
The average number of employees during the year was made up as follows:
Sales
Administration
Operations
Notes
5.2
5.1
2021
£m
2020
£m
1,493.3
1,511.7
155.9
116.7
1.2
154.6
122.1
6.4
1,767.1
1,794.8
2021
Number
766
3,259
49,305
2020
Number
1,661
3,962
52,702
53,330
58,325
Financial statementsCapita plc Annual Report 2021Notes to the consolidated financial statements 171
Capita plc Annual Report 2021
Company financial statements
204
Section 7: Company financial statements
This section presents the company only financial statements for Capita plc (the Company). In this section, you will find
the following:
7.1
7.2
7.3
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
AP
Denotes accounting policies
J
Denotes significant accounting judgements, estimates and assumptions
7.1 Company balance sheet
Non-current assets
Intangible assets
Tangible assets
Investments
Financial assets
Deferred tax assets
Trade and other receivables
Current assets
Financial assets
Amounts owed by subsidiary undertakings
Trade and other receivables
Income tax receivable
Cash
Total assets
Current liabilities
Amounts owed to subsidiary undertakings
Trade and other payables
Accruals and deferred income
Overdrafts
Borrowings
Financial liabilities
Provisions
Non-current liabilities
Trade and other payables
Borrowings
Financial liabilities
Total liabilities
Net assets
Capital and reserves
Issued share capital
Employee benefit trust and treasury shares
Share premium
Capital redemption reserve
Merger reserve
Cash flow hedging reserve
Retained earnings
Total equity
Notes
7.3.2
7.3.3
7.3.4
7.3.5
7.3.6
7.3.7
7.3.5
7.3.7
7.3.8
7.3.10
7.3.5
7.3.9
7.3.8
7.3.10
7.3.5
7.3.11
7.3.11
7.3.11
2021
£m
2020
£m
26.8
13.2
947.3
22.0
12.7
0.1
1,022.1
10.9
2,619.8
13.1
59.3
—
89.1
14.7
683.3
35.4
10.0
1.8
834.3
28.3
2,946.9
8.6
64.1
1.6
2,703.1
3,049.5
3,725.2
3,883.8
2,086.8
7.9
41.7
31.0
196.2
5.2
8.2
2,003.9
13.6
11.6
131.9
—
3.4
17.3
2,377.0
2,181.7
0.3
51.7
3.6
55.6
0.3
214.8
4.1
219.2
2,432.6
2,400.9
1,292.6
1,482.9
34.8
(8.0)
1,145.5
1.8
44.6
(0.7)
74.6
34.5
(11.2)
1,143.3
1.8
44.6
(4.6)
274.5
1,292.6
1,482.9
The Company’s loss after taxation was £198.0m (2020: £113.9m loss).
The accompanying notes form part of the financial statements.
The accounts were approved by the Board of directors on 9 March 2022 and signed on its behalf by:
Jon Lewis
Chief Executive Officer
Tim Weller
Chief Financial Officer
Company registered number: 02081330
Financial statementsCapita plc Annual Report 2021Company financial statements 171
Capita plc Annual Report 2021
Company financial statements
172
Capita plc Annual Report 2021
205
Section 7: Company financial statements
This section presents the company only financial statements for Capita plc (the Company). In this section, you will find
Section 7: Company financial statements continued
7.2 Company statement of changes in equity
the following:
Company balance sheet
7.1
7.2
7.3
Company statement of changes in equity
Notes to the Company financial statements
Denotes accounting policies
Denotes significant accounting judgements, estimates and assumptions
At 1 January 2020
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Share-based payment
At 1 January 2021
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Shares issued
VAT refund on rights issue issuance costs
Employee
benefit trust
and treasury
shares
£m
Share
premium
£m
Capital
redemption
reserve
£m
1.8
—
—
—
—
1.8
—
—
—
—
—
—
—
—
—
(11.2) 1,143.3
—
—
—
—
(11.2) 1,143.3
—
—
—
—
2.2
—
—
—
(0.3)
—
Share
capital
£m
34.5
—
—
—
—
34.5
—
—
—
0.3
—
Exercise of share options under employee long term
incentive plans
Share-based payment net of tax effects
At 31 December 2021
—
—
34.8
3.5
—
—
—
(8.0) 1,145.5
—
—
1.8
1. The directors did not declare a dividend in 2021 or 2020.
Merger
reserve
£m
44.6
—
—
—
—
44.6
—
—
—
—
—
—
—
44.6
Cash flow
hedging
reserve
£m
—
—
(4.6)
(4.6)
—
(4.6)
—
3.9
3.9
—
—
Retained
earnings
£m
Total
£m
382.0 1,595.0
(113.9)
(113.9)
(4.6)
—
(118.5)
(113.9)
6.4
6.4
274.5 1,482.9
(198.0)
(198.0)
3.9
—
(194.1)
(198.0)
—
—
2.2
—
—
—
(0.7)
(3.5)
1.6
—
1.6
74.6 1,292.6
Share capital – The balance classified as share capital is the nominal proceeds on issue of the Company’s equity share capital, comprising
2 1/15p ordinary shares.
Employee benefit trust and treasury shares – Shares that have been bought back by the Company which are available for retirement or
resale; shares held in the employee benefit trust have no voting rights and no entitlement to a dividend.
Share premium – The amount paid to the Company by shareholders, in cash or other consideration, over and above the nominal value of
shares issued to them less issuance costs.
Capital redemption reserve – The Company can redeem shares by repaying the market value to the shareholder, whereupon the shares are
cancelled. Redemption must be from distributable profits. The Capital redemption reserve represents the nominal value of the shares
redeemed.
Merger reserve – The merger reserve arose from the adoption of the exemption under section 131 of the Companies Act not to set up a share
premium account in respect shares issued for the acquisition of entities. The amounts attributed to the shares issued for these acquisitions that
exceeded their nominal value was transferred to the merger reserve.
Cash flow hedging reserves – This reserve records the portion of the gain or loss on a hedging instrument in a cash flow that is determined to
be an effective hedge.
Retained earnings – Net (losses)/profits accumulated in the Company after dividends are paid.
The accompanying notes are an integral part of the financial statements.
7.1 Company balance sheet
Non-current assets
Intangible assets
Tangible assets
Investments
Financial assets
Deferred tax assets
Trade and other receivables
Current assets
Financial assets
Amounts owed by subsidiary undertakings
Trade and other receivables
Income tax receivable
Cash
Total assets
Current liabilities
Amounts owed to subsidiary undertakings
Trade and other payables
Accruals and deferred income
Overdrafts
Borrowings
Financial liabilities
Provisions
Non-current liabilities
Trade and other payables
Borrowings
Financial liabilities
Total liabilities
Net assets
Capital and reserves
Issued share capital
Share premium
Capital redemption reserve
Merger reserve
Cash flow hedging reserve
Retained earnings
Total equity
Employee benefit trust and treasury shares
Notes
7.3.2
7.3.3
7.3.4
7.3.5
7.3.6
7.3.7
7.3.5
7.3.7
7.3.8
7.3.10
7.3.5
7.3.9
7.3.8
7.3.10
7.3.5
7.3.11
7.3.11
7.3.11
2021
£m
2020
£m
26.8
13.2
947.3
22.0
12.7
0.1
89.1
14.7
683.3
35.4
10.0
1.8
1,022.1
834.3
10.9
28.3
2,619.8
2,946.9
13.1
59.3
—
8.6
64.1
1.6
2,703.1
3,049.5
3,725.2
3,883.8
2,086.8
2,003.9
7.9
41.7
31.0
196.2
5.2
8.2
0.3
51.7
3.6
55.6
13.6
11.6
131.9
—
3.4
17.3
0.3
214.8
4.1
219.2
2,377.0
2,181.7
2,432.6
2,400.9
1,292.6
1,482.9
1,145.5
1,143.3
34.8
(8.0)
1.8
44.6
(0.7)
74.6
34.5
(11.2)
1.8
44.6
(4.6)
274.5
1,292.6
1,482.9
The Company’s loss after taxation was £198.0m (2020: £113.9m loss).
The accompanying notes form part of the financial statements.
The accounts were approved by the Board of directors on 9 March 2022 and signed on its behalf by:
Jon Lewis
Chief Executive Officer
Tim Weller
Chief Financial Officer
Company registered number: 02081330
Financial statementsCapita plc Annual Report 2021Company financial statements
173
Capita plc Annual Report 2020
206
Section 7: Company financial statements continued
7.3 Notes to the Company financial statements
7.3.1 Accounting policies
AP
Accounting policies
Basis of preparation
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of international
accounting standards in conformity with the requirements of the Companies Act 2006 (Adopted IFRSs), but makes amendments where
necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has
been taken.
The financial statements have been prepared in accordance with Financial Reporting Standard 101 – Reduced Disclosure Framework (FRS
101) as issued by the Financial Reporting Council. The Company has not presented its own profit and loss account as permitted by Section
408 of the Companies Act 2006.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share
based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation
of a cash-flow statement, standards not yet effective, impairment of assets and related party transactions.
The financial statements have been prepared on the historical cost basis and on the going concern basis, except for the revaluation of certain
financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the goods and services.
The principal accounting policies adopted are the same as those set out in Sections 1 to 6 of the consolidated financial statements, except as
noted below.
J
Significant accounting judgements, estimates and assumptions
(a) Investments in subsidiaries
The Company has investments in subsidiaries which are shown at cost, less provisions for impairment. Investments in subsidiaries are
reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
The Company determines whether investments in subsidiaries are impaired based on impairment indicators. If an indicator is identified, an
impairment test is performed. This involves estimation of the enterprise value of the investee which is determines based on the greater of
discounted future cash flows at a suitable discount rate or through the recoverable value of the investments held by the investee company.
(b) Pension schemes
The Company participates in a number of defined contribution schemes and contributions are charged to the profit and loss account in the year
in which they are due. These schemes are funded and the payment of contributions is made to separately administered trust funds. The assets
of these schemes are held separately from the Company. The Company remits monthly pension contributions to Capita Business Services
Limited, a subsidiary undertaking, which pays the Group liability centrally. Any unpaid contributions at the year-end have been accrued in the
accounts of that company.
The Company also has employees who are members of a defined benefit scheme operated by the Group – the Capita Pension & Life
Assurance Scheme (the Capita DB Scheme). The Company has a current employee who continues to accrue benefits in the Capita DB
Scheme.
As there is no contractual arrangement or stated Group policy for charging the net defined benefit cost of the Capita DB Scheme to
participating entities, the net defined benefit cost is recognised fully by the principal employer, which is Capita Business Services Limited. The
Company then recognises a cost equal to its contribution payable for the period. The contributions payable by the participating entities are
determined on the following basis:
• The Capita DB Scheme provides benefits on a defined benefit basis funded from assets held in a separate trustee-administered fund.
• The Capita DB Scheme is a non-segregated scheme but there are around 200 different sections in the Scheme where each section provides
benefits on a particular basis (some based on final salary, some based on career average earnings) to particular groups of employees.
• At each funding assessment of the Capita DB Scheme (carried out triennially), the contribution rates for those sections containing active
members are calculated. These are then rationalised such that sections with similar employer contribution rates (when expressed as a
percentage of pensionable pay) are grouped together and an average employer contribution rate for each of the rationalised groups
calculated.
• The Company’s contribution is consequently calculated by applying the appropriate average employer contribution rates to the pensionable
pay of its employees participating in the Capita DB Scheme.
A full actuarial valuation of the Capita DB Scheme is carried out every three years by an independent actuary for the Trustee Board, with the
last full actuarial valuation carried out as at 31 March 2020. The purpose of that valuation is to design a funding plan to ensure that the Capita
DB Scheme has sufficient assets available to meet future benefit payments, based on assumptions agreed between the Trustee Board and
Capita Business Services Limited. The 31 March 2020 actuarial valuation showed a funding deficit of £182.2m (31 March 2017: £185.0m). This
equates to a funding level of 89.0% (31 March 2017: 86%). As a result of the funding valuation, Capita Business Services Limited and the
Trustee Board agreed a funding plan to eliminate the deficit - Capita Business Services Limited has agreed to pay additional contributions
totalling £124m between July 2021 and December 2023.
In addition to the above, the principal employer has agreed to make additional, non-statutory, contributions of £15m each year in 2024, 2025
and 2026 to meet a secondary funding target.
The next scheme funding assessment is expected to be carried out with an effective date of 31 March 2023.
Note 5.2 of the Group’s consolidated financial statements sets out more detail.
Financial statementsCapita plc Annual Report 2021Company financial statements 173
Capita plc Annual Report 2020
174
Capita plc Annual Report 2021
207
Section 7: Company financial statements continued
7.3 Notes to the Company financial statements
Section 7: Company financial statements continued
7.3.1 Accounting policies continued
(c) Share-based payments
Subsidiary undertakings of the Company reimburse the Company through the intercompany account for charges attributable to their employees
participating in the Company’s share schemes.
(d) Amounts owed by/to subsidiary undertakings
J
Significant accounting judgements, estimates and assumptions
The amounts owed by and to subsidiary undertakings are repayable on demand along with any accrued interest. They are shown at cost plus
accrued interest less any provision for impairment. Amounts owed by subsidiary undertakings are reviewed for impairment annually or more
frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Company determines whether amounts
owed by subsidiary undertakings are impaired by considering if there is an indicator of increased credit risk. The key assumption considered is
the probability of a subsidiary undertaking going into default at the balance sheet date.
The definition of default used by the Company is that the counter-party is in a net liability position. In this case credit risk at the balance sheet
date is captured by the definition of default and the probability of default occurring in the next day (reflecting the contractual period of a demand
loan). The policy is to assess the net asset/net liability position of each investment and then to conclude on the probability of default, and
quantum of any impairment, by reference to the future discounted cash flows. With the contractual arrangements based on repayment on
demand the future credit risk had a very limited impact on the calculation of expected credit losses at the balance sheet date.
The cash shortfalls arising when an amount owed by a subsidiary undertaking is in default are assessed by discounting the expected future
cash flows at the original effective interest rate of the instrument. Where it is expected that the principal and all associated interest can be
recovered at some point in the future, no material expected credit loss is recognised.
Significant accounting judgements, estimates and assumptions
7.3.2 Intangible assets
Cost
At 1 January 2021
Additions
Retirement
At 31 December 2021
Amortisation
At 1 January 2021
Charge for year
Impairment
Retirement
At 31 December 2021
Net book value:
At 1 January 2021
At 31 December 2021
Capitalised
software
development
£m
Other
intangibles
£m
87.2
0.8
(56.2)
31.8
19.3
6.7
41.4
(56.2)
11.2
29.2
—
(13.5)
15.7
8.0
2.4
12.6
(13.5)
9.5
Total
£m
116.4
0.8
(69.7)
47.5
27.3
9.1
54.0
(69.7)
20.7
67.9
20.6
21.2
6.2
89.1
26.8
Other intangibles relates to software purchased from third parties.
At 31 December 2021, £53.5m was impaired in respect of areas of a new financial reporting system invested in as part of the finance
transformation that are no longer expected to be used. Refer to the Chief Financial Officer’s review in the Strategic report for details.
7.3.1 Accounting policies
Accounting policies
Basis of preparation
been taken.
408 of the Companies Act 2006.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of international
accounting standards in conformity with the requirements of the Companies Act 2006 (Adopted IFRSs), but makes amendments where
necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has
The financial statements have been prepared in accordance with Financial Reporting Standard 101 – Reduced Disclosure Framework (FRS
101) as issued by the Financial Reporting Council. The Company has not presented its own profit and loss account as permitted by Section
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share
based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation
of a cash-flow statement, standards not yet effective, impairment of assets and related party transactions.
The financial statements have been prepared on the historical cost basis and on the going concern basis, except for the revaluation of certain
financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the goods and services.
The principal accounting policies adopted are the same as those set out in Sections 1 to 6 of the consolidated financial statements, except as
noted below.
(a) Investments in subsidiaries
The Company has investments in subsidiaries which are shown at cost, less provisions for impairment. Investments in subsidiaries are
reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
The Company determines whether investments in subsidiaries are impaired based on impairment indicators. If an indicator is identified, an
impairment test is performed. This involves estimation of the enterprise value of the investee which is determines based on the greater of
discounted future cash flows at a suitable discount rate or through the recoverable value of the investments held by the investee company.
The Company participates in a number of defined contribution schemes and contributions are charged to the profit and loss account in the year
in which they are due. These schemes are funded and the payment of contributions is made to separately administered trust funds. The assets
of these schemes are held separately from the Company. The Company remits monthly pension contributions to Capita Business Services
Limited, a subsidiary undertaking, which pays the Group liability centrally. Any unpaid contributions at the year-end have been accrued in the
The Company also has employees who are members of a defined benefit scheme operated by the Group – the Capita Pension & Life
Assurance Scheme (the Capita DB Scheme). The Company has a current employee who continues to accrue benefits in the Capita DB
(b) Pension schemes
accounts of that company.
Scheme.
As there is no contractual arrangement or stated Group policy for charging the net defined benefit cost of the Capita DB Scheme to
participating entities, the net defined benefit cost is recognised fully by the principal employer, which is Capita Business Services Limited. The
Company then recognises a cost equal to its contribution payable for the period. The contributions payable by the participating entities are
determined on the following basis:
• The Capita DB Scheme provides benefits on a defined benefit basis funded from assets held in a separate trustee-administered fund.
• The Capita DB Scheme is a non-segregated scheme but there are around 200 different sections in the Scheme where each section provides
benefits on a particular basis (some based on final salary, some based on career average earnings) to particular groups of employees.
• At each funding assessment of the Capita DB Scheme (carried out triennially), the contribution rates for those sections containing active
members are calculated. These are then rationalised such that sections with similar employer contribution rates (when expressed as a
percentage of pensionable pay) are grouped together and an average employer contribution rate for each of the rationalised groups
calculated.
• The Company’s contribution is consequently calculated by applying the appropriate average employer contribution rates to the pensionable
pay of its employees participating in the Capita DB Scheme.
A full actuarial valuation of the Capita DB Scheme is carried out every three years by an independent actuary for the Trustee Board, with the
last full actuarial valuation carried out as at 31 March 2020. The purpose of that valuation is to design a funding plan to ensure that the Capita
DB Scheme has sufficient assets available to meet future benefit payments, based on assumptions agreed between the Trustee Board and
Capita Business Services Limited. The 31 March 2020 actuarial valuation showed a funding deficit of £182.2m (31 March 2017: £185.0m). This
equates to a funding level of 89.0% (31 March 2017: 86%). As a result of the funding valuation, Capita Business Services Limited and the
Trustee Board agreed a funding plan to eliminate the deficit - Capita Business Services Limited has agreed to pay additional contributions
totalling £124m between July 2021 and December 2023.
In addition to the above, the principal employer has agreed to make additional, non-statutory, contributions of £15m each year in 2024, 2025
and 2026 to meet a secondary funding target.
The next scheme funding assessment is expected to be carried out with an effective date of 31 March 2023.
Note 5.2 of the Group’s consolidated financial statements sets out more detail.
Financial statementsCapita plc Annual Report 2021Company financial statements
208
Section 7: Company financial statements continued
7.3.3 Tangible assets
Cost
At 1 January 2021
Additions
Intragroup transfer
Asset retirements
At 31 December 2021
Depreciation
At 1 January 2021
Charge for year
Impairment
Intragroup transfer
Asset retirements
At 31 December 2021
Net book value:
At 1 January 2021
At 31 December 2021
7.3.4 Investments
Net book value
At 1 January 2021
Additions1
Impairment2
At 31 December 2021
Computer
equipment
£m
Short-term
leasehold
improvements
£m
Equipment
right-of-use
asset
£m
20.1
4.9
(0.3)
(2.5)
22.2
7.0
4.9
0.5
(0.1)
(2.5)
9.8
13.1
12.4
1.7
—
(0.4)
—
1.3
0.3
0.2
—
—
—
0.5
1.4
0.8
0.4
—
—
—
0.4
0.2
—
0.2
—
—
0.4
0.2
—
Total
£m
22.2
4.9
(0.7)
(2.5)
23.9
7.5
5.1
0.7
(0.1)
(2.5)
10.7
14.7
13.2
Shares in
subsidiary
undertakings
£m
683.3
264.8
(0.8)
947.3
Proportion of nominal
value
of issued shares held
by the Company
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
1. During the year ended 31 December 2021, Capita plc invested £215.0m in Capita Holdings Limited and £49.8m in Capita Employee Benefits Holdings Limited.
2. During the year ended 31 December 2021, Capita plc impaired its investment in Capita Financial Services Holdings Limited by £0.8m.
Direct investments
Capita Pension Solutions Limited (formerly known as
Capita Employee Benefits Limited)2
Capita Legal Services Limited1
Capita Employee Benefits Holdings Limited1
Capita Financial Services Holdings Limited1
Capita Group Insurance PCC Limited3
Capita Gwent Consultancy Limited2,5
Capita Holdings Limited1
Capita International Limited2
Capita Life & Pensions Regulated Services Limited2
Capita International Retirement Benefit Scheme
Trustees Limited4
Capita Ireland Limited2
Capita Life & Pensions Services Limited2
Capita Shared Services Limited2
1. Investing holding company.
2. Outsourcing services company.
3. Insurance captive.
4. Trustee company for the pension schemes.
5. In liquidation.
Registered office
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 4AT,
Guernsey
1 More London Place, London, SE1 2AF
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1,
D01P767
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
Financial statementsCapita plc Annual Report 2021Company financial statements
Section 7: Company financial statements continued
7.3.3 Tangible assets
Section 7: Company financial statements continued
7.3.4 Investments continued
176
Capita plc Annual Report 2021
209
Cost
At 1 January 2021
Additions
Intragroup transfer
Asset retirements
At 31 December 2021
Depreciation
At 1 January 2021
Charge for year
Impairment
Intragroup transfer
Asset retirements
At 31 December 2021
Net book value:
At 1 January 2021
At 31 December 2021
7.3.4 Investments
Net book value
At 1 January 2021
Additions1
Impairment2
At 31 December 2021
1. During the year ended 31 December 2021, Capita plc invested £215.0m in Capita Holdings Limited and £49.8m in Capita Employee Benefits Holdings Limited.
2. During the year ended 31 December 2021, Capita plc impaired its investment in Capita Financial Services Holdings Limited by £0.8m.
Direct investments
Registered office
Capita Pension Solutions Limited (formerly known as
65 Gresham Street, London, England, EC2V 7NQ
Capita Employee Benefits Limited)2
Capita Legal Services Limited1
Capita Employee Benefits Holdings Limited1
Capita Financial Services Holdings Limited1
Capita Group Insurance PCC Limited3
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 4AT,
Guernsey
Capita Gwent Consultancy Limited2,5
1 More London Place, London, SE1 2AF
Capita Holdings Limited1
Capita International Limited2
65 Gresham Street, London, England, EC2V 7NQ
65 Gresham Street, London, England, EC2V 7NQ
Capita Life & Pensions Regulated Services Limited2
65 Gresham Street, London, England, EC2V 7NQ
Capita International Retirement Benefit Scheme
65 Gresham Street, London, England, EC2V 7NQ
Trustees Limited4
Capita Ireland Limited2
Capita Life & Pensions Services Limited2
65 Gresham Street, London, England, EC2V 7NQ
Capita Shared Services Limited2
65 Gresham Street, London, England, EC2V 7NQ
2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1,
D01P767
1. Investing holding company.
2. Outsourcing services company.
3. Insurance captive.
4. Trustee company for the pension schemes.
5. In liquidation.
Computer
equipment
£m
Short-term
leasehold
improvements
£m
Equipment
right-of-use
asset
£m
20.1
4.9
(0.3)
(2.5)
22.2
7.0
4.9
0.5
(0.1)
(2.5)
9.8
13.1
12.4
1.7
—
(0.4)
—
1.3
0.3
0.2
—
—
—
0.5
1.4
0.8
0.4
—
—
—
0.4
0.2
—
0.2
—
—
0.4
0.2
—
Total
£m
22.2
4.9
(0.7)
(2.5)
23.9
7.5
5.1
0.7
(0.1)
(2.5)
10.7
14.7
13.2
Shares in
subsidiary
undertakings
£m
683.3
264.8
(0.8)
947.3
Proportion of nominal
value
of issued shares held
by the Company
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
Certain subsidiaries of the Group have opted to take advantage of a statutory exemption from having an audit in respect of their individual
statutory accounts. Strict criteria must be met for this exemption to be taken and has been agreed to by the directors of those subsidiary
entities.
Listed in note 7.3.16 to the Company financial statements are subsidiaries controlled and consolidated by the Group, where the directors have
taken advantage of the exemption from having an audit of the entities’ individual financial statements for the year ended 31 December 2021 in
accordance with Section 479A of The Companies Act 2006.
In order to facilitate the adoption of this exemption, Capita plc, the parent company of the subsidiaries concerned, undertakes to provide a
guarantee under Section 479C of the Companies Act 2006 in respect of those subsidiaries. Details of all indirect subsidiaries, as required under
Section 409 of the Companies Act 2006, are reported in note 7.3.16 to the Company financial statements.
The Company considered whether there was an indicator of impairment in investments in subsidiaries at 31 December 2021, and due to the
Company’s market capitalisation being below the carrying value of the Company’s net assets, concluded a trigger existed and performed an
impairment test.
The impairment test
The cash flow projections used for the impairment test, are derived from the 2022-2024 business plans approved by the Board. The enterprise
value is then calculated based on the present value of estimated future cash flows discounted at the current market rate of return.
The long-term growth rate is based on economic growth forecasts by recognised bodies and this has been applied to the forecast cash flows
for the terminal period. The 2021 long-term growth rate is 1.7% (2020: 1.6%).
Discount rates
Management estimates discount rates using pre-tax rates that reflected the latest market assumptions for the risk-free rate, the equity risk
premium and the cost of debt, which are all based on publicly available external sources. The discount rate used for all investments was 13.0%
(2020: 10.9%).
Sensitivity analysis
The impairment testing as described is reliant on the accuracy of management’s forecasts and the assumptions that underlie them; and on the
selection of the discount and growth rates to be applied. To gauge the sensitivity of the result to a change in any one, or combination of the
assumptions that underlie the model, a number of scenarios were developed to identify the range of reasonably possible alternatives and
measure which investments are the most susceptible to an impairment should the assumptions used be varied. This sensitivity analysis is only
applicable to those investments which have not already been fully impaired.
The table below shows the additional impairment required (with all other variables being equal) by: an increase in discount rate of 1%; or a
decrease in the long-term growth rate of 1% (for the terminal period) for each of the investments; or by the severe but plausible downsides
applied to the base-case projections for assessing going concern and viability, without mitigations; and from all of the scenarios together. The
table below excludes those investments which have been fully impaired previously or are held at nominal value.
Capita Pension Solutions Limited (formerly known as Capita
Employee Benefits Limited)
Capita Financial Services Holdings Limited
Capita Group Insurance PCC Limited
Capita Holdings Limited
Capita International Limited
Capita Life & Pensions Regulated Services Limited
Capita Employee Benefits Holdings Limited
1% increase in
discount rate
£m
1% decrease in
long-term
growth rate
£m
Severe but
plausible
downside
£m
Combination
sensitivity
£m
—
(0.6)
—
—
—
—
—
—
(0.5)
—
—
—
—
—
—
(1.0)
—
—
—
—
—
—
(1.8)
—
—
—
—
—
At 31 December 2021, an impairment of £0.8m (2020: £0.5m) has arisen from the impairment test performed. Under the combination sensitivity
scenario, additional impairments of £1.8m have been highlighted in relation to Capita Financial Services Holdings Limited.
Management continue to monitor closely the performance of all investments in subsidiaries and consider the impact of any changes to the key
assumptions. Given the performance of certain subsidiaries has been affected by the continued recovery from Covid-19, there is a greater
range of potential future outcomes. A number of these downsides would give rise to an impairment.
Financial statementsCapita plc Annual Report 2021Company financial statements
Section 7: Company financial statements continued
7.3.5 Financial instruments
Cash flow hedges
Non-designated foreign exchange forwards and swaps
Lease liabilities
Interest rate swaps
Cross-currency interest rate swaps
Analysed as:
Current
Non-current
7.3.6 Deferred tax
Deferred tax included in the balance sheet is as follows:
Accelerated capital allowances
Tax losses
Other short term timing differences1
1 This includes deferred interest in 2021 however it was shown as part of tax losses in 2020
7.3.7 Trade and other receivables
Trade receivables
Other debtors
Other taxes and social security
Prepayments
7.3.8 Trade and other payables
Trade creditors
Other creditors
7.3.9 Provisions
At 1 January
Provisions provided for in the year
Provisions released in the year
Utilisation
At 31 December
Financial
assets
2021
£m
0.9
1.8
—
—
30.2
32.9
10.9
22.0
32.9
Financial
liabilities
2021
£m
1.8
4.7
0.1
—
2.2
8.8
5.2
3.6
8.8
210
Financial
assets
2020
£m
0.1
Financial
liabilities
2020
£m
2.8
2.9
—
0.5
60.2
63.7
28.3
35.4
63.7
2021
£m
5.4
1.0
6.3
12.7
1.7
0.3
—
2.7
7.5
3.4
4.1
7.5
2020
£m
4.4
5.5
0.1
10.0
2021
£m
—
2.0
1.4
9.7
13.1
Current
Non-current
2020
£m
0.1
0.4
2.0
6.1
8.6
2021
£m
—
—
—
0.1
0.1
2020
£m
—
—
—
1.8
1.8
Current
Non-current
2021
£m
7.2
0.7
7.9
2020
£m
12.8
0.8
13.6
2021
£m
—
0.3
0.3
2020
£m
—
0.3
0.3
2021
£m
17.3
8.8
(5.9)
(12.0)
8.2
2020
£m
15.2
5.9
(3.4)
(0.4)
17.3
The majority of the provisions relate to the claims and litigations provisions of £4.0m and onerous contract provisions of £2.3m. Further detail
on these provisions can be found in note 3.6 to the Group’s consolidated financial statements.
Financial statementsCapita plc Annual Report 2021Company financial statements
Section 7: Company financial statements continued
7.3.5 Financial instruments
Section 7: Company financial statements continued
7.3.10 Borrowings
178
Capita plc Annual Report 2021
Private placement loan notes
Credit facilities1
1. Credit facilities includes £40.0m drawing on the RCF.
Repayments fall due as follows:
Due within a year
In more than 1 years but not more than 5 years
In more than 5 years
Total borrowings
The Company issued guaranteed unsecured private placement loan notes as follows:
Fixed rate bearer notes
Fixed rate bearer notes
Schuldschein loan
Total of euro denominated private placement loan notes
Interest rate
(%)
2.875
2.875
3.625
Denomination
EUR
EUR
EUR
EUR
(m)
163.0
60.0
16.0
239.0
211
2021
£m
201.9
46.0
247.9
2020
£m
214.8
–
214.8
196.2
—
51.7
247.9
—
161.2
53.6
214.8
Maturity
10 November 2022
10 November 2027
10 November 2022
In June 2021, the company signed a £300m forward start revolving credit facility (RCF) with our lending banks for the twelve months to August
2023. The new facility will start upon the expiry of the current RCF in August 2022. The RCF was £40.0m drawn at 31 December 2021 out of a
total committed value of £385.7m. Following the receipt of disposal receipts in early January, the drawing was repaid and the commitment
reduced to £377.5m.
In March 2022 the Group executed with one of its relationship banks a committed backstop bridge facility. The facility provides £70m of
additional liquidity and it incorporates provisions such that it will be cancelled or will partially reduce in quantum as a consequence of specified
transactions, including on the completion of the announced disposal of Trustmarque. The committed facility has an expiry date of 31 August
2023 with an option for a further one year extension at the option of the lender. The facility is subject to covenants, which are the same as the
RCF.
Non-current
Finally, at 31 December 2020, £150m in similar committed bank backstop bridge facilities were in place. These were held at December 2020
were cancelled on 1 February 2021 on receipt of disposal proceeds.
Further detail on these facilities can be found in note 4.2 to the Group’s consolidated financial statements.
7.3.11 Share capital
Disclosures about the share capital, share premium, employee benefit trust and treasury shares of the Company have been included in note
4.6 to the Group’s consolidated financial statements.
7.3.12 Contingent liabilities
The Company has provided, through the normal course of its business, performance bonds and bank guarantees of £28.7m (2020: £55.8m).
7.3.13 Related-party transactions
In the following, amounts for purchases and sales are for transactions invoiced during the year inclusive of Value Added Tax where applicable.
All transactions are undertaken at normal market prices.
During the year, the Company sold goods/services in the normal course of business to Entrust Support Services Limited for £0.8m (2020:
£0.9m). The Company purchased goods/services in the normal course of business for £0.2m (2020: £0.1m). At the balance sheet date, the net
amount receivable from Entrust Support Services Limited was £nil (2020: £nil).
In the period to 29 July 2021, the date the Group disposed of AXELOS Limited, the Company sold goods/services in the normal course of
business to AXELOS Limited for £0.4m (to 31 December 2020: £0.9m). The Company purchased goods/services in the normal course of
business for £0.2m (to 31 December 2020: £0.3m). At the balance sheet date, the net amount receivable from AXELOS Limited was £nil (2020:
£nil).
During the year, the Company sold goods/services in the normal course of business to Capita Glamorgan Consultancy Limited for £0.1m
(2020: £0.1m). The Company purchased goods/services in the normal course of business for £nil (2020: £nil). At the balance sheet date, the
net amount receivable from Capita Glamorgan Consultancy Limited was £nil (2020: £nil).
During the year, the Company sold goods/services in the normal course of business to Fera Science Limited for £0.6m (2020: £0.3m). The
Company purchased goods/services in the normal course of business for £0.1m (2020: £nil). At the balance sheet date, the net amount
receivable from Fera Science Limited was £nil (2020: £0.1m).
Non-designated foreign exchange forwards and swaps
Cash flow hedges
Lease liabilities
Interest rate swaps
Analysed as:
Current
Non-current
Cross-currency interest rate swaps
7.3.6 Deferred tax
Deferred tax included in the balance sheet is as follows:
Accelerated capital allowances
Tax losses
Other short term timing differences1
1 This includes deferred interest in 2021 however it was shown as part of tax losses in 2020
7.3.7 Trade and other receivables
Trade receivables
Other debtors
Other taxes and social security
Prepayments
7.3.8 Trade and other payables
Trade creditors
Other creditors
7.3.9 Provisions
At 1 January
Provisions provided for in the year
Provisions released in the year
Utilisation
At 31 December
Financial
assets
2021
£m
Financial
liabilities
2021
£m
Financial
assets
2020
£m
Financial
liabilities
2020
£m
0.9
1.8
—
—
30.2
32.9
10.9
22.0
32.9
1.8
4.7
0.1
—
2.2
8.8
5.2
3.6
8.8
0.1
2.9
—
0.5
60.2
63.7
28.3
35.4
63.7
2021
£m
5.4
1.0
6.3
12.7
10.0
2.8
1.7
0.3
—
2.7
7.5
3.4
4.1
7.5
2020
£m
4.4
5.5
0.1
2020
£m
—
—
—
1.8
1.8
2020
£m
—
0.3
0.3
2021
£m
17.3
8.8
(5.9)
(12.0)
8.2
2020
£m
15.2
5.9
(3.4)
(0.4)
17.3
2021
£m
—
2.0
1.4
9.7
13.1
Current
2020
£m
0.1
0.4
2.0
6.1
8.6
2021
£m
—
—
—
0.1
0.1
Current
Non-current
2021
£m
7.2
0.7
7.9
2020
£m
12.8
0.8
13.6
2021
£m
—
0.3
0.3
The majority of the provisions relate to the claims and litigations provisions of £4.0m and onerous contract provisions of £2.3m. Further detail
on these provisions can be found in note 3.6 to the Group’s consolidated financial statements.
Financial statementsCapita plc Annual Report 2021Company financial statements
212
Section 7: Company financial statements continued
7.3.14 Pension costs
The Company operates defined benefit and defined contribution schemes. The pension charge for these schemes for the year was £2.0m
(2020: £1.8m).
7.3.15 Share-based payments
The Company operates several share-based payment plans and details of the schemes are disclosed in note 5.1 of the Group’s consolidated
financial statements.
The Group recognised an expense for share-based payments in respect of employee services received during the year to 31 December 2021
of £1.2m (2020: £6.4m), all of which arises from equity-settled share-based payment transactions. The total Company expense, after
recharging subsidiary undertakings, charged to the income statement in respect of share-based payments was £0.6m (2020: £3.5m).
Financial statementsCapita plc Annual Report 2021Company financial statements Section 7: Company financial statements continued
The Company operates defined benefit and defined contribution schemes. The pension charge for these schemes for the year was £2.0m
7.3.14 Pension costs
(2020: £1.8m).
7.3.15 Share-based payments
financial statements.
The Company operates several share-based payment plans and details of the schemes are disclosed in note 5.1 of the Group’s consolidated
The Group recognised an expense for share-based payments in respect of employee services received during the year to 31 December 2021
of £1.2m (2020: £6.4m), all of which arises from equity-settled share-based payment transactions. The total Company expense, after
recharging subsidiary undertakings, charged to the income statement in respect of share-based payments was £0.6m (2020: £3.5m).
180
Capita plc Annual Report 2021
213
Section 7: Company financial statements continued
7.3.16 Related undertakings
The stated address relates to the place of incorporation of the entity, which is the same as its tax residence in all cases other than Capita
Group Insurance PCC Limited which is incorporated in Guernsey, but which is tax resident in the UK.
Unless otherwise indicated, all shareholdings are owned indirectly by the company and represent 100% of the issued share capital of the
subsidiary. Dormant companies are marked (D).
Company name
Agiito Limited 5
Share class
£1.00 Ordinary
Company name
Capita Dubai Limited 5
Share class
£1.00 Ordinary
Akinika Debt Recovery Limited 6
£1.00 Ordinary
Capita Employee Benefits (Consulting) Limited 5
£1.00 Ordinary
Akinika Limited 6
£1.00 Ordinary
Capita Employee Benefits Holdings Limited 5 *
£1.00 Ordinary
Akinika UK Limited (in liquidation) 1
£1.00 Ordinary
Capita Pension Solutions Limited 5 *
AMT Group Limited 3
AMT-Sybex (Software) Limited 3
AMT-Sybex Group Limited 3
AMT-Sybex Limited 5
Artificial Labs Ltd 13 ●
Barrachd Limited (in liquidation) 11
BCS Design Ltd (in liquidation) 1
€1.00 Ordinary
€1.00 Ordinary
Capita Energie Services GmbH 27 ►
Capita ESS Holdings Limited 5
€0.0012 Ordinary
Capita Financial Services Holdings Limited 5 *
£1.00 Ordinary
£0.00 Ordinary A
£1.00 Ordinary
Capita Gas Registration and Ancillary Services
Limited 5
Capita Glamorgan Consultancy Limited 5 ▼
Capita GMPS Trustees Limited (D) 5
£1.00 Ordinary
Capita Grosvenor Limited (D) 5
Beovax Computer Services Limited (In liquidation) 1
£1.00 Ordinary
Capita Group Insurance PCC Limited 18 *
Booking Services International Limited 5
£1.00 Ordinary
Capita Group Limited (D) 5
Brentside Communications Limited (D) 5
£1.00 Ordinary
Capita Group Secretary Limited (D) 5
Brightwave Enterprises Limited 5
Brightwave Holdings Limited 5
Brightwave Limited 5
BSI Group Limited 5
£1.00 Ordinary
£1.00 Ordinary
Capita Gwent Consultancy Limited (in liquidation) 1 *
▼
Capita HCH Limited 5
£1.00 Ordinary
Capita Health and Wellbeing Limited 5
£1.00 Ordinary
Capita Health Holdings Limited 5
Call Vision Technologies Ltd (in liquidation) 1
£1.00 Ordinary
Capita Holdings Limited 5 *
Capita (02549055) Limited (in liquidation) 1
£1.00 Ordinary
Capita IB Solutions (Ireland) Limited 3
Capita (04472243) Limited (D) 5
£1.00 Ordinary
Capita IB Solutions Limited 5
Capita (6588350) Limited (in liquidation) 1
£1.00 Ordinary
Capita IB Solutions (HK) Limited 30
Capita (D1) Limited (in liquidation) 1
£1.00 Ordinary
Capita India Private Limited 29
£1.00 Ordinary
€1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.01 Ordinary A
£1.00 Ordinary
£1.00 Ordinary
£1.00 CG1
£1.00 CIC2
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.01 Preference
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
€1.00 Ordinary
£1.00 Ordinary
HKD1.00 Ordinary A
HKD1.00 Ordinary B
INR10.00 Ordinary
Capita (Polska) Spółka z ograniczoną odpowiedzialnością 15 PLZ50.00 Ordinary
Capita (Real Estate & Infrastructure) Limited (D) 5
£1.00 Ordinary
Capita Insurance Services Group Limited 5
£1.00 Ordinary
Capita Insurance Services Holdings Limited 5
Capita (South Africa) (Pty) Limited 10
ZAR1.00 Ordinary
Capita Insurance Services Limited 5
Capita (USA) Holdings Inc. 9
Capita Birmingham Limited 5
US$1.00 Ordinary
Capita International Limited 5 *
£1.00 Ordinary
Capita International Retirement Benefit Scheme
Trustees Limited (D) 5 *
Capita Building Standards Limited (in liquidation) 1
£1.00 Ordinary
Capita Ireland Limited 3 *
Capita Business Services Ltd 5
£1.00 Ordinary
Capita IT Services (BSF) Limited 5
Capita Business Support Services Ireland Limited 3
€1.00 Ordinary
Capita IT Services Holdings Limited 5
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
€1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Capita Commercial Insurance Services Limited 5
£1.00 Ordinary
Capita IT and Consulting India Private Limited (in
liquidation) 29
INR10.00 Ordinary
Capita Corporate Director Limited (D) 5
£1.00 Ordinary
Capita IT Services Limited 28
£1.00 Ordinary
Capita CTI (USA) LLC 9
US$1.00 Ordinary
Capita Justice & Secure Services Holdings Limited 5
£1.00 Ordinary
Capita Customer Management Limited 5
£1.00 Ordinary
Capita Land Limited (D) 5
Capita Customer Services (Germany) GmbH 23
€1.00 Ordinary
Capita Learning Limited 5
Capita Customer Services AG 24
CHF1.00 Ordinary
Capita Legal Services Limited 5 *
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Capita Customer Solutions (UK) Limited 5
£1.00 Ordinary
Capita Life & Pensions Regulated Services Limited 5 * £1.00 Ordinary
Capita Customer Solutions Limited 38
€1.00 Ordinary
Capita Life & Pensions Services Limited 5 *
£1.00 Ordinary
Capita Cyprus Holdings Limited 36
£1.00 Ordinary
Capita Life and Pensions International Limited 5
£1.00 Ordinary
Financial statementsCapita plc Annual Report 2021Company financial statements Strategic report
Corporate governance
Financial statements
181
214
Section 7: Company financial statements continued
7.3.16 Related undertakings continued
Company name
Capita Life and Pensions Services (Isle of Man) Limited 16
Share class
£1.00 Ordinary
Company name
Complete Imaging Limited (in liquidation) 1
Capita Managed IT Solutions Limited 22
£1.00 Ordinary
Computerland UK Limited 5
Capita Managing Agency Limited 5
£1.00 Ordinary
Contact Associates Limited 5
Capita Mclarens Limited 33
£1.00 Ordinary
CPLAS Trustees Limited (D) 5
Share class
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Capita Mortgage Administration Limited 5
£1.00 Ordinary
CS Clinical Solutions India Private Limited 29
INR10.00 Ordinary
Capita Mortgage Software Solutions Limited 5
£1.00 Ordinary
Cymbio Limited 5
Capita Norman + Dawbarn Limited (D) 25 □
Capita Offshore Services Private Limited (in liquidation) 29
NGN1.00 Ordinary
INR10.00 Ordinary
Daisy Updata Communications Limited 26 ▲
Debt Solutions (Holdings) Limited 6
Capita Property and Infrastructure (Structures) Limited 5
£1.00 Ordinary
Capita Property and Infrastructure Consultants LLC (in
liquidation) 2 ♦
Capita Property and Infrastructure Holdings Limited 5
AED1,000.00
Ordinary
Dragonfly Technology Solutions Ltd 4 ○
DSTBTD LIMITED 39 <
£1.00 Ordinary
Duke 2021 Topco Limited 34 >
Capita Property and Infrastructure International Holdings
Limited (D) 5
£1.00 Ordinary
E.B. Consultants Limited (D) 5
Capita Property and Infrastructure International Limited (D)5 £1.00 Ordinary
Electra-Net (UK) Limited 5
Capita Property and Infrastructure Limited 5
£1.00 Ordinary
Electra-Net Group Limited 5
Capita Resourcing Limited 5
£1.00 Ordinary
Electra-Net Holdings Limited 5
Capita Retail Financial Services Limited 5
£1.00 Ordinary
Emercom Ltd (in liquidation) 1
Capita Retain Limited 5
Capita Retain (USA) LLC 9
Capita Scotland (Pension) Limited Partnership 28
£1.00 Ordinary
N/A
N/A
Entrust Support Services Limited 35 ▼
Equita Limited 7
Equitable Holdings Limited (D) 5
£1.00 Ordinary
£1.00 Ordinary B
£1.00 Ordinary
£0.001 Ordinary
£0.001 Ordinary
£1.00 B Preferred
£1.00 Ordinary B
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary X
£1.00 Ordinary
£1.00 Ordinary
Capita Scotland General Partner (Pension) Limited 28
£1.00 Ordinary
Eureka Assessoria Empresarial Ltda (D) 12 ◊
BRL1.00 Ordinary
Capita Secure Information Solutions Limited 5
£1.00 Ordinary
Euristix (Holdings) Limited (D) 5
Capita Services (Isle of Man) Limited (in liquidation) 16
£1.00 Ordinary
Euristix Limited 5
Capita Shared Services Limited 5 *
£1.00 Ordinary
Evolvi Rail Systems Limited 5
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Expotel Hotel Reservations Limited (in liquidation) 1
£1.00 Ordinary
Capita (SSS) Limited 5
Capita Software (US) LLC 9
Capita Southampton Limited 5
N/A
£1.00 Ordinary
Fera Science Limited 5 ■
Fire Service College Limited 5
Capita Symonds (Asia) Limited (D) 5
£1.00 Ordinary
FirstAssist Services Limited 5
Capita Symonds India Private Limited (in liquidation) 29
INR10.00 Ordinary
Full Circle Contact Centre Services (Proprietary)
Limited 10
Capita Symonds Saudi Arabia Limited (D) 40
N/A
G L Hearn Limited 5
Capita Translation and Interpreting Limited 5
£1.00 Ordinary
G L Hearn Management Limited 5
Capita Travel & Events Holdings Limited 5
£1.00 Ordinary
Gissings Trustees Limited (D) 5
Capita Workforce Management Limited 5
£1.00 Ordinary
Grosvenor Career Services Limited (D) 5
Capita West GmbH 23
CAS Services US Inc 17
€25,000.00
Ordinary
Health Analytics Ltd (in liquidation) 1
US$1.00 Ordinary
International Travel Group Limited (in liquidation) 1
£1.00 Ordinary
CCSD Services Limited (in liquidation) 1
£1.00 Ordinary
Latemeetings.com Limited (in liquidation) 1
CHKS Limited 5
Clinical Solutions Acquisition Limited 5
Clinical Solutions Finance Limited 5
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Clinical Solutions Group (International) LLC (D) 17
N/A
Level Financial Technology Limited 31 ◙
Liberty Printers (Ar And Rf Reddin) Limited 5
Market Mortgage Limited 5 ◄
Marrakech (U.K.) Limited 5
Clinical Solutions Holdings Limited 5
£1.00 Ordinary
Marrakech Limited 3
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.001 Ordinary
£1.00 Ordinary
€1.00 Ordinary
Clinical Solutions International Limited 5
£1.00 Ordinary
Medicals Direct International Limited (in liquidation) 1
£1.00 Ordinary
Clinical Solutions IP Limited 5
£1.00 Ordinary
Metacharge Limited 5
CMGL Group Limited (in liquidation) 1
£1.00 Ordinary
NYS Corporate Ltd. (in liquidation) 1
CMGL Holdings Limited (in liquidation) 1
£1.00 Ordinary
Octal Business Solutions Limited 5
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary B
£1.00 Ordinary
£1.00 Ordinary
ZAR0.01 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Financial statementsCapita plc Annual Report 2021Company financial statements Strategic report
Corporate governance
Financial statements
181
182
Capita plc Annual Report 2021
Section 7: Company financial statements continued
7.3.16 Related undertakings continued
Company name
Opin Systems Limited (in liquidation) 11
Optilead Inc. (in liquidation) 9
Share class
£1.00 Ordinary
Company name
Tascor E & D Services Limited 5
US$0.001 Common
Stock
Tascor Services Limited 5
Optilead Limited (D) 5
£1.00 Ordinary
TELAG AG 20
215
Share class
£1.00 Ordinary
£1.00 Ordinary
CHF1,000.00
Ordinary
Optima Legal Services Limited 21
£1.00 Ordinary
The Fisher Training Group Limited (in liquidation) 1
£1.00 Ordinary
PageOne Communications Limited 5
£1.00 Ordinary
The G2G3 Group Ltd. 28
Pardus Holdings Limited 14 ~
£1.00 Ordinary
Thirty Three Group Limited (D) 5
Pay360 Limited 5
Pervasive Limited 5
£1.00 Ordinary
Thirty Three LLP 5
£1.00 Ordinary
ThirtyThree APAC Limited 8
Pervasive Networks Limited 5
£1.00 Ordinary
ThirtyThree USA Inc. 9
Rathcush Limited (in liquidation) 19
€1.00 Ordinary
Trustmarque Solutions Limited 5
RE (Regional Enterprise) Limited 5 ▼
Retain International (Holdings) Limited (D) 5
£1.00 Ordinary A
Updata Infrastructure (UK) Limited 5
£1.00 Ordinary
Updata Infrastructure 2012 Limited (D) 5
Retain International Limited (D) 5
Ross & Roberts Limited 7
£1.00 Ordinary
£1.00 Ordinary
Urban Vision Partnership Limited 5 ►
Ventura (India) Private Limited 37
Sbj Benefit Consultants Limited (D) 5
£1.00 Ordinary
Ventura (UK) India Limited 5
£1.00 Ordinary
£1.00 Ordinary
N/A
HKD1.00 Ordinary
US$1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary B
INR10.00 Ordinary
£1.00 Ordinary
Sbj Professional Trustees Limited (D) 5
£1.00 Ordinary
Venues Event Management Limited (in liquidation) 1
£1.00 Ordinary
SDP Regeneration Services 2 Limited 5
£1.00 Ordinary
Vilanova Management Limited (in liquidation) 19
Security Watchdog Limited (D) 5
£1.00 Ordinary
Voice Marketing Limited 5
Smart DCC Limited 5
Stirling Park LLP 41
£1.00 Ordinary
Wabowden Limited (in liquidation) 19
N/A
Western Mortgage Services Limited 5
Symonds Travers Morgan (Malaysia) SDN. BHD (D) 32
RM1.00 Ordinary
Woolf Limited 5
€1.00 Ordinary
£1.00 Ordinary
€1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Synaptic Software Limited 5
£1.00 Ordinary
Capita Mortgage Administration Limited 5
£1.00 Ordinary
CS Clinical Solutions India Private Limited 29
INR10.00 Ordinary
Section 7: Company financial statements continued
7.3.16 Related undertakings continued
Company name
Share class
Company name
Capita Life and Pensions Services (Isle of Man) Limited 16
£1.00 Ordinary
Complete Imaging Limited (in liquidation) 1
Capita Managed IT Solutions Limited 22
£1.00 Ordinary
Computerland UK Limited 5
Capita Managing Agency Limited 5
£1.00 Ordinary
Contact Associates Limited 5
Capita Mclarens Limited 33
£1.00 Ordinary
CPLAS Trustees Limited (D) 5
liquidation) 2 ♦
Limited (D) 5
Capita Mortgage Software Solutions Limited 5
£1.00 Ordinary
Cymbio Limited 5
Capita Norman + Dawbarn Limited (D) 25 □
NGN1.00 Ordinary
Daisy Updata Communications Limited 26 ▲
Capita Offshore Services Private Limited (in liquidation) 29
INR10.00 Ordinary
Debt Solutions (Holdings) Limited 6
Capita Property and Infrastructure (Structures) Limited 5
£1.00 Ordinary
Dragonfly Technology Solutions Ltd 4 ○
Capita Property and Infrastructure Consultants LLC (in
DSTBTD LIMITED 39 <
AED1,000.00
Ordinary
Capita Property and Infrastructure Holdings Limited 5
£1.00 Ordinary
Duke 2021 Topco Limited 34 >
Capita Property and Infrastructure International Holdings
£1.00 Ordinary
E.B. Consultants Limited (D) 5
Capita Property and Infrastructure International Limited (D)5 £1.00 Ordinary
Electra-Net (UK) Limited 5
Capita Property and Infrastructure Limited 5
£1.00 Ordinary
Electra-Net Group Limited 5
Capita Resourcing Limited 5
£1.00 Ordinary
Electra-Net Holdings Limited 5
Capita Retail Financial Services Limited 5
£1.00 Ordinary
Emercom Ltd (in liquidation) 1
Capita Retain Limited 5
Capita Retain (USA) LLC 9
Capita Scotland (Pension) Limited Partnership 28
Equitable Holdings Limited (D) 5
£1.00 Ordinary
Entrust Support Services Limited 35 ▼
Equita Limited 7
N/A
N/A
Capita Scotland General Partner (Pension) Limited 28
£1.00 Ordinary
Eureka Assessoria Empresarial Ltda (D) 12 ◊
BRL1.00 Ordinary
Capita Secure Information Solutions Limited 5
£1.00 Ordinary
Euristix (Holdings) Limited (D) 5
Capita Services (Isle of Man) Limited (in liquidation) 16
£1.00 Ordinary
Euristix Limited 5
Capita Shared Services Limited 5 *
£1.00 Ordinary
Evolvi Rail Systems Limited 5
Capita (SSS) Limited 5
Capita Software (US) LLC 9
Capita Southampton Limited 5
£1.00 Ordinary
Expotel Hotel Reservations Limited (in liquidation) 1
£1.00 Ordinary
N/A
Fera Science Limited 5 ■
£1.00 Ordinary
Fire Service College Limited 5
Capita Symonds (Asia) Limited (D) 5
£1.00 Ordinary
FirstAssist Services Limited 5
Capita Symonds India Private Limited (in liquidation) 29
INR10.00 Ordinary
Full Circle Contact Centre Services (Proprietary)
ZAR0.01 Ordinary
Limited 10
Capita Symonds Saudi Arabia Limited (D) 40
N/A
G L Hearn Limited 5
Capita Translation and Interpreting Limited 5
£1.00 Ordinary
G L Hearn Management Limited 5
Capita Travel & Events Holdings Limited 5
£1.00 Ordinary
Gissings Trustees Limited (D) 5
Capita Workforce Management Limited 5
£1.00 Ordinary
Grosvenor Career Services Limited (D) 5
Capita West GmbH 23
CAS Services US Inc 17
€25,000.00
Ordinary
Health Analytics Ltd (in liquidation) 1
US$1.00 Ordinary
International Travel Group Limited (in liquidation) 1
£1.00 Ordinary
CCSD Services Limited (in liquidation) 1
£1.00 Ordinary
Latemeetings.com Limited (in liquidation) 1
CHKS Limited 5
£1.00 Ordinary
Level Financial Technology Limited 31 ◙
Clinical Solutions Acquisition Limited 5
£1.00 Ordinary
Liberty Printers (Ar And Rf Reddin) Limited 5
Clinical Solutions Finance Limited 5
£1.00 Ordinary
Market Mortgage Limited 5 ◄
Clinical Solutions Group (International) LLC (D) 17
N/A
Marrakech (U.K.) Limited 5
Clinical Solutions Holdings Limited 5
£1.00 Ordinary
Marrakech Limited 3
Clinical Solutions International Limited 5
£1.00 Ordinary
Medicals Direct International Limited (in liquidation) 1
£1.00 Ordinary
Clinical Solutions IP Limited 5
£1.00 Ordinary
Metacharge Limited 5
CMGL Group Limited (in liquidation) 1
£1.00 Ordinary
NYS Corporate Ltd. (in liquidation) 1
CMGL Holdings Limited (in liquidation) 1
£1.00 Ordinary
Octal Business Solutions Limited 5
Share class
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary B
£1.00 Ordinary
£0.001 Ordinary
£0.001 Ordinary
£1.00 B Preferred
£1.00 Ordinary B
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary X
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary B
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£0.001 Ordinary
£1.00 Ordinary
€1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
£1.00 Ordinary
Financial statementsCapita plc Annual Report 2021Company financial statements Strategic report
Corporate governance
Financial statements
183
216
Section 7: Company financial statements continued
7.3.16 Related undertakings continued
Footnotes
* Companies directly held by Capita plc.
~ Shareholdings owned indirectly by the company and represent 11.32 % of the issued share capital
of subsidiary.
> Shareholdings owned indirectly by the company and represent 1.04% of the issued share capital of
subsidiary.
< Shareholdings owned indirectly by the company and represent 18.70% of the issued share capital of
subsidiary.
● Shareholdings owned indirectly by the company and represent 22.72% of the issued share capital
of subsidiary.
○ Shareholdings owned indirectly by the company and represent 20.01% of the issued share capital
of subsidiary
♦ Shareholdings owned indirectly by the company and represent 49% of the issued share capital of
subsidiary.
◊ Shareholdings owned indirectly by the company and represent 49.9% of the issued share capital of
subsidiary.
▲ Shareholdings owned indirectly by the company and represent 50% of the issued share capital of
subsidiary.
► Shareholdings owned indirectly by the company and represent 50.1% of the issued share capital of
subsidiary.
▼ Shareholdings owned indirectly by the company and represent 51% of the issued share capital of
subsidiary.
◄ Shareholdings owned indirectly by the company and represent 48.29% of the issued share capital
of subsidiary.
■ Shareholdings owned indirectly by the company and represent 75% of the issued share capital of
subsidiary.
□ Shareholdings owned indirectly by the company and represent 97.3% of the issued share capital of
subsidiary.
◙ Shareholdings owned indirectly by the company and represent 35.90% of the issued share capital
of subsidiary.
Registered office address
1.
2.
3.
4.
5.
6.
7.
8.
9.
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11.
12.
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16.
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36.
37.
1 More London Place, London, SE1 2AF, United Kingdom
1004 Bin Hamoodah Building, Khalifa St., PO Box 113 740, Abu Dhabi, United
Arab Emirates
2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1, D01 P767
2 Biddulph Cottages Windmill Road, Kemble, Gloucestershire, GL7 6AQ,
England
65, Gresham Street, London, EC2V 7NQ, England
33/34 Winckley Square, Preston, Lancashire, PR1 3EL
42/44 Henry Street, Northampton, Northamptonshire, NN1 4BZ, United Kingdom
803, Manning House, 38 Queen's Road Central, Hong Kong
850 New Burton Road, Suite 201, Dover, DE, 19904, United States
8th Floor, Union Castle Building, 55 St Georges Mall, Cape Town, 8001, South
Africa
Atria One, 144 Morrison Street, Edinburgh, EH3 8EX
Alameda dos Guaramomis, no 930, 1st Floor, Suite 01, Bairro, Moema, CEP
04076-011, Brazil
Bourne House, 475 Goodstone Road, Whyteleafe, Surrey, CR3 0BL, England
C/O Pkf Littlejohn, 15 Westferry Circus, Canary Wharf, London, E14 4HD,
England
Centrum Biurowe Lubicz I,ul. Lubicz 23, Krakow, 31-503, Poland
Clinch's House, Lord Street, Douglas, IM99 1RZ, Isle of Man
Corporation Service Company 2711, Centerville Road, Suite 400, Wilmington,
County of Newcastle, DE, 19808, United States
Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 4AT
Ernst & Young, Block I, Harcourt Centre, Harcourt Street, Dublin2, D02 Y A40,
Ireland
Hardturmstrasse 101, Zürich, 8005, Switzerland
Hepworth House, Claypit Lane, Leeds, LS2 8AE, United Kingdom
Hillview House, 61 Church Road, Newtownabbey, Co Antrim, BT36 7LQ
Rudower Chaussee 4, Berlin, 12489, Germany
Konstanzerstrasse 17, Tägerwilen, 8274, Switzerland
10th Floor, UBA House, No 57, Marina Street, Lagos Island, Lagos, Nigeria
Lindred House, 20 Lindred Road, Brierfield, Nelson, Lancashire, BB9 5SR
Nassauer Ring 39-41, Krefeld, 47803, Germany
Pavilion Building, Ellismuir Way, Tannochside Park, Uddingston, Glasgow, G71
5PW, United Kingdom
Plant 06, Gate No. 2, Godrej and Boyce Complex, LBS Marg, Pirojshahnagar,
Vikhroli (West), Mumbai, 400 079, India
803 Manning House, 48 Queen's Road Central, Hong Kong
Rift Accounting House, 160 Eureka Park Upper Pemberton, Kennington,
Ashford, TN25 4AZ, England & Wales
Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50409 Kuala
Lumpur, Malaysia
The Beacon, 176 St Vincent Street, Glasgow, G2 5SG, United Kingdom
22 Grenville Street, St Helier, Jersey, JE4 8PX, Channel Islands
The Riverway Centre, Riverway, Stafford, ST16 3TH, United Kingdom
Themistokli Dervi 3, Julia House, Nicosia, 1066, Cyprus
Upper Ground Level, Level 1, level 2, & level 3, Tower B1, Margapatta City SEZ,
Margapatta City, Hadapsar, Pune,411013 India Maharashtra
Unit B, West Cork Technology Park, Clonakilty, Cork, Ireland
38.
39. Wsm, Connect House 133-137 Alexandra Road, Wimbledon, London, United
Kingdom, SW19 7JY
King Abdul Aziz Street, PO Box 7052, Dammam, Saudi Arabia
24 Blythswood Square, Glasgow, G2 4BG, Scotland
40.
41.
Financial statementsCapita plc Annual Report 2021Company financial statements Strategic report
Corporate governance
Financial statements
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184
Capita plc Annual Report 2021
217
Section 7: Company financial statements continued
7.3.16 Related undertakings continued
Footnotes
* Companies directly held by Capita plc.
~ Shareholdings owned indirectly by the company and represent 11.32 % of the issued share capital
> Shareholdings owned indirectly by the company and represent 1.04% of the issued share capital of
< Shareholdings owned indirectly by the company and represent 18.70% of the issued share capital of
● Shareholdings owned indirectly by the company and represent 22.72% of the issued share capital
○ Shareholdings owned indirectly by the company and represent 20.01% of the issued share capital
♦ Shareholdings owned indirectly by the company and represent 49% of the issued share capital of
◊ Shareholdings owned indirectly by the company and represent 49.9% of the issued share capital of
Registered office address
1 More London Place, London, SE1 2AF, United Kingdom
1004 Bin Hamoodah Building, Khalifa St., PO Box 113 740, Abu Dhabi, United
2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1, D01 P767
2 Biddulph Cottages Windmill Road, Kemble, Gloucestershire, GL7 6AQ,
Arab Emirates
England
65, Gresham Street, London, EC2V 7NQ, England
33/34 Winckley Square, Preston, Lancashire, PR1 3EL
42/44 Henry Street, Northampton, Northamptonshire, NN1 4BZ, United Kingdom
803, Manning House, 38 Queen's Road Central, Hong Kong
850 New Burton Road, Suite 201, Dover, DE, 19904, United States
10.
8th Floor, Union Castle Building, 55 St Georges Mall, Cape Town, 8001, South
▲ Shareholdings owned indirectly by the company and represent 50% of the issued share capital of
Africa
► Shareholdings owned indirectly by the company and represent 50.1% of the issued share capital of
▼ Shareholdings owned indirectly by the company and represent 51% of the issued share capital of
◄ Shareholdings owned indirectly by the company and represent 48.29% of the issued share capital
C/O Pkf Littlejohn, 15 Westferry Circus, Canary Wharf, London, E14 4HD,
■ Shareholdings owned indirectly by the company and represent 75% of the issued share capital of
□ Shareholdings owned indirectly by the company and represent 97.3% of the issued share capital of
◙ Shareholdings owned indirectly by the company and represent 35.90% of the issued share capital
of subsidiary.
subsidiary.
subsidiary.
of subsidiary.
of subsidiary
subsidiary.
subsidiary.
subsidiary.
subsidiary.
subsidiary.
of subsidiary.
subsidiary.
subsidiary.
of subsidiary.
1.
2.
3.
4.
5.
6.
7.
8.
9.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
30.
31.
33.
34.
35.
36.
37.
40.
41.
Atria One, 144 Morrison Street, Edinburgh, EH3 8EX
Alameda dos Guaramomis, no 930, 1st Floor, Suite 01, Bairro, Moema, CEP
04076-011, Brazil
Bourne House, 475 Goodstone Road, Whyteleafe, Surrey, CR3 0BL, England
England
Ireland
Centrum Biurowe Lubicz I,ul. Lubicz 23, Krakow, 31-503, Poland
Clinch's House, Lord Street, Douglas, IM99 1RZ, Isle of Man
Corporation Service Company 2711, Centerville Road, Suite 400, Wilmington,
County of Newcastle, DE, 19808, United States
Dorey Court, Admiral Park, St. Peter Port, Guernsey, GY1 4AT
Ernst & Young, Block I, Harcourt Centre, Harcourt Street, Dublin2, D02 Y A40,
Hardturmstrasse 101, Zürich, 8005, Switzerland
Hepworth House, Claypit Lane, Leeds, LS2 8AE, United Kingdom
Hillview House, 61 Church Road, Newtownabbey, Co Antrim, BT36 7LQ
Rudower Chaussee 4, Berlin, 12489, Germany
Konstanzerstrasse 17, Tägerwilen, 8274, Switzerland
10th Floor, UBA House, No 57, Marina Street, Lagos Island, Lagos, Nigeria
Lindred House, 20 Lindred Road, Brierfield, Nelson, Lancashire, BB9 5SR
Nassauer Ring 39-41, Krefeld, 47803, Germany
Pavilion Building, Ellismuir Way, Tannochside Park, Uddingston, Glasgow, G71
5PW, United Kingdom
29.
Plant 06, Gate No. 2, Godrej and Boyce Complex, LBS Marg, Pirojshahnagar,
Vikhroli (West), Mumbai, 400 079, India
803 Manning House, 48 Queen's Road Central, Hong Kong
Rift Accounting House, 160 Eureka Park Upper Pemberton, Kennington,
Ashford, TN25 4AZ, England & Wales
32.
Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50409 Kuala
Lumpur, Malaysia
The Beacon, 176 St Vincent Street, Glasgow, G2 5SG, United Kingdom
22 Grenville Street, St Helier, Jersey, JE4 8PX, Channel Islands
The Riverway Centre, Riverway, Stafford, ST16 3TH, United Kingdom
Themistokli Dervi 3, Julia House, Nicosia, 1066, Cyprus
Upper Ground Level, Level 1, level 2, & level 3, Tower B1, Margapatta City SEZ,
Margapatta City, Hadapsar, Pune,411013 India Maharashtra
38.
Unit B, West Cork Technology Park, Clonakilty, Cork, Ireland
39. Wsm, Connect House 133-137 Alexandra Road, Wimbledon, London, United
Kingdom, SW19 7JY
King Abdul Aziz Street, PO Box 7052, Dammam, Saudi Arabia
24 Blythswood Square, Glasgow, G2 4BG, Scotland
Section 7: Company financial statements continued
7.3.16 Related undertakings continued
Listed below are subsidiaries controlled and consolidated by the Group, where the directors have taken the exemption from having an audit of
its financial statements for the year ended 31 December 2021. This exemption is taken in accordance with Companies Act Section 479A.
Company name
Company registration Company name
Company registration
Booking Services International Limited
Brightwave Enterprises Limited
Brightwave Holdings Limited
Brightwave Limited
BSI Group Limited
Capita Birmingham Limited
Capita Gas Registration and Ancillary Services Limited
Capita HCH Limited
Capita Health and Wellbeing Limited
Capita IT Services (BSF) Limited
Capita IT Services Limited
1833039
7066783
7462788
4092349
3005596
5660977
5078781
2384029
3185776
1855936
Clinical Solutions Holdings Limited
Clinical Solutions International Limited
Clinical Solutions IP Limited
Cymbio Limited
Debt Solutions (Holdings) Limited
Euristix Limited
Fire Service College Limited
FirstAssist Services Limited
Liberty Printers (AR and RF Reddin)
Limited
Metacharge Limited
SC045439
Octal Business Solutions Limited
Capita Learning Limited (previously Knowledgepool
Limited)
4968329
Pervasive Limited
Capita Managed IT Solutions Limited
NI032979
Pervasive Networks Limited
Capita Mclarens Limited
SC021024
SDP Regeneration Services 2 Limited
Capita Property and Infrastructure (Structures) Limited
2082106
Tascor E &D Services Limited
Capita Southampton Limited
CHKS Limited
Clinical Solutions Acquisition Limited
Clinical Solutions Finance Limited
10207906
The G2G3 Group Ltd
2442956
5353896
5337592
Thirty Three LLP
Woolf Limited
5337596
4394761
5354046
6462086
3673307
5420948
8102633
1404718
2920033
3950372
5182624
5679204
3429318
4626963
9980217
SC199414
OC372712
1564535
Financial statementsCapita plc Annual Report 2021Company financial statements 218
Section 8: Additional information
In this section
8.1 Shareholder information
8.2 Alternative performance measures
8.1 Shareholder information
In this section we have provided you with some key information
to manage your shareholding in Capita plc.
Useful websites
Capita (www.capita.com/investors)
Our corporate site is our main external communication channel where
we showcase our services, solutions and innovations from across the
wider Company. It also contains an investor section, where institutional
and private shareholders can access the latest announcements,
financial and statutory information and reports.
Shareholder portal (www.capitashares.co.uk)
Capita’s register of shareholders is maintained by Link Group. Our
shareholder portal is a secure online site where you can manage your
shareholding quickly and easily. You can manage many aspects, such
as viewing your holding, updating contact details, managing dividend
payments, requesting to receive shareholder communications by email
and registering. To register you will need your investor code, which can
be found on your share certificate or dividend confirmation.
e-communications
Help us communicate with you in a greener, more efficient and
cost-effective way by switching from postal to email communications,
which means that we will notify you by email each time new shareholder
communications have been placed on the Capita website.
Registering for e-communications is very straightforward. Go to our
shareholder portal www.capitashares.co.uk. Further information about
our shareholder portal is below.
Managing your shareholding
We aim to communicate effectively with our shareholders, via our
website www.capita.com/investors. Shareholders who have questions
relating to the Group’s business or wish to receive further hard copies
of annual reports should contact Capita’s investor relations team on
+44 (0) 798 966 5484 or email: IRTeam@capita.com
Company contact details
Registered office
Capita plc
65 Gresham Street
London EC2V 7NQ
Tel: 020 7799 1525
Registered in England and Wales with registration number: 02081330
Investor Relations
IRTeam@capita.com
Director of Investor Relations – Stuart Morgan
Company Secretariat
secretariat@capita.com
Chief General Counsel and Group Company Secretary – Claire Denton
Company advisers
Independent auditor
KPMG LLP
Corporate brokers
Barclays Bank plc
Goldman Sachs International Bank
Bankers
Barclays Bank plc
Citicorp North America, Inc
Deutsche Bank AG Filiale Luxemburg
Goldman Sachs International Bank
ING Bank NV, London Branch
Lloyds Bank plc
National Westminster Bank plc
Sumitomo Mitsui Banking Corporation, London Branch
If you have any queries about your shareholding or dividend payments
please contact the Company’s registrar, Link Group:
Corporate communications
Powerscourt
Registrars
Link Group
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Email: enquiries@linkgroup.co.uk
Tel: +44 (0) 371 664 0300 (Calls are charged at the standard
geographic rate and will vary by provider. Calls outside the United
Kingdom are charged at the applicable international rate.)
Lines are open 9.00am – 5.30pm, Monday to Friday excluding public
holidays in England and Wales.
Financial statementsCapita plc Annual Report 2021Additional information 186
Capita plc Annual Report 2021
219
8.2 Alternative performance measures
The Group presents various alternative performance measures (APMs) as the performance of the Group is reported and measured on this
basis internally or reported on externally for covenant purposes. This includes key performance indicators (KPIs) such as adjusted revenue,
adjusted profit before tax, adjusted earnings per share, adjusted free cash flow, adjusted return on capital employed, interest cover and gearing
ratios.
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 significant restructuring, acquired intangible amortisation
and impairments of goodwill are excluded. These measures may not be comparable when reviewing similar measures reported by other
companies.
APM
Income statement
Closest equivalent IFRS
measure
Definition, Purpose and Reconciliation
Adjusted revenue Revenue
Calculated as revenue less any revenue relating to businesses that have been disposed of, or exited
during the year or prior year; or, are in the process of being disposed of, or exited.
This headline measure of revenue is used internally to analyse the growth in sales in the Group’s core
business (being: the Group’s continuing activities, which exclude business exits) and the directors
believe 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):
Reported revenue per the income statement
Deduct: business exits (note 2.2.1)
Adjusted revenue
Adjusted revenue growth/(decline)
2021
2020
£3,182.5m £3,324.8m
(£174.0m) (£329.3m)
£3,008.5m £2,995.5m
(9.7) %
0.4 %
Adjusted
operating profit
Operating profit
Calculated as reported operating profit excluding items determined by the Board to be outside
underlying operations. These items are detailed in note 2.4.
The directors believe 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.
A reconciliation of reported to adjusted operating profit is provided in note 2.4.
Adjusted
operating profit
margin
Operating profit
margin
Calculated as the adjusted operating profit divided by adjusted revenue.
This measure is an indicator of the Group’s operating efficiency.
Adjusted EBITDA EBITDA
The table below shows the components, and calculation, of adjusted operating profit margin:
Adjusted revenue
Adjusted operating profit (note 2.4)
Adjusted operating profit margin
a
b
b/a
2021
2020
£3,008.5m £2,995.5m
£139.1m
£51.1m
4.6 %
1.7 %
Calculated as adjusted operating profit for the last twelve months before: depreciation, amortisation
and impairment of property, plant and equipment and intangible 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 EBITDA is a useful measure for investors because it is closely
monitored by management to evaluate Group and divisional operating performance and is the basis
of the measure agreed with the lenders for the purpose of measuring compliance with covenants.
This measures has been calculated pre and post IFRS 16 to enable investors to understand the
impact of the Group’s lease portfolio on adjusted EBITDA.
The table below shows the calculation of adjusted EBITDA:
Post IFRS 16
Pre IFRS 16
2021
2020
2021
2020
Adjusted profit before tax
£93.5m
£5.4m £104.2m
£17.4m
Add back: adjusted net finance costs (note 4.3)
£45.0m
£46.5m
£25.5m
£22.6m
Add back: adjusted depreciation and impairment
of property, plant and equipment
Add back: depreciation of right-of-use assets (note
3.5)
Add back: adjusted amortisation and impairment
of intangibles
Remove: Share of results in associates and
investment gains (income statement)
Adjusted EBITDA
Adjusted EBITDA margin
£48.9m
£52.3m
£48.9m
£52.3m
£68.2m
£88.2m
£—m
£—m
£38.9m
£36.8m
£38.9m
£36.8m
£0.6m
(£0.8m)
£0.6m
(£0.8m)
£295.1m £228.4m £218.1m £128.3m
9.8 %
7.6 %
7.2 %
4.3 %
Financial statementsCapita plc Annual Report 2021Additional information
220
8.2 Alternative performance measures continued
APM
Closest equivalent
IFRS measure
Definition, Purpose and Reconciliation
Income statement continued
Adjusted profit
before tax
Profit before tax Calculated as profit or loss before tax excluding the items detailed in note 2.4 which include, but are
not limited to: significant restructuring; business exits (trading results, non-trading expenses, and any
gain/(loss) on business disposal); acquired intangible amortisation; and, impairment of goodwill and
acquired intangibles.
The directors believe 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.
A reconciliation of reported to adjusted profit before tax is provided in note 2.4.
Adjusted profit
after tax
Profit after tax Calculated as the above adjusted profit or loss before tax, less the tax credit or expense on adjusted
profit or loss.
The table below shows a reconciliation:
Adjusted profit before tax (note 2.4)
Tax on adjusted profit (note 2.6.1)
Adjusted profit after tax
2021
£93.5m
2020
£5.4m
(£64.8m)
£25.3m
£28.7m
£30.7m
Adjusted tax rate
Tax rate
Calculated as the income tax credit or expense on the adjusted profit or loss before tax divided by the
adjusted profit or loss before tax.
The effective tax rate for 31 December 2021 is calculated from the current year elements of
corporation (£27.8m) and deferred taxes (£78.8m) (2020: £14.6m and £(16.0)m respectively), which
exclude one-off items.
The directors believe that this tax rate provides an indication of the effective average tax rate across
the Group on adjusted profit before tax.
For further information refer to note 2.6.
Adjusted basic
earnings per share
Basic earnings
per share
Calculated as the adjusted profit/(loss) for the year after tax less non-controlling interests divided by
the weighted average number of ordinary shares outstanding during the year.
The directors believe that this provides an indication of basic earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted basic earnings per share refer to note 2.7.
Adjusted diluted
earnings per share
Diluted
earnings per
share
Calculated as the adjusted profit/(loss) for the year after tax less non-controlling interests divided by
the weighted average number of ordinary shares outstanding during the period plus the weighted
average number of ordinary shares that would have been issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares.
The directors believe that this provides an indication of diluted earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted diluted earnings per share refer to note 2.7.
Cash flows and net debt
Adjusted cash
flows generated
from operations
Cash generated
from operations
Calculated as the cash flows generated from operations excluding the items detailed in note 2.10.2
which includes, but are not limited to: significant restructuring; business exits (trading results, non-
trading expenses); pension deficit contributions; and, non-recourse trade receivables financing.
Adjusted free cash
flow
Net cash flows
from operating
activities
The directors believe 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.
A reconciliation of reported to adjusted cash generated/(used) from operations is provided in note
2.10.2.
Calculated as adjusted cash generated from operations after: capital expenditure; income tax and
interest; and, the proceeds from the sale of property, plant and equipment and intangible assets.
Free cash flow is a measure used to show how efficient the Group is at generating cash and the
directors believe it is useful for investors and management to measure whether the Group has
enough cash to fund operations, capital expenditure, debt and pension obligations and dividends.
A reconciliation of net cash flows from operating activities to free cash flow is provided in note 2.10.1
and a reconciliation of reported to adjusted free cash flow is provided in note 2.10.2.
Financial statementsCapita plc Annual Report 2021Additional information
188
Capita plc Annual Report 2021
221
8.2 Alternative performance measures continued
APM
Cash flows and net debt continued
Closest equivalent IFRS
measure
Definition, Purpose and Reconciliation
Adjusted profit
Profit before tax Calculated as profit or loss before tax excluding the items detailed in note 2.4 which include, but are
Net debt
not limited to: significant restructuring; business exits (trading results, non-trading expenses, and any
gain/(loss) on business disposal); acquired intangible amortisation; and, impairment of goodwill and
Borrowings, cash,
derivatives, lease
liabilities and
deferred
consideration
Is calculated as the net of the Group’s: cash, cash equivalents and overdrafts; the fair value of the
Group’s private placement loan notes debt; other loan notes; lease liabilities; and, deferred
consideration.
The directors believe 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 and it’s
liquidity.
The calculation of net debt is provided in notes 2.10.3 and 4.1.1
Headline net debt No direct
equivalent
Is calculated as the sum of the Group’s: cash, cash equivalents and overdrafts; the fair value of the
Group’s private placement loan notes debt; other loan notes; and, deferred consideration.
The directors believe that headline net debt allows the investors to see the impact of the Group's
lease portfolio on the net debt position.
Adjusted tax rate
Tax rate
Calculated as the income tax credit or expense on the adjusted profit or loss before tax divided by the
The effective tax rate for 31 December 2021 is calculated from the current year elements of
corporation (£27.8m) and deferred taxes (£78.8m) (2020: £14.6m and £(16.0)m respectively), which
The directors believe that this tax rate provides an indication of the effective average tax rate across
Headline gearing:
net debt to
adjusted EBITDA
ratio
No direct
equivalent
Net debt (note 4.1.1)
Remove: IFRS16 impact (note 4.4)
Headline net debt (pre-IFRS 16)
2021
2020
£879.8m £1,077.1m
(£448.4m) (£508.1m)
£431.4m
£569.0m
This ratio is calculated as net debt divided by adjusted EBITDA including businesses held-for-sale
at the balance sheet date.
The directors believe that this ratio is useful because it shows how significant net debt is relative to
adjusted EBITDA and how many years it would take for the Group to pay back its debt if headline
net debt and adjusted EBITDA were held constant.
This measure has been calculated including and excluding lease liabilities because the directors
believe this provides useful information to enable investors to understand the impact of the Group’s
lease portfolio on net debt and headline gearing.
The table below shows the components, and calculation, of the headline net debt to adjusted
EBITDA ratio:
Post IFRS 16
Pre IFRS 16
2021
20201
2021
20201
Adjusted EBITDA
EBITDA in respect of businesses held-for-sale
Adjusted EBITDA (including businesses held-for-
sale)
Headline net debt
£295.1m £293.0m £218.1m £187.3m
£52.8m
£32.2m
£32.2m
£53.0m
£327.3m £346.0m £250.3m £240.1m
£879.8m £1,077.1m £431.4m £569.0m
1. To ensure consistent presentation of the ratios between periods, the 2020 comparatives have not been restated.
Headline net debt to adjusted EBITDA ratio
2.7x
3.1x
1.7x
2.4x
8.2 Alternative performance measures continued
APM
Definition, Purpose and Reconciliation
Closest equivalent
IFRS measure
Income statement continued
before tax
acquired intangibles.
operating decisions.
The directors believe 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
A reconciliation of reported to adjusted profit before tax is provided in note 2.4.
Adjusted profit
Profit after tax Calculated as the above adjusted profit or loss before tax, less the tax credit or expense on adjusted
after tax
profit or loss.
The table below shows a reconciliation:
Adjusted profit before tax (note 2.4)
Tax on adjusted profit (note 2.6.1)
Adjusted profit after tax
adjusted profit or loss before tax.
exclude one-off items.
the Group on adjusted profit before tax.
For further information refer to note 2.6.
2021
2020
£93.5m
£5.4m
(£64.8m)
£25.3m
£28.7m
£30.7m
Adjusted basic
Basic earnings
Calculated as the adjusted profit/(loss) for the year after tax less non-controlling interests divided by
earnings per share
per share
the weighted average number of ordinary shares outstanding during the year.
The directors believe that this provides an indication of basic earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted basic earnings per share refer to note 2.7.
Adjusted diluted
Diluted
earnings per share
earnings per
share
Calculated as the adjusted profit/(loss) for the year after tax less non-controlling interests divided by
the weighted average number of ordinary shares outstanding during the period plus the weighted
average number of ordinary shares that would have been issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares.
The directors believe that this provides an indication of diluted earnings per share of the Group on
adjusted profit after tax.
For the calculation of adjusted diluted earnings per share refer to note 2.7.
Cash flows and net debt
Adjusted cash
flows generated
from operations
Cash generated
from operations
Calculated as the cash flows generated from operations excluding the items detailed in note 2.10.2
which includes, but are not limited to: significant restructuring; business exits (trading results, non-
trading expenses); pension deficit contributions; and, non-recourse trade receivables financing.
The directors believe 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.
2.10.2.
A reconciliation of reported to adjusted cash generated/(used) from operations is provided in note
Adjusted free cash
flow
Net cash flows
from operating
Calculated as adjusted cash generated from operations after: capital expenditure; income tax and
interest; and, the proceeds from the sale of property, plant and equipment and intangible assets.
activities
Free cash flow is a measure used to show how efficient the Group is at generating cash and the
directors believe it is useful for investors and management to measure whether the Group has
enough cash to fund operations, capital expenditure, debt and pension obligations and dividends.
A reconciliation of net cash flows from operating activities to free cash flow is provided in note 2.10.1
and a reconciliation of reported to adjusted free cash flow is provided in note 2.10.2.
Financial statementsCapita plc Annual Report 2021Additional information
222
8.2 Alternative performance measures continued
8.2 Alternative performance measures continued
The below measures are submitted to the Group’s lenders and the directors believe these measures provide a useful insight to investors. The
31 December 2020 comparatives have not been restated because they are not required to be restated for covenant purposes.
The below measures are submitted to the Group’s lenders and the directors believe these measures provide a useful insight to investors. The
31 December 2020 comparatives have not been restated because they are not required to be restated for covenant purposes.
2021
2021
2020 Source
2020 Source
Covenants
Covenants
Adjusted operating profit1
Adjusted operating profit1
Add: business exit – trading
Add: business exit – trading
Add: share of earnings in associates
Add: share of earnings in associates
Deduct: non-controlling interest
Deduct: non-controlling interest
Add back: share-based payment charge
Add back: share-based payment charge
Add back: non-current service pension charge
Add back: non-current service pension charge
Add back: amortisation of purchased intangibles
Add back: amortisation of purchased intangibles
Adjusted EBITA
Adjusted EBITA
Less: IFRS 16 impact
Less: IFRS 16 impact
Adjusted EBITA (excluding IFRS 16)
Adjusted EBITA (excluding IFRS 16)
£139.1m £111.0m Line information in note 2.4
£51.0m Line information in note 2.8
£139.1m £111.0m Line information in note 2.4
£51.0m Line information in note 2.8
£50.8m
£50.8m
£0.6m
£0.6m
(£2.4m)
(£2.4m)
£1.2m
£1.2m
£2.6m
£2.6m
£40.8m
£40.8m
(£0.8m)
(£0.8m)
(£12.6m) Adjusted EBIT attributable to NCI
(£12.6m) Adjusted EBIT attributable to NCI
£6.4m Line information in note 2.10.1
£6.4m Line information in note 2.10.1
£6.9m Line information in note 5.2
£6.9m Line information in note 5.2
£42.3m Line information in note 3.3
£42.3m Line information in note 3.3
a1 £232.7m £204.2m
a1 £232.7m £204.2m
(£17.5m)
(£17.5m)
(£8.9m)
a2 £223.8m £186.7m
a2 £223.8m £186.7m
(£8.9m)
Adjusted EBITA
Adjusted EBITA
£232.7m £204.2m Line item above
£232.7m £204.2m Line item above
Deduct: business exit – trading sold
Deduct: business exit – trading sold
Add back: adjusted depreciation and impairment of
Add back: adjusted depreciation and impairment of
property, plant & equipment and right of use assets
property, plant & equipment and right of use assets
Covenant calculation – adjusted EBITDA
Covenant calculation – adjusted EBITDA
Less: IFRS 16 impact
Less: IFRS 16 impact
Covenant calculation – adjusted EBITDA (excluding IFRS
16)
Covenant calculation – adjusted EBITDA (excluding IFRS
16)
(£22.9m)
(£22.9m)
£2.5m Trading (profit)/loss for businesses sold
£2.5m Trading (profit)/loss for businesses sold
£117.1m £140.9m See notes 2.10.1, 3.2, 3.5
£117.1m £140.9m See notes 2.10.1, 3.2, 3.5
b1 £326.9m £347.6m
b1 £326.9m £347.6m
(£77.1m) (£105.7m)
(£77.1m) (£105.7m)
b2 £249.8m £241.9m
b2 £249.8m £241.9m
Adjusted interest charge
Adjusted interest charge
Interest cost attributable to pensions
Interest cost attributable to pensions
Cash flow hedges recycled to the income statement
Cash flow hedges recycled to the income statement
Borrowing costs
Borrowing costs
Less: IFRS 16 impact
Less: IFRS 16 impact
Borrowing costs (excluding IFRS 16)
Borrowing costs (excluding IFRS 16)
(£45.0m)
(£45.0m)
£1.5m
£1.5m
£0.6m
£0.6m
(£42.9m)
(£42.9m)
£19.5m
£19.5m
(£23.4m)
(£23.4m)
c1
c1
c2
c2
(£46.6m) Line information in note 4.3
(£46.6m) Line information in note 4.3
£3.2m Line information in note 4.3
£3.2m Line information in note 4.3
(£4.5m) Line information in note 4.3
(£4.5m) Line information in note 4.3
(£47.9m)
(£47.9m)
£23.9m
£23.9m
(£24.0m)
(£24.0m)
5.1 Interest cover (US PP covenant)
5.1 Interest cover (US PP covenant)
a1/c2
a1/c2
9.9x
9.9x
5.2 Interest cover (other financing agreements)
5.2 Interest cover (other financing agreements)
a2/c2
a2/c2
9.6x
9.6x
8.5x Adjusted EBITA/Borrowing costs with adjusted
8.5x Adjusted EBITA/Borrowing costs with adjusted
EBITDA including the impact of IFRS 16 and
EBITDA including the impact of IFRS 16 and
the borrowing costs excluding the impact of
the borrowing costs excluding the impact of
IFRS 16. Minimum permitted value of 4.0
IFRS 16. Minimum permitted value of 4.0
7.8x Adjusted EBITA/Borrowing costs with both
7.8x Adjusted EBITA/Borrowing costs with both
variables excluding IFRS 16. Minimum
variables excluding IFRS 16. Minimum
permitted value of 4.0
permitted value of 4.0
Net debt
Net debt
Lease liabilities included within disposal group liabilities held
for sale
Lease liabilities included within disposal group liabilities held
for sale
Cash, net of overdrafts, included in disposal group assets
and liabilities held for sale
Cash, net of overdrafts, included in disposal group assets
and liabilities held for sale
Restricted cash2
Restricted cash2
Less: IFRS 16 impact
Less: IFRS 16 impact
Covenant calculation - adjusted net debt (excluding IFRS
16)
Covenant calculation - adjusted net debt (excluding IFRS
16)
£879.8m £1,077.1m Line information in note 2.10.3
£879.8m £1,077.1m Line information in note 2.10.3
(£4.6m) Line information in note 4.4.1
(£4.6m) Line information in note 4.4.1
£—m
£—m
£15.8m
£15.8m
£12.9m Line information in note 4.5.4
£12.9m Line information in note 4.5.4
£54.8m
£54.8m
£34.5m Cash that may not be applied against net debt
£34.5m Cash that may not be applied against net debt
for covenant calculation purposes
for covenant calculation purposes
(£448.4m) (£503.5m)
(£448.4m) (£503.5m)
d1 £502.0m £616.4m
d1 £502.0m £616.4m
6.1 Adjusted net debt to post IFRS 16 adjusted EBITDA
ratio (US PP covenant)
6.1 Adjusted net debt to post IFRS 16 adjusted EBITDA
ratio (US PP covenant)
d1/b1
d1/b1
1.5x
1.5x
6.2 Adjusted net debt to adjusted EBITDA ratio [KPI]
(other financing agreements)
6.2 Adjusted net debt to adjusted EBITDA ratio [KPI]
(other financing agreements)
d1/b2
d1/b2
2.0x
2.0x
1.8x Adjusted net debt/adjusted EBITDA with
1.8x Adjusted net debt/adjusted EBITDA with
adjusted net debt excluding the impact of IFRS
adjusted net debt excluding the impact of IFRS
16 and adjusted EBITDA including the impact
16 and adjusted EBITDA including the impact
of IFRS 16. Maximum permitted value of 3.0
of IFRS 16. Maximum permitted value of 3.0
2.5x Adjusted net debt/adjusted EBITDA with both
variables excluding IFRS 16. Maximum
permitted value of 3.5
2.5x Adjusted net debt/adjusted EBITDA with both
variables excluding IFRS 16. Maximum
permitted value of 3.5
1. Adjusted operating profit excludes items that are separately disclosed and considered to be outside the underlying operating results for the particular period under review and against which
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. Restricted cash includes cash required to be held under FCA regulations, cash held in foreign bank accounts.
2. Restricted cash includes cash required to be held under FCA regulations, cash held in foreign bank accounts.
the Group’s performance is assessed.
Financial statementsCapita plc Annual Report 2021Additional information
8.2 Alternative performance measures continued
8.2 Alternative performance measures continued
The below measures are submitted to the Group’s lenders and the directors believe these measures provide a useful insight to investors. The
The below measures are submitted to the Group’s lenders and the directors believe these measures provide a useful insight to investors. The
31 December 2020 comparatives have not been restated because they are not required to be restated for covenant purposes.
31 December 2020 comparatives have not been restated because they are not required to be restated for covenant purposes.
Covenants
Covenants
Adjusted operating profit1
Adjusted operating profit1
Add: business exit – trading
Add: business exit – trading
Add: share of earnings in associates
Add: share of earnings in associates
Deduct: non-controlling interest
Deduct: non-controlling interest
Add back: share-based payment charge
Add back: share-based payment charge
2021
2021
2020 Source
2020 Source
£139.1m £111.0m Line information in note 2.4
£139.1m £111.0m Line information in note 2.4
£50.8m
£50.8m
£51.0m Line information in note 2.8
£51.0m Line information in note 2.8
£0.6m
£0.6m
(£0.8m)
(£0.8m)
(£2.4m)
(£2.4m)
(£12.6m) Adjusted EBIT attributable to NCI
(£12.6m) Adjusted EBIT attributable to NCI
£1.2m
£1.2m
£6.4m Line information in note 2.10.1
£6.4m Line information in note 2.10.1
Add back: non-current service pension charge
Add back: non-current service pension charge
£2.6m
£2.6m
£6.9m Line information in note 5.2
£6.9m Line information in note 5.2
Add back: amortisation of purchased intangibles
Add back: amortisation of purchased intangibles
£40.8m
£40.8m
£42.3m Line information in note 3.3
£42.3m Line information in note 3.3
Adjusted EBITA
Adjusted EBITA
Less: IFRS 16 impact
Less: IFRS 16 impact
Adjusted EBITA (excluding IFRS 16)
Adjusted EBITA (excluding IFRS 16)
a1 £232.7m £204.2m
a1 £232.7m £204.2m
(£8.9m)
(£8.9m)
(£17.5m)
(£17.5m)
a2 £223.8m £186.7m
a2 £223.8m £186.7m
Adjusted EBITA
Adjusted EBITA
£232.7m £204.2m Line item above
£232.7m £204.2m Line item above
Deduct: business exit – trading sold
Deduct: business exit – trading sold
(£22.9m)
(£22.9m)
£2.5m Trading (profit)/loss for businesses sold
£2.5m Trading (profit)/loss for businesses sold
Add back: adjusted depreciation and impairment of
Add back: adjusted depreciation and impairment of
property, plant & equipment and right of use assets
property, plant & equipment and right of use assets
£117.1m £140.9m See notes 2.10.1, 3.2, 3.5
£117.1m £140.9m See notes 2.10.1, 3.2, 3.5
Covenant calculation – adjusted EBITDA
Covenant calculation – adjusted EBITDA
b1 £326.9m £347.6m
b1 £326.9m £347.6m
Less: IFRS 16 impact
Less: IFRS 16 impact
(£77.1m) (£105.7m)
(£77.1m) (£105.7m)
Covenant calculation – adjusted EBITDA (excluding IFRS
Covenant calculation – adjusted EBITDA (excluding IFRS
b2 £249.8m £241.9m
b2 £249.8m £241.9m
16)
16)
Cash flow hedges recycled to the income statement
Cash flow hedges recycled to the income statement
£0.6m
£0.6m
(£4.5m) Line information in note 4.3
(£4.5m) Line information in note 4.3
(£45.0m)
(£45.0m)
(£46.6m) Line information in note 4.3
(£46.6m) Line information in note 4.3
£1.5m
£1.5m
£3.2m Line information in note 4.3
£3.2m Line information in note 4.3
Adjusted interest charge
Adjusted interest charge
Interest cost attributable to pensions
Interest cost attributable to pensions
Borrowing costs
Borrowing costs
Less: IFRS 16 impact
Less: IFRS 16 impact
Borrowing costs (excluding IFRS 16)
Borrowing costs (excluding IFRS 16)
c1
c1
(£42.9m)
(£42.9m)
(£47.9m)
(£47.9m)
£19.5m
£19.5m
£23.9m
£23.9m
c2
c2
(£23.4m)
(£23.4m)
(£24.0m)
(£24.0m)
5.1 Interest cover (US PP covenant)
5.1 Interest cover (US PP covenant)
a1/c2
a1/c2
9.9x
9.9x
8.5x Adjusted EBITA/Borrowing costs with adjusted
8.5x Adjusted EBITA/Borrowing costs with adjusted
5.2 Interest cover (other financing agreements)
5.2 Interest cover (other financing agreements)
a2/c2
a2/c2
9.6x
9.6x
7.8x Adjusted EBITA/Borrowing costs with both
7.8x Adjusted EBITA/Borrowing costs with both
EBITDA including the impact of IFRS 16 and
EBITDA including the impact of IFRS 16 and
the borrowing costs excluding the impact of
the borrowing costs excluding the impact of
IFRS 16. Minimum permitted value of 4.0
IFRS 16. Minimum permitted value of 4.0
variables excluding IFRS 16. Minimum
variables excluding IFRS 16. Minimum
permitted value of 4.0
permitted value of 4.0
Lease liabilities included within disposal group liabilities held
Lease liabilities included within disposal group liabilities held
£—m
£—m
(£4.6m) Line information in note 4.4.1
(£4.6m) Line information in note 4.4.1
£879.8m £1,077.1m Line information in note 2.10.3
£879.8m £1,077.1m Line information in note 2.10.3
Cash, net of overdrafts, included in disposal group assets
Cash, net of overdrafts, included in disposal group assets
£15.8m
£15.8m
£12.9m Line information in note 4.5.4
£12.9m Line information in note 4.5.4
Less: IFRS 16 impact
Less: IFRS 16 impact
(£448.4m) (£503.5m)
(£448.4m) (£503.5m)
Covenant calculation - adjusted net debt (excluding IFRS
Covenant calculation - adjusted net debt (excluding IFRS
d1 £502.0m £616.4m
d1 £502.0m £616.4m
£54.8m
£54.8m
£34.5m Cash that may not be applied against net debt
£34.5m Cash that may not be applied against net debt
for covenant calculation purposes
for covenant calculation purposes
Net debt
Net debt
for sale
for sale
16)
16)
and liabilities held for sale
and liabilities held for sale
Restricted cash2
Restricted cash2
6.1 Adjusted net debt to post IFRS 16 adjusted EBITDA
6.1 Adjusted net debt to post IFRS 16 adjusted EBITDA
d1/b1
d1/b1
1.5x
1.5x
1.8x Adjusted net debt/adjusted EBITDA with
1.8x Adjusted net debt/adjusted EBITDA with
ratio (US PP covenant)
ratio (US PP covenant)
6.2 Adjusted net debt to adjusted EBITDA ratio [KPI]
6.2 Adjusted net debt to adjusted EBITDA ratio [KPI]
d1/b2
d1/b2
2.0x
2.0x
2.5x Adjusted net debt/adjusted EBITDA with both
2.5x Adjusted net debt/adjusted EBITDA with both
(other financing agreements)
(other financing agreements)
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
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.
the Group’s performance is assessed.
2. Restricted cash includes cash required to be held under FCA regulations, cash held in foreign bank accounts.
2. Restricted cash includes cash required to be held under FCA regulations, cash held in foreign bank accounts.
adjusted net debt excluding the impact of IFRS
adjusted net debt excluding the impact of IFRS
16 and adjusted EBITDA including the impact
16 and adjusted EBITDA including the impact
of IFRS 16. Maximum permitted value of 3.0
of IFRS 16. Maximum permitted value of 3.0
variables excluding IFRS 16. Maximum
variables excluding IFRS 16. Maximum
permitted value of 3.5
permitted value of 3.5
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Capita plc Annual Report 2021
Capita plc
65 Gresham Street
London EC2V 7NQ
www.capita.com
Capita plc Annual Report 2021